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| Gerald G. Knapton |
Sixty-seven percent of executives polled in a March 2015 Claims Litigation Management Advisors study anticipated no change in the use of AFAs over the next five years. Thus, the question remains: What is a reasonable hourly rate to apply for a lawyer’s time?
Two sources have recently come into use that are very helpful in determining what former U.S. District Judge Vaughn Walker called an “objective source for setting [a variety of] counsel’s hourly rates,” without using data assembled from anecdotal reports or surveys by the lawyers, client or parties. They are the Real Rate Report and Laffey Matrix. I have no financial interest in either and find them both to be very helpful in my own practice.
The Laffey Matrix is a free resource published each year by the U.S. Attorney’s Office for the District of Columbia. The tiered rates to apply from May 2014 to June 2015 can be found here and are as follows:
The various levels in the "Experience" column refer to the years following the attorney's graduation from law school and are intended to correspond to "junior associates" (i.e., one to three years after graduation), "senior associates" (i.e., four to seven years), "experienced federal court litigators" (i.e., eight to 10 years and 11 to 19 years) and "very experienced federal court litigators" (i.e., 20 years or more).
These rates are accepted in District of Columbia courts as one factor to consider when setting rates. Some courts in areas far away from the District of Columbia also use them, although some do not. It is agreed that there must be an adjustment to take the local cost of a lawyer’s time into account. Some judges use the federal wages for judges to determine the relative costs for, say, San Francisco.
A simple way to do this that is very precise (and free) is to use federal wage data to establish San Francisco’s average wage for lawyers compared to that for the District of Columbia.
The U.S. Bureau of Labor Statistics provides Occupational Employment Statistics in May of each year here. The report of interest is called “Metropolitan and nonmetropolitan area in either HTML or XLS versions.” The relevant section is “May 2013 Metropolitan and Nonmetropolitan Area Occupational Employment and Wage Estimates.”
This report has a section for every state. Each state has subreports for separate geographical areas. For California, there are 35 such areas. The one for our hypothetical is the San Francisco-San Mateo-Redwood City Metropolitan division.
There are 23 employment categories for most large geographical areas. In the "Legal Occupations" category, one finds median and mean hourly wage numbers for eight categories of legal worker, including lawyers. The mean hourly wage for them is $81.42 for May 2013, in San Francisco. The comparable data for the District of Columbia and the surrounding metropolitan division is $75.70. This is a 1.08 difference ($81.42/$75.70), so the District of Columbia rates must be adjusted up by 8 percent for San Francisco.
Here is the Laffey Matrix, as adjusted for current use in San Francisco:
A similarly adjusted Laffey Matrix can be determined for almost any area in the country. Courts have agreed that the Laffey Matrix is one factor to consider in setting rates. It is a one-size-fits-all set of rates, so consulting a more granular set of data is also worthwhile.
There is now a commercially prepared set of data of actual rates that have been paid, called the Real Rate Report, which is published by Wolters Kluwer NV, an information, software and related corporate legal services company. This report was first released in 2012, and has been updated and improved in subsequent years.
The data used for the 2014 Real Rate Report includes more than $16.2 billion in fees billed for legal services in the U.S. during the seven-year period from 2007 to 2013. The data comprise fees paid by 90 companies to more than 5,600 law firms and more than 206,000 timekeepers. This dataset covers approximately 141,000 partners and associates spread across more than 350 U.S. metropolitan areas.
The rate data is presented in a wide variety of ways: high-level data cuts, industry analysis and practice area analysis. Rates by timekeeper category are supplied for 59 cities. In-depth data for 10 large cities has been mapped to one of 12 practice areas, such as “Labor and Employment” and “Corporate,” for example.
Following the example used in our discussion of the Laffey Matrix rates, it will be useful to examine the Real Rate Report’s rates for legal work in San Francisco for general liability and also for labor litigation. Data for general liability in the report includes invoices paid for numerous practice areas, such as “Construction Defect” and “Mass Tort.”
The 2014 Real Rate Report lays out the data showing the actual effect of a San Francisco law firm’s size on partner and associate rates for general liability litigation. Here is the mean rate data for San Francisco:
Another frequent kind of litigation relates to employment. Data for labor and employment in the report includes invoices paid for numerous specific practice areas, such as “Compensation and Benefits” and “Employee Retirement Income Security Act.”
The 2014 Real Rate Report data for labor and employment in San Francisco is this:
Here is an approximate comparison of the current range of rates for San Francisco from the two systems:
If we were developing a system to determine fees starting with a clean slate, we would price our professional services according to quality, efficiency and results. Tasks and team would be agreed upon. Instead, we have an hourly system that discourages tight management and can lead to padded bills and include time for work that may not have been necessary.
Under this hourly system determining what rate to apply can be challenging. In my experience reviewing legal rates, these two sources for rates are objective and reliable ways to gather reasonable hourly rate data on a vast number of geographical and practice areas. Because the hourly rate system seems likely to be with us for some time, it is important to refine it by determining reasonable rates and then to move on to a project management style of defining and controlling tasks, staffing and time.
—By Gerald G. Knapton, Ropers Majeski Kohn & Bentley PC
Gerald Knapton is a partner in Ropers Majeski Kohn & Bentley's Los Angeles office. Knapton is chairman of the California State Bar’s Committee on Mandatory Fee Arbitration.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
