|Oregon State Bar Bulletin FEBRUARY 2010|
Flat is the new up. In today’s economy, notes Don Burns, managing partner at Portland’s Miller Nash, a flat bottom line means a law firm is doing all right… or, at least not too badly considering the dismal circumstances.
If nothing else, the recession has provided Oregon’s legal professionals with some new perspective. Many are reshaping their practice areas and exploring new ways to bill clients and carry out basic administrative procedures more efficiently. Others are exploring the use of independent contractors and flexible work arrangements to accommodate both employer and employee needs. And nearly all are searching for ways to strengthen the profession even as it faces a “lost generation” of recent law school graduates who cannot find jobs.
From new solo practitioners to large, well-established firms, everyone has felt the effects of the economic downturn in one form or another. While many have been negative, there have been a few positive outcomes as well. Several Oregon legal professionals discussed the economy’s impacts on the profession during a Dec. 11 summit hosted by the Oregon State Bar. Some of those participants recently shared with the OSB Bulletin the common trends they see emerging from the recession’s ripple effect.
Exploring New Territory in the Quest for Balance
Practices dealing with real estate, land use and other property-related areas have been hit hardest by the recession while bankruptcy, labor and employment law, and estate planning practices have fared better. Small and mid-sized firms have held their ground, as have large firms with a diverse array of practice areas. Many of the impacts were expected based on past economic downturns, but this recession has dealt some surprises as well.
“Our experience has been that litigation picks up during tough economic times. It was slow to happen this time, but it has picked up more recently,” says Miller Nash’s Burns.
In response to the recession, Miller Nash’s members met with clients to discuss how best to accommodate their needs within restricted finances. The firm also explored how to reduce expenses without cutting staff or compromising its investments for the future.
“The objective wasn’t just to eliminate things, but to get value for the things we were spending money on,” Burns says.
“There were a number of things we did that we wouldn’t have done historically because we didn’t know what the revenue stream was going to be,” he adds. This included “zero-balance budgeting,” in which the firm’s budget was crafted from scratch rather than being based on the previous year’s income.
Bend’s Karnopp Petersen firm, which specializes in business and employment law, civil litigation, creditors’ rights, real estate, land use and estate planning, implemented a four-day work week in order to tighten its budgetary belt.
The resignation of several of its lawyers helped maintain the bottom line as well. “It was fortunate in that they didn’t take work with them, and it helped take up some of the slack,” says senior partner Dennis Karnopp.
In examining its administrative expenses, Portland’s Schwabe, Williamson & Wyatt decided to invest in a web-based system that provides access to thousands of CLE programs around the country.
“The hope is that we will displace a lot of costs that we otherwise would bear if we sent lawyers out of town for CLEs,” says shareholder Roy Lambert, adding the firm constantly searches for ways to make peripheral improvements.
“Any business has to evolve because things are always changing. Otherwise it’s not going to be responsive to the market and it’s not going to succeed,” Lambert says.
The need for adaptability is a lesson Anastasia Yu Meisner and her law partner and husband, George Guyer, learned early on. They opened their Lake Oswego practice, Guyer Meisner, in 2000 and honed their survival strategy in the wake of the economic downturn caused by 9/11 and the dot.com bust.
“As a small firm, one problem in our equation can have a big ripple,” says Meisner. “We learned how to operate leaner from an administrative standpoint, and we were more proactive about collections, getting rid of deadwood and other decisions that really impact the bottom line.”
Meisner, who does primarily estate planning and some business transactions, says she and Guyer saw the trouble ahead in 2007 and were conservative in their administrative operations in 2008. In 2009, they hired more staff to meet increased client demand and to help fill in while Meisner was on maternity leave.
The firm’s employee roster is a bit unorthodox within the legal profession. It includes three attorneys on payroll, a trio of contract attorneys and support staff. Some employees work part time because, as parents or semi-retirees, it better suits their schedules. It’s a win-win situation because it also helps reduce overhead costs.
“We weren’t this hybrid in the beginning. We had one attorney and one receptionist,” she says. “But we’ve grown and we like this arrangement. There are some challenges from an administrative standpoint, like who is sitting where and who is working on what, but overall it’s engaging, it’s fun and it meets everyone’s needs.”
Jessica Cousineau, a partner at Cousineau Moss, and Lake Oswego solo practitioner Willard Chi both have streamlined their expenses because of the recession. At the same time, they each have seen certain areas of their practice grow because of it.
Cousineau, a Tigard estate planning and business lawyer, says existing business transactions were down but new business filings increased, perhaps because people who were laid off started their own businesses to earn income.
Chi, who specializes in general litigation with a focus on business and real estate disputes, says his work flow has been consistent thus far, but he is exploring other practice areas. “I have an interest in fair debt collection and consumer protection, so I’ve been taking CLEs and letting it be known that I take those kinds of cases.”
Another lesson Chi has learned from the recession is the value of networking and word-of-mouth referrals. “I think that having that network and contacts is important in any economy,” he says. “Referrals are my best source of business, and I think my money is better spent on taking someone out to lunch or attending networking events than on advertising.”
Oregon City solo practitioner Kelly Doyle says he has seen an increase in his landlord-tenant cases because the growing number of property owners facing foreclosure also means tenants are being evicted. However, many of his clients have difficulty paying their bills even with a discounted rate.
“Payments are always a little harder because no one has any money. I depend a lot on people who are on payrolls, and a lot of my clients are trying to reorganize their finances,” he says. “Clients are asking attorneys for their retainers back because they are looking for cash anywhere they can get it.”
Doyle wonders if, along with a multitude of other impacts, the recession may encourage attorneys to consider whether their services are worth $250 or $300 an hour. “Maybe there’s something we can do to get some legal services to people at a reasonable rate.”
Need for Legal Help Rising During
As other practices struggle, business is booming for Legal Aid Services of Oregon (LASO). More Oregonians are homeless and have applied for food stamps, Oregon Health Plan coverage and other public benefits. Many, particularly the “newly poor,” need legal assistance to navigate the public benefits system because there are many rules to abide by, says Tom Matsuda, LASO’s executive director.
“One of the most worrisome things we’ve seen is that the incidence of domestic violence is higher, and the severity of the violence is up,” he says, referring to last year’s rash of murder-suicides. “Those weren’t necessarily low-income people, but I think it was indicative because domestic violence crosses all economic and social levels.”
In order to meet the growing need across the state, the 2009 legislature did provide a boost in funding for Oregon’s four legal aid organizations. LASO used its portion of the funding to hire additional attorneys in its Bend and Hillsboro offices, which is where it saw the highest percentage of people in poverty increase last year.
“Recent law graduates are really having a hard time finding work. I know that’s true on our end because we are having much higher numbers of people applying for positions than ever before,” Matsuda says.
And, Matsuda adds, he doesn’t expect the economic outlook to grow brighter anytime soon. “I don’t think most of us, except the most senior citizens who lived through the Depression, have ever been through anything like this.”
A Growing Glut of Law School Grads
According to a recent LexisNexis “State of the Legal Industry Survey,” 21 percent of students regret their decision to go to law school because they are likely to incur an average of at least $90,000 in debt and their chance of finding a job upon graduation is slim. Despite that, each of Oregon’s three law schools has seen enrollment increase as a direct result of the economic downturn.
“The classes of 2009 and 2010 are definitely going to face the most challenging job markets that I’ve seen. From what I’ve read, these may be the most difficult times we’ve ever faced in legal history,” says Libby Davis, associate dean for career services and alumni relations for Lewis & Clark College’s Northwestern School of Law.
Davis says large firms, which typically offer summer clerk programs that allow law students to get their foot in the door with a future employer, have had to cut back on their summer programs and hold off on offering jobs because they don’t know what their hiring needs will be down the road. Small firms, government agencies, public interest groups and nonprofit organizations provide some employment opportunities, but the competition for those is thick.
“What we’re seeing is a definite impact on new grads. They have to do things like take on contract work, start out at lower positions, or do nonlegal work. And, in general, they have a longer job search (timewise) than they would have during different economic times,” Davis says.
In order to help better prepare its law school grads for jobhunting during a recession, Lewis & Clark has enhanced its programming by increasing its networking events, adding sessions in which attorneys serve as speakers and creating a pool for graduates who want to do contract work.
The school also hosted a six-week fellows program for 2009 graduates that met four nights a week for two hours and focused on professional development, networking and marketing. Established attorneys led the sessions, which were intended to impart useful, practical information on how to succeed in a challenging job market, Davis says.
“We weren’t able to replicate what they would be learning while working at a law practice, but we tried to do that as much as possible so that when they do get hired they are able to hit the ground running,” she says.
Many recent grads have opted to start their own practices after being unable to find jobs at established firms. In order to better prepare them for the realities of running a business, Willamette University’s law school has implemented a course on how to run a solo practice.
Bonnie Williams, assistant director of career services for the University of Oregon’s law school, says she has seen a surprisingly small dip in the number of students who expect to be employed upon graduation. That being said, however, students are very concerned about the job market and the law school is hosting more open houses as a response. In addition, it offers programs such as “Hot Jobs in a Cool Economy” that inform students about practice areas that are experiencing growth.
“We also are helping students explore possibilities outside of the law,” Williams says. “I think we’ve been really responsive in helping students look broadly at opportunities that are out there. We’ve always tried to do that anyway, but especially now.”
With little economic recovery expected in the immediate future, Oregon’s law students will continue to face a tight job market throughout 2010, she predicts. And, with the upper third of graduating students having difficulty finding jobs, the remaining two-thirds are subject to a pancake effect.
“I think a lot of students will be taking unpaid legal work because that is what is available and it’s a way to at least gain experience,” Williams says.
Too Many Lawyers for Too Few Jobs?
Norma Freitas, assistant director of career services at Willamette’s law school, says her top priority is to make sure students have a realistic view of what to expect upon graduation.
“When I talk to students during our open houses, my focus is to give them the information and let them decide whether or not they want to go to school,” she says. “I don’t think there are too many lawyers. There may not be enough work at the moment, but I don’t think there are too many lawyers. There’s lots of legal work out there. It’s a matter of pricing and affordability for clients.”
Others assert that the market would benefit from a more even geographic distribution of lawyers, with fewer centered in Portland and more in Oregon’s rural areas. Among the benefits of serving in a rural community is the forgiveness of law school debt as part of the Loan Repayment Assistance Program (LRAP).
“A lot of young lawyers don’t want to be in isolated small towns, so they tend to stay in the (Willamette) valley or in the Portland area,” Freitas says. “We try to encourage our students to look at smaller towns and rural areas as a way to get their foot in the door or get experience. But it’s hard for them to stay there after four or five years.”
UO’s Williams says law students are exploring their relocation options, with many looking outside of Oregon.
“I think one thing we’re seeing with students is more of a willingness to leave Oregon if need be. So, people who had considered staying in-state are now willing to look for work a little more broadly geographically,” she says.
Cousineau says she expects unemployment to plague the legal field for at least the next couple of years.
“I was at the last swearing-in and there was a phenomenal amount of people there, many of whom either didn’t have jobs or had offers that were either conditional or deferred,” she says. “I think you’re going to see a lot of people who are disillusioned because they expected to have jobs with big firms but that didn’t pan out.”
Meisner notes that not everyone with a law degree has to become an attorney, though she acknowledges that it’s difficult to find other suitable jobs.
“I wonder if we will have a lost generation of attorneys because of the recession. This class of attorneys will have a difficult time finding jobs and will turn to other forms of employment,” she says. “I never believed in the trickle-down theory of economics during the 1980s, but I do believe when bad things happen there is a ripple effect. We’re going to feel that ripple effect for awhile.”
David Ernst, a shareholder with Portland’s Bullivant Houser Bailey and a member of Lewis & Clark’s board of trustees, says expectation management is key for a generation of emerging lawyers who can be easily misled by ads, blogs and other Internet claims about the glamour and prosperity of becoming an attorney.
“Having had cases in a number of other states, I know that there are many advantages to being a member of the Oregon bar. But if you come to practice here thinking you are going to make salaries like you hear about in large firms in large cities, then you will be disappointed,” he says.
Contract Work Beckons More New Lawyers
Contract work is attracting a growing number of Oregon attorneys, particularly for recent grads just entering the field. Willamette’s Freitas coordinates the contract program for Oregon Women Lawyers and says it’s becoming an increasingly viable means of riding out the recession.
“I talk to a lot of people who do contract work as a way to network into a permanent position at a firm or as a way to supplement a growing solo practice,” she says. “There are very few people who do only contract work, though. Many folks do a mélange of stuff.”
Through his connection with the bar’s New Lawyers Division, Chi often hears from fledgling lawyers interested in providing contract services as they establish their own practices. “I know there’s a definite sense of urgency among newer attorneys because of the economy, and they are looking more seriously at going out on their own than a few years ago,” he says.
Karnopp says his Bend firm has worked with contract lawyers during occasional transition periods.
“In the outlying areas like Bend, there aren’t a lot of lawyers rattling around who are available for that kind of thing. We’ve worked with contract lawyers when we weren’t quite ready to take someone on,” he says. “We recently hired one of them because we think the economy has recovered to the extent that we can return to a more normal type of situation.”
Alternative Billing Arrangements Soon to Become the Norm?
Burns says the legal profession’s perennial discussion of alternative billing arrangements in place of hourly fees may actually be implemented more readily because of the recession.
“We always have that conversation with clients and have been willing to explore alternative billing. The hourly rate increases risk for clients, and I think there are more alternative arrangements going on,” he says. “People are slow to change so it’s not a surprise that quite a few clients are still on the hourly system, but I think overall they are more willing to consider other options.”
“I think clients are now more interested in exploring alternative fee arrangements where there wasn’t necessarily that interest a few years ago,” Ernst notes. “We see that as a positive for our firm because we have some experience in that area.”
Bullivant Houser Bailey already does some contingent fee work and also works with some clients on a flat fee in place of hourly billing. “None of this is new, but what appears to be new is more interest by clients, particularly institutional clients, in alternative billing arrangements,” he says.
Lambert has done cap-fee arrangements, which is an hourly fee that is capped at a certain amount. However, the hourly fee still prevails as the most popular option.
“We’re aware of the fact that many of our larger clients are entertaining the idea of alternative billing arrangements and we have, on occasion, suggested other arrangements,” he says. “While they like the idea in general as a concept, overall they prefer to stick with traditional billing methods.”
Meisner’s Lake Oswego practice implemented a combination flat-fee, hourly rate method of billing as well as a sliding scale for nonprofit clients. She says it’s generally easier for a small firm to incorporate alternative billing arrangements because there are fewer decisionmakers involved. However, alternative billing can be a challenge because it’s sometimes difficult to gauge how much work is coming in.
Cousineau also has offered a capped hourly rate, payment plans and other alternative billing arrangements for years. “I think people will be less likely to agree to a straight hourly billing rate and will want more certainty about what their amount will be,” she says.
Karnopp believes changes in the billing system are long overdue and the recession may force the inevitable. His Bend firm has experimented with billing by the project, which seems to be accepted by clients.
“To the extent we’ve done that it’s worked out pretty well and gives the clients a sense of certainty about what they are paying. Sometimes they pay a little more or sometimes they pay a little less, but they seem to like that sense of certainty,” he says.
Silver Linings Amid the Gloom
Bullivant’s Ernst notes that while the recession has created its share of challenges for Oregon attorneys, not all of the impacts have been negative. And, though the difficulties may continue over the next year or so, he sees brighter times in the near future.
“I am very optimistic about where things are going and how we are growing our business,” he says.
Miller Nash’s Burns says that he has been particularly impressed by how Northwest law firms have handled the recession.
“I don’t think we had the cutting of lawyers and the not bringing people on that you saw in lots of other places,” he says. “Part of it was that nobody lost whole practice areas like big firms in larger cities where all of the sudden work dried up. But I think Northwest law firms can take some pride in saying they kept their commitments to people and kept their people together. There’s a lot to be said for that.”
LASO’s Matsuda says his brightest glimmer of hope was the news that the Campaign for Equal Justice’s annual fund drive has done well despite the down economy. Sandy Hansberger, CEJ’s executive director, says the organization experienced a decrease in overall giving last year and was bracing itself for about a 15 percent decrease this year from previous years. That decrease did not materialize, and the campaign is now projecting a slight increase overall from last year’s levels.
“In this economy, that is kind of a miracle. It says a lot about the commitment of Oregon lawyers to access to justice. It also says a lot about the skill and dedication of the lawyers who volunteer to operate the annual fundraiser,” Matsuda says. “It really is astonishing, and I think the Oregon bar is way ahead of other states in really making that kind of commitment to access to justice.”
ABOUT THE AUTHOR
Melody Finnemore is a Portland-area freelance writer and a frequent contributor to the Bulletin.
© 2010 Melody Finnemore