Transactional Work Down But Bankruptcy and Mortgage-related Work Increasing
  Every month we ask experts from across the region to help our readers by responding to what, we hope, are some thoughtful, real-world questions that can make a difference to business leaders in South Jersey.
  This month we’re taking on the changing legal landscape and we asked five of South Jersey’s top lawyers to help us get a handle on some key issues—such as where fees are headed.
Our panel of experts included:
  • John C. Gillespie,
    Shareholder and Co-Chair, Administrative, State and Local Government Department
    Parker McCay
  • Julie A. Lavan
    Law Office of Julie A. Lavan, LLC
  • Frank V. Tedesco 
    Managing Partner, Cherry Hill Office
    Dilworth Paxson
  • Dan Posternock
    Partner
    Barron and Posternock, LLP
  • Neal Walters
    Partner-in-Charge of the Product Liability and Mass Tort Group/Voorhees Office
    Ballard Spahr
  Obviously, our panel included some “big firm” lawyers, some from regional powerhouses, and representatives of some of the South Jersey’s smaller firms, as well.
  Parker McCay provides comprehensive legal services to individuals, businesses and government entities. “As one of the largest law firms in South Jersey,” says Gillespie, “we offer an extraordinary team of attorneys in a wide range of practice areas, giving clients access to legal counsel in a myriad of areas affecting their organization.”
  At the LaVan Law Firm, “our clients realize the strategic advantages that make us unique—practicing corporate counsel experience balanced with trial law expertise,” says LaVan. “This ’’dual’’ involvement provides a level of expertise that many other boutique firms are precluded from offering,” she adds.
  “Unlike most law firms, we provides a maximum cap expense to your legal needs. Therefore, you will know the maximum cost for your matter at the onset of the engagement. This is an important consideration for operating on a specific budget,” adds LaVan.
  Dilworth Paxson provides “expertise in litigation, complex commercial litigation, intellectual property, contracts, start-ups, buying or selling an entity, mergers and acquisitions and related transactions,” says Tedesco. The firm conducts a diverse law practice representing a variety of clients including Fortune 500 companies, closely-held businesses, governmental entities, non-profit foundations, and individuals. 
  “With offices in New Jersey, Pennsylvania, Delaware, and Washington, DC, Dilworth has the ability to respond quickly and effectively to our clients,” Tedesco adds.
  “At Barron & Posternock, we recognize the need to understand each client’s circumstances and strive to create a harmonious business arrangement which accommodates all concerned,” says Posternock. “Historically, most of our clients prefer hourly or flat fee agreements. However, many of our relationships are better suited for hybrid or full contingencies; so that’s what we do.”
  “In a word, Barron & Posternock’s philosophy regarding fee is ‘flexible.’ We are—and have always been willing to consider any reasonable fee agreement such a risk collars, fees caps, fixed fee menus, portfolio fixed fee, retainers, success fees and hold backs,” Posternock adds.
  “Ballard Spahr is a national firm with more than 475 lawyers in 12 office across the United States, has a longstanding commitment to South Jersey,” says Walters. “Our New Jersey office opened in 1999 when we acquired an 11-lawyer firm. The office has grown since then and is known for its exceptional litigation, real estate, and labor and employment practices.
“The firm’s product liability practice is based in New Jersey, and attorneys in this office also serve clients in the areas of bankruptcy, health care, and environmental law. Pro bono service is a hallmark of the firm, and our New Jersey attorneys devote thousands of hours every year to supporting worthy causes,” adds Walters.
Among other things, we asked our panel of attorneys to tell us what’s happening to the rates their firms are charging. We wanted to know if hourly rates are stabilizing…or maybe even coming down? And, if they are, whether this presents an opportunity for South Jersey's "value-priced" firms?
  Parker McCay’s Gillespie believes that “some firms have adjusted hourly rates in response to the economy and to be more competitive to clients whose need for services, combined with the economy, have forced them to take a harder look at legal fee budgets. 
  “Because our firm has always provided a more cost-effective alternative to larger law firms, the impact of the economy, in terms of hourly rates, has not been felt as much by us as perhaps by other firms.  However, the economy certainly has caused corporate clients to seek services on a cost-conscious basis, and we remain cognizant of this in our practice areas,” adds Gillespie. 
  Lavan has a different perspective, saying that “hourly rates certainly should be coming down and every law firm should be based on value regardless of the current economic situation.”
“Several law firms,” she contends, “unfortunately, carry burdensome overhead expenses that are relatively unconnected to the practice of law.  These expenses, of course, are carried over to the client and are not considered to be “value-added” or “value-priced.”
  “Additionally, law firms have a standard practice of billable hours that have nothing to do with success and strategy.  In summary, a law firm may spend several hours on a legal matter and still receive negative results.  As the general business population knows, this is not a typical business model.  Law firms should be more focused on positive results than billable hours and good business practice rather than hefty invoices,” argues LaVan. 
  Dilworth’s Tedesco believes that “it is clear that hourly rates have been stabilizing over the past few years.  The severe economic down turn has not only caused hourly rates to stabilize but clients, notably in-house corporate counsel, are requiring alternative fee arrangements.” 
  “These alternative fee arrangements range from a fixed fee for a given task to a contingent fee arrangement in many cases.  In between those two options, are numerous permutations of fee arrangements involving a combination of hourly rates, discounted by the amount of business generated by any individual client, to task billing where a fixed fee is set for each individual legal task that may be coupled with a ‘bonus arrangement’ based upon the success of the representation,” Tedesco explains. 
  “The pressure on legal fees is not only on the hourly rate but on the attorneys that are actually accomplishing the legal work.  Routinely in today’s market, clients will not pay hourly rates for work accomplished by the ‘summer’ law school associates.  More recently, clients have refused to permit hourly billing for first year associates.  These variables do provide opportunities for South Jersey’s ‘value-priced’ firms.  The client will always demand quality and if they can be assured that they will obtain quality legal services, the market will dictate the method and amount of the billing,” says Tedesco.
  “As noted in a recent ‘Daily Briefing’ of The New Jersey Law Journal, the economic downtown some have dubbed the Great Recession is forcing many law firms to adopt on the fly—by tinkering with internal structures and revising billing practices—in a bid to maintain profit margins,” says Barron & Posternock’s Posternock.
  “One of these changes, according to a recent report released by the legal consulting firm Altman Wiel, will likely stick long after the economy recovers, Posternock believes. “Altman surveyed 787 firms, finding that nearly all of the 218 firms that responded (which included 95% of the countries 250 largest firms) now offer their clients alternative fee arrangements,” he notes.
  Next, we turned the conversation to the fact that law firms have less transactional work in real estate because of the economy and we asked whether there are any other practice areas that have been heavily impacted?
  Dilworth’s Tedesco says that “There is no question that the real estate industry has been one of the hardest hit in this tough economic period.  However, what is even more important is the ripple effect of the shut down of the real estate industry.  Obviously, the real estate transactional work is minimal.  Accordingly, not only has banking work diminished but also general real estate and mortgage work.” 
  “The result is that general practice areas such as corporate work, in forming business entities for new businesses, lease negotiations for new space for businesses has slowed down considerably.  Similarly, and somewhat surprisingly, it is clear that litigation is also affected.  While initially there may have been an increase in litigation as a result of various commercial defaults, at this point, due to the poor state of the economy and what apparently is a very slow recovery, most clients are hesitant to engage in any litigation unless absolutely critical to their immediate business survival.
  “The result of the slow down in the real estate industry is that the supply chain (lumber, construction materials, etc.) have slowed down thereby requiring less contractual work.  In sum, the slow down of the real estate industry has had an impact on almost all of the general business work accomplished by law firms.”
  Ballard’s Walters says that firms are seeing a typical counter-cyclical surge in labor and employment, and bankruptcy. “Companies forced to downsize are more frequently asking our firm to defend them in employment litigation, including FLSA class actions. This is to be expected in times of high unemployment. Similarly, our bankruptcy lawyers have been focusing aggressively on initiatives associated with distressed real estate and franchises,” he says.
  Posternock adds that “according to the American Bankruptcy Institute, U.S. consumer bankruptcy filings increased 14% in the first six months of 2010, as compared to the same period last year.”
  He cites ABI Executive Director Samuel J. Gerdano’s analysis that ‘’years of rising consumer debt and low savings rates, combined with the housing and employment crises, are causing bankruptcy levels not seen since the 2005 amendments to the Bankruptcy Code.”
  “In fact, the ABI expects more than 1.6 million new bankruptcy filings nationwide by year end and “estimates for New Jersey are at 5,000 per month or 60,000 by year end,” says Posternock.
  Which prompted us to ask what other practice areas might be benefiting from the recession—in addition to bankruptcy and creditor's rights/collections.
  Posternock notes that “mortgage-related litigation hit a 3-year high during this year’s first quarter, according to a report in the New Jersey Law Journal last month. The first-quarter cases are believed to be the highest number of active lawsuits in any quarter since 2007.”
  “Between September 2007 and September 2008, there was a 54% increase in foreclosure lawsuits filed in New Jersey over the previous 12 month period, and it’s not getting better.”
  “At the end of last year The Wall Street Journal reported that 23% of the United States homeowners are ‘underwater,” that is they owe more on their mortgages than the properties are worth. In New Jersey, the number is 15%.”
  Posternock adds that in June, the Mortgage Bankers Association reported that more than 10% of homeowners had missed at least one mortgage payment in the first quarter of 2010. “That’s a record high, beating the record from the 4th quarter of 2009. MBA’s top economists report that around 4.3 million homeowners, or 8% of all Americans with a mortgage, are at the risk of losing their homes because they have either missed at least three months of payments or are in foreclosure,” Posternock points out.
  “This has spawned an increase in work for attorneys that represent lenders as well as law firms like ours which are willing to devote their time and money to protect consumers and challenge the mortgage industry in an effort to help people stay their homes,” he adds.
  So, we wanted to know, what else are the attorneys at South Jersey firms doing to address the impact of the recession on their practices?
  Parker McCay’s Gillespie says “we do all we can to ensure our clients are pleased with our services and their cost in securing those services.  We also reach out to the business and governmental communities to develop new relationships.” 
  “Although a recession as bad as the one these last two years inevitably trickles down to every industry, we have worked to minimize its impact by both finding and creating new opportunities and practice areas, such as our recently formed Renewable Energy Law Practice.  We sponsor and/or participate in seminars, community activities and other functions so people know who we are and what we do,” adds Gillespie.
  “My law firm is practicing basic business skills and business essentials,” says LaVan.  “Clients want more ’bang for their buck.’  And they should.  Law firms should be capitalizing costs for their clients and setting rates.” 
  “Most businesses have set rates per unit or rates based on services, however, most law firms have not followed basic essential business practices.  Yes, a legal matter may “depend” and this is the typical response from most law practices, however, can’t we become more accurate and calculating?” Lavan asks.
  “Lawyers are supposed to have experience in law, and shouldn’t they be required to have experience in business as well?  Just a thought,” she adds.
  We also wanted to know what firms are the acknowledged regional leaders—generally or in specific practice areas.
“Ballard's New Jersey office is the focal point of its national product liability practice, defending large class actions and cases involving serious industrial accidents,” Walters says. 
  “The firm's strong commercial litigation practice is complimented by top tier environmental, labor and employment, and bankruptcy lawyers, all of whom have substantial trial experience. We also have 12 offices nationwide giving us a wide range of abilities in a variety of regions around the country.”