The $16 billion merger of SBC Communications Inc. and AT&T Corp. represented a high-water mark in the legal cattle call known as document production. Some 600 contract attorneys converged in Washington, D.C., to work on the SBC side of the deal, where the telecom giant’s antitrust counsel, Crowell & Moring and Arnold & Porter, ran a massive antitrust regulatory review. A few hundred more in Chicago labored for Sidley Austin at AT&T’s behest.
Luring the contract attorneys-also called temporary attorneys-was the promise of several months’ document review work at $32 an hour plus overtime, potentially worth $50,000 over the four-month review. But the near-chaotic conditions the temps found was more than some bargained for. Jammed along narrow tables in a leased space at Fifteenth and M streets, the 600 temps in Washington coded documents for anything related to telecom competition for later review by Crowell’s full-time attorneys. They fought exhaustion to punch in as many hours as possible. Many showed up at 7 a.m. (breakfast buffet) and soldiered on till midnight (lunch and dinner provided). One temp from out of town lived in her car, taking showers at her gym. One slow day, a senior Crowell partner was given a tour. “The floor managers told us, ‘Look busy,’ ” recalls a temp who worked on the case. “ So we all stared at our screens, tap-tapping the keyboards randomly.”
Despite the circuslike atmosphere, Crowell lead antitrust partner Jeane Thomas says the matter went smoothly and that temporary lawyers were well supervised. The work was among the most complex ever reported on an antitrust regulatory review, so “I’m not surprised to hear that someone said it was hard to keep up with the work,” she says. In the end, the amount of paper processed by the lawyers was staggering. “You all have reviewed nearly 3 million pages today,” an antitrust partner announced one evening. Temps ultimately combed through more than 100 million electronic pages.
Crowell’s use of an army of temps for document review is hardly unique. In an age when law firms spend huge amounts of money on marketing efforts to build their brands, they also increasingly rely on off-label, generic lawyers, most of whose resumes would never get a second glance for an associate-track job. Law firms do it because they have t Clients are pressing counsel to trim costs, and labor-intensive document reviews are a natural target. Firms, for their part, increasingly find they can’t handle the work alone anyway-even if they wanted to-as each new class action or securities fraud investigation brings on a landslide of electronic documents. As a bonus, firms can bill out at higher attorney rates the kind of work that a decade ago might have been assigned to paralegals.
This year, for the first time, The American Lawyer surveyed the nation’s largest 200 firms on how they use temps, how they pay for staffing services, and how they bill out temp work. What we found was hardly surprising: Most firms didn’t want to talk about it. Just 42 firms responded, many only on condition that their firm not be named in relation to specific fee and rate information. Of the 57 percent that reported using temps, more than three-quarters said they relied on them for more matters in 2005 than in the previous year. Our findings echo those of our sister publication, The National Law Journal. The NLJ 250 survey of the nation’s 250 largest firms found the number of temps reported doubled between 2002 and 2003, then increased 48 percent from 2003 to 2004, and by 13 percent between 2004 and 2005. (In 2002, two-thirds of firms surveyed answered the question; in 2003, 2004, and 2005, at least three-quarters of firms answered it.)
Temp hiring may cost clients less, but it has meant big money for the staffing industry, which has found recruits in each year’s crop of unemployed, indebted law grads. It has also meant a potential new revenue stream for law firms. Firms like Howrey, with its heavy focus on big-ticket, document-intensive antitrust and litigation work, have learned to turn document review into a new profit center. “The fact is, the work is very lucrative,” says consultant Peter Zeughauser, founder of Newport Beach, California-based Zeughauser Group. Even with the relatively modest profit margins on temp labor, he says, “that’s what leverage is made of.”
Still, many firms balk at hiring temps, wary of a workforce with no firm loyalty or track record. They are also concerned about being perceived as running a legal sweatshop, with page count in place of shirtwaists. Some, like Skadden, Arps, Slate, Meagher & Flom and Sullivan & Cromwell, have created a new category of full-time attorneys outside the associate track to handle document review in place of temps. Still others, like Howrey; Paul, Weiss, Rifkind, Wharton & Garrison; and LeBoeuf, Lamb, Greene & MacRae, use staff attorneys-often former temps themselves-to provide closer supervision of the temp labor pool.
The discomfort that some partners and associates express about temporary attorneys is mirrored by the scorn that many temps express for their employers. Shoehorned into awkward work spaces and virtually unacknowledged as professionals, many complain in chat rooms and blogs about being treated even worse than junior associates-and with no prospect for advancement. “In a perfect world, you’d want your associates to do the work,” says LeBoeuf chairman Steven Davis. “But even the biggest firms don’t have the resources anymore. The question becomes, how do we do it with care and credibility?”
Temporary attorneys first began to be hired in numbers approaching battalion level several years ago, to deal with new judicial and regulatory expectations. In 1990, most corporate documents were retained as paper; by 2000, 80-90 percent of documents were maintained electronically, but judges remained lenient about electronic data production until 2001-02. Document discovery surged after 2001, as regulators ordered companies, banks, and accounting firms to retain all electronic communications. Regulators and prosecutors demanded complete e-mail records in high-profile cases, such as the Enron Corp./Arthur Andersen LLP litigation, and judges began sanctioning companies for failing to retain or produce the records.
Meanwhile, a spike in M&A transactions engendered vastly more antitrust document review. The number of such transactions nearly doubled between 1995 and 2000, triggering the U.S. Department of Justice to issue more formal antitrust review requests, known as second requests. In the 1990s, “you might end up in a huge matter producing thousands of boxes and millions of pages,” recalls Thomas Fina, a Howrey antitrust partner. Nowadays, with electronic data recovery, “you’d have to produce tens or hundreds of millions of pages of documents” on a large matter, Fina says.
Temp hiring has increased fastest in New York and Washington, D.C., because of the concentration of document-intensive white-collar criminal defense, securities litigation, and regulatory matters there. That hiring has been a factor in the double-digit growth in the legal staffing industry, which grew from an estimated $800 million in 2000 to an estimated $1.5 billion in 2006, according to Los Altos, California-based Staffing Industry Analysts Inc., a private industry tracking group. While that number also includes revenue from placing full-time lawyers, paralegals, and legal secretaries, legal staffing agency executives say the fastest-growing part of their business has been in temporary lawyer hires.
Just how much of the money goes to law firms? It varies. The American Bar Association’s committee on ethics and professional responsibility concluded in a formal 2000 opinion that firms could bill out temporary attorneys at triple the rate they pay the agency. In our survey, though, only a handful of firms using temps reported triple-billing; a third reported a 0-25 percent markup over the rate the firm pays its agencies, and another third reported a 26-100 percent markup.
Still, the dollars can add up. At an average markup of 100 percent, 100 temporary lawyers hired for four months (the average length of time for an antitrust regulatory review) could generate roughly a $5 million profit for the firm. “Any law firm that doesn’t make money off of document review is making a mistake,” says Phillips Geraghty, a cofounder and managing director of New York-based legal staffing agency De Novo Legal, LLC.
That the vast majority of firms declined to disclose their temp hiring and billing practices is no surprise, says Zeughauser. “There is an unfounded concern about tarnishing the brand,” he says. “The bigger issue is the amount of money that is being made and the uneven billing practices.” Firms are concerned that, if clients knew their profit margins, “they’d insist that the work be passed through at cost.”
The staffing industry, for its part, follows the law firm business model writ small: For every lawyer hired out, the agency collects roughly 70-80 percent more than what it pays the temp. (Document reviewers get $21-$35 an hour for entry-level work in New York and Washington, D.C., according to agencies and temporary attorneys.) The same four-month document review employing 100 temps may spin off $2-3 million to the agencies.
The relatively easy money has sparked a gold rush of sorts among legal recruiters, which have doubled in number in many major cities in the past five years. Workhorse temps are guarded like trade secrets, says one recruiter; the business of winning over firm clients “is very competitive,” says Jodi Feinman, vice president of Legal Placements, Inc., a D.C.-based independent legal recruiter. But with the pie growing fast, nine staffing agencies interviewed for this story-five in D.C. and four in New York-all reported double-digit revenue increases each of the last few years, and all expected similar growth this year [see " Short-Term Staffing, Big-Time Profits"].
Despite potential financial gains, not every firm is getting on board. Just over half of NLJ 250 firms reported hiring temporary attorneys in 2005. Many of those firms use temps only sparingly. “There’s a tremendous unease with the concept of hiring temporary attorneys,” says LeBoeuf, Lamb’s Davis, whose firm hired between a dozen and two dozen such attorneys for each of a handful of litigation matters last year. “You have to use them, but you don’t want to.”
Ask any litigator where that unease comes from, and he or she will point to the case of the Brown & Williamson Tobacco Corporation “smoking gun” documents. In the early 1990s, Merrill Williams, a paralegal at Louisville-based Wyatt, Tarrant & Combs, allegedly copied and gradually carried off about 4,000 pages of internal company documents, sneaking them out under his shirt-and providing key ammunition to prosecutors and plaintiffs attorneys when he leaked them in 1994. (Williams was sued-unsuccessfully-by the tobacco industry, seeking return of the documents.)
The discomfort level rises a few notches when firms are forced to use space provided by the agencies. “If you’re in the staffing agency’s office using their copy machines, that doesn’t sit well with me,” says LeBoeuf, Lamb executive director Stephen DiCarmine. “What if [another firm's] lawyer comes in the next day and finds one of your client’s documents sitting there?” (None of the six law firms interviewed for this story reported any security breaches.)
The desire to keep the work on-site has resulted in some grim environments for temps. Working conditions at one New York firm are “crowded, dark, and [with] only a small bathroom,” wrote one temp in an anonymous online posting in July. Other firms, like Sullivan & Cromwell and Cadwalader, Wickersham & Taft, generally receive more positive reviews for providing good pay, a decent working environment, and an ambience of respect. “It’s very hit-or-miss,” says a New York temp attorney, speaking of how firms treat temps. “The law firm can really do whatever they want. That’s really the problem, because the temps have no choice but to take whatever [job] comes along.”
Temp work is a professional catch-22: “We are told not to put ‘contract attorney’ on our resumes, otherwise you are looked down on,” said one D.C.-area temp who has been looking for a full-time job for years. And most firms don’t permit temps to make calls, surf the Web, or e-mail on the job, an obstacle to finding permanent employment.
Meanwhile, the money is good enough to make it hard to leave. Temps can make twice the $40,000-$50,000 offered to entry-level associates in New York and Washington at small firms or insurance defense firms. And they don’t have to pass the bar to do it-though most firms we heard from required temporary attorneys to be licensed in some state.
The pay is unpredictable, however. In dozens of interviews, e-mails, and publicly posted blogs, temp lawyers complain that firms and agencies routinely make empty promises about a project’s duration. Temps gripe that they can be dropped from the work rolls with no advance warning. That’s what happened at Crowell during the SBC matter after a sudden drop in work eight weeks into what was supposed to be a four-month assignment. As the lawyers exited the lunchroom, they had to file past an agency manager with a checklist. “If she took your badge, that meant you were out,” a Crowell temp recalls. “All she said [was], ‘Thank you for your services.’ “
But if temp attorneys jump ship for other, better-paying or longer-term jobs, they risk being blacklisted. “There are agencies and firms that have a database for attendance, for loyalty,” confirms one legal staffing recruitment executive. “People can burn bridges with agencies and law firms. A lot of [contract attorneys] don’t realize that.”
Looking for alternatives to temps, some firms have created yet another layer of non-partnership-track lawyers, variously known as staff attorneys, document coordinators, and litigation analysts. In fact, in our survey, half the firms using temps also employed staff attorneys, many of them former temps themselves.
Staff attorneys can prove highly profitable in the leverage game. LeBoeuf, Lamb’s five staff attorneys are graduates of law schools that range from first to third tier, and they are paid slightly more than half the salary of first-year associates-$75,000-$85,000 per year. They can bill out at almost two-thirds the rate of first-years, at $180-$185 an hour, yielding several hundred thousand dollars in profit apiece.
Skadden’s 108 staff attorneys-among the largest number at an Am Law 100 firm-handle most of the document review formerly handled by associates and temporary attorneys. Most work out of a satellite space a block and a half south of the firm’s Times Square headquarters in New York City. “We wanted to be able to assure the quality of the work we were doing and be accountable for it,” says Skadden litigation partner Joseph Sacca, who runs the two-year-old program. Staff attorneys average close to 2,000 hours a year, slightly less than most Skadden associates, although the firm does not set billable hour targets, Sacca says. (The firm declined to give staff attorney rates, but if they mirror LeBoeuf’s, total revenue attributable to staff attorneys could generate up to $39 million, or 2.4 percent of the firm’s total revenue last year.)
Sullivan’s program, also two years old, has grown to about 50 litigation analysts doing document review. Though the analysts have J.D.s, they are neither marketed nor billed as lawyers. “Economically, it’s much cheaper for the clients, and from the standpoint of quality, it’s better than using temps,” says David Braff, managing partner of Sullivan’s litigation group. “And it does give me some degree of comfort.” The firm does hire temporary attorneys, which it labels “J.D. paralegals,” in large litigation document reviews to supplement its litigation analysts and full-time paralegal staff.
Howrey has also taken a combined approach. With roughly 40 staff attorneys charged with managing, training, and supervising temporary lawyers, it continues to rely on temps for the bulk of its document review. After a harrowing experience in 2001, however, the firm decided to make some big changes, instituting stringent new systems for screening, supervision, and improving productivity. In doing so, Howrey has created a new benchmark for temp management.
In 2001 the firm had ten weeks to help Reuters Group PLC clear a Justice Department antitrust review of its acquisition of rival Bridge Information Systems, Inc. As the review material rolled in, staffing the operation became a nightmare. “The chairman of the board ended up producing more than 80 boxes of e-mails, with 2,500 pages per box,” recalls partner John Briggs III, who then headed the antitrust practice. “And everybody under him had an exponentially larger number.” In the end, 3,000 boxes and 20 million additional digitized pages had to be collected and reviewed.
The firm initially brought in 200 temporary attorneys; then, scraping the labor market bottom, it had to hire 150 more and rent a former storage facility in suburban Maryland to house them. The first week, the place had to be evacuated and the carpet ripped up because of a flea infestation; later a pipe burst, causing more delays. Temp turnover was a huge problem. “We never knew who was coming and who was going,” recalls Denise Marshall, director of capital litigation support services.
“It had become such a massive and uncontrollable situation,” says Howrey managing partner and CEO Robert Ruyak, “and frankly, a costly one.” The daily food tab alone was $5,000, and because the sites were not convenient to the commuter rail, the firm had to pay for many temps’ cab fare, costing another few thousand dollars more per diem.
Something had to be done. When the lease on the Maryland facility expired, Howrey rented a few vacant floors in a suburban Virginia mid-rise office building and reimagined the review process from scratch. “We basically turned [document reviews] into an assembly line,” says Howrey’s Fina [see " The Howrey Way" ]. The new center, with its open architecture and floor-to-ceiling windows, has been heavily utilized from the moment it opened in November 2004.
“We can have 500 attorneys working at once, with 12 cases going on at once,” says antitrust partner Charles “Tim” Engel III. “But you can downsize quickly. We have the [temporary attorneys'] names in the database, and we know who’s good. And we have staff attorneys who are very good at supervising these folks.” At Howrey, staff attorneys monitor the work of temps and make the more difficult calls about responsiveness or attorney-client privilege. They winnow out the most significant, “hot” documents for associates and partners to review.
The firm has gone further than most to avoid a sweatshop reputation. It is the only firm in the D.C. area that requires its five “preferred” agencies to pay temps the same high hourly rate (currently $35) across the board, and the only firm with space for so many temps, according to local recruiters. About 6 percent of Howrey’s temps drop out or are asked to leave, a relatively low turnover rate, recruiters say. Approximately 35-40 percent are carryovers from previous Howrey projects, a relatively high retention rate.
Howrey has also convinced clients to pay substantial markups. For temp hires, it pays agencies roughly $50-$65 an hour for basic document review, billing the same hour to clients at around $125, partners and agency executives confirm-slightly more for antitrust deal-related work, a bit less on class actions and other litigation. In its first year, the litigation support center turned $9 million in profit, representing $12 million in revenue, less $3 million in carrying costs, Ruyak says.
The firm’s document review fees “seemed very reasonable for the work that was done,” says W. David Romoser, vice president and general counsel for heater and electric motor manufacturer A.O. Smith Corporation, which has looked to the firm for help getting regulatory approval on two acquisitions. He says his company saves money because Howrey cranks out reviews in much less time than it takes other firms. Romoser even paid to have Howrey’s lawyers oversee document production for a company being acquired when the target company’s lawyers appeared unable to keep to the regulatory timetable.
The firm’s reputation for document review projects has helped in two unexpected ways. First, it has helped Howrey win more premium, deal-side antitrust work, which frequently features massive document reviews and tight deadlines, Briggs says. Second, its expertise in managing document reviews on a deadline has led at least one other firm, Wachtell, Lipton, Rosen & Katz, to contract out to Howrey antitrust reviews associated with that firm’s M&A practice. Last year, Howrey’s antitrust practice earned $108 million, up from $93 million the year before-10-15 percent over projections, Ruyak says. The antitrust practice represented more than a quarter of total 2005 revenues, according to Briggs. Institutionalizing temps and staff attorneys into the firm hierarchy has also helped in recruitment. “Associates understand that, if [they] come to Howrey, the grunge work typically offered to junior associates is going to go to several layers of folks devoted to that work,” Engel says. “That’s a major selling point.”
Is Howrey’s model the wave of the future? Investing in a freestanding facility may be workable only for a few firms with heavy document review requirements. “Unless you have the volume of matters day in, day out, it is hard to capture efficiencies,” Engel says. “It comes down to pages per hour you’re able to process.”
Yet in the end it’s just good business sense to institute best practices when it comes to the temporary attorneys that increasingly underpin a firm’s litigation success. Making document review more professional and spending a little more to better accommodate their temporary lawyers can help firms justify a reasonable profit margin on temp labor. They might even wind up with a new, marketable capability, like Howrey’s. And that’s no bad thing for any firm’s brand.
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