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Teaching Ethical Billing Almost uniquely, the legal profession is governed by ethical rules and considerations that often place the client’s interests ahead of the attorney’s when it comes to charging for services. Legal fees are governed by a standard, as described in Rule 1.5(a) of the Rules of Professional Conduct, that depends not on whether the fees are not unconscionable but, rather, whether they are “reasonable.” That is as it should be; few professionals receive and require the level of trust and confidence that lawyers do. Frequently, individuals come to a lawyer in extremis, as victims or in legal difficulty, far from a state in which normal market pressures can regulate the cost of their legal representation. Despite recent discussion of some problems — see Greer, “Billing: Our Profession’s Not So Hidden Shame,” New Jersey Lawyer Magazine, October 2002, at 62; Curtis & Resnik, “Teaching Billing: Metrics of Value in Law Firms and Law Schools,” 54 Stan. L. Rev. 1409 (2002); D. Rhode, In the Interests of Justice: Reforming the Legal Profession (2000) — the profession’s sensitivity to these limits is less than optimum. Most law school courses are doctrinal and therefore contain little reference to the ethics and realities of billing or other practical aspects of the “business” of law. Continuing legal education courses, even those focusing on ethics, also give short shrift to the measure of a reasonable fee. Indeed, the focus of practical courses, where they do touch on fees, is whether a fee agreement must be in writing and how to collect a fee. The Skills and Methods course devotes no time to this important subject. Worse yet, the West volume on Skills and Methods includes a form agreement, at section 735, that contains inappropriate provisions; it contains no reference to the mandatory Statement of Client’s Rights for family law matters. Fault cannot be laid solely at the door of legal education. With the institution of fee arbitration under R.1:20A, our courts have become less involved in setting standards. Without case law or other firm guidance, even the well meaning may not be able to determine whether particular billing practices are or are not appropriate. Blame is not the relevant issue, however. We must seek a cure. As a first step, ICLE and its speakers must make a conscientious effort to include normative discussions of billing in the relevant courses, including ethics and law office management, but most importantly in courses devoted to those areas of the practice where billing is particularly a problem, such as matrimonial and family matters. Proper billing practices also should be discussed in the mandatory Skills and Methods course. Participation by Fee Arbitration Committee secretaries and Office of Attorney Ethics counsel, willing to provide guidelines, should be mandatory. Indeed, lack of guidance from them has exacerbated the current state of affairs. Fee Arbitration Committees should be given clear direction as to what is appropriate, and a system should be considered to disseminate their experiences. For example, they should notify the Office of Attorney Ethics whenever a possibly improper retainer agreement or billing practice is revealed in an arbitration. These notices should not be for the purpose of ethics prosecutions, but rather, for a continuing review by the Office of Attorney Ethics as to what practices exist. Most important, the Supreme Court, through its appropriate committees, must step into the picture. Just as we now have Guidelines on Professional Conduct, there should be greater certainty about what may be inappropriate regarding fees. The mandatory Statement of Client’s Rights in matrimonial actions is a good platform, but it does not now contain the specifics that attorneys and clients need. Managing N.J. Pension Funds Stock markets have experienced a steady depreciation of values over the past three years, costing New Jersey pension funds about $20 billion. Fund values have dropped from $85 billion to $65 billion. Most states have experienced similar losses. Note, however, that these losses are being measured from the high point of a market strongly affected by inflated stock. Questions have been raised about New Jersey’s pension plan management structure and investment policies. Gov. James McGreevey has hired an outside consultant to make recommendations. New Jersey has always managed its pension funds internally, through the State Investment Council. Cost: less than $10 million annually. Pennsylvania has always used outside money management firms — over 200 of them at an annual cost of over $250 million. ( The Philadelphia Inquirer, 11/24/02.) It is worth noting that outside managers lost as much as internal managers. While cost alone makes the use of outside managers at least questionable, there is an added concern: political influence. Pennsylvania largesse has the effect of providing money to favored management firms with the obvious expectation that they will provide campaign contributions in response. Investments by such managers may be affected by political concerns. In Philadelphia, for example, which has its own pension funds, investments have been made in management firms run by political donors. Sen. Peter Inverso, R-Mercer, alarmed at the possibility of politicizing the management of pension funds, has introduced legislation ( S-1927) that prevents the use of outside managers. His bill, introduced and referred to the Senate State Government Committee on Sept. 30, 2002, provides that only the State Investment Council is responsible for the investment of pension assets; it prohibits the vesting of that responsibility “in the State Treasurer or . . . any other person.” In his public remarks, Inverso characterized the divisive appointment (by a 6 to 4 vote) of Orin Kramer, a Democratic fundraiser, to be the Chairman of the State Investment Council, as “the first step towards pension privatization and [it] hints of politicalization.” He said that McGreevey was considering outside managers as well as questionable investments in venture capital and junk bonds. He also noted that Pennsylvania’s outside fund managers “ranked among Pennsylvania’s top campaign contributors.” New Jersey’s pension funds lost money because a large part of their assets were invested in stocks, raising questions as to the advisability of such investments for public pension funds. The stocks were purchased when market prospects were viewed with great optimism. No doubt the purchases were well-intentioned and were made by a council that had not been politicized. It expected that revenues would increase, permitting smaller state contributions to the pension funds. Nevertheless, the losses occurred because investors were gambling with public money. Despite this history, it must be acknowledged that New Jersey’s investment in the stock market is far from unique. Stephen Nesbitt, a pension plan adviser, surveyed over 90 state pension plans and reported that, on average, two-thirds of their assets were invested in stocks. The State Investment Council faces a dilemma with respect to the disposition of its stocks. If they are sold at present depressed values, the $20 billion loss will be confirmed as a loss forever, dashing any hope that the market will recover and restore the loss. On the other hand, if they are not sold, values may be further eroded. The consultant, expected to file its report early this year, should provide advice as to that dilemma, while providing advice to the governor concerning management and investment issues. We believe, for the reasons we have expressed, that the state should not shift to outside managers. We express no opinion as to whether pension funds should be invested in the stock market, except to note that the investment in stocks is at the heart of the $20 billion loss, a sobering experience that may invite more conservative future investments.

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