© 2015 The Texas Lawbook.
By Mark Curriden
(June 3) – Move over Texas Super Lawyers. There’s a new way to identify the elite lawyers in the state. It’s the $1,000 club and it is expanding rapidly.
Hundreds of Texas corporations received notices earlier this year from the lawyers who represent them that their hourly rates were going up. Junior partners at many large law firms now charge $650 an hour. Associates only three years out of law school bill $400 an hour.
Dozens of senior lawyers who handle the most complex, bet-the-company legal matters now openly charge their business clients in excess of $1,000 an hour – a rate that was unheard of only a few years ago.
Two lawyers – Steve Susman in Houston and Bill Brewer in Dallas – post their hourly fare at $1,400 an hour.
“Putting a lawyer at $1,000 an hour or more is a way for a law firm to state that the lawyer is the best at what they do,” said Tom Melsheimer, managing principle at Fish & Richardson in Dallas, whose hourly rate is $1,105.
“Companies doing a $50 billion merger or involved in a $1 billion lawsuit are not going to quibble over whether the lawyer’s rate is $950 an hour or $1,100,” Melsheimer said. “We get a lot of push back from clients regarding litigation, but I’ve rarely had any push back on my rate.
“I can give the client a faster, more thoughtful answer in a much shorter amount of time than two or three more junior partners,” he said.
Just three years ago, the number of lawyers who had four-digit hourly rates could be counted on two hands – even as corporate attorneys in New York, Chicago, Los Angeles and Washington, D.C. blew past the $1,000 an hour mark years earlier.
Multiple law firm finance studies show that Texas corporate law firms charged clients about 15 percent less than their East Coast brethren. But that is changing.
“The high-end rate gap has closed significantly,” said Jeff Grossman, senior advisor for the legal specialty group at Wells Fargo Private Bank. “The Texas market has become less regionalized.”
Today, there are at least 70 lawyers based in Dallas and Houston charging their business clients $1,000 or more per hour, according to research and interviews conducted by The Texas Lawbook.
There are more than 200 other Texas business lawyers who tout an hourly rate between $900 and $995.
The Texas Lawbook obtained the lawyer fees data through the examination of bankruptcy records, litigation fee applications and interviews with law firm leaders and corporate in-house counsel.
“If my mother knew that I charge $950 an hour, she would never talk to me,” said Tim Powers, managing partner at Haynes and Boone in Dallas.
Haynes and Boone, which has the reputation of being one of the more transparent law firms in Texas, has 25 lawyers who bill between $850 and $975 an hour. While none of the firm’s Texas-based lawyers charge $1,000, it does have attorneys in its New York office charging four-figures.
Legal industry analysts and corporate general counsel say that rates were flat or stagnant from 2008 through 2012, but that law firms steadily raised their fees between two percent and five percent during each of the past three years.
As a result of the increased rates, Texas law firms reported record revenues and profits in 2014.
The biggest rate increases came from lawyers in the Texas offices of large out-of-state law firms and large Texas corporate law practices that represent less price-sensitive clients, including private equity firms and oil and gas upstream and midstream companies, according to legal industry consultants.
A handful of elite out of state law firms – Gibson Dunn, Sidley Austin, and Weil Gotshal in Dallas, and King & Spalding, Kirkland & Ellis, Latham & Watkins, Simpson Thacher & Bartlett and Skadden Arps in Houston – employ the large majority of lawyers in the state who charge $1,000 or more per hour. Many of those lawyers were with Texas-based law firms only three or four years ago charging $200 or so less per hour than they do now.
“National law firms moving into Texas allowed the market to recognize and accept the higher national rates,” said Bret Baccus, senior director at the consulting firm Huron Legal in Houston.
Other lawyers say the infusion of national law firms is actually the cause of the rate increases.
“Law firms moved into Texas, buying lawyers with $4 million profits per partner… with those salaries come New York rates,” said Thompson & Knight Managing Partner Emily Parker, who is widely considered one of the best tax lawyers in the southwest and charges business clients $995 an hour for her services.
Two Houston-based law firms, Baker Botts and Vinson & Elkins, have by far the most $1,000-an-hour lawyers of the Texas law firms, according to court records and interviews. Both firms have more than twenty lawyers charging four figures.
“Clients are sensitive to rates, but I think clients are more interested in the total bill,” said V&E Chairman Mark Kelly, who is one of the firm’s capital market partners charging four figures. “Clients are more concerned about surprises.”
“The number one reason that a business engages outside counsel is not money, but subject matter expertise,” Baccus said. “Expertise ranked 2.9 of 3.0.”
The client’s relationship with outside counsel is the second reason behind most decisions to hire a specific lawyer, while cost only came in third, he said.
“Hourly rates don’t mean a lot to the corporate general counsel, who cares much more about getting a good value for the bottom line, total bill,” said Jeff Chapman, a corporate lawyer at Gibson Dunn in Dallas who sports an hourly rate of $1,065.
As a case in point, Powers recalls a Middle Eastern client who had a significant regulatory issue in Washington, D.C. Haynes and Boone contacted famed lawyer Robert Strauss, who was able to resolve the client’s problem in one 10-minute phone call.
Strauss billed the client $50,000, which the client paid without hesitation, Powers said.
“That’s value billing,” he said.
“It’s about the opportunity lost,” Lanier said. “This is time that I am not spending doing something else. It is about a stewardship of my time.”
Chapman and others say there would be even more lawyers in the $1,000 club, but many older partners with rates in the upper $900s are resisting the jump into four digits.
“$1,000 an hour is a lot of money – there should be some resistance,” said Mike McKool, founding partner of McKool Smith, who charges $1,050 an hour.
“These escalating legal costs ought to make lawyers go way beyond what is ethically required in service to their clients,” he said.
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