SETTING UP A SMALL LAW FIRM IN THE UNITED STATES
George T. Drost October, 2004
Presenter’s Personal Background
As an attorney who worked for the United States Department of Treasury and then a midsized closely held Corporation started private practice 18 years ago. What compels a person to go out alone and start a law firm? The reasons are many and varied and hopefully we’ll touch on some of the more compelling reasons.
Overview: Money. Respect and Communication
The two most sensitive and troublesome areas of the law practice involve money and communication with clients. First, money matters must be transparent and well documented. Second, lawyers must stay in regular communication with their clients, providing written updates on the work and receiving prior written permission before making any substantial change in their position. Technology as will be discussed later can not only help in communications but can make an attorney more productive. It is important for young attorneys to understand that their professional reputation is key. One who can keep confidences of both their clients and other lawyers, and one who will avoid representing a client or business entity where there may be a conflict of interest will be respected. The attorney’s reputation clothes their clients with the attorney’s mantle of respect. In other words, esteem for an attorney is reflected on the client; judges and other lawyers take note.
Personnel is a key to the success of a small firm or any size firm for that matter. The support staff, which may include paralegals, legal assistants, and law clerks, are the first line of public relations between the attorney and the public. Frequently they keep the clients satisfied and help the lawyer focus on the more pressing needs of the practice. A professional support staff should be well honored for the good work that they do.
Besides the intellectual side of the practice, lawyers need a supportive family, regular exercise and a strong spiritual core. Lawyers are frequently asked to advocate unpopular positions for their clients and need to be able to draw on a reserve of inner strength to allow them to stand up in front of hostile groups to do and say the right thing. At the same time, attorneys should not take themselves too seriously and forget their personal life. They need to have some fun as well.
A business executive I know says: “The harder you work, the luckier you get.” It is important to work hard. It is also worthy of lawyers to give something back to their profession and to the community without any expectation of monetary compensation.
Getting Experience and Network
Having prior legal experience with a law firm before opening up your own practice may be very beneficial. Daily interaction with other lawyers and the strong support of a boss, even one who might be a “slave driver,” is really helpful in making the leap from law school into the practice of law. The experienced attorneys will help focus on the important issues in a case and avoid being caught up in the client’s emotion. There is a rhythm to the practice of law and working in the legal community. A lawyer quickly finds out that the legal community, although consisting of thousands of attorneys, is quite small and that people know each other. An attorney’s reputation gets around quickly. Working in a law firm or a public agency, like the Supreme Court or other courts, also helps the young attorney establish a “network” of fellow lawyers. Knowing the good lawyers and who among them is willing to share their expertise is useful in resolving clients’ problems. There are too many areas of practice for one lawyer to know everything. Usually, lawyers become expert in one small area of law and rely on others for either assistance or referrals. Networking among your peers is also an excellent source of new clients.
Starting the Practice
There is a clever book entitled How to Start and Build a Law Practice written by Attorney Jay Foonberg and published by the American Bar Association. It is the veritable bible on starting a law practice from scratch without missing a paycheck. It advocates a 6-9 month planning period before opening your door. It may be wise for the new lawyer, starting a practice of his /her own, also to obtain some sort of part-time employment, such as teaching law. This regular income helps to get over the usual peaks and valleys of cash flow. It also provides an opportunity to make contacts for referrals and guidance. Foonberg’s common sense advice includes eating your noon meal out of the office with both lawyers and non-lawyers and reading a daily newspaper. A constant channel of new information is important.
A law practice may be set up as a sole proprietorship or as a professional service corporation. This decision may best be made with the help of an accountant and the lawyer’s own personal sensitivities. Each lawyer should obtain professional liability (attorney malpractice) and major medical insurance coverages. Office space may be shared with other lawyers, which usually means that it is cheaper and also provides constant contact with other lawyers and the “outside world.” In purchasing office furniture and computers, more emphasis should be made on the mechanicals such as the computer, printer and attachments. Those tools will help you produce a quality work product, which is your best advertisement as a lawyer. The other law office furniture may be obtained at used furniture outlets at a discount. Clients do not like to feel like they are being billed high rates so that the lawyers can work in a palace. Sometimes a more subdued office may look better to the client. Obviously, it depends on the type of clientele the attorney wishes to attract.
A Law Firm is a Business: Treat it that Wav (Transparent Money Matters)
Handling client money and funds requires constant, careful attention. In Illinois an attorney needs at least three bank accounts: operating, tax reserves and client funds. It is recommended that every time a lawyer takes a draw from his/her operating account for their own use, a certain percentage should be reserved to pay taxes which include withholding as well as income taxes. Finally, money that belongs to a client, such as proceeds from a real estate sale, settlements from resolving personal injury or other types of litigated cases should be held separately. Lawyers should photocopy all checks received. In fact, many attorneys photocopy all incoming and outgoing checks for their own protection and for taxes. When a disbursement of a settlement check takes place, the client should have a photocopy of all the checks that are written from those funds so that the client knows where all the money goes.
Attorneys should maintain accurate accounting records throughout the year. Failure to do this will mean that the attorneys spend a huge amount of time in preparing their annual income tax return. Since lawyers are widely perceived with a negative connotation and since the federal taxing bodies pay particular attention to lawyers’ tax returns, it is strongly recommended that lawyers employ the services of a certified public accountant to prepare their tax returns.
Operating Systems and Client Communication
A dual docketing calendar system is useful This means that both the lawyer and his secretary/office should have a calendar. Lawyers must keep track oftheir clients’ deadline dates, such as statutes of limitation in filing certain types of lawsuits, court appearances, briefs and office conferences.
Chronological filing systems for office correspondence and pleadings should be maintained. At a glance, the correspondence section of a file should tell the lawyer the status of a case. At the same time, lawyers should continuously update client lists and check for “conflicts of interest.” “If you think there is a possible conflict of interest, there probably is.”
Message systems are also important. Keep records of all phone calls and return them promptly. Clients want to feel like you are giving them your full attention. A happy client is much more likely to pay the bill quickly. Date all incoming mail and respond as soon as possible. “If you want to receive mail, you must send maiL” Regular communication with clients is a must and is also billable. A letter summarizing a telephone call, a recent court appearance or a piece of legal research, documents the event. It also makes the client feel like they are being informed and is a legitimate benchmark for billing the client.
Billing Fees
Cases in the United States are billed in three different manners: flat fee, contingent fee and hourly. (a) Most short-term legal work, like the preparation of Wills, appearance at traffic court and other minor criminal matters, is billed on a flat fee basis. (b) Personal injury cases are done on a contingency. This means that the attorney receives no money until the client’s case is resolved, and then receives a percentage of the amount recovered plus recoupment of any outside expenses and fees. The contingency arrangement was set up so that clients who normally could not afford a lawyer can obtain legal representation. Needless to say, the lawyer needs regular billing cases to offset the fact that a contingent fee case may take years to complete. However, ( c) hourly billing is probably the most frequently used.
Billable Hours and Time Records
After the first meeting with a client, the lawyer should send the client a letter stating the fee arrangement, the amount of any retainer received and the rate at which the attorney will bill. Although it is difficult to request, a client should pay a realistic retainer which telegraphs to the client that the case is serious and gives the client an economic stake in the work that is being done. Many lawyers have standard “engagement letters” that they send out to their clients summarizing these facts.
Although one of the most tedious parts of a lawyer’s job, the attorney should record and bill for the time that is spent working on client matters. Law firms have certain standard minimum time increments and usually bill at either one-tenth or quarter hours. Attorneys bill by date, function and time. This is important, particularly in the event an attorney is either discharged by a client or withdraws from a case. The billing record documents the specificity of the work and time that was spent, so, if necessary, the attorney can make a claim based on “quantum meruit.”
Send clients itemized fee statements reflecting the billed time on a regular basis. It is best to present fee statements with some work product, particularly one that advances the client’s case. Lawyers are also asked to advance costs of litigation, which can be very dangerous because it takes a long time to get reimbursed. Advise clients in detail as to the amount of their costs. Similarly, inform clients when an associate is being brought in to work on their case. Avoid double billing and obtain the prior written permission of the client to engage the additional counsel. This protects both attorneys and the clients.
Getting the Gold
Collecting outstanding bills is troublesome. It is usually not wise to file a lawsuit to enforce or obtain client fees. That often will result in the client complaining to attorney regulatory authorities about the lawyer and criticizing the work that was done. It also sends the wrong message to the legal community and prospective clients. Nevertheless, there are times when there is no other choice. In some cases, local Bar Associations provide a forum and procedures for attorneys and their clients to resolve their unpaid fees on an informal, out-of-court basis. In any case, the examining body will ask for the attorney’s time sheets.
Frequently, people of substantial means and governmental agencies are slow payers. This emphasizes the need to get a reasonable retainer and bill regularly. Lawyers must realize the Courts may consider that the attorney has an obligation to complete cases, even when the money is not coming in, so choose your clients wisely. It is also important to know when to withdraw and reject work, and in either case it is usually helpful to send a confirming letter.
Conflicts of Interest
As stated above, “If you think there is a problem, there probably is.” Both the Czech Bar and the Bar Association of the State of Illinois have serious and strong guidelines for avoiding conflicts of interest. Much has been written on the subject, particularly because there are many marriages where both spouses are lawyers and lawyers in the last 20 years have moved from one law firm to another. This makes the possibility of a conflict even greater. Lawyers must avoid multiple representation in a single matter. This is particularly problematic in divorces and real estate matters where clients sometimes want the lawyer to represent both parties to minimize attorneys’ fees.
Working for family and friends is also problematic. Conflicts can also arise from financial, business, property or personal interest. Attorneys should avoid entering into business dealings with their clients. Otherwise, the attorney loses his/her objectivity. When conflicts arise, the attorney must advise the client or potential client in writing of the conflict and recommend that they seek independent counsel. An obvious case scenario involves a lawyer who is preparing an ante-nuptial agreement. Even though the lawyer may be a friend of both the potential bride and groom, in order , for the ante-nuptial agreement to be worth the paper it is written on, the other party needs to have separate counsel.
Doing the Work
Most importantly and above all, one needs to reserve time for doing the work and legal research. Lawyers should not be afraid to seek advice, No one person can know all that is necessary in the practice of law. Get to know experts in your fields of interest. Stay in touch with the changes in the law through periodicals, continuing legal education programs and contact with your fellow attorneys. Share work products with fellow attorneys, but do not forget to maintain client confidentiality, This can usually be accomplished by redacting or blocking out the parties’ names in documents,
Lawyers should find a place and time to get work done. This is the real hard part. It is much more fun to get new business and to socialize in the legal community than to sit in the office preparing that sales agreement, complaint or appellate brief and doing the endless paperwork.
Getting and Keeping Clients
Fancy advertising and marketing is expensive and may offend the public at large and other lawyers. The best advertisement is a job well done. A real compliment is when your opposing counsel sends you business. The quality and consistency of your communication to all is important.
Since most of an attorney’s business comes from referrals, a lawyer’s reputation is absolutely essential to new business and the successful outcome of the cases. Therefore, maintaining your good reputation is as important as doing the best job one can for their client.
Returning Attorneys’ Talent to the Community
Keep active in both professional and community activities. Also, watch out for and help train the new lawyers. This provides a sense of satisfaction by using your talents for the good of others without charge. An unintended consequence may be new business. The practice of law can be a very rewarding experience. It is intellectually stimulating and gives you a personal stake in advancing the cause of your clients and the community at large. It is a privilege to be able to step up before the Court to argue another’s case. We must protect and preserve that privilege by the conscientious practice of law.
By: Joseph F. Vosicky, Jr., NAR. 14.9.1949, C. 90 162 53 West Jackson Blvd., Suite 1025
Chicago, IL 60604
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