While there are other stories about the acceptance of the billable hour as a de facto standard for legal billing, this is one of the more entertaining I have seen. This is the story of how the US Supreme Court enforced basic business laws against lawyers, contrary to the lawyers’ argument that they were something better than plain old tradespeople.
Unfortunately, the story’s got some basic errors. For example, one hero of this story, Lew Goldfarb, was and probably still is a lawyer — he worked at an Alexandria, Virginia law firm and, the last and only time I ever spoke with him, he was in-house counsel at Chrysler, as I recall. This story makes it seem like he and his wife were just some random, idealistic Virginia home buyers trying to save a few bucks. Actually, from what I’ve seen, this was just another orchestrated struggle against hypocritical, ensconced local and state legal authorities, including bar organizations.
The Supreme Court’s decision in Goldfarb v. Virginia Bar enforced Sherman Act Section 1 antitrust laws against lawyers and bar organizations who had been illegally setting, and enforcing through ethics rules, fixed prices for common legal services, like divorces, real estate title searches, routine criminal defense, and so on. To do otherwise was to risk ethics sanctions, but even more ungentlemanly, to stoop to mere commerce. Lawyers were thought (by lawyers) to be professionals immune from the laws of business or trade because they were special, even though their downfall in this instance was triggered by a calculated attempt to jack up fees to make some dough, er, remuneration. Very few civilians were probably that impressed or easily fooled — although those were the days of Atticus Finch and Perry Mason, two of the most highly regarded lawyers of all time, though sadly each fictional.
The roots of hourly billing actually go way back to the concept of quantum meruit payment for services based on some measure of their quantity (not actual value or results), in the absence of a contract specifying some other measure. In quantum meruit, value of services can be set based on the time expended using common rates — and “common” rates is a backdoor for price fixing, too. For over a century, the factors for finding a reasonable fee have included reasonable, customary (price fixing at work) rates times hours necessarily expended. And nothing in the Goldbarb case bans flat fees, percentage fees, or whatever — they just cannot be set by joint action or agreement — quote whatever you want on your own. Continue reading