ELON’S “GROUNDBREAKING NEW MODEL”

On October 9, the Elon University School of Law issued a press release announcing its “groundbreaking new model” of legal education. That’s an overstatement, but the plan has some distinctly positive elements. Unfortunately, it also continues to rely on the prevailing law school business model that has produced the profession’s current crisis.

Elon’s Brief History

Located in Greensboro, North Carolina, Elon was founded in 2006 and received ABA accreditation in 2008 — as the Great Recession began. In one sense, the timing was good because many undergraduates thought law school was a safe place to spend three years waiting for the economy to improve. At the time, that option looked especially attractive because the ABA didn’t require schools to disclose whether recent graduates were obtaining meaningful JD-required jobs. By 2010, Elon achieved a record-high first-year enrollment of 132 students. Tuition for 2009-2010 was $30,750/year.

As ABA-mandated disclosures began to reveal that almost half of all law graduates nationwide were not getting full-time long-term jobs requiring a JD, the overall number of applicants to all law schools plummeted — from 87,500 in 2010 to 59,400 in 2013. Some deans at less competitive schools lowered admissions standards and raised acceptance rates. Even in a collapsing market for new lawyers, the effort to fill classrooms was a rational response to financial incentives. Federally-backed non-dischargeable student loans for tuition generated revenues for law schools, but schools had no accountability for their graduates’ poor job prospects.

Lowering the Bar

According to U.S. News, Elon accepted 68.4 percent of applicants for fall 2013 and enrolled 107 first-year students — almost 20 percent fewer than in 2010. From 2010 to 2013, the median LSAT for its first-year class dropped from 155 to 150; the median GPA declined from 3.12 to 3.01. At the 25th percentile, from 2010 to 2013, Elon’s LSAT/GPA combination went from 153/2.80 to 146/2.75.

Even as first-year enrollment declined at Elon, tuition increased to almost $38,000/year. Average student debt for 2013 graduates exceeded $108,000. Meanwhile, Elon’s full-time long-term JD-required employment rate for 2013 graduates was 32.8 percent. The school was one of only 13 (out of 201) ABA-accredited schools that placed less than one-third of their graduates in such jobs.

Groundbreaking?

When the school’s new dean, Luke Bierman, joined Elon on June 1 of this year, the school was already more than two years into developing a strategic plan that now includes added experiential learning, residencies with practicing attorneys, faculty-supervised development, and a JD program of seven trimesters replacing three academic years.

Practical training, residencies, and student development efforts that give otherwise unemployed lawyers a few tools to help them scratch out a living with their JDs is a good thing. Everyone should applaud those initiatives. But especially with Duke, UNC, and Wake Forest nearby, such changes are not likely to create more JD-required jobs for Elon graduates.

Pushing students out the door more quickly is not particularly novel. Many schools, including the University of Dayton, Drexel, Pepperdine, Northwestern, Southwestern, and others, have two-year programs. But the really big reform — eliminating the third year altogether — isn’t happening because accreditation rules prevent it. Existing accelerated programs merely cram the requisite workload into a shorter time period.

Money-saving?

Elon claims that its new plan offers two economic benefits to students: they can enter the job market sooner and save money on tuition. Whether becoming eligible for JD-required employment is a benefit for Elon graduates in the current environment (or even a few years from now) isn’t clear. As for the tuition discount, it’s true that an Elon JD will now cost $100,000 for seven trimesters compared to the $114,000 for three years (at $38,000/year) — a nominal student savings of $14,000.

But Elon’s strategic plan probably includes a pro forma projection showing that its new pricing policy benefits the school at least as much. Take the total current cost of $114,000, divide it by nine trimesters (three years), and the result is a per-trimester cost of $12,666.67. If students were paying for seven trimesters at Elon’s current annual tuition rate, the total cost for the degree would be $88,666.67. They’ll now pay $100,000 (or $14,285.71 per trimester). Elon promises to freeze a student’s total cost for the program, but on a price-per-trimester basis the $100,000 fixed cost already includes a tuition increase.

The Real Problem

The short-term economic impact of Elon’s new program is less troubling than the school’s long-term business plan. Because the seven-trimester program will generate less gross revenue per student than its current three-year course of study, the school plans to recover those losses by adding — you guessed it — more students.

The Triad Business Journal reports: “From a business standpoint, Elon Law anticipates offsetting the loss of revenue from tuition reduction by gradually increasing the number of students joining the school each year, up from 112 this fall to about 130 within a number of years.”

Imagine the consequences if every law school that currently places fewer than one-third of its graduates in full-time long-term JD-required jobs were to increase enrollment by 20 to 30 percent “within a number of years.” For the profession, that would be like accelerating in reverse gear toward a brick wall.

The Quest for Meaningful Reform

Elon’s understandable approach to the economics of this situation is important for one more reason. After accepting the deanship in January 2014, Bierman became a member of the ABA’s Task Force on the Financing of Legal Education. If that task force develops a “groundbreaking” plan to supplement a glutted market with more new lawyers from schools where two-thirds of current graduates can’t find full-time long-term JD-required employment, perhaps the ground would be better left unbroken.

More about possible solutions in my address at the American Bankruptcy Institute Law Review Symposium at St. John’s University on October 24.

A MYTH THAT MOTIVATES MERGERS

In a recent interview with The American Lawyer, the chairman of Edwards Wildman, Alan Levin, explained the process that led his firm to combine with Locke Lord. It began with a commissioned study that separated potential merger partners into “tier 1” and “tier 2” firms. The goal was to get bigger.

“Size matters,” he said, “and to be successful today, you really have to be in that Am Law 50.”

When lawyers deal with clients and courts, they focus on evidence. Somehow, that tendency often disappears when they’re evaluating the strategic direction of their own institutions.

Bigger Is…?

There’s no empirical support for the proposition that economies of scale accompany the growth of a law firm. Back in 2003, Altman Weil concluded that 30 years of survey research proved it: “Larger firms almost always spend more per lawyer on staffing, occupancy, equipment, promotion, malpractice and other non-personnel insurance coverages, office supplies and other expenses than do smaller firms.” As firms get bigger, the Altman Weil report continued, maintaining the infrastructure to support continued growth becomes more expensive.

Since 2003, law firms have utilized even more costly ways to grow: multi-year compensation guarantees to overpaid lateral partners. Recently, Ed Newberry, chairman of Patton Boggs, told Forbes, “[L]ateral acquisitions, which many firms are aggressively pursuing now…is a very dangerous strategy because laterals are extremely expensive and have a very low success rate — by some studies lower than 50 percent across firms.”

The Magic of the Am Law 50?

Does success require a place in the Am Law 50? If size is the only measuring stick, then the tautology holds. Big = successful = big. But if something else counts, such as profitability or stability, then the answer is no.

The varied financial performance of firms within the Am Law 50 disproves the “bigger is always better” hypothesis. The profit margins of those firms range from a high of 62 percent (Gibson Dunn) to a low of 14 percent (Squire Sanders — which is in the process of merging with Patton Boggs).

Wachtell has the highest profit margin in the Am Law 100 (64 percent), and it’s not even in the Am Law 50. But that firm’s equity partners aren’t complaining about its 2013 average profits per partner: $4.7 million — good enough for first place on the PPP list. Among the 50 largest firms in gross revenues, 17 have profit margins placing them in the bottom half of the Am Law 100.

Buzzwords Without Meaning

A cottage industry of law firm management consultants has developed special language to reinforce a mindless “size matters” mentality. According to The Legal Intelligencer, Kent Zimmermann of the Zeughauser Group said recently that Morgan Lewis’s contemplated merger with Bingham McCutchen “may be part of a growing crop of law firms that feel they need to be ‘materially larger’ in order to increase brand awareness, [which is] viewed by many of these firms as what it takes to get on the short list for big matters.”

Not so fast. In the Am Law rankings, Morgan Lewis is already 12th in gross revenues and 24th in profit margin (44 percent). It doesn’t need to “increase brand awareness.” That concept might help sell toothpaste; it doesn’t describe the way corporate clients actually select their outside lawyers.

In a recent article, Casey Sullivan and David Ingram at Reuters suggest that Bingham’s twelve-year effort to increase “brand awareness” through an aggressive program of mergers contributed mightily to its current plight. The authors observe that In the early 1990s “[c]onsultants were warning leaders of mid-sized firms that their partnerships would have to merge or die, and [Bingham's chairman] proved to be a pioneer of the strategy.”

Consultants have given big firms plenty of other bad advice, but that’s a topic for another day. Suffice it to say that Bingham’s subsequent mergers got it into the Am Law 50. However, that didn’t protect the firm from double-digit declines in 2013 revenue and profits, or from a plethora of partner departures in 2014.

In his Legal Intelligencer interview, Kent Zimmermann of Zeughauser also said that he has “seen firms with new leadership in place look to undertake a transformative endeavor like this [Morgan Lewis-Bingham] merger would be.” If Zimmermann’s overall observation about firms with new leadership is true, such leaders should be asking themselves: transform to what? Acting on empty buzzwords risks a “transformative endeavor” to institutional instability.

Soundbites

In contrast to Alan Levin’s “size matters” sound bite, here’s another. A year ago, IBM’s general counsel, Robert Weber, told the Wall Street Journal“I’m pretty skeptical about the value these big mergers give to clients…I don’t know why it’s better to use a bigger firm.”

Weber should know because he spent 30 years at Jones Day before joining IBM. But is anyone listening? IBM’s long-time outside counsel Cravath, Swaine & Moore probably is. Based on size and gross revenues, Cravath doesn’t qualify for the Am Law 50, but its clients and partners don’t care.

Uncertain Outcomes

Does becoming a legal behemoth add client value? Does it increase institutional nimbleness in a changing environment? Does it enhance morale, collegiality, and long-run firm stability? Do profit margins improve or worsen? Why are many big firm corporate clients — H-P, eBay, Abbott Labs, ConocoPhilllips, Time Warner, DuPont, and Procter & Gamble, among a long list — moving in the opposite direction, namely, toward disaggregation that increases flexibility?

Wearing their “size alone matters” blinders, some firm leaders aren’t even asking those questions. If they don’t, fellow partners should. After all, their skin is in this game, too.

STUDENT LOANS, MORAL HAZARD, AND LAW SCHOOL LOANS – CONCLUSION

My most recent post in this series discussed manifestations of law school moral hazard at Thomas Jefferson School of Law and Quinnipiac Law School. Both institutions have spent millions of dollars on flashy new buildings where attentive students will have a tough time getting jobs requiring the expensive JDs they are pursuing.

The series now concludes with two more schools that illustrate another dimension of the dysfunctional law school market. Recent graduates of Golden Gate University School of Law and Florida Coastal School of Law live in the worst of two worlds: Their schools have unusually low full-time long-term JD-required employment rates and unusually high average law student debt.

Muddy Disclosure

The recent decline in the number of law school applicants has resulted in many schools struggling to fill their classrooms. When a school depends on the continuing flow of student loan-funded revenues, the pressure to bring in bodies can be formidable. One consequence is especially unseemly for a noble profession: dubious marketing tactics.

By now, most people are aware of ABA rule changes that require each school to disclose in some detail its recent graduates’ employment results, specifically, whether jobs are full-time, part-time, short-term, long-term, or JD-required. But those requirements don’t prevent Golden Gate University School of Law’s “Employment Statistics Snapshot” page from touting this aggregate statistic for its 2013 graduates “85.4 percent were employed in jobs that required bar passage…or where a JD provided an advantage.”

The school’s “ABA employment summary” link appears on the same page. But Golden Gate has supposedly made things easier for prospective students by showing its 2013 graduates’ employment results in a large pie chart. According to that chart, nine months after graduation, 38.2 percent of the school’s 2013 graduates had JD-required jobs.

Here’s what the chart doesn’t reveal: Even that unimpressive total (38.2 percent) includes part-time and short-term positions. Golden Gate’s full-time long-term JD-required employment rate for 2013 graduates was 23 percent.

Money to be Made

I’ve written previously about Florida Coastal, one of the InfiLaw system of private, for-profit law schools. Florida Coastal’s website includes all employment outcomes — legal, non-legal, full-time, part-time, long-term, short-term, and a large number of law school-funded jobs — to arrive at its “job placement rate” of 74.3 percent for its 2012 graduates. That number appears on the program overview pages of the school’s website. But you have to dig deeper — and move into the “Professional Development” section — to learn the more recent and relevant data: The overall employment rate dropped to 62 percent for the class of 2013.

However, those overall rates aren’t even the numbers that matter. Anyone persevering to the school’s ABA-mandated employment disclosure summary finds that the full-time long-term JD-required employment rate for Florida Coastal’s 2013 graduates was 31 percent.

The Cost of Market Dysfunction

At Golden Gate, tuition and fees have increased from $26,000 in 2006 to more than $43,000 today. During the same period, Florida Coastal increased its tuition and fees from $23,000 to more than $40,000. That’s why Florida Coastal and Golden Gate rank so high in average law school loan debt for 2013 graduates, with $150,360 and $144,269, respectively.

To its credit, Florida Coastal eliminates any doubt about the trajectory of law school debt for its future students. The median debt for its 2014 graduates rose to more than $175,000 — all of it consisting of federal student loans.

Searching for Solutions

My criticisms of current market failures should not be construed as an argument for eliminating the government-backed student loan program for law students. Were it not for federal educational loans, I could not have attended college, much less law school. The program was a good idea when Milton Friedman promoted it in the early 1950s, and it is still a good idea today.

But the core of this good idea has gone bad in its implementation. Shining a light on resulting market dysfunction should generate constructive approaches to a remedy. At the October 24 American Bankruptcy Institute Law Review Symposium at St. John’s University (and my related law review article appearing thereafter), I’ll outline my ideas.

Here’s a preview: Viewing the law school market in the aggregate — as a single market — obfuscates a reasoned analysis of the problem. It protects the weakest law schools from the consequences of their failures. They should pay an immediate price for exploiting the moral hazard resulting from the current system of financing legal education. At a minimum, the government should not be subsidizing their bad behavior.

The profession would be wise to lead itself out of this mess. The financial incentives of the current structure, along with its pervasive vested interests, make that a daunting task. Even so, human decisions created the problem. Better human decisions can fix them.

STUDENT LOANS, MORAL HAZARD, AND A LAW SCHOOL MESS: PART 2

Sometimes law school moral hazard assumes a concrete form — literally.

A School Making Unwanted News

For example, Thomas Jefferson School of Law is now coping with a widely publicized credit downgrade of its bonds to junk status and related concerns about its future. But those financial difficulties date back to late 2008. The deepening recession was decimating the employment market for lawyers generally and hitting Thomas Jefferson graduates especially hard.

That didn’t stop the school from breaking ground in October 2008 on a new building that opened in January 2011. California tax-exempt bonds financed the $90 million project. Government-backed student borrowing for ever-increasing tuition — currently almost $45,000 a year — would provide a revenue stream from which to pay bondholders.

In 2012, new ABA-required disclosures allowed the world to see the school’s dismal employment record for graduates seeking full-time, long-term jobs requiring a JD (63 out of 236, or 27 percent, for the class of 2011). As enrollment declined, so did revenue from student loans. Unfortunately, the building and the bonds issued to pay for it remain, as does the stunning debt that students incurred for their degrees.

Quinnipiac’s New Digs

Recently, Quinnipiac University School of Law celebrated the opening of a new $50 million building in North Haven, Connecticut. Its website boasts that the new facility “is 154,749 square feet and will include a 180-seat two-tiered courtroom with Judge’s Chambers and Jury Room.” The Law Center is one of three interconnected buildings on a graduate school campus that is “expansive and architecturally distinctive, with an array of shared amenities, a beautiful full-service dining commons, bookstore, ample parking, and convenient highway access.”

Quinnipiac’s students — including all 92 entrants to the fall 2014 one-L class — will have luxurious accommodations in which to contemplate their uncertain futures. According to the school’s ABA required disclosures, nine months after graduation only 51 of 148 students in the class of 2013 — 34 percent — had found full-time long-term employment requiring a JD. And a Quinnipiac law degree has become increasingly expensive as tuition and fees alone have risen from $30,280 in 2006 to more than $47,000 today.

Tough Numbers

Such dismal employment outcomes for Quinnipiac are not new. Only 41 percent of its 2012 graduates found full-time long-term employment that required a JD. The rate for the class of 2011 was 35%.

Both Thomas Jefferson and Quinnipiac are among many law schools that must yearn for the good ole’ days — three years ago — when deans didn’t have to disclose whether their most recent graduates held jobs that were short-term, part-time, or had no connection whatsoever to the legal training they had received. ABA-sanctioned opacity allowed law schools as a group to claim — without qualification — that the overall employment rate for current graduating classes exceeded 90 percent.

Back to the Future

At Quinnipiac, the culture of that bygone era apparently endures. The link to its ABA-required disclosures page takes prospective students to “Employment Outcomes” and this:

“82% of the graduating class was employed as of Feb. 15, 2014 in the categories listed below…Bar passage is required, JD is an advantage, other professional jobs, and non-professional jobs.”

But if prospective students want to know the whole truth, they have to click again, go to the school’s ABA questionnaire, and perform a calculation from the raw data that reveals the 34 percent employment rate for the most important job category — full-time, long-term, JD-required jobs.

Law School Marketing

Similarly, the “Career Development” section of Quinnipiac’s current prospective student “Viewbook” leads with the banner headline that its “Employment Rate” for the class of 2012 was a remarkable 84% — “127 of 151 graduates employed.” An asterisk adds this tiny note: “Comprehensive employment outcomes for the class of 2012, including all employment categories as defined by the ABA (full-time/part-time/short term/long term) can be found at emplyomentsummary.abaquestionnare.org.”

Can prospective law students discover the truth? Sure. Should they take the time to do so? You bet. Do all of them make the effort? Not a chance. If they did, the 80+ percent, big-font employment statistics wouldn’t be in Quinnipiac’s recruiting materials. For careful readers, those big numbers are a waste of space.

What, me worry?

Undeterred by its recent graduates’ employment track record, Quinnipiac wants to grow. “There’s a decline in the demand for lawyers,” university president John Lahey said. “Even with the decline, we’re the only school in the country to spend $50 million for a new law school.”

That peculiar boast reflects an “if you build it, they will come” mentality determined to maximize tuition revenues. Unfortunately, that attitude can lead to short-term mischief and long-run calamity. Just ask anyone associated with the Thomas Jefferson School of Law.

Market dysfunction

Law schools remain unaccountable for the poor employment outcomes of their graduates. As most schools raise tuition, many students incur increasing amounts of debt for a degree that won’t get them a JD-required job. Because the federal government backs the vast majority of those loans, you could say that the system is your tax dollar at work.

Quinnipiac didn’t raise tuition for 2014-2015, but 86 percent of its 2013 graduates incurred law school debt averaging $102,000. Down the road at New Haven, 80 percent of Yale’s 2013 graduates with far superior job prospects incurred debt averaging $112,000.

The More Things Change…

The perverse law school response to market forces is a predictable business strategy, especially for law schools whose graduates are having the greatest difficulty finding law jobs. In an interview with the New Haven Register, Quinnipiac University President Lahey said that he hopes enrollment will grow from the current total of 292 students to 500 — the design capacity for the school’s new building.

Now that they’ve built it, will students come? If they value a “beautiful full-service dining commons,” perhaps. If they consider footnotes, read the fine print, and assess realistically their JD-required employment prospects as they peruse recruiting materials touting a Quinnipiac law degree, perhaps not.

STUDENT LOANS, MORAL HAZARD, AND A LAW SCHOOL MESS

Throughout the summer, Massachusetts Senator Elizabeth Warren has been promoting legislation that would provide relief to students with educational debt. As the Senate concludes its work — and I use that word loosely — before the November elections, she is taking another run at the issue. Most recently, Senator Warren made her case in an article that appeared in the September 9, 2014 edition of the Huffington Post: “The Vote That Could Cut Your Student Loan Bills.”

Her point is simple: Students who took out educational loans prior to July 1, 2013 are locked into an interest rate of nearly 7 percent. “Older loans run 8-9% and even higher,” she writes. She’d like to bring that rate down by allowing graduates (and parents who co-signed their loans) to refinance them.

Politics, You Say?

Election year politics have rendered her proposal dead on arrival. That became clear in June when Senate Republicans filibustered the bill, even though three of them — Senators Bob Corker of Tennessee, Lisa Murkowski of Alaska, and Susan Collins of Maine — were among the 56-38 majority that was insufficient to bring it to the floor.

But the gridlock in Washington and resulting inaction may focus attention on a more important underlying problem: How does a system anchored in noble intentions evolve to produce such enormous and unsustainable levels of educational debt in the first place? Some law schools have become poster children for the unfortunate answer to that question.

Blame Professor Friedman

In the 1960’s, Milton Friedman argued that America would benefit if individuals had a way to borrow against future incomes and invest in becoming more valuable workers. In those days, a college education was the surest path to the middle class. To a large extent, it still is.

From Friedman’s idea came the federal student loan program. But over time, Congress and several presidents added features that became problematic. Imagined and unfounded fears of moral hazard — specifically, that students on the cusp of lucrative careers would declare bankruptcy to avoid paying their student loans — resulted in the rule that educational debt survives bankruptcy, except in extreme circumstances that courts rarely find.

Coupled with federal guarantees, the loans eliminated lender risk. That created a new moral hazard: Educational institutions themselves were at least two steps away from any financial accountability for their graduates’ outcomes.

Law School Misbehavior

For law schools, all of this has assumed special significance. Unlike undergraduate colleges that can claim to be creating well-rounded and better informed citizens entering a variety of careers, law schools exist to train people who want to become lawyers. Some law graduates may take rewarding non-legal paths, but undergraduates aspiring to careers in business, for example, typically attend business school. At least, they should.

If the ability of a school’s graduates to use their legal training initially in a JD-required job is an appropriate way to measure a law school’s success, then many are unambiguous failures. For the class of 2013, 33 of 201 ABA-accredited schools placed fewer than 40 percent of their graduates in long-term full-time JD-required employment (excluding law school-funded jobs).

But here’s the kicker. Thanks to the moral hazard that the federally-backed loan program creates, some schools with the worst employment records for recent graduates have students with the highest levels of law school loan debt.

For the class of 2013, three of the top ten schools with the highest average student loan debt at graduation placed less than one-third of their graduates in full-time long-term JD-required jobs (again, excluding law school-funded positions). They were: Thomas Jefferson ($180,000 average student debt; 29 percent employment rate), Whittier ($154,000 average student debt; 27 percent employment rate), and Florida Coastal ($150,000 average student debt; 31 percent employment rate).

Defying the Market

How do these schools and others like them accomplish this economically perverse feat? Large doses of prospective student confirmation bias combine with federally-backed student loans to create a dysfunctional market.

Marginal law schools seek to fill their classrooms to maximize revenues. Next week, I’ll examine a few schools pursuing this goal through recruiting materials that seem to obfuscate ABA-required employment disclosures. For now, the important point is that what happens to those students after they graduate becomes someone else’s problem. Once students pay their tuition bills, law schools have no financial stake in their graduates’ employment outcomes.

Searching for Solutions

This takes us back to Senator Warren’s bill aimed at giving past students a break. In the current low-interest rate environment, it’s reasonable to provide former students with the kind of refinancing opportunities available to homeowners, business proprietors, and other debtors. But that won’t begin to solve the real problem. The current system of financing legal education creates moral hazard that has produced — and will continue to produce — law school misbehavior at great expense, not only to affected students, but also to all of us.

In the coming weeks prior to my October 24 presentation to the American Bankruptcy Institute Law Review Symposium at St. John’s University School of Law, I’ll offer some ideas for dealing with that larger problem. Some people won’t like them.

FEED YOUR BRAIN

It’s August. Vacation time. But how many people — especially hard-driving attorneys — are taking real vacations? Distressingly few, I suspect.

Many people who think they’re taking time off are kidding themselves. They are simply moving their work venues to a sandy beach or resort swimming pool. In a recent New York Times article, “Hit the Reset Button in Your Brain,” research scientist Daniel J. Levitin observes that essential revitalization of the brain comes only when a person enjoys a complete break from the daily demands of a job.

Previously, I’ve written about the myth of multitasking — the fallacy that the human mind can perform several tasks simultaneously. I’ve also discussed scientific studies proving that we underestimate the extent to which distractions — moving back and forth between tasks — undermine our productivity. Today we add another insight into how brains work and the implications for everyday life.

Two Roads; Different Destinations

Levitin’s research shows that our minds switch between two dominant “modes of attention.” One is a task-positive network, which engages when we focus on a specific activity, undistracted by anything else. In contrast, the brain’s task-negative network is akin to daydreaming. The mind wanders but, in doing so, achieves its greatest moments of insight.

Importantly, when one network is working, the other is not. Likewise, constantly moving back and forth between networks — as multi-taskers mistakenly think they can — is inefficient. It wastes mental energy.

Lawyers and Vacations

The relationship of the two networks to most attorneys’ lives is obvious. The billable hour regime that dominates today’s delivery of legal services rewards task-positive behavior. More time spent on an activity means more revenue for the law firm. Devising ways to keep attorneys engaged so that the hourly meter is always running — day, night, weekends, and during so-called vacations — becomes a key institutional objective unto itself.

Meanwhile, every minute that the brain spends in the task-positive mode is a minute that can never be available to the task-negative network. Vacations are supposed to be a task-negative period. But engaging in task-positive behavior during such times makes that impossible. It also interferes with the brain’s ability to recharge itself.

Levitin concludes, “If we can train ourselves to take regular vacations — true vacations without work…we will be in a more powerful position to start solving some of the world’s big problems. And to be happier and well rested while we’re doing it.”

Another Reason to Make Vacations Real

When I was 14 years old, we took our first family vacation. With my three younger siblings and me in the back seat of the first new car my father ever owned — a 1968 Oldsmobile 98 sedan — we drove from our hometown of Minneapolis to the Black Hills of South Dakota.

In those days, the things that keep the brain’s task-positive network engaged outside the office didn’t exist. No cellphones, laptops, or internet. With our task-negative networks free to roam, a simple road trip to see Mt. Rushmore became an unforgettable experience that remains a cherished memory.

My dad wasn’t a lawyer. He was a trucker — an over-the-road driver who had an interesting run-in with Jimmy Hoffa in the early 1960s and eventually moved himself up to a desk job. Except for the South Dakota trip, we didn’t take two-week vacations because he’d convinced his employer to pay him double for staying on the job instead. It was an understandable decision. Even with my mother working full-time, making ends meet was a continuing challenge.

How to Measure Costs and Benefits

In the end, the financial boost from two weeks of “double-pay” each year made only a temporary difference to our family. Most of today’s lawyers are working for a more subtle form of “double pay”: more billable hours usually translate into higher compensation. But is the marginal return worth the sacrifice? What’s a person’s leisure time worth?

My father’s calculation was incomplete. He failed to consider his own need for time off and the benefits accruing to an entire family as it spent task-negative time together. Attorneys are especially prone to making the same mistake. Technology conspires with institutional incentives to make it easy. If you want to become a better thinker and a more productive lawyer, take a vacation — a real one.

My next post will be in September.

DEWEY & LEBOEUF: CONNECTING MORE DOTS

[NOTE: August 8, 2014 at 5:00 pm EDT is the deadline for nominations to the ABA's annual list of the "100 best websites by lawyers, for lawyers." To nominate The Belly of the Beast, please click here.]

Two years ago, Dewey & LeBeouf filed for bankruptcy. Intriguing aspects of the firm’s unraveling are still emerging.

Recently, three of the firm’s former leaders, chairman Steven Davis, executive director Stephen DiCarmine, and chief financial officer Joel Sanders, filed an omnibus motion to dismiss the criminal charges against them. Such filings are not unusual. But their joint memorandum in support, along with DiCarmine’s separate supplemental brief, contain fascinating insights into the firm’s collapse. As the dots get added, it’s becoming easier to connect some of them.

Beyond the Scapegoats

Back in November 2012, former Dewey chairman Steven Davis hinted at the flaws in any narrative suggesting that he alone took the firm down. His filing in the Dewey bankruptcy proceeding promised another perspective:

“While ‘greed’ is a theme…, the litigation that eventually ensues will address the question of whose greed.” (Docket #654; emphasis in original)

The three co-defendants’ joint memorandum returns to that theme. It argues that the firm’s distress resulted from, among other things, “the voracious greed of some of the firm’s partners.” DiCarmine’s supplemental brief describes the greed of some former partners as “insatiable.”

The 2010 Bond Offering and 2012 Partner Contribution Plan

Some former Dewey partners might find the defendants’ recent filings uncomfortable. For example, much of the government’s case turns on the firm’s 2010 bond offering that brought in $150 million from outside investors. DiCarmine’s supplemental brief asks why, except for Davis, “the Executive Committee members who approved and authorized it have not been charged with any wrongdoing.”

Later, as the firm collapsed during the first five months of 2012, it drew down millions from bank credit lines while simultaneously distributing millions to Dewey partners. As I’ve reported previously, from January to May 2012, 25 Dewey partners received a combined $21 million.

The joint memorandum suggests that “if the grand jury presentation was fair and thorough, it demonstrates that drawdowns the firm made in 2012, prior to filing for bankruptcy, were made at the direction of several partners on the firm’s Operations Committee, and against the advice of Mr. Sanders, and despite the concerns of Mr. Davis and objections raised by Mr. DiCarmine.”

Shortly after those 2012 distributions occurred, Wall Street Journal reporters asked former Dewey partner Martin Bienenstock whether the firm used those bank credit lines to fund partner distributions. Bienenstock replied, “Look, money is fungible.”

He’s right. But that raises another question: Did some partners then use those eleventh-hour distributions of fungible dollars for their subsequent payments to the bankruptcy court-approved Partner Contribution Plan? The answer matters because the PCP capped each participating partner’s potential financial obligation to the Dewey estate. Unsecured creditors will recover an estimated 15 cents for every dollar the firm owed them.

There’s another twist. Dewey made its way through the bankruptcy proceeding without disclosing how partners shared those 2010 bond proceeds. In calculating each partner’s required contribution to the PCP, only partner distributions after January 1, 2011 counted. The PCP excluded consideration of any amounts that partners received in 2010.

Remember Zachary Warren?

The joint memorandum also counters the Manhattan District Attorney’s characterization of the accounting issues in the case as open and shut: “lf the grand jury had been properly instructed on these [accounting] standards, it would have concluded that the accounting methods were permissible,….”

Which takes us back to the curious case against Zachary Warren, a subject of several earlier posts. The charges against the former low-level Dewey staffer are predicated on an underlying violation of those accounting standards, too.

Warren has sought to sever his trial from that of his co-defendants, Davis, DiCarmine, and Sanders. Warren argues that plea agreements from witnesses who are cooperating with the government, notably Frank Canellas, demonstrate how thin the case against him is.

The Manhattan District Attorney responds that statements in the plea agreements are just the beginning: “[T]he purpose of the allocutions was to set forth facts implicating the witnesses in the crimes they committed; any part of them that inculpates the defendant is merely incidental.” (District Attorney’s letter to Hon. Robert Stolz, July 3, 2014) (App. I of Defendants Davis, DiCarmine, and Sanders Omnibus Memorandum in Support of Motion to Dismiss))

Really? Some career prosecutors might find it surprising to learn that when they get a defendant to “flip” and provide statements fingering a different target, the flipper’s statements are “merely incidental” insofar as they inculpate that target.

But the best line in the District Attorney’s surreply tries to connect Warren’s alleged December 2008 activities to Dewey’s collapse more than three years later: “[H]e was there to light the spark that fueled the scheme until its implosion in 2012.” (p. 6)

At least with respect to Zachary Warren, methinks the government doth protest too much. Meanwhile, his co-defendants are focusing on questions that cry out for answers.