GUEST: Mark Zauderer
AIR DATE: 12/22/2012
I’m Richard Heffner, your host on The Open Mind. And this is one of those rather spontaneous “while you’re at it” efforts that one makes every once in a while … as happenstance – or good fortune – would have it.
Mark Zauderer is a well known New York trial and appellate attorney who has long represented major corporations and prominent individuals in financial and commercial litigation in federal and state courts throughout the United States.
And we’ve had rather spirited Open Mind conversations here at this table concerning just about every law-related theme imaginable…from cameras in the courts and law firms’ forced retirement practices, to neuroscience and the law.
Well, what my guest came here to do today – and we just finished doing it rather spectacularly, I must say…as you’ll see for yourself … is an analysis of a huge law firm’s rise and fall as perhaps a corporate rather than a professional venture, one amazingly well-chronicled in the press.
Now that we’ve done that… I’ve asked my guest to stay here in the studio a bit longer so that we can do this … which I think of as an accumulation of legal odds and ends that no one could possibly parse better than my legal-eagle friend Mark Zauderer. First and before we finished the last program, Mark, I want to get you to talk about this miscellany … make the first one about law schools. But I think that where we left off … you had so much more to say. What would you like to conclude with … I cut you off in mid-stream.
ZAUDERER: Well, I’ll talk about whatever you think your viewers would find interesting. But I think to sum up what we’ve observed together about the changes in law firms is that … perhaps we should pause … and the profession is pausing … to examine the model of a law firm. The one that has changed, shifted so much from that which I described as an outgrowth of the guild system, where the rewards and incentives were the pride in the work, the, the reception in the community and the coin of the realm was less the dollar than self-respect and admiration.
Again, I want to say that I have a high respect for lawyers … I’m talking really about what’s happened in the profession and, and the phenomenon or the phenomena that many lawyers had no role in creating.
So it shifted over decades to what we now have which is large law firms, managed by people who don’t really know personally the people they manage … with all the consequences, the change in the compensation system, the shift for … to bring in lawyers laterally to expand the growth of the firm, that is lawyers who have books or blocks of business, who are essentially free agents.
I think that we’ve had, as you know, over the past years … over the last few decades … collapses … spectacularly collapses of some of these firms. And I, I think … while I don’t want to comment specifically on the latest … the Dewey one you’ve referred to, but rather on the model … that if nothing else for self-survival … law firms are going to refine the way they expand or run their law firms and, and some of their basic concept. Less debt, less speculation that is creating debt, promising high income to people who, who come in without regard for what will happen if the income of the firm declines in, in a recession.
You know this … if I may just remember something that happened in the early eighties. You know one of the most spectacular falls … really was the first one discussed publicly … falls of a law firm was the Finley Kumble case. Finley Kumble was a firm that had achieved great prominence and recognition in the, in the popular press and the media. It brought in with promises of high salaries former Senators, Governors, a Mayor, promised them a lot of money. And was run by a very small management group that kept others in the dark about what was going on … the finances.
And it, it crashed into a spectacular bankruptcy. And by the way, for those who are familiar with the process by which companies are reorganized in Chapter 11, which people are familiar with in bankruptcies … law firms are poor candidates for reorganization in bankruptcy.
They’re not like manufacturing companies that have assets. And it’s a matter of dealing with creditors, to let the company breathe and then with a plan of reorganization, survive. As has been said, the assets of a law firm … go in and out every day. They’re the, the lawyers, with the brains and the business.
And if a firm goes into bankruptcy, it’s awfully hard to collect from the clients because they’ll say … “Look, this firm is dying … should I really be paying my bill. Maybe the work wasn’t so good and some trustee trying to collect it, is impossible”.
You know, in that, in that group … and I think this illustrated the same kind of problems that some of the … we found that other firms have collapsed … the Brobeck firm, which was, was a high flying firm. The Heller Ehrman firm … there have been others in recent years … the Howrey firm …
You had in Finley Kumble a trustee in place whose job, as we know, is to try to collect money for the firm. The banks had a hold on the firm for about $70 million dollars and, and the firm was not able to meet its bank debt. It had borrowed huge amounts of money.
So it was the trustee’s job, in that case to try to claw back or recapture for the entity, for the bankrupt entity for the benefit of creditors, monies that had been paid out to partners … claiming the firm was insolvent at a time when it was paying out money to its partners, so it wanted to bring back money in. You know, much in the way the Madoff case, the trustee is trying to claw back money for the estate.
So, the trustee divided in his negotiations, the partners in this firm into two groups … those that he felt were in the management area of the firm, who made the firm decisions, who were in the know and had made the most money.
And in negotiations demanded … this is rather than … in place of suing them, if they wanted to settle … a lot of money from each of these partners.
And then he had another group of partners that really were lower compensated, didn’t have individual clients, he demanded less money from them.
HEFFNER: These were the mushrooms?
ZAUDERER: These, these were the mushrooms. And if I might say on your show … and this is what they were called in the popular press. Why were they called “mushrooms”? Because they were kept in the dark and fed manure.
They had, they had no knowledge of the finances, of, of the entity … they were as shocked on the inside as anybody on the outside when the firm collapsed.
And it was … it sent a real jolt through the legal community. But I think at the time, after a while, people forgot about it and thought of it as a one-off kind of event. But this has re-occurred, you know, every so often.
HEFFNER: Mark, you, you accused me, in the last program of conflating a couple issues, one having to do essentially with the nature of the legal endeavor, perhaps. Winning, rather than, than losing a law suit. And the other having to do with the financing …
HEFFNER: … of the operation. Somehow or other I see it all as very much of a kind … let lawyers carry out the model of the adversarial system to a fare-thee-well and we end up in this kind of pickle. You don’t think that’s necessarily so?
ZAUDERER: Let me say why I disagree and, and just recount a personal experience that, that resonates as you, as you say that.
Now when I got out of law school over 40 years ago … I was a law clerk for a federal judge. And I remember picking up the Law Journal and seeing an advertisement for a newly formed organization … it had some famous trial lawyers who were going to be part of this … it was kind of a non-profit and, and some law professors … now a very well known organization … it’s called the National Institute for Trial Advocacy (NITA). Most practicing lawyers know it.
But it didn’t exist until I think this was 1971 or ‘2. They were having their first program in Colorado … if you … I could sign up for $100, which was a lot of money in 1971 or ‘2 … to go out for a month, an intensive training program in learning to try a case.
You come out of law school you don’t know how to try a case. You’re a law clerk, you sit there with a degree of excitement and anticipation watching cases be tried, you want to do it. And I went out there, you know, with a toothbrush and not much else and spent a month, morning, afternoon, and night … just doing exercises, standing on our feet, trying things, cross-examining witnesses, preparing an opening statement in a hypothetical case.
And I went to a law firm energized and excited wanting to do that. I never thought about money. In fact, I remember thinking that, “My goodness, it looked like I might make $30,000 by the time I was 30”. I remember the 30/30 at the time … and I think I made, as a law clerk, $10,500.
We didn’t think about money. But we had the desire to try cases. And I think the really good litigators are motivated by it. You know, you get involved in a trial … you don’t need as many hours sleep, you can’t get hours of sleep.
I know I try a case in New York City, even though I live, I live in the suburbs … I’m, I move into a hotel every time I try a case just so that I’m totally focused … and I’m not unique in that regard.
I’m not thinking about and most lawyers I think don’t think about the money. You’re, you’re … I guess some say … I don’t know if this is said in a complimentary way … or, or it has negative connotations … but they’re called “gladiators”, civilized gladiators.
Others think of us as … you know we call ourselves advocates. We take pride in the client’s cause. You know a doctor will treat all kinds of people. The surgeon will do the surgery because yes … the surgeon wants to improve the patient’s situation, but along with that goes the pride that the professional has in the work that the professional does.
Now are there some doctors, are there some lawyers that are just thinking about the dollar? I mean a bottom line? Sure. But I don’t think those who … to, to come to your point … I don’t think those that participate in the adversary system are either necessarily motivated by money or because I think they have no such motivation … they’re not creating a system which is just focused on bringing in more money.
HEFFNER: With all due respect, I must admit as I look at what some people consider one of the major causes of our medical cost situation and as I look at the bankruptcies of law firms, I guess I see the same motivation … a business ethic involved in here, in medicine whether it’s the drug company, the pharmaceuticals or the doctors, the surgeons themselves … but let my, my personal idiosyncrasies here be set aside … I want to ask you about some of these other things.
You talk about the training for a lawyer. You seem to take it as natural that … come out of law school and a passer-of-the-bar shouldn’t really be held responsible for knowing how to do a law case.
ZAUDERER: And they don’t. We don’t.
HEFFNER: They don’t?
ZAUDERER: There’re not, they, they are not able to or …
HEFFNER: Why are they not taught in law school?
ZAUDERER: Well, you get your driver’s license … think about that, or your child gets a driver’s license … are they experienced drivers? They know the minimum to get to, to …
HEFFNER: Three years and all that money later and it’s just a driver’s permit?
ZAUDERER: Well, you know, this really gets to something that’s in the current debate. I know as one person I have a strong feeling about it. We see this at the college … in the college debate level now.
You know colleges have become, to many … in many respects an expansion of high school. You see people on TV criticizing college education for not giving people specific tools.
ZAUDERER: Practical tools. Well, the, the theory of a liberal arts education … that was widely accepted and it’s true in the law schools as well, is you get basic training. You get … in a liberal arts education … at the college level … information in many different areas that will be important to your life. It may be relevant to your professional training, but that comes later.
The same is true in law school. The … you know, you could … in fact … until … I don’t know when … in New York you could become a lawyer and take the bar exam without law school. You would get practical training, you could work as an apprentice, in effect, in a law firm, a certain number of years and then get into the bar without school at all.
But when, when that was eliminated … the concept was the legal education is important. And some law schools have what are called the … regard as very theoretical education. Yale, for example, has a reputation for that. You know, you’ll read legal scholarship that has no relationship, really, to the practice of law.
And most lawyers who go to national law schools, for example, if they come and practice in New York they don’t know anything about … will not have taken a course in what’s called “New York practice”, the procedures that go on in the courts. They may not be litigators at all, so they’ll never have taken the course.
So, ahemm, the point is that the law schools have introduced some practical courses in the last 20 years. You can take an optional trial practice course. That’s practice as opposed to theory … and there’s some theory involved, knowing evidence, knowing procedure.
But still it has never been and I don’t think it ever will be the objective of a law school to teach you and put you in a position of coming out of school with all the skills to be an accomplished practitioner. That has to come from experience. You can’t replicate in four years of law school the experience that comes with dealing with a client … making judgments about how to handle a matter. I’m familiar with litigation, but I know the same thing goes on when we’re talking about business transactions.
You know if, if you sit around in a room with an older lawyer … let’s take a lawyer who’s really been around a long time and, and let’s say, younger lawyers. And age is relevant … to take some … and one of the things we’ve discussed … and I discussed this at an American Bar Association panel just a few weeks ago about the aging lawyers … ahem … who may even have experience some diminution in their function … slight.
That lawyer, through experience, not necessarily their law school education, but experience … can make judgments and provide a value to the client that the very smart, energetic second year out of school lawyer cannot.
A case may present a tangle of facts and a host of legal principles that could be relevant, could not be relevant … and your job is to figure out what are the important facts and what are the important legal principals to shape your case.
You know judges decide cases based on what’s presented to them. They don’t think through the strategy of the case … they see what comes out of the end of the tube, not what … out of the end of the funnel … not what goes into it.
And the, the lawyer out of school has no background to do that. You sit in that con … that hypothetical conversation that I’m positing and the lawyers will discuss the facts, but not have best judgment as to which of the important facts … how to separate the wheat from the, from the chaff … and what is … what are the legal principles that are controlling or likely to be persuasive in the case. But the senior lawyer will often have that ability.
HEFFNER: So you’re not negative about this three year … I was going to say nastily … hiatus … and I don’t mean that. This three year learning process.
HEFFNER: And then go out and learn how to be a … practically … how to be a lawyer.
ZAUDERER: I wish it were four years. I think it would, it would help. I think a lot can be learned. There were courses that we took in law school that were mandatory, that are not mandatory now and I’m sometimes startled that are not taught in law school.
I was at lunch some years ago with a summer associate … two summer associates, these are law students who were working for the summer.
They went to Harvard Law … were in Harvard Law School and I hope nobody writes me from Harvard … and I was with an accountant who’s not a lawyer and said something about “dowry” and the law student said, “What’s dowry?”.
ZAUDERER: And then he, then being … the accountant figuring he was on a roll said, “Oh, well, you know what a bailment is?” And I said “never heard of a bailment”. I said did you ever go to a … park your car in a garage and the sign says “This is a license to park, not a bailment”.
Well, these were things were taught … always were taught in first year property which was a mandatory course in law school. So I said to this very bright summer associate … “Well, did you take property in law school?’. He said yes, I said, “Well what did you focus on?”.
He said, “So, well our teacher was mostly interested in Native American land rights.” Perfectly appropriate subject. But it’s different, it’s changed. You know those are … maybe important subjects … but the things we learned in property, while we may not deal with every day, these are concepts and things that come up in our practice. The law … education … I would like to see more of the traditional education if I were, if I were asked and had any decision making abilities.
HEFFNER: You feel that way about undergraduate work itself.
ZAUDERER: I, I do. I think we need …
HEFFNER: And high schools … secondary schools …
ZAUDERER: High schools, secondary … history of which … you know, you’re, you’re a, a world noted historian …
HEFFNER: Yeah … right.
ZAUDERER: … I’m just a, I’m just a student, at best. But it, it, it bothers me in some of the conversations I’ve had to see that in history, people are not learning basic facts.
And you’ve heard this said many times … I forget who first said it, “Everyone’s got a right to their own opinion … but not to their own facts”. We’re heard that a lot.
History tends to be taught through the prism of a particular point of view. Those are important. I mean we had in college books, tomes that were written by those with a particular point of view. But without context, without facts, without knowing what events occurred … without, without knowing what occurred at a particular time period here … and a particular time period there, so you can relate them, you can’t really form … judge … an informed view of the opinion piece you’re reading.
HEFFNER: That’s an indictment of schools. Why are you so much more generous with the law schools?
ZAUDERER: Because I think that … well, the law schools … I’m of the same view … I think the law schools have changed their curriculum to focus more on points of view. Points of view in the law … legal philosophy which is useful and important … but at the sacrifice of learning basic tools that are important for all of us in, in the profession.
HEFFNER: Mark, I, I couldn’t help but think, knowing that we were going to do some programs … recently I did a program with a doctor who spoke at some length about the new medical specialty … the “hospitalist”. Everyone seemed surprised almost … almost everyone seemed surprised …what are you talking about “a hospitalist”?
I’m talking about the doctor, the M.D., who works in the hospital, works for the hospital and, in a sense, takes over from your family physician when you go into the hospital. Why? Because he’s more knowledgeable about hospitals, about the level of medical care, nursing care, etc. He doesn’t know you as well, but he does know the institution to which you’re entrusting your well-being. Do you see anything like that happening in the legal field? I mean here we have a paid … annually paid physician, not a private practice person … do you see that for the law?
ZAUDERER: Not on a grand scale. I mean … yes to the extent that there have been changes in, in what I’ll call the retail practice of law. The Jacoby & Meyers firm that started 30 years ago with storefront lawyers …
ZAUDERER: … all of this, by the way, has been facilitated by the Supreme Court’s decision some 30 years ago which really blessed lawyer advertising. You know the theory was that law was expensive, not accessible at a reasonable price to the average person. If we can introduce … introduce competition … at one point … law firms were setting prices for transactions … they were agreeing to a recommendation of a Bar group say, “We’ll all charge so much for a real estate closing … you want to buy a house, this is what it’s going to cost”. Well, now we have competition in that … which is good … but not so good.
We have it … look in the airline industry. Until 1978 everybody paid the same high price for a ticket. You wanted to trade in your United Airline and fly on TWA … they’d just take the ticket.
Well, what’s happened? We introduced competition, we had deregulation, we made the airplane more accessible … on the other hand, it’s now like a bus … right. Or worse. People complain that they have to pay a few dollars … you know, for a bag … they have to pay some, something extra. Well, they’re also paying a rock bottom price for the, the service … to fly … $39 to fly across the country, or something like that.
HEFFNER: I haven’t paid that little in a long time … I defy you there.
ZAUDERER: … your bargain. But, but to your point, in the law profession there have been some segments of the profession that have provided services at a lower cost, but I think what you’re alluding to … we might see it … but I don’t think we have in the profession yet … is doctors, who, because of the cost of private practice … the cost about practice insurance which is an extreme burden on, on many … it’s a whole other subject … ahemm, and also, life style choices … you know we’ve seen an expansion of emergency room doctors …
ZAUDERER: Why, because regular hours …
HEFFNER: Regular salary.
ZAUDERER: … regular salary and, and families with two professionals … you know, a husband and a wife raising a child, perhaps sharing the responsibility more. You know the old model … Marcus Welby, M.D. or whatever, you know, this is the doctor who’s working full time. The doctor who picks up the bag and makes a house call at 9 o’clock at night. When was the last time we saw that?
Well, I think there have been societal changes that I’ve described …
HEFFNER: You think the legal profession will, in time, because we just have a couple of minutes left, reflect that … those changes?
ZAUDERER: I don’t, I don’t know, but … I, I think yes to an extent because we are seeing similar changes now where people in law firms are looking for better life style … this is a big issue in law firms now about how much to accommodate life styles … whether to allow part time work, whether to allow people who want to work at home, and all of that we see in America is, is in the law firms today.
HEFFNER: For good or for bad?
ZAUDERER: I think it’s a mixed, mixed blessing. And it depends what your, what your point of view is. If you’re running a law firm and charged with the responsibility of providing services to clients, these are difficult things sometimes to accommodate.
On the other hand, law firms have an interest, just as the people who work there do, in, in having an environment in which they, they can find balance in their lives, and these may be very, very fine lawyers, but they have other competing demands in their life. So if firms, firms want to be healthy places … they have to accommodate them to an extent. Where the balance is, is something I certainly don’t presume to have the answer to.
HEFFNER: I have the feeling you’re not going to embrace this idea.
ZAUDERER: I don’t know, I’m always learning.
HEFFNER: Mark Zauderer I know you’re always learning and you’re always teaching and I appreciate that and I want to thank you for joining me again today.
ZAUDERER: My pleasure, thank you.
HEFFNER: And thanks, too, to you in the audience. I hope you join us again next time. Meanwhile, as another old friend used to say, “Good night and good luck.”
And do visit the Open Mind Website at thirteen.org/openmind to reprise this program online right now or to draw upon our Archive of 1,500 or so other Open Mind and related programs. That’s thirteen.org/openmind.