Is Big Law's 'pyramid' due for an AI makeover?

By Sara Merken, David Thomas and Mike Scarcella

WASHINGTON, Dec 11 (Reuters) - (Billable Hours is Reuters' weekly report on lawyers and money. Please send tips or suggestions to D.Thomas@thomsonreuters.com)

The traditional pyramid structure of big law firms, with hordes of junior lawyers at the bottom gradually narrowing towards a pinnacle of top partners, may be poised for remodeling with help from artificial intelligence.

A report released on Thursday by Citigroup and Hildebrandt Consulting found that 86% of large firms plan to grow their ranks of associates overall through 2027. But just 35% intend to grow the size of their first-year lawyer classes, and only 37% expect to onboard more summer associates, law students whose positions typically become full-time when they graduate.

Instead, the report said firms will likely fatten their senior and mid-level ranks, taking advantage of AI's ability to automate "repetitive, low value" legal tasks that typically fall to the least experienced attorneys.

Big firms' overall ratio of partner-owners to salaried lawyers, known as leverage, may not be reduced, the authors said. But AI is likely to speed a shift “from a pyramid to a cylinder,” with a sleeker base and more reliance on senior lawyers with greater experience and judgment. Law firms have already been favoring senior lawyers and increased lawyer leverage in recent years by growing non-equity partner and counsel ranks, the report said.

Such a shift raises questions about how firms will find and train senior, seasoned associates, the report authors said.

“If we're going to move away from the pyramid model, because tens of thousands of hours are knocked out through generative AI, and so you end up with this sort of cylinder model where the demand is for the more strategic advisory work, well, how do you grow those individuals into those strategic advisors?” said Gretta Rusanow, head of advisory services for Citi's law firm group. That's a "big question that firms are grappling with," she said.

The Citi-Hildebrandt annual client advisory, which includes survey responses from dozens of the country's largest and midsize law firms, said 63% of large law firms anticipate that generative AI will lead to some change in the lawyer leverage model by 2035.

The report's co-author Brad Hildebrandt cautioned that traditional leverage models aren't likely to change overnight. "I don't think it's going to reflect a lack of hiring of associates anytime in the near future," he said. "Maybe the level or type of associates."

Bruce MacEwen, a law firm consultant at Adam Smith Esq. who was not involved in the report, agreed that there will likely be a softening of entry-level associate hiring for some firms, and that training of senior lawyers is a looming question for firm leaders.

Law firms generally are "woefully unprepared" for how artificial intelligence will shape their billing and staffing models, MacEwan said. "I cannot see how the billable hour revenue model survives the arrival of gen AI,” he said.

-- A federal judge in Wisconsin made waves in the securities class action bar last week when he sanctioned the Rosen Law Firm for filing what he called a “frivolous” complaint against Harbor Diversified, a regional airline holding company based in Appleton.

The lawsuit, filed in May 2024, alleged investors were harmed when Harbor restated revenue and its stock dipped 28 cents to $1.73. U.S. District Judge William Griesbach dismissed the case in January — after it had been amended and taken over by a different plaintiff and firm — and then sanctioned the Rosen firm on December 3, finding it failed to investigate the claims before suing.

Jason de Bretteville, Harbor's lawyer at Stradling Yocca Carlson & Rauth, said the ruling marked the first time a firm has been sanctioned for deficiencies in an initial complaint since the Private Securities Litigation Reform Act was enacted 30 years ago.

"It’s a shot across the bow," de Bretteville said. "If you’re a plaintiffs firm, and you file a placeholder complaint, you could get sanctioned if you pursue it."

Phillip Kim, a Rosen partner who handled the Harbor case, did not respond to a request for comment.

It's common after a stock drops for shareholder firms to move quickly to lodge a complaint, as firms jockey for lead plaintiff status and before an amended complaint is filed.

"It is universal practice," said Michigan law professor Adam Pritchard.

The PLSRA includes provisions for sanctions at the end of the case if the claims are overly lacking, but by then the parties and judges are typically ready to move on, said Jessica Erickson, a securities law professor at Richmond University.

"That’s what makes this case so unusual," Erickson said.

--Alphabet's GOOGL.O Google is urging a federal judge to slash Fortnite maker Epic Games’ demand for legal fees and costs following its antitrust win over the tech giant.

In a filing last week, Google said Epic’s request for $180.8 million in legal fees and costs, plus $36.9 million in interest, is “grossly” excessive. Epic in 2023 won a landmark jury verdict in its lawsuit accusing Google of overly controlling app distribution and payments.

Google did not dispute Epic’s entitlement to fees but said the claimed amount reflects “excessive and unreasonably billed hours.” Google cited what it alleged were overstaffing, vague billing entries and charges for clerical tasks and summer associates.

Google proposed reducing the fee award to about $131 million, a 27% cut from Epic’s figure, and denying any interest adjustment. Google argues federal antitrust law does not allow prejudgment or postjudgment interest in injunction cases. Epic and Google did not immediately respond to requests for comment.

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(Reporting by Mike Scarcella)