Clients, Could You Please Pay Your Bills This Year? Thanks.
It’s December, and the bills are due. But many firms are finding clients reluctant to pay up. The American Lawyer reports that firms are having a tough time recovering any money from the graveyard of busted 2008 deals:
Firms that were working on one of the many deals or financings that have been postponed or terminated may never get paid for the significant hours they did log. That’s because in most instances, law firms don’t get paid until a deal closes….When a deal fails, the law firms generally don’t have a contractual right to any money. And that can make for messy negotiations. These days most firms don’t want to drive too hard a bargain with clients they want to hold on to.
“If it’s an ongoing client we may be a bit more generous,” says one partner. “We’ll ask them to pay us a fraction of the fees, but there’s an understanding that when the market turns around they owe us.”
While the broken-deal fee will always be subject the dance between rainmakers and their clients, fees for litigation and general corporate work should be freely flowing. Right?
For matters billed on a regular basis, like standard corporate work and litigation, firms stand on firmer ground, although payment isn’t assured this year. September was particularly scary, says Jay Zimmerman, the chairman of Bingham McCutchen.“Even the best clients were holding payment,” he says. “Everybody was sitting on cash and we had a build-up in receivables.” Since then, he says, the money has been flowing in fairly normally. “The September bills did get paid. October turned out to be very good and November is looking very good.”
The “stuff” flows downhill. Clients stiff firms, management stiffs associates, associates stiff… law school loan officers? Why not? We can’t be that far away from the “Fight Club scenario,” in which everybody gets their credit rating set back to zero.
Whoops. I’m not supposed to talk about Project Mayhem.
Collecting, but Hardly Calm and Cool [American Lawyer via Law.com]
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Oh please please
YES -- fourth time this month.
- 1
LAST to get paid
A tough time "recuperating" money from clients?
1, 3
Clearly the reason everyone is paying Half-Skadden bonuses.
5 -- I'm a law student studying for finals, who is stuck in front of the laptop all day, and needs frequent study breaks.
Pullllease, you are just a jealous hater, I get it. It's okay. Number Five.
6 - STFU and get back to studying your outlines.
"While the broken deal fee will always be subject [to] the dance between rainmakers and their clients, fees for litigation and general corporate work should be freely flowing. Right?"
"While the broken deal fee will always be [the] subject [of] the dance between rainmakers and their clients, fees for litigation and general corporate work should be freely flowing. Right?"
"While the broken deal fee will always be [a] subject the dance between rainmakers and their clients, fees for litigation and general corporate work should be freely flowing. Right?"
Nobody will be stiffing their loan officers. They're too afraid of the consequences of not paying, and nobody has any sympathy for lawyers--popularly though of as well off, privileged people--not paying banks back for their law school loans.
Now, those poor, misled homeowners who took out huge mortgages . . . THEY need loan debt relief STAT!
7 -- Hahaha. My outlines are already perfect, thank you, thanks to all the time I spent already. Now I'm just on cruise control.
Law school is easy. So is being #1 on ATL.
Have a happy holiday season!
- 1
"That's because in most instances, law firms don't get paid until a deal closes. ...
When a deal fails, the law firms generally don't have a contractual right to any money."
The author is an idiot. There is usually an engagement letter, and therefore the firm typically has a clear contractual right to payment... the negotiation is about discounts, not whether or not there is an underlying obligation to pay.
I sat by Nervous T-10 1L today in out civ pro final. I don't think he did so great, he looked really nervous. Hopefully those firm interviews will pan out for him.
"That's because in most instances, law firms don't get paid until a deal closes....When a deal fails, the law firms generally don't have a contractual right to any money. "
This is wrong. Some firms may do this, but they are relative Mickey Mouse if they operate like this. I don't know what kinds of firms NLJ is talking to, but at my firm (v20), we get paid for closed deals, and the engagement letters that we have with clients are definitely enforceable contractual obligations. Why would lawyers agree to not get paid for blown deals unless they are getting success fees? And, before you say, because they have no choice, my firm does, even with hours down 5-10% from last year, revenue is flat on slightly lower head count.
Now, clients may drag their feet a little on blown deals, or we'll negotiate something, but that's to keep the relationship good. As a matter of course, clients pay for blown deals and they pay when the time is billed to them, which already lags the work by 90 days or so. Some big M&A deals last for 6 months or more than a year. Do you really think that firms are willing to have millions of dollars of fees just hanging out there in limbo?
@13-- alot of what you wrote is correct, but plenty of big M+A transactions do not get billed/paid until closing (sometimes because the money is being sucked out of the target company). If the deal dies instead of closing, then the matter gets billed shortly thereafter: but it always gets billed. Some clients negotiate deals where they get a __% discount on blown deals, but this is because they agree to pay premiums on closed deals....
I would gladly pay you Tuesday for an hour today.
You can't get blood from a stone #9. If law grads don't have the money, loan officers won't be getting paid.
You can't get blood from a stone #9. If law grads don't have the money, loan officers won't be getting paid. Sympathy isn't really relevant here.
Why people write FIRST?
http://graphjam.com/2008/10/28/song-chart-memes-first-in-the-comments/
Elie-speak is leet, yo!
13 here, I should have noted that the article is relatively accurate, that the practices discussed are relatively common in capital markets and structured finance work. If that's what you mean by "deals," then it's right, but when I hear "deals," I interpret that to mean all transactions, and we sure as hell don't only get paid on close for those.
We used to hire a nice mafioso to go make sure all our bills were collected. Back then it was okay to bust a few kneecaps.
It worked too, Pan Am airlines never missed a bill after the 'incident.'
-old partner dood
llb '52
I cant wait to not look at this site once S and C and Weil have announced
I'm stiffing my secretary and doormen.
#14- can you explain about the money getting sucked out of the target company? I don't do M&A but I like to learn when I can...and no, this is not sarcastic, I am being honest. Thanks
"Recuperating" money?
14, 13/20 here, I disagree with you there, at least at the places I have worked and the deals that I have been on. I would say that big M&A deals are the ones that get paid as you go and not held back until closing. If you really wanted to look at this, you've have to divide by type of client/type of deal/etc. If you rep the buyer, there's no reason to do this silly "pay at closing" stuff. If you rep the seller, you should get paid as you go in big asset deals. I guess, when you are talking about big public company stock deals, you can wait until closing to get paid, but that's not what people are talking about when they say "blown deals," generally.
What original content did MysTTTal provide? This is simply another cut and paste job.
23 NAILED IT!
@24-- example, financial buyer is purchasing target company. at closing, the financial buyer-- as the new owner-- gets target company to pay the transaction expenses, and the loan docs are negotiated so that this extraction of cash will be permitted.
Geeze... times are tough. Don't use the Dreier, before you've checked out the laundry... Californie is the place you ought to be so load up the truck and have a visit with Marcia Bruggeman Hatch a/k/a/ Marsha Hatch at Gunderson Detment. Certainly, her narcotics trafficking / money laundering client has enough cash to factor law firm receivables. It’s off balance sheet financing and apparently the State Bar of California and the feds are "sanctioning" her practice… so no worries! You’ve got your own bailout plan and you didn’t even know it! Whoopie!
http://www.evilesq.com
13, 14 are both correct. Big M and A/cap markets engagements sometimes get billed and paid as percentages of total deal value (like an I-bank does). But there is always fine print in the engagement letter to allow recovery of fees on busted deals.
But to say that firms generally have no contractual right to any money unless the deal closes is flat out wrong, unless some idiot partner actually agrees to that structure in the engagement letter. If the partner was really sloppy and didn't do an engagement letter (would never happen for those types of deals mentioned above), then you have a quantum meruit type situation. Author needs to go back and take contracts again.
14/26: On every M&A deal I've worked on, we send a monthly bill. On every finance deal I've worked on, we get paid at closing. If the deal does not close, then we collect after the deal fails (with the regular negotiations, etc. mentioned by the above commenters).
@26 "If you rep the buyer, there's no reason to do this silly "pay at closing" stuff."
the buyers usually are the ones who want to pay at closing, see post #29 for why....
26,
"if you rep the buyer, there's no reason to do this silly "pay at closing" stuff."
Depends on the buyer. For financial buyers, most of the purchase price is borrowed, and lawyers get paid at closing once the banks release the funds. Depending on the relationship, a lot of clients will pay something on blown deals, but it does get negotiated a lot.
Geeze... times are tough. Don't use the Dreier, before you've checked out the laundry... Californie is the place you ought to be so load up the truck and have a visit with Marcia Bruggeman Hatch a/k/a/ Marsha Hatch at Gunderson Detment. Certainly, her narcotics trafficking / money laundering client has enough cash to factor law firm receivables. It’s off balance sheet financing and apparently the State Bar of California and the feds are "sanctioning" her practice… so no worries! You’ve got your own bailout plan and you didn’t even know it! Whoopie!
http://www.evilesq.com
Geeze... times are tough. Don't use the Dreier, before you've checked out the laundry... Californie is the place you ought to be so load up the truck and have a visit with Marcia Bruggeman Hatch a/k/a/ Marsha Hatch at Gunderson Detment. Certainly, her narcotics trafficking / money laundering client has enough cash to factor law firm receivables. It’s off balance sheet financing and apparently the State Bar of California and the feds are "sanctioning" her practice… so no worries! You’ve got your own bailout plan and you didn’t even know it! Whoopie!
http://www.evilesq.com
nice fight club reference mystal
I'll agree that it's more common to get paid at closing when you're repping a financial buyer, but we don't do this much at my firm. Why should our measly million or so get held up and possibly be a hassle to collect just because the deal doesn't close? It's one thing to pay the bankers at closing, because they're getting real money. I don't want to work for an entity that can't pay our deal bills as they go, because it means that they aren't stable. If it's just a question of not wanting to pay until they have to, then I guess it depends how hungry the firm is for the work. We would never do this for a one-off deal that just comes along, though. Different strokes for different folks - the firms mentioned aren't really major players. The major players are more like this: ""Years ago we started getting a little smarter, and asked our issuer clients to pay us monthly," says a partner at this firm, which she didn't want identified publicly and which appears to be in the minority." They just don't talk to the NLJ about this stuff - it's more the smalltimers who want to see their names in the papers. I also question the wisdom of talking about this publicly. What does the next client to come along ask you for when you're in the press saying, "Geez, our clients are fucking us right now - it's tough to get them to pay us for the work that they are doing. We don't have much leverage and we just have to live with it." What a fucking fool.
Over half of the deals in my career have died, and we've been paid on all of them. If the seller doesn't sell, we may cut a small break or reach a payment arrangement, but we don't really do success billing. And even if you do success billing, it isn't 100% of the fees. WE AREN'T BANKERS.
I can't believe the NLJ got this so wrong. Yes, we're all being sensitive to client cash flows now -- reducing fees where we can or cutting favorable arrangements, but we still get paid for working. It's not our fault a deal dies...
i have a bad case of ELEVATOR FARTS
22 nailed it.
you have a bad case of bad sense of humor
Disagree, 37. The first rule of FIGHT CLUB is that you do not talk about Fight Club. The first rule of PROJECT MAYHEM is that you do not ask questions. There was never any rule about not talking about Project Mayhem. Mystal fails again.
Elie, you mean either recouping or recovering, but definitely not recuperating.
Elie, you mean either recouping or recovering, but definitely not recuperating.
44-45
Elie has early onset Alzheimer's which explains his atrocious spelling habits.
11 and 13,
You are probably right about M&A and other corporate transactions. My experience in capital markets deals was very different. In my experience, the engagement letters for these typically called for the law firm to be a) paid from the proceeds of the offering or b) paid from the underwriter's fee, depending on which side of the deal the firm was playing.
This especially makes sense for underwriter side work. (I'm pretty sure issuer representation works the same way.) The investment bank doesn't get its fee unless the deal closes. Financial firms would go broke paying law firms for tanked deals. (Oh, wait! Meant to say they would have gone broke a lot earlier ;))
Tanked deals really made partners mad. It was somewhat "made up" to the firm with "bonuses" paid on subsequent closed deals. But it still didn't make the firm whole. And in super crappy economies, the firm could wait a long time for that bonus. Hell, the client may not survive to ever pay it.
41 nailed it
Someone's getting nailed, that's for sure. Ow!!