Lawsuit of the Day, Litigators, Malpractice, Partner Issues, Partner Profits

Lawsuit of the Day: Lancaster v. Seyfarth ShawPartners told to 'hustle for cash,' congratulated for 'prying cash out of clients' hands.'

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Back in February, we covered a legal malpractice lawsuit brought by Billy Blanks, the Tae Bo king, against his former firm, Seyfarth Shaw. A jury found in Blanks’s favor and issued a $30 million verdict, but that verdict was overturned on appeal, due to flawed jury instructions. A new trial is set for July 2010.
In the meantime, an interesting related lawsuit has been filed. As reported by Leigh Jones in the National Law Journal (via the ABA Journal), William Lancaster, a nonequity partner at Seyfarth Shaw, has sued his own firm. And he’s pulling an Aaron Charney — he’s still working for the firm he’s suing, in the Los Angeles / Century City office, and he’s still on the website. That sounds a bit awkward.
Lancaster, a former equity partner at Seyfarth Shaw, alleges that he was the subject of an unfair demotion and associated pay cut. His complaint constitutes an indictment of Seyfarth’s overall firm culture, which he claims has sacrificed values of professionalism and collegiality on the altar of Mammon.
More juicy details, including internal emails and a link to the full complaint, after the jump.


Some background, from the NLJ:

[Lancaster] claims that even though the verdict that Blanks won against the firm was thrown out in February, Lancaster was coerced into accepting a demotion and an unfair pay cut. Lancaster was an equity partner at the firm prior to the 2005 jury verdict in Blanks’ favor.

The 40-page complaint, filed in Superior Court of California in Los Angeles, claims that Seyfarth Shaw breached its fiduciary duty to Lancaster by forcing him to relinquish his equity share. It also claims that the firm intentionally misrepresented the benefits he was to receive as a nonequity partner and that he was subjected to intentional infliction of emotional distress.

Lancaster’s lawsuit is premised, in part, upon the firm’s statements in defending itself in the Billy Blanks case:

[Lancaster’s] attorney, Michael Avenatti of Eagan O’Malley & Avenatti in Newport Beach, Calif., said that Lancaster’s demotion was part of a management plan at Seyfarth Shaw to reduce the number of equity partners. He said that Lancaster was forced to take the demotion despite the firm’s assurances to clients and to Lancaster himself that Blanks’ lawsuit was without merit.

“Clearly the firm was telling its clients one thing that was contradictory to its own internal statements,” Avenatti said.

Now, it doesn’t seem that shocking for a firm to publicly declare that a malpractice lawsuit against it lacks merit, while privately punishing the person they view as responsible. Even if Seyfarth ultimately prevails against Blanks in the retrial, getting sued for malpractice by a celebrity plaintiff isn’t fun.
In addition, it’s not clear how Seyfarth will fare on remand. Although the appellate court tossed the original $30 million verdict, because of flawed jury instructions, it had critical words for Seyfarth’s — and therefore Lancaster’s — work. It’s also worth noting that Lancaster’s complaint against Seyfarth does not delve into the merits of Blanks v. Seyfarth Shaw or defend, in substantive terms, the legal work that Lancaster did for Blanks; it just cites the firm’s assertions that it did nothing wrong, as well as colleagues’ personal expressions of support for Lancaster during the lawsuit.
But William Lancaster (right) has other allegations against the firm. From the ABA Journal:

Lancaster became an equity partner in April 2000 and was demoted to nonequity status six years later. His suit claims he fell into a “morass of carefully redirected corporate change” at Seyfarth that emphasized profits over law practice.

The suit claims that “core values” adopted by the firm in 2003 or 2004 emphasized teamwork and an atmosphere of mutual respect, but in reality the values were only a marketing tool that had little internal application.

“Those values were in fact secondary to the pursuit and collection of money,” the suit says. In practice, the suit says, the law firm became a corporation, complete with a layer of nonlawyer managers who reported to managing partner Stephen Poor, who functioned more as a CEO.

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Poor figures prominently in Lancaster’s complaint (PDF). Notwithstanding his name, in the complaint Poor comes across as obsessed with becoming rich (along with the other executive committee members).
How successful have Poor and partners been in maximizing profits? In the Am Law 200 survey for 2009, based on financial data for 2008, Seyfarth ranked 125th out of 200 firms in profits per partner (a move up from 133rd place), with profits per equity partner of $740,000. Revenue per lawyer was $630,000, and average compensation for all partners — the 211 equity partners and the 140 non-equity partners, like Lancaster — was $565,000.
We took a quick spin through the complaint. As is often the case, the exhibits are the best reading. Lancaster attached three emails as exhibits. The first two appear below, as thumbnails; click on each for larger versions.
Here’s Exhibit A, an amusing email from Los Angeles managing partner Kenwood Youmans to the other L.A. partners, commending them for their success in “prying cash out of our clients’ hands”:

So collecting on bills poses “ever-growing challenges,” and “November collections firm-wide missed goal.” It’s hard out here for a managing partner!
Behold Exhibit B, also from December 2008, directing the Los Angeles partnership to “[h]ustle for cash like you’ve never done before”:

A “revenue collection team” — based out of Chicago, no less — is a nice touch. But the name “Jason Skripac” doesn’t sound terribly intimidating. Seyfarth might get better results with Fat Tony.
In his repeated emails of exhortation, Ken Youmans reminds us of the Engineer from Miss Saigon, urging his girls to work it for all they’re worth:

Allez! Allez! Allez!
Why does it take all day?
Get your asses on stage… I’m raising cash tonight!

Each day these little bums of yours are worth less and less!
Rake in the dollars now before the market falls too far!

As for the complaint itself, which you can read in full here, these paragraphs struck us as the most interesting:

  • ¶ 17: Lancaster, who became an equity partner in April 2000, claims that he was not provided with a copy of the partnership agreement “[n]either prior to being elected to the partnership nor for a time thereafter.”
  • ¶ 18: An explanation of compensation practices for Seyfarth’s partnership. Over the course of a year, Seyfarth partners are paid 60 percent of their “target compensation” (a number set in the prior year by the compensation committee). In March of the following year, the compensation committee determines whether the partner deserves the withheld portion (roughly 40 percent) of the target comp. The partner might get the whole amount, a part of it, or none at all.
  • ¶ 28: After the $30 million malpractice verdict was issued in the Blanks case, Seyfarth’s malpractice insurer required another partner to supervise Lancaster’s work in another major case.
    (Moral of the story: try not to get embroiled in a malpractice case, unless you want a colleague second-guessing your every move.)
  • ¶¶ 34-36: In these paragraphs, Lancaster alleges that the firm, while playing lip service to its “core values,” was becoming all about the benjamins. He describes how the firm brought in lots of business-side people, including a CFO, a COO, and marketing and public relations people.
    (Is this such a bad thing? Lawyers aren’t always the best businesspeople, as the Great Recession has shown.)
  • ¶ 38: Lancaster states that “his chargeable time in 2005 was 2,396.80 hours, of which 1,912.80 hours were ‘billable time,’ producing income for the Firm of $700,658.” This yields up an hourly rate of about $366. In addition, “[b]illings directly credited to Plaintiff were stated as approximately $137,000.”
    (An hourly rate of $366 strikes us as a bit low for a partner, even for 2005. Additional credited billings of $137,000 also seem a bit low for an equity partner — one could argue that an equity partner should be generating additional billings well in excess of his own personal billing. But maybe we’re thinking too much like mercenary partners?)
  • ¶ 42: In the complaint, Lancaster describes how the firm management tried to get him to leave after the verdict in the Blanks case, and how he resisted. In this paragraph, he talks about how members of the executive committee knew “that the possessed substantial financial leverage against Plaintiff,” due to Lancaster’s status as “the sole wage-earner for a family of six, including mortgage and other debt obligations, and insurance and school tuition expenses.”
    (Moral of the story: having a family, especially a big one, just gives The Man more power over you. Three cheers for being single!)
  • ¶¶ 49-50: The executive committee proposed demoting Lancaster to “of counsel” status. He made a counterproposal: income partner status, a guaranteed annual base salary of $285,000, and bonus eligibility. A version of this arrangement was eventually accepted by the firm.
  • ¶¶ 52-53: Lancaster claims his demotion was part of a larger process of “de-equitization” at the firm, designed to boost profits per partner. He fingers Hildebrandt, the law firm consultancy, as the possible instigator.
  • ¶ 71: Lancaster drops in the tidbit that Ken Youmans, managing partner of Seyfarth’s Los Angeles office, had 2008 compensation of $1.7 million and 2009 projected compensation of $1.625 million.
    (Not too shabby! These numbers are well above Seyfarth’s PPP for last year of $740,000, or its average partner compensation of $565,000.)

What does the firm have to say about Lancaster’s lawsuit? A Seyfarth spokesperson told the NLJ that the action lacks merit and that the firm will “vigorously defend” itself.
But we wouldn’t be surprised to see a settlement (which is what happened in Charney v. Sullivan & Cromwell, despite S&C’s initial declaration that it would defend itself vigorously). Even if the powers-that-be at Seyfarth believe that they dealt with William Lancaster appropriately, he certainly seems willing to air dirty laundry, at least based on his complaint. Discovery, to say nothing of a trial, could generate more embarrassing material.
Furthermore, Lancaster’s lawsuit against Seyfarth puts the firm in an awkward position with respect to the Billy Blanks malpractice action, which is still pending. In defending itself in the Blanks case, the firm may be providing ammunition for its opponent in the Lancaster case (or vice versa).
We’ll keep you posted; stay tuned. If you have information you’d like to share about the situation, please email us (subject line: “Lancaster v. Seyfarth Shaw”). Thanks.
Lancaster v. Seyfarth Shaw [PDF]
Seyfarth Partner Sues Own Firm, Alleging Demotion and Exploitation [National Law Journal]
Seyfarth Partner Sues Over Demotion, Claims Core Values Just a Marketing Tool [ABA Journal]
It Could Get Awkward at Seyfarth [Am Law Daily]
Earlier: Court karate chops Seyfarth Shaw over Billy Blanks malpractice suit

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