Biglaw, Law Shucks

This Week in Biglaw: 05.09.10

By  
on

Ed. note: Law Shucks focuses on life in, and after, BigLaw, including by tracking layoffs, bonuses, and laterals. Above the Law is pleased to bring you this weekly column, which analyzes news at the world’s top law firms.

Although this column has turned away from layoff news, we’ll still touch on overall unemployment periodically. The news this week was mixed at best, and the White House accentuated the positive: 290,000 jobs added to payrolls, the vast majority of them in the private sector. Seasonal hiring for the census also contributed a fair number.

But the base employment rate increased from 9.7% to 9.9%. That’s actually the result of some optimism. A lot of people who had given up on the job search renewed their efforts. Of course, they didn’t count as unemployed when they weren’t looking, so their return to the hunt increased the overall workforce (i.e., increased the denominator).

Lump in the discouraged workers, and the "true" unemployment rate is north of 17%, close to its all-time high of 17.4% from October.

While announced law-firm layoffs were few and far between in April, the legal sector lost 1,100 jobs, according to BLS. Note that we specified "announced" layoffs. Stealth layoffs continue, and we think it’s important to specify exactly what that does and doesn’t mean.

For those who abide in BigLaw, there were plenty of interesting developments….

Sponsored

Practice

Sure as night follows day, malpractice suits follow firms’ suits for unpaid fees. That’s why most firms are loathe to do it. Squire Sanders was out $1.2 million and figured that was enough to risk the backlash, so it sued (former) client Armor Screen. Already dissatisfied with losing at trial, Armor Screen countersued for malpractice, alleging the firm kicked off a series of events that led to the company’s patents being invalidated, which the company claims ruined its business. Talk about a nightmare:

The company “paid millions of dollars in fees to SSD and received in return the loss of its valuable patents, the destruction of its business value in excess of $2 million, adverse rulings on every piece of litigation handled by SSD and strengthening the resolve of its business competitors,” states the countersuit. “SSD, a firm hit hard by the economic downturn, seeks to be rewarded for the debacle it caused by seeking to claw another $1,208,026 from Armor based upon documents it charged Armor many thousands of dollars to draft and then required Armor to sign under threats of withdrawal.”

Is having allegations like that get out really worth $1.2 million? It’s incumbent on the firms not to let payables get so high, although Squire Sanders appears to have tried to do that, or at least backstop the fees with guarantees. Still, between the negative publicity and the outside counsel fees, they must have felt like this was a net positive.

To be fair, another problem firms have, unlike most creditors, is that it’s often difficult to withdraw over unpaid fees. So they can’t "stop the meter" when the exposure gets to high. What they can do, and this only works if they really believe they’re a unique service provider, is refuse future work for the client. Not a lot of firms can take that position and have clients really fear that they’ll be disadvantaged down the line.

Sponsored

Kasowitz Benson, Gibson Dunn, and Sonnenschein all came to similar conclusions recently and sued former clients.

Deals

For all its faults, there’s one thing BigLaw has cornered the market on: documenting the biggest deals. Some of the billion-dollar-plus (or otherwise interesting) deals from the past week:

  • HCA IPO ($4.6 billion) – This would be the largest private-equity backed IPO of all time. Simpson Thacher for HCA, Bass Berry & Sims did some regulatory work for the company, and Cahill Gordon for the underwriters. In addition to its fees, Simpson lawyers have a little extra riding on this one. The firm’s investment fund has a stake in KKR, which is the lead sponsor on the deal.
  • IDC LBO ($3.4 billion) – Cleary Gottlieb for IDC’s special committee, Morgan Lewis for the company, and Simpson Thacher for sponsors Warburg Pincus and Silver Lake
  • ABB-Ventyx merger ($1 billion) – Cleary Gottlieb for ABB, Kirkland for Ventyx.

HCA got the headlines, but as AmLaw Daily noted, there was plenty of IPO work to go around. Skadden, Sullivan & Cromwell, Willkie Farr, Cahill Gordon, Latham & Watkins, and others got pieces of that action.

Firms would certainly love the IPO pipeline to refill as bankruptcies start to wane.

But It would take a lot of IPOs to make up for the massive bankruptcy fees. Unlike malpractice suits, griping about excessive fees is the kind of backlash firms don’t mind.

Firms

For all the advising law firms do for clients, once in a while they’re principals on mergers as well. The news over the last few weeks was whether Orrick would acquire SJ Berwin, a 600-lawyer London firm that has been thinking about US expansion for some time. When that fell apart, Proskauer Rose emerged as the most likely partner. The firm had also previously spoken with Goodwin Procter, but Proskauer is now the sole target. Other potential partners that have been suggested include Paul Weiss and Cooley Godward.

They’re not the only firms sniffing each other’s tails. The excessively conjunctioned Townsend and Townsend and Crew is reportedly in talks with Kilpatrick Stockton. Unlike the SJB/Proskauer merger, which would create a firm well up in the top 30 of global firms, this would be a more modest merger. The two would have a combined gross revenue of about $430 million, which would have been #85 in last year’s rankings.

This all comes on the heels of the closing of last week’s merger of Hogan & Hartson and Lovells (Ho’ Love or Hog Love for short, take your pick), which created a juggernaut that will be among the three largest American firms and somewhere in the top ten globally. No matter what you call it, they’ll be chasing a new #1. For the first time in a quarter century, Skadden was knocked from its perch atop the US ranking by revenue.

Maybe we’re behind the times, but we still think of the Clifford Chance/Rogers & Wells merger of a decade ago as the bellwether. And that didn’t turn out so well for ze Americans.

The Hogan-Lovells merger has also sparked a raft of defections as underperformers were shed and partners left to avoid conflicts.

McDermott Will & Emery has also had a lot of departures recently, but there’s no merger to point a finger at. One of those leaving inspired us to create a rebus in his honor.

In the conclusion of the article on Law Shucks, we cover start dates, deferrals, stipends and the weird news of the week.

Topics