Capital Contributions

Put your new firm under the magnifying glass.

Ed. note: This is the latest installment in a series of posts on lateral partner moves from Lateral Link’s team of expert contributors. Today’s post is written by Elizabeth Katkin, a Senior Director at Lateral Link, where she focuses on partner and practice group transitions and developing strategic relationships with top international firms and companies in the Middle East and Europe.

Do you have one or more of the following frustrations with your current law firm? Inadequate overall or relative compensation. No platform to support or develop your practice. Feeling shut out of management decisions — or even having a voice.

Perhaps you are just beginning the search for a new firm, or perhaps you know where you are headed next — a place with a great footprint, support in the practice areas you need, and a group of lawyers that feels like a good fit. In the world of law firm management today, you already know that what you see is not always what you get. It is essential to gauge the financial and management health of a firm before you move, both to ensure your happiness and viability at the firm and to ease your exit in the event that there is trouble in paradise.

Here are five things you should understand before giving your withdrawal notice to your current firm:

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In discussing the recent news of Akin Gump overhauling its partnership capital structure, I sounded some generally positive notes. I echoed the thoughts of Akin Gump’s chair, Kim Koopersmith: “We thought it made sense to have everybody have skin in the game.”

But there are less sanguine ways of assessing the situation. Are the non-equity partners who will be converted into equity partners putting skin in the game, or are they getting skinned?

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If you’re a law firm managing partner, the captain of a Biglaw ship, have you done all that you can to make sure your vessel is as seaworthy as possible? You don’t want your ship to suffer the fate of the S.S. Dewey.

Some steps are easy and obvious. Conduct layoffs of unneeded associates, whether openly or stealthily. Offer buyouts to surplus support staff (or lay them off, if feeling less generous). Usher underperforming partners towards the exit, to lower the denominator for your profit per partner figure; keeping PPP high reduces the likelihood of crippling defections and helps you attract star laterals.

Those are the basic moves, which everyone is doing. For something that’s a little more challenging, a maneuver that might even impress the East German judge in its level of difficulty, you can play with your partnership capital structure….

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Jodi Arias

* Growth was “steady” for New York’s top firms, with Latham & Watkins and Skadden Arps leading the pack in terms of gross revenue — which wasn’t surprising, considering their Am Law 100 gross revenue ranking. [New York Law Journal]

* Dewey know when we’ll be able to stop using this pun? Hmm, at this rate, probably never. Steve Otillar and Citi recently settled their dueling suits over the ex-D&L partner’s capital contribution loan to the failed firm. [Am Law Daily]

* Cahill Gordon was supposed to investigate the Rutgers basketball scandal, but the firm cited a conflict of interest, so Skadden Arps stepped in. [Insert the joke of your choice here. I don't like or watch this sport.] [Reuters]

* Surely you’ve heard about Justice Orie Melvin’s sentence by now. As it turns out, shaming a judge like you’d shame your dog online might not be enforceable… which is too bad. [Pittsburgh Post-Gazette]

* When we last spoke about “controversial” commencement speakers, we didn’t bring up the fact that Nancy Pelosi would be pulling double duty at UC Davis and Baltimore. Thoughts? [National Law Journal]

* She’s got a death wish: the aggravation phase of the Jodi Arias trial was postponed at the last minute yesterday, and some think it’s because of the interview she gave after the verdict was announced. [CNN]

Stephen O’Neal

I later found out that during this whole period of time… when I was being romanced by Citibank, that they had reason to believe — in fact, they knew — that Howrey was in default of material covenants, and they didn’t tell me that.

Stephen O’Neal, a former partner of Howrey LLP, in a deposition in his pending litigation against Citibank. O’Neal and another former Howrey partner, David Buoncristiani, allege that Citibank committed fraud by encouraging them to finance their capital contributions with Citi, claiming that Howrey was financially sound when the bank knew Howrey wasn’t.

Peter Kalis: hail to the chief!

Much like the similarly named Kelis, his milkshake brings all the boys (and girls) to the yard. Peter Kalis, the chairman and global managing partner of K&L Gates, just won a fifth consecutive term at the helm of the global mega-firm. As noted in the firm’s press release, which we received here at Above the Law, the 60 voting members of the Management Committee supported Kalis unanimously.

Kalis assumed leadership of the firm in 1997, back when it was called Kirkpatrick & Lockhart. On Kalis’s watch, the firm conducted eight mergers, including the combination with Preston Gates & Ellis that resulted in the “K&L Gates” moniker. When Kalis took the helm, Kirkpatrick & Lockhart was a regional firm with six offices, all in the Eastern time zone of the United States. Now K&L Gates boasts almost 2,000 lawyers in 41 offices on four continents.

But growth brings with it growing pains. Let’s discuss those, and get some information about partner capital contributions at the firm….

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Now this is how you handle negative rumors about your firm.

As we mentioned last night, in the past week or so we’ve seen media reports of possible trouble at K&L Gates. Stories in Law360 and Crain’s Chicago Business speculated about “an alarming rate” of partner departures and “attorneys increasingly los[ing] faith in the firm’s leadership and strict compensation policies.”

The chairman and global managing partner of K&L Gates, Peter J. Kalis, isn’t taking all this sitting down. Very early this morning, the famously outspoken Kalis sent around a firm-wide memo that powerfully refutes some of the claims made about the firm.

If you’re at all involved in law firm management, you should read it. The Kalis email offers a master class in how to thoroughly respond to negative rumors….

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On multiple days over the past week or so, one of the top ten search terms bringing visitors to Above the Law has been K&L Gates. For whatever reason, people seem keenly interested in what’s going on right now at this major international law firm.

(But maybe we shouldn’t read too much into such queries. Also in the top ten search engine terms: “pictures of tacos.”)

So what is going on at K&L Gates? A significant amount of partner attrition, as various news outlets have recently pointed out….

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The Dewey & LeBoeuf drama continues to unfold. As we mentioned in Morning Docket, there have been a few notable recent developments. Citibank just filed a vigorous response to allegations by Steven Otillar, a former Dewey partner, that Citi colluded with Dewey to take advantage of individual partners. Meanwhile, three former leaders of the firm — former chairman Steven Davis, former executive director Stephen DiCarmine, and former CFO Joel Sanders — have filed objections to the global settlement with former partners.

It’s not a pretty picture. And here’s what we’re wondering: Could it happen to another major law firm, sometime in the next twelve months?

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Talk about a pole tax…

* Dewey know if Citibank is planning to sue other former D&L partners over their capital contribution loans? According to one court document filed by Luskin Stern & Eisler, the bank’s counsel, the fun has just gotten started. [Am Law Daily]

* Unlike the voter ID laws in Texas and South Carolina, the Department of Justice has approved New Hampshire’s law of the same ilk. Apparently hippies from the “Live Free or Die” state are incapable of discrimination against minorities. [CNN]

* Arizona, on the other hand, can discriminate against minorities all the live long day — for now. A federal judge ruled that the “show me your papers” provision of S.B. 1070, the state’s strict immigration law, may be enforced. [Bloomberg]

* The latest argument raised in the case over the Mongolian Tyrannosaurus Bataar skeleton is that the bones are actually a “Frankenstein model based on several creatures.” This movie is getting boring. [WSJ Law Blog]

* “[T]he state of New York doesn’t get to be a dance critic.” We’re sure that any man would gladly tell the New York Court of Appeals that lap dancing is a form of art, but should it enjoy a tax exemption? [Associated Press]

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