Often during recessions, large national law firms are able to survive by shifting the billing burden to other departments. During good times, generally the corporate and real estate departments bring in higher revenues. During the bad times, litigation and bankruptcy shoulder the burden. This year, however, we have seen something that has to be a bit scary for big firm lawyers - failure and dissolution of large law firms.
During the dot com bubble bust in 2001, there were one or two large firm implosions - the most highly visible one being Brobeck closing its doors. Brobeck was a San Francisco based law firm that had been in operation for 90+ years - one I actually interviewed at and considered joining coming out of law school. During the dot com boom, they decided to put most of their eggs in the dot com basket and neglected their more traditional clients. The failure of so many dot com clients in 2001 and 2002 was too much for the firm to handle and it eventually dissolved in 2003.
This year law firms have been coping with the recession in typical fashion by ramping up their litigation and bankruptcy work. They have also been laying off a relatively large number of associates (and even some income partners) as compared to previous downturns. Associates in corporate, real estate and structured finance have little work and are increasingly seeing pink slips. But for some reasons, there have already been more high profile firm dissolutions this year than during the dot com bust a few years ago. I'm not sure whether it is because of changing law firm economics, firms taking on lots of debt or whether the slow down is severe enough that even litigation and bankruptcy can't sustain firms. But the last three months haven't been pretty for large law firms.
Notably, today Thatcher Proffitt & Wodd is expected to dissolve. Approximately 100 Thatcher attorneys will be joining Sonnenschein's New York offices, but the rest of the lawyers (100+) will be scrambling to find new employment in a very difficult hiring environment for lawyers.
Previous high profile law firm dissolutions include: Dreier LLP (whose sole equity partner Marc Dreier was arrested for fraud) - putting approximately 250 attorneys on the street; Heller Ehrman - a 125 year old 600+ attorney law firm; and Thelen Reid - an 84 year old 400+ attorney firm.
Phoenix has to date escaped any large firm dissolutions, but at least one firm with offices here has announced layoffs of attorneys - affecting several Phoenix-based associates I'm told. It would not surprise me if more Phoenix firms are laying off one or two associates here and there under the radar - particularly in their large commercial real estate departments.
So I guess the old saying about never having too many lawyers sometimes isn't true. It used to be during a downturn that if your firm laid off associates, the remaining attorneys had a little more work to do and therefore had better job security. But these days, associates have to worry that if a firm is laying off associates - or high profile partners are leaving for other firms - the firm may potentially be close to closing its doors.
Hopefully these attorneys find good work soon. In the meantime, I suggest they do what I do - hang a shingle and become a solo practitioner.
Update: Larry Ribstein, professor at University of Illinois College of Law, has more on Thatcher Proffitt on his blog here. He notes some additional reasons why law firms are quicker to dissolve these days - primarily due to limited liability of partners through the LLP structure (he should know as he wrote a treatise on the topic).
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