Attorneys Holding on in an Uncertain Economy

Times May Appear Tough, But Lawyers Are Still Making Money In A Variety Of Firm Sizes And Practice Areas

Published: Mon, October 21, 2002 1:00 am

By JEANNIE GREELEY Massachusetts Lawyers Weekly

A mid-sized Boston law firm happily reports that it is “thriving” in this economy, having increased billable hours by 6 percent since the boom years of 2000 and hired several new associates to handle increased business. Compare this to the grim picture at Boston’s Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, a 300-plus attorney firm that has laid off 30 attorneys and an equal number of support staff, put more than a dozen summer associates on hold and been forced to shuffle attorneys from stagnant practice areas into groups that are still bringing in business. But Mintz, Levin could be any of Boston’s large firms that are laying off employees, eliminating bonuses and cutting starting salaries by as much as $10,000.

It is no secret that times are tough. But what might be surprising to large-firm attorneys is to see how well their counterparts at small to mid-sized firms are faring in this economy.

This is due, in part, to the fact that small firms didn’t follow the large-firm lead in hiring large numbers of business and finance lawyers to handle the short-lived dot-com boom. Furthermore, small firms have been able to adapt quicker to the changing legal marketplace and were already rooted in solid practice areas such as bankruptcy, real estate, litigation, and trusts and estates.

While most lawyers are reluctant to speculate about when the economy will turn around, they do admit that the abrupt economic downturn has led to some drastic measures and a renewed focus on creative management.

“The layoffs were the most difficult thing I’ve had to do in my five years as managing partner,” says Irwin M. Heller of Mintz, Levin. “We do pride ourselves on being a caring institution and organization, and I think that’s one reason we waited longer than we should have to take this action.”

Is Bigger Better?

The legal landscape was far different two years ago than it is today. A technological boom was sweeping the nation. Massachusetts, in particular, experienced an influx of thousands of jobs and the growth of the “tech belt” along Route 495. Stories of astronomical salaries, massive stock options and market madness became everyday chat around the water cooler.

Many of Boston’s most prestigious firms were the primary beneficiaries of this tech boom, and they geared up for it by stockpiling associates, offering exorbitant starting salaries to outdo their competitors, and luring the best and brightest with excessive bonus packages.

Now it is recovery time. The tech boom has slowed to a fizzle. Stock options have become less attractive than the paltry 3 percent interest rates on savings accounts. And law firms are left pondering the fate of many associates who were hired to handle business that never materialized.

Add to this Sept. 11 and the picture grows grimmer. According to Heller, the terrorist attacks turned what was predicted to be a “shallow dip” in the economy into a “trough” for law firms. Business and finance groups that had been beefed up at the larger firms suddenly suffered a dearth of IPOs, and mergers and acquisitions, and many were left with no alternative but to cut associates. Some firms have gone a step further by reducing starting associate salaries from $135,000 to $125,000.

Though some small and mid-sized firms (defined as 50 lawyers or fewer) did not enjoy all the fruits of the tech boom, they seem content to have sacrificed a bit of that pie to be in the stable positions they are in today.

“I think the people here feel secure and do not have a concern that they will be laid off because there isn’t enough work to keep them busy,” says James F. Kavanaugh Jr. of Conn, Kavanaugh, Rosenthal, Peisch & Ford, a mid-sized Boston firm specializing in litigation. In fact, it is Kavanaugh’s 28-lawyer firm that hired three associates over the last four months to handle the 6 percent increase in billable hours the firm has had during the current recession.

“I am fully optimistic about the future,” says Kavanaugh. “The bulk of our practice is litigation, and we started this firm in 1988 just as the recession of the early ’90s hit. And we grew very fast. I do not think that a continuation of the economic doldrums will have an adverse affect on that practice.”

Kavanaugh’s optimism is echoed by Howard P. Speicher, director of the 31-attorney Davis, Malm & D’Agostine firm of Boston, who reports a similar “controlled growth” at the firm, particularly in employment law and litigation.

“We’re doing very well right now,” he says. “And we’ve actually been adding lawyers as opposed to losing lawyers through attrition.” Mid-sized and small firms also report that more qualified candidates are interested in their firms since the large firms put the brakes on new hires. And some attorneys are interviewing candidates who had their offers rescinded by large firms and are now scrambling to find jobs at a time when most large firms have wrapped up their hiring cycles.

M. Ellen Carpenter of Boston, a member of a 10-lawyer firm and former cochair of the Boston Bar Association’s Solo & Small Firm Section, says small firms are becoming a more attractive option for recent graduates because of the dim prospects at larger firms. While starting salaries at a small firm might pale in comparison to those at a larger firm — Carpenter estimates starting small-firm salaries at $40,000 to $45,000 — there aren’t many options in an economy like this.

“I think they’re adjusting their expectations,” she says of recent graduates. William M. Mandell, cochair of the BBA’s Solo & Small Firm Section, says the five-attorney Boston firm where he is partner is definitely benefiting from the trickle down effects of large-firm layoffs.

“One of our associate slots just opened up and we posted a listing. Within the last two weeks I think we’ve received over 50 resumes for that position,” Mandell says. Of the respondents, Mandell notes that at least 40 percent were attorneys who lost their jobs at other firms for economic reasons, and many of those were from “large, well-known firms in Boston.”

Smaller firms also have an advantage in being able to hire new attorneys on an “ad hoc” basis, while large firms often hire a set number of associates per year, or base hiring on anticipated business growth, which can result in overstaffing.

“It’s kind of the turning the battleship phenomenon,” says Mandell. “The larger firms have to plan much farther in advance to staff up and have to plan on the work being there. The smaller firms travel leaner through their business cycles and may not have to lay off as many people. In most instances, they don’t have to lay off anybody. Right now we’re hiring, which is counter to the market forces.”

Smaller and mid-sized firms also benefit in this economy because they often represent smaller and less high-profile clients who weren’t heavily investing in legal resources that they now have to drastically cut from their budgets.“Any client can have economic problems and cut down on their legal needs,” says Speicher. “But just as we’re cautious, a lot of our clients are pretty well established and cautious.”

More importantly, mid-sized and especially small firms offer increased job security when the market is bad because they have more control of their overhead, lawyers say.

“I feel less stressed in this downturn because when I wake up everyday I know I have a job,” says Mandell. “One of the great attributes of being in business for yourself as an attorney is that you do have more control over your life, and in times of economic stress, that can ameliorate the overall anxiety that everyone can experience when there’s a slowdown in the business cycle.”

Where’s The Business?

Business and finance law have clearly been hit hard by the recession, and these are exactly the areas the big firms beefed up in recent years to take advantage of the now-failed tech and dotcom boom. Heller reports that 25 percent of Mintz, Levin’s 480 attorneys are in the business and finance practice. Of the layoffs at the firm, 90 percent were in that practice area. He attributes the attrition to a decrease in both IPOs and business from venture capitalists.

Analyzing business activity from several months in 2001, Heller notes that there were 50 IPOs in the biotech arena, of which Mintz, Levin was involved in 30. For that same period in 2002, there were three IPOs, and only one of these involved Mintz, Levin attorneys, according to Heller.

“That’s a lot of business that just went away very, very quickly,” Heller says.Other practice areas are faring much better in spite of the economic slump. For example:

* Bankruptcy

In addition to laying off associates, some larger firms have been forced to shuffle attorneys from certain inactive practice areas to other practices that are doing well in this economy. One practice area that attorneys at firms big and small say is “booming” is bankruptcy.

“I think we’re seeing more cases, and we’re seeing more litigation within the cases,” says Thomas O. Bean, who specializes in commercial bankruptcy and serves as cochair of the BBA’s Bankruptcy Law Section.

Bean says some of the increase can be tied to fallout from scandals like Enron and WorldCom, but he notes that bankruptcy tends to benefit from tough times. In fact, he reports a 10 percent increase in his billable hours this year over last.

Mintz, Levin attorneys are also profiting from bankruptcies, according to Heller, since each bankruptcy requires multiple reorganizations and the restructuring of debt. He notes that 257 public companies nationwide filed for bankruptcy in 2001, and filings in the first half of 2002 numbered 114.

According to James M. Lynch, clerk of the U.S. Bankruptcy Court, Chapter 11 and Chapter 13 filings have increased by more than 8 percent to date in 2002, compared to the same period in 2001. (There have been 120 Chapter 11 filings this year and 1,897 Chapter 13 filings, compared to 111 Chapter 11 filings and 1,744 Chapter 13 filings last year.)

Since the bulk of many bankruptcy cases is transactional work, firms are able to shift lawyers from their sluggish business and finance practices, where lawyers have transferable transactional skills, to their bankruptcy practices. However, the increase in bankruptcy work is still not enough to compensate for the loss in business and finance. But bankruptcy attorneys agree that the current spike in business is nothing in comparison to the recession of the late ’80s and early ’90s, when bankruptcy filings hit an all time high and foreclosures went through the roof.

“In the early ’90s there were a lot of bank failures, which added another whole layer,” recalls Carpenter. “We’re not seeing that, and I don’t think we will see that this time around.” Bean concurs. “Then we were just crazy,” he says of the last recession. “It was absolutely crazy with work.”

* Litigation

Litigation has always been a fairly recession-proof practice area, and attorneys say people actually become more litigious in an economic downturn.

Plaintiffs’ attorney Douglas K. Sheff of Boston says his office is busier both reviewing claims and taking on cases, and notes that personal-injury cases aren’t as risky for people worried about their finances.

“In rough times people look to contingent-fee lawyers as those who can provide them with an upside but cannot deplete their resources, so it’s a win-win,” says Sheff. “I would never root for a bad economy, but just like mortgage companies who are seeing the interest rates fall and incidences of refinancing going on in the real estate world, so, too, is there a tendency for plaintiffs’ attorneys to get very busy during these difficult times.”

Sheff notes, however, that even successful cases can have unfortunate outcomes in this economy. “There is always the potential that a poor economy makes your defendant judgment proof,” he says.

Defense attorney Michael J. McCormack of Boston, who represents the MBTA, along with other public agencies, agrees with Sheff’s assessment.

“The real economic impact is much greater on public utilities and public agencies than insurance companies,” says McCormack. “They’re aggressive in defending claims because they just don’t have the resources and funds to pay them and also they are taking the position that, even if they settle the case, you’re not going to get paid” for quite some time.

There may actually be a decrease in the number of cases going to litigation, McCormack claims, because plaintiffs’ attorneys are more “circumspect” of claims and they have to assess the cost of a case as well.

“I think you probably see fewer claims in litigation just because it’s expensive and lawyers are just as impacted [by the economy] as everyone else,” he says.McCormack’s advice to plaintiffs’ attorneys handling cases in this economy: “If you have claims that you can settle today and get paid, do it.”

* Intellectual property

Another practice area reportedly doing well is intellectual property. Though people might expect IP to be suffering for lack of hi-tech development, consultants say science and biotechnology still fuel this practice area.

“Technology is technology,” says consultant Mark L. Kwatcher, president of Kwatcher Legal Placement of Boston. “People continue to develop their technology and things need to get done. That’s a longer cycle than a corporate or real estate transaction.”

With regard to Mintz,Levin’s intellectual property group, Heller says “we can’t hire people fast enough in that area.” He says the increase is due to companies growing more anxious to defend their technological advantages in a struggling marketplace.

Sheppard Weisman, managing director of Kelly Law Registry of Boston, says that while no practice area can currently be described as “thriving,” intellectual property is “the hottest food group.”

* Trusts and Estates

Although attorneys might expect trusts and estates to do poorly in a slumping economy, it is actually doing well, according to attorneys. They attribute this to the emotional aftershock of Sept.11.

“People are trying to impose order on a world in which their perception of risk has increased,” says attorney Mark W. Williamson of Boston, who specializes in estate planning and chairs the Massachusetts Bar Association’s Probate Law Section. Williamson says the events of 9/11 and the positive press given to the New York Bar Association for promptly handling the estates of those who died in the attack has created an increased awareness about the need for estate planning.

“These are issues that people are usually very successful in keeping out of their minds and [the terrorist attacks] has brought it to the forefront for many,” he says.

But Williamson also notes that trusts and estates is a practice area that typically isn’t damaged by a slumping economy.

“People still die regardless of the economic climate,” he says. “If anything, I would think that people are more contentious about issues of settling estates when there’s fewer assets to be divided.”

* Real Estate

Contrary to popular opinion, real estate practices are not doing badly. In fact, some attorneys report a growth in this practice area, especially on the residential side, which they say could be a byproduct of historically low interest rates. Real estate, according to attorneys, has also become a more attractive investment given the prolonged stock market slump.

However, attorneys are more cautious when talking about the stability of their commercial real estate practices. Some attorneys say their commercial practices owe their current stability to many ongoing long-term projects that are continuing despite the economy. But some legal consultants say the commercial area of the practice is hurting because people are wary to invest with the market down, or they simply don’t have the money.

“A lot of business people are gun-shy about making any kind of investment right now,” says Kwatcher. “The 3 percent Christmas Club at the bank doesn’t look so bad right now.”

Though real estate practices might be stable and even showing some signs of growth right now, attorneys are concerned about the future.

“Whenever a new [real estate client] comes in, I’m relieved to hear that things are still going well,” says Speicher of Davis, Malm.

And Kavanaugh says of his firm’s real estate clientele: “If the recession continues for some time, it may well affect those clients.”

* Employment

Attorneys report that employment law is thriving just as it did during the economic high times. Whereas in the boom of the mid-’90s, business was derived from non-compete agreements, it now stems from an increase in wrongful discharge claims, plant closing issues and employment discrimination claims, according to James Bucking, a partner in Foley Hoag’s labor and employment practice and former chairman of the MBA’s Labor & Employment Section.

“One of the things about being a labor and employment lawyer is that there are the kinds of claims that you see both in the good times and the bad times,” says Bucking. “From the standpoint of a management labor lawyer, things are about as busy as they were when the economy was strong.”

But James Weliky, current chairman of the MBA’s Labor & Employment Section, who represents employees, has a different perspective.

“The increase in business is not as significant as one might think,” he says.

Weliky claims that while there has been a significant increase in the number of people inquiring about potential claims, employers have grown more cautious and by-the-books when conducting layoffs and issuing post-termination benefits. So the increase in business for attorneys comes from more time-consuming case analysis — which often doesn’t result in an increase in cases that are worthy of litigation.

“If you’re going to take this kind of a case, you have to show that this person was swept into the pool of layoffs for illegal reasons,” Weliky says.

* Divorce Law

Divorce attorneys report both peaks and valleys in business, and activity seems based on a client’s decision to weather a divorce in this economy versus staying in a marriage until the market picks up.

Boston attorney Nancy Van Tine, a partner in Burns & Levinson’s divorce and family law group, says her business has increased in this economy because the problems that money once hid in marriages are now being revealed.

“When the money goes away, the marriage goes away,” she says.

And she notes that Sept. 11 made people realize the fragility of life, causing many people in unhappy marriages to opt for divorce.

“We are all hugely busy this year,” she says, adding that the firm’s divorce and family law group hired two new associates in the last five months.

Van Tine adds that the divorce cases in a down economy are often marked by increased bitterness between couples because there is less money to fight over.

“Stock options aren’t as sexy,” she says. “They’re all under water.”

Cases in this economic climate also require more time and attention from attorneys because the financial stresses tend to be magnified and cases become more complex, according to Van Tine.

The quandary for lawyers, Van Tine says, is having to go from “dealing with a family that had a very good income stream when it was intact” to “dealing with the same family who has a drastically reduced income stream at a time when you’re asking that income stream to cover two households.”

But Kavanaugh disagrees with Van Tine’s assessment. To the contrary, divorce cases in his firm’s domestic and probate litigation practice have decreased in this economy because spouses “might not press for a finalization” of a divorce with the hope that the market will rebound and assets will be worth more in six months or so.

However, Van Tine is hard pressed to believe that people can stay in an unhappy marriage simply for financial reasons.

“I don’t think people who are getting divorced are that rationale,” she says. “The most rational of human beings is savaged by this.”

Riding Out The ‘Recession’

While some firms are financially stable enough to actually hire associates in this economic climate, most large firms are reporting a state of lockdown. The belts are being tightened, and partners are clamoring to cut operating costs and are taking more creative measures to weather this cycle. Their goal is to emerge bruised rather than battered.

Mintz, Levin, in addition to the 30 attorneys it laid off, has asked 15 of its 40 summer associates — normal class sizes usually range from 20 to 25 — to accept $3,000 a month to delay their start dates for one year.

The associates are given the opportunity to perform legal services for public interest groups during that year. But, if they choose, they can simply take the $36,000 and have the year off, according to Heller. This salary, however, does pale in comparison to their expected $125,000 starting salaries. Summer associates were also offered $20,000 if they chose not to stay with the firm.

“We did not want to be in a position where we let go very good second-years in order to make room for these first-years, which some firms are doing,” says Heller. “Nor did we want to have a class where everyone was in and they were all working 70 percent … We felt our first commitment was to our existing associates and that this was the best solution overall in a difficult situation.”

Asked if he worried about the effect the decision would have on the firm’s reputation, Heller says it shouldn’t hurt them in the long run and that “to a lot of people, $36,000 a year to do whatever they want is not the worst solution.”

Other firms are opting not to hire full-time attorneys, and are instead exploring the benefits of temporary and contract attorneys, according to consultants.

Karen Katz, managing director of Law Corps, says there has been a 70 percent increase of inquiries into the attorney placement service since last year. The service is attractive to law firms, she says, because attorneys are pre-vetted by the company, and because Law Corps assumes all the costs and responsibilities associated with salary, benefits and management of the attorney.

“It’s a much less expensive way of continuing to meet client demand, which is not always reliable,” according to Katz.

Weisman of the Kelly Law Registry, which also places temp attorneys, says, “What we provide is a service that could help [law firms] to cut the fat because they have the ability to use people on an as-needed basis.” Attorneys can be placed for several months to help handle a certain project, and all of the costs can be passed on to the client as billable hours, he adds.

But overall, Weisman says the current economy has hit the legal consulting and recruiting industry hard.

“It’s been terrible, truthfully,” he says. “We are in a cyclical business. So we move and shake with the upturn and we sort of suffer a bit in the downturn.”

“We now have fewer positions to fill, more candidates than you can imagine and we’re competing with the candidates independent of recruiters,” Weisman continues.

Though Weisman was practicing law during the last recession, he learned many lessons about that period from his mentor, Alan R. Stone, founder of Stone Legal Services. According to Weisman, Stone taught him that economic struggles are an inescapable part of the legal recruiting world — they have happened before, they will happen again, and in between there will always be a better cycle of success.

While Weisman expresses hope that the legal industry’s current economic plight will teach everyone a lesson for the future, he isn’t counting on it.

“We may see a little bit more hesitancy when things turn around,” he predicts. “And then we’ll all be successful again and things will go crazy again, because, god knows, none of us are smart enough to learn from our mistakes.”