Bankruptcy will be an important practice area for the legal profession, obviously, in 2009 and 2010, as we continue to move through the major upheaval in our economy. And our law firms will benefit. Many are now seeking to bolster their bankruptcy practice groups.
However, one aspect I did not expect was that lawyers and law firms will likewise face economic hardships … And I’m not addressing the obvious issues coming from the collapse (for other reasons of the large firms such as Heller, et al.).
I’m addressing the more mundane, the traditional, average lawyer, the lawyers that make up the bulk of our profession. When these lawyers are in trouble, the entire profession needs to wake up and pay attention.
I was just contacted by an attorney asking me to value a law firm for purposes of the lawyer’s personal bankruptcy. His law practice is an asset of his personal estate. Times are hard when the helpers need help themselves.
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Failure can be experienced by small firms as well as large firms. In the case of Dreier, the real shame is not that Dreier failed – he committed fraud and there is nothing new about fraudulent conduct causing failure … and even jail. The sad part of this tale is what happens to other lawyers working in the Dreier firm.
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Forty years after the Pueblo was captured by North Korea, the sailors received judgment for damages. This merely gives the sailors a piece of paper. Go collect! Not, that’s the rub. And ask the Goldman family how much of their 33 million dollar judgment they’ve received from the assets of O.J. Simpson.
In the beginning of 2009, we need to hearken back to the words of Rodney King, "Can’t we all just get along?" The obvious answer is "no." But, litigation may not be the best answer either; it’s certainly not the only answer.
Law firms, even the major law firms (like Heller used to be), whose litigation work makes up more than 50% of their revenue, will need to focus on greater diversity in their offerings if they want to protect their future. More than 10% in any one area always puts a business at risk. Sometimes the risk pays well; sometimes it doesn’t. Just ask the lawyers who were at Heller about the high times and then the implosion.
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In an email today, one of my readers said: "Perusing your archives, I came across your March 2006 Newsletter (see article 2 C) with the title "What do you really do as a Lawyer" in which you talk about GM not listening to consumers and ending with words "predicting" ". . . GM’s bankruptcy." How prescient you were (and hopefully "are")."
What I specifically said was: "What do you really do as a lawyer? You don’t practice law, you serve clients. General Motors, once the largest corporation in the world, lost sight of the fact that its real purpose was serving customers, not making cars. Before too long we may read about GM’s bankruptcy."
The reference here was comparing GM with the service that lawyers need to provide in order to serve clients and grow their practice. My comments then are still valid today. Except that now the prospect of a bankruptcy is real … In fact, one might say that the (though not in the Court) has already taken place.
Thanks, Ross, for going back to see the future.
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I like the thinking of Patrick J. Lamb who, in August 2008, said that a lawyer can negotiate a fixed fee even in litigation. In other words, he contests the old rubric that since one doesn’t know what the “other side” will do in litigation, fixing a fee is not possible. He also suggests that creating a budget for litigation doesn’t guarantee a profit, just that the lawyer will not bill more than the budget.
But, the point that Mr. Lamb raises is that no business is guaranteed a profit. Yet, …
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In discussing the value of his law practice, my client mentioned the figure given to him by his financial planner, a number designed to assure his standard of living. This was the number he wants for the purchase price of his practice. I suggested that the two numbers were unrelated … and that the value of the practice may be more or less than the number his financial planner wanted for his style of life.
This caused us to return to the reason he wants to sell his practice and the time frame for achieving a sale. The more urgent is the desire to sell, the lower will be the price; the less urgency, the greater will be the price. Neither number has much to do with what it will take to reach and maintain your desired standard of living. Such a number may impact your decision to complete a transaction, but really has nothing to do with an objective valuation of the practice.
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