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On a recent Monday, Nimish Patel walked into the offices of five of his associates to deliver the bad news: They were laid off.
His Los Angeles law firm, Richardson & Patel, had never let anyone go in its 23 years. Even during the dot-com bust, his firm, which focuses primarily on corporate and securities work, had diversified and continued to grow.
But in the past year, the financial crisis took its toll. In an attempt to avoid layoffs, the firm scrapped expansion plans and shifted associates to other groups, such as the bankruptcy and China practices.
But by August, the numbers still weren't looking good.
Patel said he knew that he would have to do something drastic. To ease the pain, he announced the layoffs "in one fell swoop" and reiterated that the decision wasn't based on anyone's poor performance, he said. But he had an added challenge: With 50 lawyers, Patel's firm feels more like a family, he said. The lawyers know each other, and their spouses know each other. They go to each other's holiday parties. On the day of the layoffs, in September, four partners at the firm had just attended the wedding of an associate. Now, that associate, returning from his honeymoon, was one of the five who had lost their jobs.
"It was the hardest thing I've ever done," said Patel.
THIS IS A BUSINESS
Richardson & Patel is not alone. In the past several months, numerous law firms have laid off lawyers and staff members as the financial crisis dips into their bottom line. At some of the nation's largest law firms, such as White & Case and Orrick, Herrington & Sutcliffe, which announced layoffs this month, dozens of lawyers have been affected.
While the numbers might not seem as startling, layoffs at smaller firms have the added pain of cutting into an already lean operation.
"They tend not to be in as expensive of office facilities as the big firms, they tend not to have the management administrative infrastructure that bigger firms do, and they also tend not to bill as high as the big firms do," said legal consultant Bob Henderson, owner of RJH Consulting in Jackson Hole, Wyo., who works with small law firms in 42 states. "So when it comes to cutting costs, the big firms probably have more avenues for reducing costs than the smaller firms do."
Patel had just obtained J.D. and M.B.A. degrees from the University of San Diego when he joined his firm in 1999. At that time, the firm's clients were primarily startup private companies seeking venture capital financing.
Then, the dot-com bust hit.
"When the lights went off, we needed to retool our firm," said Patel, who quickly ascended to partner. Richardson & Patel began focusing on public companies seeking financing through offerings or institutional investments, such as hedge funds. In eight years, Richardson & Patel's roster of public companies has grown from two to 150. The average deal is for about $5 million.
In 2006, Richardson & Patel opened a small outpost in New York.
Despite some litigation hires, the firm continued to focus on corporate and securities work. Even today, about 90 percent of Richardson & Patel's clients are companies, not investors, and the firm has an equity stake in 20 percent of those companies, Patel said.
At about the same time, the firm began looking to China. Since then, Richardson & Patel's total number of Chinese clients has jumped from two to 35, as more Chinese businesses participate in reverse mergers as a means to be listed in U.S. stock markets.
That same year, 2006, Richardson & Patel brought in its first chief financial officer, Douglas Gold, who was an executive at a small software firm in Los Angeles. Patel said he purposely didn't want to hire a lawyer for that position.
"One thing we've always prided ourselves on is we don't feel like lawyers," he said. "This is a business."
The partners at the firm met with Gold once a month to go over the firm's financial health. One of Gold's first tasks was to recruit a bankruptcy group to diversify the firm's practice areas. Gold lured the partners at Weinstein, Weiss & Ordubegian, a local bankruptcy boutique, who officially launched the firm's bankruptcy and reorganization practice group this summer.
But in August 2007, the first signs of the financial crisis had become apparent, Patel said. The hedge funds that invested in Richardson & Patel's clients began to receive redemption notices (from their own investors), he said. Companies were cutting expenses and settling into a hibernation mode. He began to hear "whispers" of bankruptcy.
"It felt like it was slowing down," Patel said.
So the firm moved some corporate and securities associates to the China practice and, with some litigation matters approaching trial, Patel continued to plan for expansion. The firm was looking to hire lawyers in patent prosecution, as well as tax work, and open an office in San Francisco.
But by May, the market wasn't improving. "There was this calm before the storm," Patel said. Unlike the dot-com bust, he said, the slowdown was happening on a global scale and to large, national companies.
Heading into the normally slow summer months, 80 percent of Richardson & Patel's work still involved corporate transactions.
"All investors go on vacation. We knew that historically," he said. "But something about this summer didn't feel the same."
For one thing, he said, investors previously had sent e-mails to the firm about potential deals they intended to discuss upon their return from vacation. This time, the investors passed on possible deals, or simply didn't reply to the firm at all.
In looking at the firm's cash and billings, Gold said he remembered seeing a gap starting to build. And the firm's profits per partner, which had risen by 60 percent the year before to land in the range of $600,000 to $700,000, faced a significant dip for 2008.
But the layoff decision was based in large part on a prediction.
"Because we were tied to the financial services space, we started seeing and feeling it quicken," Gold said. "We understood what the potential fallout could be."
That Monday in September, in addition to the five associates, the firm laid off half a dozen staff members. All of them got a small severance package. Gold, who had laid off 1,200 people at a time in a previous job, said this one was more difficult.
"We're not large enough to be emotionally detached," he said, "but we're not small enough where the stakes aren't as high."
The reaction among associates was mixed. One individual took the news hard; others were more understanding, Patel said. Most of them left the office that day. "It was tough on them," he said. "They needed to be away from the firm at that moment."
The next day, Patel assured the remaining associates that no more layoffs would be necessary. He remains optimistic about the coming months.
LOOKING TO CHINA
Some deals are supposed to close in a few weeks, all in China, he said. Earlier this year, Richardson & Patel formed an alliance with Li & Partners, a Chinese law firm with about 75 attorneys. With that alliance, both firms share clients, and Richardson & Patel now has affiliated offices in Hong Kong, Beijing and Shenzhen, China. Today, Chinese businesses make up 20 percent of the firm's client base.
Further, Richardson & Patel has picked up some clients in recent months after Heller Ehrman and Thelen, both of which had sizeable Chinese practices, dissolved, Patel said.
Back home, Aram Ordubegian, a bankruptcy partner at Richardson & Patel, predicted that potential bankruptcies of retail companies and automobile dealerships could provide tons of legal work to the group, which also represents creditors. This month, the firm's bankruptcy group added a fourth partner.
The firm also is hunting for a real estate group, Patel said. Despite the worsening economy, he's not afraid of risk, he said. And as to the financial crisis, he concluded: "This too will pass."
