Firms Courting Practice Groups as McDonough Holland DissolvesPetra Pasternak
July 27, 2010
Dismantling a 90-lawyer law firm is a messy business.
Firm leaders at Sacramento, Calif.'s McDonough Holland & Allen are still hopeful that the firm can wind down its operations gracefully. And some at the firm continue to hope that a smaller firm, carrying the same name, will emerge come the firm's planned Sept. 1 dissolution.
But that's looking less likely.
Firms around the state are in talks with various McDonough practice groups, and decisions are expected any day. Southern California-based Burke, Williams & Sorensen, San Francisco's Hanson Bridgett and Sacramento's Downey Brand and Boutin Gibson Di Giusto Hodell are among the firms in negotiations.
Edward Quinn Jr., a McDonough partner and the firm's CEO, said he considered it important to try to keep together the strongest groups: attorneys in the public law, construction law and real estate litigation practices. "We could take advantage of what I would consider the great name reputation of the firm -- you might call it goodwill across our region," Quinn said, "and to save a huge amount of money by not dissolving."
Quinn, who's been with the firm for 25 years, said malpractice coverage is a gigantic expense for a dissolved firm. The firm would also be able to do right by its landlord by holding on to at least some of its space.
But Quinn said lawyers are thinking about what's best for their practices, and moving to a stable existing firm may be more alluring.
McDonough, established more than 55 years ago and one of the biggest in Sacramento, has deep roots in the business community. Many of its partners have practiced together for decades, but numerous factors led McDonough to the brink, including a mix of practices particularly vulnerable to the economic downturn and the departure of at least 20 attorneys since the start of the year.
Having signed a 15-year lease in 2008 for three floors in a brand-new downtown building, the lawyers have been trying to renegotiate terms with landlord and client, Sacramento developer Angelo Tsakopoulos, to keep as many McDonough attorneys as they can under the same roof.
"[Tsakopoulos is] making a lot of concessions to try and keep as many groups there as possible," said a source close to McDonough. "Losing a huge tenant for 68,000 square feet would be tough."
Quinn said negotiations with Tsakopoulos have been going well. "He's been incredibly generous and reasonable," Quinn said. "He's not only a client but a personal friend to a number of us and he's really acting like it; one of my partners said Angelo is standing tall."
But staying in the space would require a group of at least 30 attorneys -- among them several practice leaders -- to be persuaded to stick together, an outcome that seems less and less likely, Quinn said. "It's certainly not good news as far as I'm concerned," he said, adding that he's been a big proponent of keeping McDonough alive in some form but that it's too early to say what will happen with the lease if the firm disbands.
None of McDonough's partners have signed personal guarantees for the lease, so the liability wouldn't be personal. "The leadership in the firm is completely unified -- assuming we do dissolve -- around the intention to take as good care as we can of our creditors. That includes taking care of wages and benefits of our staff," Quinn said.
Quinn added that he doesn't expect the firm to file for bankruptcy. McDonough has never held significant debt, he said, and account receivables continue to come in. The move to announce the firm would be shuttering a month ago with an early September closing date was meant to reduce the likelihood of bankruptcy, he noted. "We continue to think that the bankruptcy scenario is very remote."
Meanwhile, since McDonough's announcement in June suitors have flocked to the teetering firm. With a little more than 70 lawyers in Sacramento and 15 in Oakland, McDonough still has attractive practices. Its rainmakers include Sacramento real estate practice group head Jeffry Jones, Sacramento real estate partner Morgan Jones and Oakland public law partner Michelle Kenyon.
A number of law firms have extended offers, with at least one presenting the chance for a sizable group to stick together. Burke, Williams is interested in expanding its reach in Northern California after picking up a Menlo Park office in late 2008 through a merger with Kay & Stevens. The McDonough group presents an opportunity to establish a branch in the East Bay.
Burke Williams managing partner John Welsh said he could be interested in McDonough's Sacramento space. "We're trying to replicate the footprint we have here in Southern California in Northern California," he said. "The Sacramento office is part of the buildout, if possible."
The firm has already made offers to between 15 and 20 lawyers in Sacramento and Oakland, among them business litigators, public law and transactional attorneys.
McDonough's Quinn himself, a land use attorney, said he hasn't decided about his own job offers. He declined to name the firms. Other McDonough lawyers are weighing offers from at least three other firms: Hanson Bridgett, Downey Brand and Boutin Gibson.
Hanson Bridgett, which has about 140 attorneys, including nine in Sacramento, has offers out with numerous contingencies attached, according to a source close to the matter. Up to 12 attorneys in a number of groups, including construction and labor and employment, are being targeted, the source said. Managing Partner Andrew Giacomini did not return messages.
Stephen Boutin, co-founder of the 27-lawyer business and litigation Boutin firm, said he expects to pick up 10 or more attorneys, though he says the numbers are in flux. "The numbers could change in the next week," Boutin said. "If it's less than 10, there are probably some good reasons, and if it's more than 10, it'll be for good reasons that I'll be really excited about." Boutin said offers have gone to business and business litigation, real estate, tax, bankruptcy and estate planning attorneys.
Downey Brand, Sacramento's largest firm, has invited 23 lawyers to join, primarily in the construction and public law group, Managing Partner Jeffrey Koewler said, though he's still waiting for a formal response. Koewler said he'd like to see his 130-lawyer firm grow to about 175 attorneys in the next few years, with expansion in Stockton, Reno and San Francisco, in addition to Sacramento.
Southern California firm Best Best & Krieger is also said to be interested in McDonough's public law attorneys. Managing partner Eric Garner confirmed in an e-mail that the firm is in discussions with some McDonough attorneys, without giving specifics. BB&K has about 170 lawyers in eight California offices, including Sacramento and Walnut Creek.
There's a good chance that sizable segments of McDonough's 33-lawyer public law practice will remain grouped, one McDonough attorney said. The focus of discussions in Sacramento and Oakland has been to find a firm where the entire group could continue to practice together, the attorney said, adding that there are divisions that may come up. "There's a strong desire to keep Sacramento and Oakland together."
Sacramento firm Kronick Moskovitz Tiedemann & Girard confirmed it is also in the running, without offering more comment.
The timeline for announcements is up in the air as the various parties scramble to pull the trigger. Sacramento lawyer Boutin said he thought he'd have made an official announcement already, but uncertainty remains high as the McDonough attorneys work through the process. He said many of them were deeply committed to their firm, some having practiced together for decades.
"To them, it's been a very emotional process to work through," he said. "It wasn't just a job, but a life commitment."