Dozens of law firms bit the dust this year, either through acquisitions or complete dissolutions.
Law firm brands come and go each year, as larger firms absorb smaller ones under their existing banners. Several firm names faded out in 2017, such as Chadbourne & Parke, which became part of Norton Rose Fulbright; Liner LLP, which combined with DLA Piper; Levine Sullivan Koch & Schulz and Lindquist & Vennum, both part of Ballard Spahr; and most recently Morvillo LLP, whose lawyers will join Orrick, Herrington & Sutcliffe in January.
Many other firms announced this year that they were dissolving outright, with no other firms acquiring their partnerships. Factors driving those firm failures included mounting partner defections, cherry-picking from larger firms, partner retirements, partnership disagreements and lease expirations.
Law firm dissolutions sped up in 2008 and 2009, when the economy tanked amid the Great Recession. They have accelerated again in the last couple of years, said Roger Hayse, a consultant and founder of Dallas-based Hayse LLC, which advises law firms in times of dissolution, restructuring or acquisition.
The pace of such dissolutions will likely keep up in 2018, said industry observers, as the same market conditions of soft demand and increasing competition for talent continue.
San Francisco-based Sedgwick, one of the most notable examples of law firm closures in 2017, faced dozens of partner defections and declining revenue in recent years. Sedgwick, an 85-year-old Am Law 200 firm, announced last month that it would be shuttering its operations in early January.
Overseas, King & Wood Mallesons’ (KWM) European arm filed for administration in January, representing the largest ever U.K. law firm collapse.
While firms as large as Sedgwick often get publicity when they dissolve, small firms “try to be as quiet about it as they can, so it’s much harder to track” the quantity of such dissolutions, Hayse said.
Still, several small firm dissolutions made headlines this year, because they had long-standing legacies in their local markets. Oftentimes, partners of such small firms cite an expiring lease, putting the onus on partners to decide whether they want—or can—continue running a firm.
After an 80-year run, partners at 22-attorney Wormser, Kiely, Galef & Jacobs in New York opted to dissolve the firm this year, facing an expiring lease and partners near retirement age.
“The lease date is everything,” said Wormser Kiely partner Patricia Gannon, now a shareholder at Greenspoon Marder. “Do you want to continue, do you renew, do you have to keep going? What has changed?” She added that partners at her prior firm all had a different idea of where they wanted to go and what type of firm footprint.
After 47 years, Schwartz, Woods & Miller, a Washington, D.C., boutique that reportedly helped public broadcasters secure Federal Communications Commission licenses, said it “has taken down its shingle.” One of its attorneys retired, but attorneys Larry Miller and Steve Schaffer now practice at Garvey Schubert Barer.
Meanwhile, Chicago-based intellectual property boutique Niro Law, a firm that became known for filing lawsuits on behalf of patent trolls, announced in January it would close down, after the death of its founder. The IP boutique dissolution follows the closing of IP boutiques Kenyon & Kenyon as well as Novak Druce Connolly Bove + Quigg in the last two years.
Small law firms are more vulnerable now because it’s becoming increasingly difficult for them to compete for talent, said Hayse, the firm consultant. Smaller firms, particularly those in the 25 to 100 attorney range, are often picked over by larger firms looking for particular expertise, leaving a “financial hole” in the firms, he said.
“Small and midsize firms are under more and more pressure because their most talented people are constant targets of larger firms,” Hayse said. “You’re seeing a lot of firms cherry-pick star lawyers out of small firms, and the remaining firms can’t survive.”
Meanwhile, some of those firms also don’t have enough capital to lure lateral partners who need time to develop business, nor enough money to hire a star lateral who already has the business or can quickly develop it, said New York legal recruiter Sharon Mahn.
Smaller firms often are not well capitalized, Hayse said, because their partners are not funneling enough capital to their firm. “Their capital structure isn’t sufficient to weather the storm,” he said, while they sometimes wait too long to invest in infrastructure and technology. “They give up and wait to be acquired,” he said.
One barometer of the stress law firms are feeling is the pace of mergers and acquisitions, which can serve as lifelines to struggling firms. According to Altman Weil Inc.’s MergerLine figures, the number of law firm combination deals this year has already reached a record high of at least 96. Some of those firms, Hayse said, could have dissolved if they didn’t find a merger partner.
Sometimes firms simply dissolve after partners decide they don’t want to practice together, either amicably or in connection with some kind of dispute.
The Delray Beach, Florida, law firm Weiner & Thompson, dating back to the mid-1980s, dissolved, its partners said in March, adding they were going their separate ways. Also in Florida, Fort Lauderdale litigation firm Farmer, Jaffe, Weissing, Edwards, Fistos & Lehrman, formed in 2009, planned to cease operations this year, after the six partners decided on different career paths.
In California, Tropio & Morlan, a commercial litigation and products liability boutique in the Los Angeles area, dissolved in June after name partner Scott Tropio and two other lawyers moved to the local office of Wilson Elser Moskowitz Edelman & Dicker on June 12.
At Buffalo-based firm Cellino & Barnes, well-known in New York and California for its catchy jingle and ad campaigns, Ross Cellino filed a suit in May against Stephen Barnes seeking to dissolve the 25-year partnership, in an ongoing court battle.
In Connecticut, Sean McHugh, partner at six-attorney McHugh, Chapman & Vargas, sought in court filings to dissolve the firm, amid a dispute with partner David Chapman.
Freund & Brackey, an entertainment law firm in Beverly Hills with about six attorneys, closed after the departure of partner Thomas Brackey. His former partner, Jonathan Freund, said he has opened a new firm, Freund’s Legal, with other attorneys, confirming the split occurred amid a partnership dispute.
Hayse, the firm consultant, said he expects the pace of law firm failures to increase with the next economic downturn. “The bubble is going to burst,” he said, “and then you will see a lot of law firm dissolutions.”