David Pudlin

Many midsize law firms are reporting what seems to be surprisingly stable revenue and billable hours during the pandemic that hit the United States in mid-March, and even reporting growth in practice areas handling issues connected to COVID-19—such as business counseling related to the Coronavirus Aid, Relief and Economic Security Act, human resources and employment matters, and insurance and bankruptcy.

Family law and trusts and estates also have witnessed increases, according to firm leaders, who say growth in these areas has helped to cushion other losses in litigation practices, slowed due to court closures, as well as delayed client payments.

"We are right on budget, up 5% from last year," said David Pudlin, founder and managing partner at Hangley Aronchick Segal Pudlin & Schiller, headquartered in Philadelphia, with offices in Harrisburg, Cherry Hill, New Jersey, and Norristown. The firm focuses on business counseling, corporate transactions and litigation.

"Billable hours have been a little above budget over the last few months, we have had no falloff in collections, and bills are getting paid in their normal course," said Pudlin, who concentrates his practice in tax law, estate planning and business and employment law.

"Billable time is your raw material and a predictor of what firm revenues ultimately will be," he said.

The firm, with about 50 attorneys, does not generally hire midyear, but started a new lawyer in March and has another new one starting in July due to the increased demand in their insurance practice.

"We represent insurance companies in their coverage, such as business interruption insurance," Pudlin said. "Litigation is just beginning over whether COVID-19 is a valid basis to deny businesses coverage."

On the real estate side, Hangley has seen an increase in commercial and retail landlord-tenant matters. For example, if tenants are not paying rent, then the owner has to renegotiate leases, and in some cases, they need to renegotiate the mortgage.

"The increase in insurance coverage and family law [practices] has clearly made up for the areas where we are slower, and enabled us to meet our budget," Pudlin said.

To go along with a significant increase in its family law practice, primarily divorce, the firm has seen an approximately 25% to 30% increase in estate planning, he said.

"Our business counseling related to the CARES act has increased, including employment, HR issues and PPP [Paycheck Protection Program] loan applications," Pudlin said. "The increase in these groups has helped stabilize the firm's revenue during this time."

Eric Seeger, a principal at consultancy Altman Weil who works with small and midsize firms on strategy, said increased business counseling related to the CARES Act is a national trend for these firms, along with increased activity in employment, bankruptcy, financial restructuring of distressed companies, and trusts and estates practices.

While many larger firms are struggling, midsize law firms tend to run on leaner operations while charging clients lower rates, Pudlin said.

"In the 2008-2009 recession, large firms were hit harder, because they are more dependent on large transactions, major litigation and big projects. To some extent, we are seeing the same pattern," Seeger said. "Midsize firms will be well positioned to attract talent from larger firms due to instability in larger firms and lawyers being let go, and will attract work as clients will be eager to reduce legal expenses."

Neil Cooper, executive partner of Royer Cooper Cohen Braunfeld, said his firm's revenue is consistent with numbers they have seen in pre-pandemic times. Royer Cooper has 45 lawyers, with offices in Philadelphia and Conshohocken.

"On the hours side of business, we seem to be pretty busy. We have continued to be busy with our practice pre-pandemic and with some new things," said Cooper, who specializes in corporate and business law—mostly mergers and acquisitions and venture capital.

"Most clients have been paying bills on time, and for those who are not, we try to be sensitive to where they are in their business cycle," he said.

Business counseling is Royer Cooper's largest group, and the CARES Act, and how the legislation is being in implemented, is driving most of their counseling work.

"We counsel clients across the country, with a concentration in New Jersey, Pennsylvania and New York, on issues such as the loan programs, changes to tax rules, bankruptcy rules, real-estate considerations, in addition to employment—helping clients understand new laws and their options," Cooper said.

Royer Cooper offers an education program on running business during COVID-19, including webinars, conference calls and articles advising clients and nonclients on topics such as, "What Philadelphia HR leaders need to know about preparing for workplace reopening" and "Financial relief available to solo practitioners and small practices."

Cooper, a founding partner of Royer Cooper eight years ago, said the firm is monitoring trends and may consider increasing the size of certain practice groups, potentially employment, bankruptcy and restructuring, and advising banks and non-bank lenders.

Delayed client payments have affected some firms, including midsize firms, although the revenue impact may not be as great as expected.

"We are about 10% less than our budgeted number for the first five months of 2020," said Michael Frattone, managing partner at Kleinbard, based in Philadelphia.

"Revenue declined in April and May, but our billable hours have remained stable. What we are seeing is a delay in clients paying," he said.

Kleinbard, with 35 lawyers, has been in a growth phase over the past five years. The firm focuses on business counseling, corporate law, M&A and litigation.

The 80-year-old firm is debt free and "pretty lean staff-wise," said Frattone, a corporate transactional attorney.

"As a firm, we have been doing more counseling in the employment area, and helping business navigate issues related to the CARES Act, such as their eligibility for loan programs, and helping clients understand their increased obligations with respect to employees," Frattone said.

"The increase in these groups has helped stabilize the firm's revenue during this time," he said.

Frattone said that corporate deals that had been put on hold in March and April started to move forward in May, and the firm is now seeing pent-up demand on the corporate transactional side.

"The M&A and litigation practices drive our firm, so the uptick in deals … is giving us the most hope right now that things will stabilize for us," Frattone said. And, he added, "private equity bank consolidators will be looking for bargains, and the deal flow may increase from that."

Julian Jonker, assistant professor of legal studies and business ethics at the Wharton School of the University of Pennsylvania, shared his analysis on the impacts of the pandemic.

"It's true that this is what the economists call an 'exogenous shock'—it is an unexpected impact that nobody can be blamed for—and that has been an important rationale for interventions like the CARES Act."

Although, he argues that too much intervention to protect established firms and industries could disincentivize existing companies from increasing their resilience in the future.

"It may entrench legacy firms and industries at the expense of the innovators who will emerge after this crisis," he said.

Jonker sees the pandemic and "lockdown" as initiating a "great acceleration" of some of the trends that were already underway, including economic and technological changes such as the shift to telecommuting and the virtualization of the workplace.

Frattone agreed.

"We can practice pretty seamlessly remotely. The need for physical space may no longer be a priority," Frattone said. "We can add lawyers and grow in size, even if we exceed our current physical footprint, because working from home will be a reality for a while."

Several midsize firms say they may see a decrease in real estate costs, as well as a drop in expenses such as travel and meals.