Analysis

Coudert Brothers. Brobeck Phleger & Harrison. Heller Ehrman. Thelen. Thacher Proffitt & Wood. Wolf Block.

These names won’t go down as the best managed institutions in history, all succumbing to various market forces and closing their doors. But law firms won’t judge. After all, one firm’s troubles are another firm’s gain.

The most recent example of a firm’s partners being poached — or at least courted — in bulk is Washington, D.C.-based Howrey. The firm has seen a number of departures in the last year and Winston & Strawn has reportedly given offers to about 75 percent of the partners who remain. Howrey has not announced any plans moving forward and has not commented on the situation to various media outlets.

Locally, Morgan Lewis & Bockius picked up 11 Howrey lawyers in the last two weeks, including the head of the firm’s securities litigation, government enforcement and white-collar crime practice and the head of its Chicago office. Steve Wall, Morgan Lewis’ managing partner for practice, made no secret about the fact that Howrey’s situation presented an opportunity for his firm.

“The troubles that Howrey is having certainly made it more convenient for us to fill out the strategic needs that we had,” Wall told The Legal last week.

Morgan Lewis isn’t unfamiliar with grabbing partners from disbanding law firms. The firm hired 17 energy lawyers in New York from disbanding Thelen in 2008 and hired dozens of attorneys and staff members from collapsing Brobeck Phleger in 2003.

Morgan Lewis certainly isn’t the only firm to take advantage of these circumstances, as partners of defunct firms often are quick to find new homes.

Hildebrandt Baker Robbins consultant Lisa R. Smith said law firm dissolutions create an active lateral market.

“Clearly if you look at some of the dissolutions over the last few years, those partners have generally landed pretty well,” she said. “Firms have seen that as a real opportunity, in part because they can pick and choose” the attorneys they want.

The real opportunity in these situations is the chance for firms to get fairly sizable groups, which, Smith said, is harder to do when a firm is looking at the traditional lateral market.

Aside from the potential legal liability that could be faced by a firm that takes a large chunk of a disbanding firm or was somehow perceived to have caused the dissolution, firms that take on smaller groups of attorneys could run the risk of not really knowing until it is too late where the clients of the disbanding law firm will actually go, Smith said.

But with all of the excess space many firms have in this current market, Smith said that risk is lessened because firms aren’t making as big of an investment as they would if they had to find additional space to house these new groups.

So what is the perception of law firms that gain at another firm’s expense? Nothing negative, Smith said.

Taking advantage of these opportunities is just part of the business process. And in a few cases in which firms had announced they were dissolving, those firms have looked to find new homes for their attorneys, she said.

While law firms are known to be rather methodical and, well, slow to pull the trigger on certain moves, unexpectedly being presented with a large group could be a bit daunting. But Smith said there are often warning signs in the market that give firms a heads up that there may be an opportunity on the horizon.

“Certainly we have seen in some of the recent dissolutions that the number of partners who are out talking to other firms increased noticeably” before word of the dissolution was out, Smith said.

Firms have been able to use that time to gauge if a certain group is something they are willing to “pounce” on, she said. There is a risk that the good attorneys are already gone, but in other cases, like that of Wolf Block, there are few defections prior to the dissolutions going public, Smith said.

New York-based recruiter Jerome Kowalski of Kowalski & Associates said it is typically the partners with the sizable portable practices who are the first to go when they become dissatisfied with how their firm is run. He said they go quickly.

The next tier of partners develops some anxiety and those lawyers start to put their resumes out on the street and the legal community starts to question if there is a problem at the firm, he said.

“Hiring and managing partners then inevitably call recruiters they have relationships with, ask if they have heard anything about what’s happening at firm X and mention the incoming tide of resumes,” Kowalski said in an e-mail. “The recruiters then attack like piranhas. And they do draw blood.”

That’s when the rumors start, he said, and sometimes more departures ensue.

“By that point in the scenario, every managing partner presented with the opportunity to acquire the sinking firm knows the firm as a whole is damaged goods and won’t consider a merger, since those who might be valuable have already gone and those left behind are either (a) not particularly attractive on the assumption that they have already sought other alternatives and haven’t been able to do so, or (b) would only view joining an acquiring firm as an option, while seeking other alternatives,” he said.

Any potential acquiring firm would only be interested in cherry picking from the remaining partners, Kowalski said. Typically, most of the individual offers are short-term contract partner status and also contingent on a specified number of partners accepting the offers, he said.

While the acquiring law firms may benefit from dissolving firms, Kowalski said it is the partners at those troubled firms who are penalized financially.

The capital they invested in the old firm typically disappears and they are often subject to clawback of any distributions the firm made in the months prior to winding up its affairs, he said in a recent blog post.  •