Corporate & Securities Law

Legal Cover Up; TARP for Law Firms?

By John Wallbillich

The Wired GC can now report the results of a 3 month-long investigation into potential U.S. governmental support for major law firms.

Discussions at the highest levels of the new administration have resulted in a working plan. Initial staffing for the project was difficult due to the requirement that no lawyers work on it.

While still subject to change, the broad outline of this unprecedented initiative can now be revealed:

1. The plan is driven by a need to keep the legal industry from imploding. Since so many large firms are needed to document other bailouts, the government wants to bail them out first.

2. All firms can’t become 100% bankruptcy or Madoff litigation houses. There will likely be some M&A deal flow later in 2010, and there’s talk of an IPO or two in early 2011. Beyond that, there’s the need for experienced lawyers to handle the trust-and-estates “boomlet” some firms see as early as 2020.

3. Alternative fee arrangements are still a wildcard. The government has been told in no uncertain terms that many firms would rather fold than depart from hourly billing. But a recent government offer to fund the pensions of equity partners is starting to weaken the resolve of certain firms on this “third rail” issue.

4. Some “shotgun” marriages may be in the offing. A few link ups of national and international firms could be required by the government as a condition of bailout funding. Early in the process, it looked like some UK firms would be in the lead, lately it’s not as clear. Other G-7 countries do not appear interested in providing assistance, except for the French.

5. Equity partners will have to share the pain. The government is requiring some senior-level sacrifice. It’s not certain that any managing partners will have to step down. But at least one major firm has told its 7-series BMW drivers that they will have to roll back to a 5-series (for their second car). Any requirement to “Buy American” has been a non-starter, citing international treaty restrictions.

6. Some additional restructuring of firms will be required. Partners without clients are getting a tad nervous. Here are some telltale signs for the slow-on-the-uptake: (a) you are given a really hot assignment as “activities chair” for the next firm retreat; (b) the original art in your office is replaced by motivational posters about “change” and “teamwork”; (c) your emails to the managing partner are being returned as “undeliverable”; and (d) your code for the Xerox machine says “3 copies remaining.”

7. The plan is still in search of a name. While this train appears to be leaving the station, no legal industry bailout moniker is etched in stone. Two leading alternatives, according to our sources: (a) Lawyers Annuity Protection Directive (Operated Governmentally); and (b) Partner Assets Recovery Scheme (National Income Protection).

The negotiations are very fluid, and concerns about a public backlash to yet another government-funded bailout could derail things at any time. Still, one recent governmental appointee told us on deep background: “We just can’t let the law firms down. They’ve been there for us before. And where am I supposed to go in four years?”

Full post as published by The Wired GC on April 01, 2009 (boomark / email).