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What's Next
WHAT'S NEXT

What's Next: Don't Get Brobecked
 

In tough times, managing your lawyer is key.
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What's Next

At the end of January, the San Francisco law firm of Brobeck, Phleger & Harrison announced that it was closing its doors forever after 77 years in business. That's a lot of doors, since Brobeck had more than 700 attorneys working in offices in 11 cities. The firm had 191,000 square feet of office space just in East Palo Alto, Calif. Brobeck was one of the law firms that rode the Internet boom up and then down. It expanded aggressively in the late 1990s, financing that growth with money borrowed primarily from Citibank -- $90 million in all. That is a lot of debt for a partnership that, by definition, has to zero out its books at the end of every fiscal year. But at the time, with Brobeck reportedly showing a profit of more than $1 million for each of its more than 150 partners, $90 million looked manageable. And with Brobeck taking equity positions in many of its high-tech clients in lieu of some legal fees, it looked as if the good times would never end -- until, of course, they did, leaving Brobeck with a lot of worthless stock and the firm's more than 6,000 clients without a lawyer. That's the real topic of this column: Forget about Brobeck, what if your company suddenly lost its lawyer?

It would be comforting to think that the Brobeck failure was an aberration, but that is not the case. Three other major firms have dissolved in recent months, and not all of them were in Silicon Valley. Boston's Hill & Barlow, which produced Massachusetts governors Michael Dukakis and William Weld, folded in December, and since Brobeck's demise Peterson & Ross, a 111-year-old financial services law firm in Chicago, and Skjerven Morrill, a high-tech law firm in San Jose, have both closed down. These failures, like Brobeck's, were driven by groups of partners defecting to other firms.

Brobeck's clients were already in flux long before those final days as groups of partners, apparently sensing the worst, began to split off from the mother ship and join other firms, often taking clients with them. And what clients! The big names on Brobeck's list included American Airlines, Apple Computer, Bank of America, Chevron, Cisco Systems, Compaq Computer, Intel, Sun Microsystems, and venture capital powerhouse Kleiner Perkins Caufield & Byers. With the possible exception of Kleiner Perkins, all of those firms had in-house counsel in addition to Brobeck, but what about the other 6,000 clients -- mainly small and midsize high-tech businesses -- that probably didn't? What happened to them?

In theory, continuity of legal representation is never lost. If the lawyer you work with leaves the firm, you can go with him, or another lawyer will step in. If the firm dissolves, as Brobeck did, you can go with your lawyer to another firm, or the firm will find you a new lawyer before the lights are turned off. Nothing is lost -- no time, no money, no sleep. Your records are magically transferred to the new place and the game continues without interruption. Only the firm name on the invoice changes. Yeah, right.


For some reason, smaller companies think they are lucky to get a lawyer.

 

The reality is that such transitions are often inelegant. As a case in point, I was talking recently with the head of a market research company and heard how, after months of legal wrangling, a case had suddenly been settled with the company getting surprisingly generous terms. Why the turnaround? Because the other side had been represented by Brobeck, I was told, and in the confusion following Brobeck's demise lay opportunity.

"Could never happen," your lawyer might say, but isn't it in his or her interest to say that?

"It's not that simple," says Tim Roake, a partner with Gibson, Dunn & Crutcher in Palo Alto. "The paperwork required for a single lawyer to move firms is immense. I know, because I moved firms myself. Now imagine what it must be like if a whole firm falls apart. Problems are inevitable, though eventually they'll be sorted out. But what is the cost of that delay? The SEC won't necessarily be understanding when you can't file a report because your lawyer isn't ready."

There are three things to worry about if your law firm fails:

1. Where are your legal records?
Your records are unlikely to get lost, but they may not be accessible immediately. That can lead to expensive delays.

2. Where is your lawyer?
Lawyers often work in teams, but sometimes those teams break up when a firm is dissolved. What if your four lawyers are now at four different firms? Who gets your business and how do you decide?

3. Are there conflicts of interest for the new firm that might keep you from having representation at all?
What if you are suing Microsoft for patent infringement or antitrust but your legal team lands at a firm that has Microsoft as a client? Chances are you've just lost your lawyer.

Last updated: May 1, 2003




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