Big firms do the collapse

BY ALLISON WHITE

In law, as in life, death and taxes are a pretty sure bet. Pity that a handful of once-major, now-defunct law firms didn’t heed that lesson last year. Instead of putting effort in bankruptcy or tax law, their efforts to maintain trendy 1990s hotspots such as tech and M&A drove them out of existence, leaving acrimony in their respective wakes.

Of the Once-Big Three, the evaporation of Brobeck, Phleger & Harrison garnered the boldest headlines. But another of 2003’s other lost firms, Chicago’s Altheimer & Gray, proved that firms didn’t need to go tech to go bust.

The tale of Brobeck stood as the final note in the 1990s legal spending spree that sent students west to Silicon Valley in search of ever-increasing salaries, casual work environments and sexy subject matter. At the peak of the 1990s gold rush, Brobeck was named one of Fortune‘s “100 Best Companies to Work For.” But in 2002, with tech-law revenues lagging, the firm’s fortunes took a definite turn for the worse. Nonetheless, according to The New York Times, partners continued to draw tens of thousands of dollars each month. When the firm’s dire circumstances grew undeniable, partners pledged $26 million in expected profits to pay some of its outstanding debt.

Such tactics only prolonged the death throes of the firm; in January 2003, the firm abruptly announced that it was closing its doors. Associates not only lost their jobs, but they also saw their outstanding reimbursement claims left unpaid.

Much of Brobeck’s workforce was absorbed by other firms; Morgan, Lewis & Bockius, a rumored white night in the firm’s final days, hired many of the firm’s lawyers. But the troublesome wake of the Brobeck collapse continued through the summer.

Most notably, much of the firm’s large support staff was suddenly left without access to 401(k) accounts, as well as without health insurance and other employee benefits. The firm continues to work on distributing 401(k) assets to account holders; the remaining functionality of the law firm is largely devoted to that process.

But the wind-down has been complicated by Morgan, Lewis’ absorption of a portion of the Brobeck book of business. In one lawsuit against the firm, plaintiffs (organized under the name “Broke Beck”) have charged that the distribution of client files to Morgan, Lewis and other firms has posed a threat to client confidentiality and raises possible conflicts of interest.

As detailed in The Record last spring, Brobeck recruited heavily at HLS despite the onset of problems at the firm throughout 2002. (Jonas Blank, “Brobeck meltdown leaves HLS students unscathed (mostly)”, Mar. 6, 2003.) Over 100 students signed up for interviews; students accepting summer offers from the firm were suddenly jobless only months before the close of the school year. Fortunately, given what OCS Director Mark Weber referred to as the “inelastic” demand for HLS-minted lawyers, students were able to find alternative employment in other firms.

But while many students fled to what were seen to be “safer” job markets such as the Midwest, Chicago fixture Altheimer & Gray proved that the Midwest was no assured field of dreams.

Altheimer announced on June 26 that it was ending its 88-year run as a reliable Chicago stalwart. The firm, which had developed an international presence and had investigated further expansion as recently as Fall 2002, was unable to overcome what The Economist reported to be a $30 million debt load. But Altheimer’s failure was not attributable to Brobeck-style reliance on the ill-fated tech bubble. Rather, its fortunes fell despite its reliance on M&A work for 75 percent of its practice. As reported in the National Law Journal, internal memoranda faulted the slowdown in M&A for “cut[ting] deeply into Altheimer’s core transaction business.”

Like Brobeck, Altheimer & Gray interviewed students last Fall despite its falling fortunes. Unlike Brobeck, however, Altheimer is still listed in the LawMatch.com law-firm directory provided to HLS students via the OCS recruiting web site. According to the site, “Altheimer & Gray is actively recruiting Harvard Law School students and graduates, but has not provided information for our directory.” Fortunately, the site notes that “[t]his employer therefore cannot be added to your Briefcase, or included in comparisons, downloads or prints.”

Where will the legal community find its next big-firm meltdown? Unfortunately for students, there are no sure answers. But given the ongoing work of the Office of Career Service, combined with the seemingly limitless sources of information in, among other places, Vault.com, the National Law Journal and other legal publications reinvigorated with heightened scrutiny of firms’ health in the aftermath of the public collapses of Brobeck and Altheimer, students can begin to inform themselves as to the career-defining decisions that await them in the fall interviewing season.

Comments