Law Firm Ownership and its Discontents

May 1, 2012

One of my clearest memories from the week of on-campus interviews at the beginning of my 2L-year was a question many students were asking;  “what does it mean that Dewey Ballantine is merging with LeBoeuf & Lamb? ”  Both firms distributed documents to dispel rumors.  In essence, they read,   “don’t worry, we’re still hiring the same number of Summer Associates.” I’ve been thinking about this as I read that Dewey & LeBoeuf has negotiated an extension on its current debt, giving it time to get its house in order.

The Economist covered Dewey’s troubles last week (article also available at 2012 WLNR 8835899).  That article discusses why it can be difficult for professional partnership businesses (such as law firms) to escape downward debt spiral, because the firm can’t meet obligations by liquidating assets (a professional corporation’s only real assets are the professionals), and can’t resort to the market for funding, as a public company would.

The comparison of law firms and public companies is a fascinating one, especially this year.  In January, a public company, Quindell Portfolio, filed for a license to purchase British personal injury firm Silverbeck Rymer.  This moment has been anticipated for some time, after Britain’s Legal Services Act of 2007, which, among a series of other reforms, allowed law firms to be owned in part by non-lawyers.  See UK ST 2007 c. 29 Pt 5 s. 71 et seq (Research Note: run the bolded portion of this citation as a find to deliver the document on Westlaw.  The “Arrangement of Act” link delivers the Act’s table of contents.).    Approval of the sale by the relevant regulatory agencies is still pending.

In the United States, only the District of Columbia allows any profits from the practice of law to flow to non-lawyers (see D.C. Rule of Professional Conduct 5.4(b)).  In recent years, though, there has been increasing discussion of changing the rules to allow for greater non-lawyer participation in firm ownership and governance, including in the halls of the American Bar Association.  See 22 No. 1 Experience 5.  For more material on these debates, try the following search from the Secondary Sources page on WestlawNext:

Search: alternative /3 law legal /3 practice firm business /3 structure organization

Result: 45 Documents

Filters: You can use the filters on the left to look specificially at law review articles or CLE materials (i.e. ALI-ABA and PLI).

 

Almost half of the results are from the past 5 years, which suggests increased interest in a change from the partnership model.  One day, Dewey & LeBoeuf may be remembered as one of the last firms to face down a debt crisis without the ability to look to the public for aid.