Tuesday, September 18, 2012

Law Firms Struggling to Keep Up With Rising Expenses

Article by Sara Randazzo


Expenses are rising faster than revenue at the nation's largest law firms, and those in charge of running those firms are running out of ways to manage the imbalance, according to a recent survey conducted by Wells Fargo's Legal Specialty Group.

The survey covering the first half of the year gathered input from 115 law firms. According to the survey revenue rose 3 percent among the responding firms in the first half of 2012, compared to the same six-month period last year. Profits, on the other hand, fell 0.7 percent, in large part because of rising expenses. In many cases, the survey says, firms moved to strengthen their balance sheets last year by deferring expenses into 2012. That may have helped the 2011 figures, the survey notes, but wound up dampening profits in the first half of this year. Another issue facing law firms was head count was up across the board, which drove up firms' payroll costs.

The amount of work coming in to the law firms has been fairly stagnant. Firms have been able to generate some additional money by raising their rates—something that seems to happen each year without fail. According to the survey, rates were up about 3.7 percent on average in the first half of the year. The average hourly rate being billed by attorneys across all levels at the surveyed firms was $560.

The use of lines of credit provided by banks to the law firms rose 14 percent during the first half of the year. The survey also found that one in three responding firms were carrying an underfunded pension liability of some kind, with a half-dozen firms reporting between $10 million and $50 million in unfunded pension liabilities.

Wells Fargo also asked about a topic that has become of great interest in the wake of Dewey & LeBoeuf's demise: how many lateral hires command compensation guarantees. The law firms surveyed reported giving 4 percent of their lateral hires guaranteed compensation for one or more years, representing less than 3.5 percent of firm profits.

Monday, September 17, 2012

Citi to Former Dewey Partner: It Wasn't Our Job to Warn You of Firm's Impending Demise


Article by Sara Randazzo

Citibank N.A. is forcefully denying allegations by a former lawyer with the now-defunct Dewey & LeBoeuf that the bank conspired with leaders of the firm to woo lateral partners with a Ponzi-like scheme aimed at paying off Dewey's debts to the bank through a steady flow of capital contribution payments.

The bank filed a summons in New York state court on May 31 against Steven Otillar seeking repayment of roughly $209,670, which court papers say accounts for a $207,000 loan given September 2, 2011, plus interest (the amount equates to a target compensation of $575,000) .In a 25-page filing made Wednesday in New York federal court, Citi asserts that partners should have done their own research into the firm's financial condition and that it was not the bank's responsibility to warn them

Otillar claims Citi conspired with former Dewey leaders to fraudulently induce partners to join the firm. He also claims that Citi should have cautioned him  of Dewey's financial troubles when he took out the loan. The court filing at times seems to avoid the issue of whether or not some of Otillar's assertions are true, arguing instead that they have no place in the current dispute.

An addendum to the Wednesday filing also officially reveals for the first time that three of Dewey's administrators—executive director Stephen DiCarmine, chief financial officer Joel Sanders, and director of finance Frank Canellas—had letters of credit issued by Citi. A declaration by Jeffrey Cole, identified as a senior credit officer in the Citi Private Bank Risk-Law Firm Group, says the three took out the letters in early 2010 for an unspecified dollar amount. All three of the letters expired in December 2011 without having been drawn upon. (The letters essentially held money aside at the bank for the three). In Otillar's August motions, he argued that "the only reason someone would want a letter of credit is that he had reason to believe the firm would not survive."

Stay tuned to this one its going to get very interesting.