Page 13 - 2014_0203_SSPartnership

NYLJ.COM | Partnership | MONDAY, FEBRUARY 3, 2014 | S13

org/wiki/Category:Defunct_law_firms_of_the_United_
Succession
expect in the future. Your successor must transferring their legal business to a new firm.
States. 3. See William McGrane, “Bankruptcy Pitfalls
be willing and eager to be part of this pro- A smooth transition will eliminate prob-
of Big Law LLPs for Big Law Firms and Suggested cess, but that is only a start. It will not be lems over the issue of goodwill when the
Alternative(s),” Vol. XXX, No. 2 The LLC & Partnership «
Reporter 45 (September 2013) (McGrane ABA Article); Continued from page S10
successful unless carried out according to a time comes for the successor to assume the
David M. Stern, “Law Firm Bankruptcies,” 8-9 (Program to plan for how clients will be taken care of well-considered and thoroughly researched practice. Goodwill embodies the reputation
11, 85th Annual Meeting of the State Bar of California, October 2012) (Stern CA State Bar Article). The McGrane as a lawyer approaches the age of retirement strategy.
of the firm, and with that reputation comes
ABA Article may be found at https://mcgrane.egnyte. can be construed as reckless disregard for Essential to that strategy is for the suc- the client list, the phone number and the
com/h-s/20131224/6136626f31ae4531; the Stern CA State client welfare. Making this process a reality cessor to attain, with the guidance of the ongoing nature of the practice. Adequate
Bar Article may be found at https://mcgrane.egnyte. begins with hiring the right person the first senior lawyer, mastery of all specifics about preparation in grooming and transitioning
com/h-s/20131224/3210eb9babe34ab1.
time for the right succession planning. It is existing client relationships as preparation a successor from inside the firm can elimi-
4. See e.g., Dewey bankruptcy, Docket Nos. 1886–88, 1890-95, 1922, Adv. Cases Nos. 13-01769–01777, 13-01796 essential to provide education for that person for introducing the successor to those clients. nate discord if an associate so ingratiates
(filed December 2-5, 2013) (a series of adversary com- to improve their skills and then involve them There should be an accountability plan and himself/herself with clients, at the expense
plaints brought by the Dewey & LeBoeuf Liquidation
Trust against former Dewey equity partners); Heller in the financial and organizational life of the a written time line for all the discrete ele- of the firm, that such a lawyer can start
bankruptcy, Docket No. 1398, at pp. 40-41 (Aug. 2, 2010) (Joint Plan of Liquidation of Heller Ehrman LLP); Bro- firm so that they understand and appreciate ments of the client transfer. This plan should his/her own practice and take the clients
beck bankruptcy, Docket No. 1032 (Motion Approving their role and look forward to the future. It’s be accepted by both the senior lawyer and along, leaving the former firm high and dry.
Settlement Agreements with 189 Former Partners of the no longer a matter of guessing what a part- successor before meeting with each client Ensuring that the future successor under-
Debtor, etc.)
ner may be telling them to do—it becomes a so it can be presented as a transition frame- stands how reaping the benefit of the firm’s
5. See Pinewood Enters., L.C. v. Williams (In re Living process of understanding what they ought to work to which the client can have full input accumulated goodwill is a personal benefit
Hope Southwest Med. Serve., LLC), 481 B.R. 485 (W.D. Ark. 2012) (allowing claims seeking alter ego remedies to do. Lawyers who understand how to grow a for modification. The goal is to make sure only when done through a planned succes-
be brought post-petition against equity security holders career can better assess the value they pro- there are no mismatches in personalities, sion can minimize or eliminate the danger
of a debtor by individual creditors as distinct from bank-
ruptcy trustees); see also In re Howrey LLP, U.S. District vide, and better reflect it in their performance. perceptions or understanding of what is to from such “freelancing.”
Court for the Northern District of California, Case No. 13- They are prepared to become owners of the happen. Clients should be assured that there A final note is needed. Older lawyers who
CV-00449 (appeal by creditors from a Bankr. N.D. Cal. de- cision regarding the issue of whom—bankruptcy trust- firm and its client relationships.
is a mutual effort to continue meeting their continue to apply the client service lessons
ees, individual creditors, or both or neither—should be In a small firm it is essential to ensure needs, one in which all sides will continue presumably learned throughout their careers
held to have alter ego remedies against certain former that the client transition process be non- regularly to evaluate how well the transition should not automatically feel that reaching a
Howrey LLP partners).
competitive between partner and successor. plan is working and to make adjustments particular age requires them to retire. How-
6. Again as set forth in Appendix 1, these various and sundry forms of business organizations include law The goal is to maintain and nurture the client as needed. Be very alert to unspoken client ever, every lawyer must confront the issue of
vereins (LVs); law general partnerships (LGPs); law cor- relationship, allaying any fears that there signals and messages about how well the pro- transitioning the practice to others. The most
porations (LCs); law limited liability companies (LLLCs) will be service gaps or other issues that will cess is going. Don’t be caught in a situation successful transitions come as the result of
and, finally, the law limited liability partnerships (LLLPs)
that are the predecessor entities to the failed Big Law jeopardize the quality of legal counsel that where a client who is not satisfied about the thoughtful planning that smooths the path
partnerships which are the subject of this article.
7. LGPs are subject to 11 U.S.C. §723(a) (making their the client has received and has a right to
transition says nothing to that effect—until
into life beyond the law.
partners personally liable to the bankruptcy trustee for
any deficiencies in amounts otherwise due creditors).
LGPs are, however, very rare (see Appendix 1) and thus
LLLPs (and not LGPs) are the primary subject of this Boutique Firm
social clubs or political parties. They should Partner Recruiting
article.
8. See http://www.uniformlaws.org/shared/docs/part- be leaders in society as well as in their chosen
nership/upa_final_97.pdf.
areas of expertise.
9. 11 U.S.C. §101(9)(A)(ii); In re Rambo Imaging, L.L.P., « The firm can and should acquire and main- «
2008 Bankr. LEXIS 231, *16 (Bankr. W.D. Tex. 2008) (“By Continued from page S11
Continued from page S7
defining ‘corporation’ to include such partnerships, Congress apparently intended that such limited liability yer’s creativity, preventing the acceptance of tain a high profile within the legal community date if they have any questions. It seems like
partnerships would be treated as corporations and not challenging cases because the risk is too high and as much as possible, in the eyes of poten- a fairly innocuous question, and yet it is an
as partnerships under the Code.”); Alan R. Bromberg or by being compelled to work on mundane tial clients. To this end, marketing experts and important one. After a series of particularly
and Larry E. Ribstein, Bromberg and Ribstein on Limited matters foisted on the lawyer by the larger a public relations firm should be considered. substantive meetings, it is certainly reason-
Liability Partnerships, The Revised Uniform Partnership firm. The small or solo practice may not be A good PR firm will help elevate the lawyers’ able that you may be out of questions. But
Act and The Uniform Limited Partnership Act (2001) §7.02, pp. 240-45 (Wolters Kluwer 2012 ed.) (Bromberg able to provide lawyers with the support nec- visibility through a combination of placing at the end of a first or second meeting, a
& Ribstein).
essary to accept the more interesting and lawyers into public forums (including in the lack of questions may be viewed as a lack
10. Bromberg & Ribstein at §1.03, pp. 19-22, §§3.01- challenging cases.
media—both print and broadcast) in an effort of interest. Therefore, in advance of each
3.03, pp. 111-23.
11. As the McGrane ABA Article highlights in much to demonstrate individual lawyer’s expertise meeting, consider what you’d like to learn
greater detail than this short piece—and as compared to the remaining alternatives to LLLPs, i.e., LVs, LGPs, Flexibility in Taking Clients
and leadership on topics of interest to the about the opportunity that can’t be gleaned
LLLCs and LCs—only LCs appear to represent a prac- firm and its prospective clients. It will also from a quick review of the firm’s website.
tical alternative form of business organization for Big As any lawyer knows, what is almost as successfully publicize positive events about Perhaps you’re interested in knowing how
Law firms. This is because LVs are not operating forms important as the client one is retained by, the firm and its clients.
regularly the partnership meets (whether
of business organization in the United States; former Big Law partners in LGPs are subject to personal liabil- is the client one is smart enough to avoid. A boutique firm typically holds itself out locally, by practice area or on a firm-wide
ity to bankruptcy trustees under 11 U.S.C. §723(a); and In a boutique firm, there is enough flexibil- as the expert in its chosen practice areas. As basis), whether the firm is interested in geo-
LLLCs may not operate in all of the major U.S. markets ity to take the cases you want and not the such, the partners should be encouraged to graphic expansion, what the firm’s approach
for legal services, California in particular. Even Big Law ones you might otherwise have to take. For publish legal treatise, give lectures to other is to alternate fee arrangements, or whether
firms attempting to employ LCs as a form of business
organization can have double taxation problems, but such double taxation problems are not insurmount- example, the client who can pay some, but lawyers and be comfortable publicly com- and how it splits origination credit. While it
able. See McGrane ABA Article at n.23 (suggesting any not quite enough, or the client who has hired menting on cases in the media.
may seem like a small thing, taking the time
Big Law firm LC having more than 100 shareholders may and fired four prior lawyers should generally Marketing can be as aggressive or as subtle to ask one or two questions demonstrates
be capitalized other than by means of retained earnings, be avoided. While the initial retainer may pay as the firm is comfortable with, but marketing a genuine interest in the firm and what the
thereby allowing such Big Law firm LC to avoid double this month’s rent or help meet this week’s pay- and public relations is not optional in today’s partners have to say, and it will help end
taxation by means of its distributing all earnings as sala- ries annually while also avoiding undercapitalization by roll, these clients will ultimately be a burden competitive marketplace. If a lawyer earns your meeting on a positive note.
requiring such Big Law firm LC’s shareholders to use on the lawyer. A strong group of partners will a “win” for a client, that victory should not
their own personal funds to buy sufficient capital shares make it much easier to politely decline the be like a tree falling in the forest that no one
in the Big Law firm LC so as to adequately capitalize the client who should be declined.
hears. It should be seen and heard so that Conclusion
Big Law firm LC in question as one very likely solution to avoid double taxation).
12. James B. Stewart, “The Collapse: How a Top Legal other potential clients and referral sources can While part of the recruiting process will
Firm Destroyed Itself,” The New Yorker (Oct. 14, 2013) Resources for Marketing, Public Relations
be aware of the good work the firm is doing.
always come down to intangibles such as the
at p. 80.
Each person wants his or her work to be right cultural fit, you can avoid many hurdles
13. The RUPA-created right not to be diluted can be Another significant advantage of the bou- satisfying, and this is particularly true for and potential pitfalls if you are serious about
alternatively phrased, depending on the state of play, as a RUPA-created “right” not to have “deal partners” be tique firm is the relative ease of branding, lawyers who sacrifice a great deal to get the process and willing to properly prepare.
permitted to defend a bankruptcy trustee’s clawback coupled with the resources from the income through a lengthy legal education with lofty Having a solid business case and coming to
claims by claiming reasonably equivalent value was of several good earners, to execute a market- ambitions of justice and equality. Obtaining the interview armed with thoughtful answers
rendered by “deal partners” for whatever dollars they ing plan. That plan should include a sophis- that satisfaction may be difficult while strug- to these questions will help you present your-
actually got post-insolvency but pre-petition when such
a bankruptcy trustee sues them under 11 U.S.C. §§544, 548. The main point is that there is no sensible way to ticated website that is easy to navigate and gling to make a living. A successful boutique self in the best light possible and may enhance
interpret RUPA §103(b)(10) as not having been intended reflects the philosophy and personality of law firm focused in a chosen area can be the your chances of receiving an offer.
to recognize just such creditors’ remedies as rights aris- the firm. It should allow time for the partners right fit for many lawyers. Ideally, the firm
ing out of Article IV that were created for the benefit of to write and lecture in their areas of exper- will be big enough to make a difference in the
creditors of a debtor entity.
14. See McGrane ABA Article at p. 48; compare Stern tise. They should join and participate in bar world, yet small enough so that the individual Renew your subscription by phone!
CA State Bar Article at pp. 6-10.
associations, civic or religious groups and
lawyer can make a difference within the firm.
Call the New York Law Journal at 1-877-256-2472.