Virtual Law Partners

I still like this idea, that of good lawyers practicing largely without offices, staff and associates and keeping what they earn. It is largely what I do now, albeit without partners anymore. But Virtual Law Partners has the kind of business model I like. And it is one I might consider down the road myself if they'll have me. (The story also has a bit to say about layoffs, outsourcing and other factors causing turmoil in the legal market.)

The WaPo headline notwithstanding, I don't think it is entirely accurate to say that the recession is driving lawyers into this kind of practice. Yes, it allows people like me to cut rates and yet keep more money because of low overhead. In part, yes, it is a function of good lawyers being "fed up with the traditional business model that required it to annually increase rates and billable hours to finance ballooning profits and overhead." Billing rates at many firms are simply out of control. Call it Wal-Mart discounting if you want, but for much of the work I do you should not be paying bet the company billing rates.

But there's also a quality of life factor to consider:

Besides saving money for clients, Willard said the firm is good for his home life, too. At his previous firm, he said, he worked 60 to 85 hours a week to keep up his billable time. Now he works 40 to 50 hours and has more time with his wife and two young daughters.

He said he has the ability under the new arrangement to work less and make more money. Because overhead is so low, he keeps 85 percent of what he generates, he said, instead of 30 percent.

"I can go to my daughters' piano lessons and tae kwon do practices," said Willard, who kept 90 percent of his clients from his previous firm. "I have clawed back a significant part of my life."

Bingo. Thanks to technology, you'll never know from where in the world I am working unless I tell you. Much as I enjoyed my time in downtown Chicago, there are definite advantages to doing what we do. For instance, I am having a very busy day today. But when I take breaks, instead of eating I will hit the weight machines next to my home office, or maybe the elliptical. And my commute is roughly 300 feet, including one flight of stairs. In short, I have three hours more a day to do what I want rather than what I have to do.

Okay, you get the picture. Back to work.

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Impossibility of performance - thoughts?

You may have heard that Younan Properties did not close on the acquisition of 180 North LaSalle in Chicago. There had already been three months of extensions granted and apparently Prime Group Realty Trust had had enough.

In anticipation of being unable to meet the latest deadline Younan filed an action in the Chancery Division of the Cook County Circuit Court apparently seeking the return of its $6 million in earnest money. The case is 2009-CH-06451 if you want to see the docket.

According to Crain's,

Mr. Younan filed the lawsuit Feb. 13, claiming he was unable to close the $124-million deal after the global recession and frozen credit markets prompted a key lender to back out of talks to finance the purchase. Prime Group issued a statement Thursday saying the deal, due to close by Feb. 18, was terminated and that the Chicago-based REIT was entitled to keep the earnest money. Mr. Younan’s lawsuit says the credit freeze means the “doctrine of impossibility and the impracticability of performance” should void the purchase contract and therefore the $6 million should be returned.

Impossibility and impracticability are two of those contract defenses you read about in the first year of law school and while preparing for the bar exam. In short, there has to be no way for the contract to be completed for performance to be excused. As I recall the growing trend is to excuse performance if it is objectively impossible to perform and not just impossible for a given party to perform.

Presumably Younan's argument will be that no one can do this deal right now with the credit markets frozen. And with a lot of money on the line, I'm sure Neal Gerber (Younan's counsel, and where I have a few former colleagues) will fight hard to get that money back or work out a settlement and Prime's lawyers will fight equally hard to keep it. (No title company was listed as a defendant or real party in interest, so perhaps the money was at some point paid to Prime as a deposit. I have seen many deals where that happens.) This could be an interesting case, and I will try to monitor the developments.

Have a good weekend!

UPDATE: With thanks to Doug Cornelius, I should have pointed out the striking similarity between this case and the Donald Trump defense over at Trump Tower Chicago. Thanks again, Doug.

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Post-Black Thursday thoughts

I know everyone and his or her mother has already commented on the layoffs at many firms yesterday. This is something we haven't seen since the early 90s and even then probably not on this scale. Nonetheless, to close out the week I do have a few comments on the situation. (There is also a good summary here that contains many of these ideas.)

• The layoffs had to happen not only because of a lack of work but also because of a lack of normal attrition in a down market. Of course, the fact that some law firm managers plan on and expect 25% attrition is entirely another problem.
• We've let our profession become a business driven by profit and loss. Because of the business model, some move around like nomads either because of it and/or because they know they are almost as fungible as associates. I'm not sure we can close Pandora's Box, but it is food for thought.
  
• First year associates are, by and large, overpaid and useless. I know. I used to be one. And now, of course, clients do not want first-years assigned to their matters. Can you blame them? How do you solve this problem?
• I actually like the idea of cutting salaries. But the problem is that law school has become so expensive that you will never be able to pay loans back. Making first years cheaper is the issue in my opinion.
• Medical schools have it right. There is a scarcity of them and thus a scarcity of doctors. We are cranking out too many JDs in this country, many of whom are doomed to have huge loans and no way of paying them back as lawyers. Personally, I'd reduce the number of schools drastically.
• I really, really like the idea of articling like they do in Canada. Have graduates intern (like doctors) at a law firm for a year -- working cheaply -- and learning the basics of actually being a lawyer. And this possibly solves the problem of untrained first year associates. Of course, that system is not perfect either and there have even been thoughts about getting rid of the practice in Ontario.

Anyway, I do not have all the answers. I'm not sure I have any. And I feel terrible for all the people that were let go. But maybe this is a good time to rethink business models and existing paradigms and look outside the box we have been in for so long.

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Drafting contingencies

A lawyer on a listserv I subscribe to asked a good question today that I had to answer: what happens if a contract contingency is not met? The buyer is refusing to close and the seller wants to take the earnest money. The answer? Of course, it depends. But you knew that.

This is where good lawyering comes in. If you are the buyer, of course you want every chance to try to have wiggle room. But if you are the seller, you want to craft any contract contingencies as tightly as you can to curtail the buyer's ability to walk. Notices, efforts, deadlines...there are a lot of ways to do it. If you don't do this as a lawyer, then you could be allowing your buyer a rather lengthy free look at property with an easy out.

Let me give one concrete example: let's say you have a financing contingency in the contract. How do you draft the timing of the contingency? If the buyer fails to give notice, does the contract terminate automatically or is the contingency automatically waived? Neither? What about the efforts required? Does the buyer have to prive it tried to find a loan? Can the seller try to get the loan for the buyer or offer to carry the property? Does the seller have to cooperate in chasing down estoppels or subordnation agreements? And yes, I am stopping before I really get started. My time is my money, after all.

Just a humble thought for the day. Enjoy!

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Changes and transitions

My partner resigned from our law firm Tuesday.

It was the right thing for him to do and I am delighted for him, as he had an opportunity he simply could not pass up. Frank is a tremendous lawyer and person and I will miss working with him very much.

While I am a bit overwhelmed about possibly becoming a solo practitioner, in an odd sense, I'm also somewhat relieved, and I'm not sure why. Unfortunately, no time is a good time for this, and that's not anyone's fault.

I'm not exactly sure what I am going to do right now. I have several options that I need to weigh, and I'll keep you posted. But I promise I'll go back to writing about issues that you care about rather than my personal and my business life. After all, that's why you came here. If, however, you have thoughts or suggestions I'm always open to them.

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Ever wonder about foreclosure auctions?

Here's a video on Business Week's website showing an actual auction on the steps of the San Diego County Courthouse, a place I once knew well.

Yes, there are auctions once in a while for commercial property. The last one I worked on was a few years ago, for a prominent local investment company that purchased two apartment complexes in the Southeast. The total purchase price, as I recall, was in the mid eight figures. And yes, the client flew down to the courthouse and literally bought the property on the steps. It was very exciting.

The key to these deals is doing as much due diligence as you possibly can, since you are expected to buy the property on an absolute as-is basis, and with a closing occurring almost immediately. So you'd best order minutes of foreclosure from your title company, get your hands on a survey and dig into whatever information you can find. You'd better also cash, a good line of credit or have a lender or money partner on board to do this deal. This is all a part of good opportunistic investing.

It's down and dirty work sometimes, even at those price points, and, as you can see from the video, it can be dull and sometimes no one buys anything. The key (duh) is to pay the right price, which isn't always easy to figure out. I didn't work on the sale of the property I mentioned, but I understand the client made a nice profit on the deal.

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Lateral support - not as uncommon an issue as you might think

I spoke with a friend of a friend yesterday about his house. His neighbor is doing a teardown and building what appears to be a McMansion, with the foundation being oh so close to the property line. The prospective client was smart enough to call BEFORE anything happened to ask about possible remedies and solutions.

One is zoning. Does the zoning permit a side yard so narrow that you can build almost or right to the property line? If not, then you have a bone of contention with the neighbor when it comes time for a variance or a rezoning.

Another possibility: lateral support. In Illinois (and I'll bet most states), the landowner has a duty not to change his land such that it materially and adversely changes natural support. If the new building starts causing problems with the neighbor's foundation, for instance...you see where I'm going.

There's other things to think about too, but I like to think about horses before zebras.

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The audacity of excellence?

I got a kick out of this story on lawyer frustration and how to strive to be "above average." Apparently, lawyers are part of an "unintended byproduct of a profession that confines its lawyers to prisons of bureaucracy, internal politics, dysfunctional interpersonal relationships, inefficient systems and ineffective leadership. It is heartbreaking to see people who expect so much from themselves and others toiling in environments that perpetuate underachievement."

I'm lucky. Even when I was in a big firm I didn't have too much of that, and now I am free to be as good as I want to be. David Freeman makes some excellent points, the best of which is to Demand a maniacal focus on the client. I've been doing that as long as I can remember, so this is no big deal for me. It is nice to see it reinforced from time to time though. Sometimes it is hard to get over the fact that it isn't about you, it is about the client. Your success is often in tandem with that client, so work hard and get the deals done and mutually reap the benefit.

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Another retail chain in trouble? A line on Steve & Barry's and some thoughts on defensive leasing

Boy, they weren't kidding about retail woes. Now I am reading that Steve & Barry's, a cheap chic chain, is talking to Weil Gotschal and thinking about closing 1/3 of its stores as it decides on its future.

I found the comment about defensive leasing from a Greenberg Traurig lawyer interesting. From a landlord's perspective I guess that means (for instance) watching out in a down market for big TI allowances and shelling out major money on a lease that could go south. Boy, have I seen that.

Defensive leasing also exists for tenants in an up market; this is a term I am more familiar with. In other words, tenants will sometimes take more space than needed or commit to so-called "must-take" options to add on space in the future in order to lock in possible expansion needs. This is, of course, seen more often in office leases.

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I've heard about real estate developments being a bomb, but this is ridiculous

CNN is reporting about a subdivision in Orlando that apparently contains, oh, live bombs.

Yes, you read that right.

I don't know what the law is in Florida, but I can't see anything that would actually cover this on a disclosure report in Illinois. Maybe that's because no one in their right mind ever thought someone would build on a, um...bomb range. I've heard about unexploded ordinance in the UK many times, but here? Not so much.

Interestingly,

Nearly two decades ago, the 1989 development order, in which the county granted the permission to develop the land, shows that builders and developers knew "of the site's history of military use."

Wouldn't the terms of a development order typically show up on a title report? Was this excluded, and why? I know I have seen development orders when reviewing title before? Of course, there will be inevitable lawsuits against the developer for failing to disclose this. No one wants to buy, no one wants to lend, so what will be the outcome? I'll be in touch with friends in Orlando to see if there's anything more here worth discussing.

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Chicago legal industry thoughts

An interesting (possible) incongruity I am finding: Half of GCs surveyed are planning to do more work in house and cut back on law firm usage (one big reason -- the cost of hiring BigLaw firms to do less than bet-the-company work).

Yet, notwithstanding this, smaller firms that could perhaps compete on this front are still merging into BigLaw. On the heels of Welsh & Katz (a fine IP firm) announcing its merger with Husch Blackwell Sanders (itself a recent merger!), now we have the first-rate mid-sized Schwartz Cooper dissolving, with almost all of its lawyers moving to Detroit-based Dykema. In turn, Dykema got its start in Chicago in 2004 by merging with Rooks Pitts, also a well-known mid-sized firm.

So, is this economies of scale? A fear that you have to grow to compete? How will clients react? Schwartz Cooper was well-known for its work for LaSalle Bank (now B of A); did that play into it as well? I'm going to have to make a phone call or two.

One last thought: just as we have lost most of our locally run banks, is this now the irreversible trend for law firms, too? I hope some stay around. One that I particularly thought did something interesting recently is Much Shelist (which is well known for having a top real estate team), which announced the creation of a board of outside advisers to help with its strategic direction. I'll have to follow this and see where it takes them.

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What the heck is a "small firm" anyway?

Super-blogger Susan Carter Liebel had a good post yesterday about solo practitioners and small law firms winning not on price but on value provided to their clients. She cites a story from The Complete Lawyer by Marcie Shunk captioned "Welcome to the Age of the Smaller Firm."

The thesis of this article? Small law firms are the real wave of the future.

That's all fine and dandy, until you read on. Susan's post is spot on, as is the general concept of the Shunk post, but I do have to take some definitional exception to the term "small firm." It seems to me that, according to this story, anything outside the AmLaw 200 is considered a small firm.

Huh? These are all super firms that are mentioned here. But I would not call them small by any means. Oppenmheimer, Wolff & Donnelly has 107 lawyers by my count. Keesal Young? 70. Bartlit Beck? 65. Jones Walker? Around 230!

There are plenty of real small firm lawyers that are doing first-rate work. Throwing out the best boutique firms in the country as examples of great small firms seems a little left field to me. It almost tells me that people think the days of "real" small firms may be going by the wayside. If that's the case, then so be it. But if this thesis is true, then show me lawyers in firms of less than 10 or 20 people servicing some Fortune 1000 clients.

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Legal thought of the day: wear and tear

I cannot tell you how many times I have drafted a legal document involving real estate that says something to the effect that the property/premises will be returned or delivered in the same condition as the date of the contract, reasonable wear and tear excepted (or words of similar effect).

Here's some advice about this in the context of a Chicago apartment. In short, it is in the eyes of the beholder. Usually, scratches, paint, a little carpet wear -- that's OK. Nail hole? Ordinary. Fist hole? Not. HVAC? It depends on who was responsible for maintaining it; life expectancy and other factors can also come into play.

What do you do? Take pictures of the place so you have evidence. Write down a list of what is wrong at the outset. I know this sounds silly coming from a lawyer, but unless tyou have alocal law to the contrary, common sense is a good approach.

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This can't be right -- law school teaching you how to be a lawyer?

There's an old saying about law school that goes something like this: the first year they scare you to death, the second year they work you to death, and the third year they bore you to death.

With all due respect to my professors, I found the third year utterly useless. I had classmates that did not attend one class the entire 3L year, and they did just fine. We were all worried about getting jobs in an awful economy.

Now the Law Blog tells us that Washington & Lee Law School is replacing its entire 3L curriculum with practical things such as time-tracking, client interaction...things you actually do as a lawyer! How refreshing. I've advocated for some years reforming legal education to including something similar to articling, as they do in Canada. The broad based training these people receive for their first year out of school is, in my view, a very good idea. I think it creates a more well-rounded attorney. Of course, I am speaking as a former litigator, so I have a little of that.

A few random thoughts on this reform:

1. I think I would make it optional, at least at first. The whole throw the baby out with the bathwater approach may be too innovative.

2. What will the accreditation people at the ABA say about this?

3. What will employers and prospective law students say? There's something to be said about voting with one's feet.

4. I'd be interested in seeing how realistic the training will be. If it is garbage in, garbage out ten it is no better than the typical 3L year.

5. What will the faculty reaction be? Is this a way of cutting faculty cost by replacing some with lower-cost adjuncts?

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