The Current Financial Crisis, the Wall Street Law Firms and Contract Attorney Work

Quite a number of Posse List members have asked us for a site that discusses the current financial crisis vis-a-vis the Wall Street law firms that many of us rely on for work.

A very good site (continually updated) is run by Incisive Media in conjunction with Law.com.  Among other things, it has updates on the firms handling the bankruptcies, the fate of in-house legal teams, the legal implications of the Fed’s fix, issues of litigation and e-discovery, and other ramifications for the law firms and lawyers involved.  Link here: http://www.law.com/jsp/article.jsp?id=1202424593676

Also try:

The AmLaw daily blog:  http://amlawdaily.typepad.com/amlawdaily

The Wall Street Journal law blog:  http://blogs.wsj.com/law

Many of our law firm contacts still see a fair amount of litigation coming.  But given the size and spate of these institutional bankruptcies, many clients may rethink the benefits of litigations that offer little hope of collection.  Also, given the cost of litigation, many believe this new “paradigm shift” in the financial markets and the unprecedented involvement of the government may lead regulators/legislators/judges to take more active control of disputes/litigations and arbitrate/settle cases to start putting the financial crisis to bed.

Then there’s the profit issue.  As Law.com and the many law media blogs have reported, investment banks and financial institutions are the main reason New York firms dominate the legal profession in terms of profitability. Unlike cost-obsessed corporate clients, financial clients have generally been willing to pay “full-rate” or premium fees to their favored firms. Firms from elsewhere in the country and across the ocean have invested heavily in New York offices to try to get a piece of Wall Street’s action.

 The fear now is that further waves of forced consolidation and new government regulation may entrench a cost-cutting mentality on Wall Street.  As Law.com reported earlier this week “it is not just corporate firms that looked to financial institutions’ deep pockets. Plaintiffs firms filing suits on behalf of shareholders of failed companies generally seek the largest recoveries from banks who they claim facilitated securities fraud at companies like Enron Corp. or WorldCom Inc. These suits in turn keep large firms’ litigation practices humming.”

Class action lawyer Salvatore Graziano was quoted as saying these securities cases might be affected because of the collapse of Lehman and others.  There are cases across the nation that had gone on for years, costing the plaintiffs lawyers millions, which might now be dead with these bankruptcies.  And although major bankruptcies usually throw off M&A deals, whatever work is produced by bankruptcy filings likely pales next to the stream of underwriting work and litigation once provided.

Of more concern to contract attorneys working large transactions/litigations is that the cost of litigation, particularly discovery, has already become the driving force in settling cases, not the merits.  As we reported last week, the recent survey by the American College of Trial Lawyers/Institute for the Advancement of the American Legal System showed that the majority surveyed found that “the discovery system in particular is broken and has become an end in itself” and that electronic discovery “clearly needs a serious overhaul.”  Some two-thirds believe that “initial disclosures” do not reduce discovery, as they were intended, or save clients any money.  And when it comes to large law firms, 64 percent of the respondents said the economic models of large firms encourage more discovery than necessary:  best to settle and avoid the costs.  Some 67 percent in the survey believe arbitration shortens the time it takes to resolve disputes.