Consolidations, economic conditions create leaner pickings for lawyers

THE BALTIMORE SUN

They are the butt of countless lawyer jokes; they are pilloried by conservatives who blame them for the nation's economic decline; and now, lawyers are even having a hard time taking solace the traditional way: counting their money.

Aside from the troubles now emerging at Weinberg & Green, which could be on the verge of announcing some layoffs, financial problems reportedly have troubled such Baltimore stalwarts as Venable, Baetjer & Howard and Semmes, Bowen & Semmes, leading to defections and layoffs.

But the problems aren't confined to Baltimore. Law firms across the country have struggled to rebuild their businesses since the end of the 1980s merger and acquisition boom, and the recession that followed.

Consolidations in many industries, including defense and financial services, have sharply reduced the amount of work available for outside legal staff. At the same time, companies are bringing more legal work in-house, making them much more sophisticated about how they deal with the law firms they retain.

In some ways, it's been worse in Maryland, which has lost more corporate headquarters and climbed out of the recession far more slowly than some other parts of the nation. And Baltimore law firms are contending with a small but growing army of out-of-state firms invading their turf.

"It's not the easiest way to make a living these days," said James R. Eyler, managing partner of Miles & Stockbridge, which has about 200 lawyers in eight offices in Maryland and Washington, D.C.

By far the biggest problem Maryland firms have contended with is the recession, attorneys agreed. In Baltimore, "the recession, I think, has been deeper and has lasted longer and has been slower to recover than other areas," Mr. Eyler said.

The devastation in the commercial real estate market wounded many Baltimore law firms. The primary damage was done to firms such as Frank, Bernstein, whose real estate department led the company's profitability through much of the '80s but dissolved in 1992.

Real estate deals -- new developments, acquisitions, leases -- rely heavily on legal work, including deed and title issues, and the paper-intensive work of drafting lease and purchase agreements, much of which has dried up since 1989.

But the real estate collapse had a secondary effect: It contributed to the near-failures of several prominent banking companies, including MNC Financial Inc. and Baltimore Bancorp, well as Baltimore's biggest insurer, USF&G; Corp.

The result for the banks has been acquisitions by out-of-state companies. MNC, which was acquired by Charlotte-based NationsBank Corp. last year, provided work for most of the major law firms in town.

"We did a lot of workout-type work for Maryland National," said Francis B. Burch Jr., chairman of Piper & Marbury, Baltimore's biggest law firm. But "NationsBank has been going through a process of reducing from several hundred to about 30 the number of firms they deal with" on their preferred list, he said.

Banking lawyers handle a thicket of regulatory issues, draft loan documents, help resolve soured loans, and counsel creditors in bankruptcy proceedings, among other areas.

Piper's answer to the loss of some local corporate work has been to seek more work out of state. The firm has set up offices in Washington, Philadelphia and New York, along with two small locations in Easton, Md., and London.

"A lot of people think we ought to be in Charlotte," Mr. Burch noted.

USF&G;'s response to its troubles reflected its overall cost-cutting effort in the past four years. When litigator John MacColl left Piper to join the company in 1989, there were eight lawyers in-house. Now there are 40, an average mid-sized law firm.

The insurer has found that not only are its fees to outside law firms now lower, but with "partner-quality lawyers" in-house, it is able to identify and better supervise the best lawyers for the contract work that remains, said Mr. MacColl, now senior vice president for human resources and general counsel at USF&G.;

That kind of sophistication is another reason why law firms are under pressure. Clients aren't shy about demanding lower fees and more value, and they're not afraid to shop around, said Mr. Burch, of Piper.

"They're all trying to control the amount they spend on legal work, and they're doing it in a variety of ways," he said. "There is not this sort of undying loyalty to law firms that existed to a greater degree a generation ago."

One way some lawyers have responded to the financial squeeze is to abandon the large firms, with their large overhead costs, and set up smaller boutiques.

"When real estate transactional work goes away, as it did at Frank, Bernstein . . . you've got a choice: Do you carry the real estate lawyers until the work comes back, or do you force them to go away?" said James E. Gray, a partner in Goodell, DeVries, Leech & Gray, a litigation specialty firm whose name partners split off from Semmes in 1988.

Venable's response to the business cycles that dampen some practice areas is to become more nimble, said managing partner James L. Shea. "You have to have contingency plans for areas that seem productive right now," he said.

"For example, we've asked ourselves what happens to us if litigation winds down," given the nation's rising disdain for costly lawsuits.

One answer, Mr. Shea said, is building a practice in alternative dispute resolutions, a relatively new area that seeks to resolve business differences before they get to court.

Without significant economic growth, which few economists expect for this area in the near term, the pressures to find new revenue sources and reduce expenses will only continue, lawyers agreed.

Those pressures will be compounded if the recent influx of out-of-state firms continues. Beachheads have been established in Baltimore by Philadelphia's Ballard, Spahr Andrews and Ingersoll, Washington's Patton, Boggs and Blow, and Richmond-based McGuire, Woods, Battle & Boothe, among others.

Said Mr. Eyler, "I would say that making a living as a lawyer generally has gotten tougher."

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