Bagging the bucks

In an economy gone deep to the south, the collapse and subsequent bankruptcy filing of Petters Group Worldwide has been a financial godsend to the Minneapolis law firm Lindquist & Vennum.

Like other law firms facing fewer billable hours from clients caught in the Wall Street meltdown, Lindquist & Vennum was able to shift its resources to an area of the law that seems to thrive when things go bad -- bankruptcies and workouts.

Across the Twin Cities, firms are watching expenses and adjusting resources to reflect an economic landscape that discourages the kinds of transactions, such as mergers and acquisitions or initial public offerings (IPOs), that are the bread and butter of the law business.

"In 2008, we've only done a handful of IPOs. The volume isn't the same as the heyday of '06 and '07," said Bill Busch, a member of the management committee at Faegre & Benson, the 540-member Minneapolis firm. "But we've seen significant growth in intellectual property litigation, financial restructuring and medical device and drug litigation."

Minnesota law firms claim to have insulated themselves from the bloodletting caused by the mortgage and banking crisis by diversifying their practices to minimize their exposure to particular client types or specific practice specialties.

That doesn't mean there's no downside risk for Twin Cities law firms, however. Indeed, several firms declined to be interviewed for this report because of ongoing internal discussions over their finances for the coming year.

"Like discretionary purchases, people can decide to put off discretionary legal service needs," said Herbert Kritzer, a professor at William Mitchell College of Law who studies the legal profession. Kritzer noted that attorneys' fees and billable hours can vary by the type of practice a law firm conducts.

"High-priority merger and acquisition work, for which firms can charge premium fees, is down," Kritzer said. Shifting resources can pick up some slack, he said, but some specialties, such as bankruptcies, aren't as lucrative as others. "In bankruptcy cases, the fees have to be approved by the court and are usually less," he said.

Earlier this year the legal world received the shocking news that the prestigious New York law firm Cadwallader, Wickersham & Taft had laid off 131 lawyers -- a fifth of its legal staff -- for economic considerations. In September, San Francisco's venerable Heller Ehrman dissolved after revenues declined. In Minnesota, the last notable firm to go out of business was Rider Bennett, which closed its doors in April 2007.

Cindy Eidnes, division director of Beacon Hill Legal, a legal placement service for attorneys and paralegals, said she's seen no widespread layoffs in the Twin Cities but has heard of law firms suggesting to some staff that it might be a good time to start looking for a new job.

"The Midwest typically seems to be a bit behind the overall corporate ... business curve," Eidnes said. "We haven't seen anything like the significant layoffs on the East Coast, but we've been doing fewer direct hires than in the past."

Medium-size firms that can shift resources from one practice to another seem to be weathering the recession better than the large firms that thrive on closing deals.

"Is our real estate practice down? Certainly. But that seems to be compensated by our banking practice, which is up," said Robert Weinstine of the 100-lawyer Minneapolis firm Winthrop & Weinstine.

Dorsey & Whitney, one of the largest dealmakers in the country, feels the downturn in transaction business mainly in its New York office, which has canceled next summer's program for law school students because there is less work to do.

"We're feeling the pinch just like everyone else, but we started battening down the hatches earlier in 2008. It's an austere mind-set," said firm spokesman Robert Kleiber.

At Lindquist & Vennum, fees for its work on the Petters bankruptcy have yet to be set by the court overseeing the case. But the eventual payout should be considerable. "It's a significant piece of legal work for them," said court-appointed receiver Doug Kelley, who hired the firm after Petters Group Worldwide imploded following the arrest of owner Tom Petters on charges of masterminding a multibillion-dollar Ponzi scheme.

Daryle Uphoff, the managing partner for Lindquist & Vennum, said 30 of the firm's 195 attorneys worked on the Petters case in October alone, the month when the company filed for Chapter 11 bankruptcy protection. Uphoff said the complicated case, involving nine Petters entities, will take up to two years to resolve.

"It's a very intense assignment that cuts across all practice areas in our firm. It involves corporate law, employment issues, litigation and real estate," Uphoff said. "Is it going to be 2, 3 percent of our revenue? Probably not. But hopefully it will be financially rewarding."

All is not gloom and doom for Minnesota's legal community.

Fulbright & Jaworski, which has offices in Minneapolis, found that Midwestern companies are the subjects of more lawsuits than the national average because of a perception that Midwestern companies tend to be more fiscally conservative and have better balance sheets than companies in other regions of the country.

"Clearly there are plaintiffs looking for deep pockets, and when they don't find them in one location they cast their net over the other side of the boat," said Ronn Kreps of Fulbright's Minneapolis office. "Litigation is countercyclical," he said. "As the economy downturns, the more companies need in-house lawyers to manage litigation and outside firms to represent them."

David Phelps • 612-673-7269