Litigation, bankruptcy and employment work kept Orange County’s law firms busy in 2009. Now it looks like more regulatory work could be a big source of business in 2010.
Fallout from Ponzi schemes and talk of a financial regulatory overhaul coming down from Washington has sent many companies to their law firms to create plans of action.
“There is going to be more government interaction with our clients at least on a federal level in the next couple of years,” said Ski Harrison, managing partner at Costa Mesa-based Rutan & Tucker LLP.
With key regulators ramping up oversight on everything from finanical services to healthcare, many of the county’s top companies will be in the crosshairs of reform.
While most of the specifics still are being bandied about on Capitol Hill, issues such as capping executive pay, creating cap and trade environmental requirements, requiring more expansive healthcare and clearer financial reporting from all public companies have a lot of businesses looking for legal protection.
“It’s not one sector or industry looking to go under the microscope here,” said John Cannon, chair of the litigation department and securities litigation practice group at Newport Beach-based Stradling Yocca Carlson & Rauth. “Most of the talk about reform and increased oversight applies to nearly every industry.”
Among the top issues, companies are seeking advice on how to deal with increased scrutiny by enforcement agencies.
“We have seen more activity in 2009 (with enforcement issues) and we anticipate doing regulatory work well into the future, in particular with enforcement matters from both the Department of Justice and the Securities and Exchange Commission,” Cannon said.
While litigation still comprises the biggest chunk of companies’ legal spending by billable hours, regulatory work is fast becoming a budget driver.
“National and regional firms probably can expect to see work coming from clients as they help them navigate the uncertian waters of pending reforms and oversights,” Harrison said.
Regulations
Financial services, medical technology, healthcare and information security appear to be the first sectors to be affected by the latest wave of reforms and regulations coming from the federal level.
“The increasing government regulatory activity has made for a bright spot in certain practice groups such as investment management, broker/dealers and tax,” said James Loss, partner at the Costa Mesa office of Boston-based Bingham McCutchen LLP and co-leader of the firm’s private equity group.
The recent spike in regulatory counsel spending is projected to accelerate in 2010, according to a report on corporate legal spending by BTI Consulting Group Inc., a Massachusetts-based legal consulting firm.
“We have already seen an uptick in enforcement matters in 2009 with several bills pending, and I would expect that to be continuing into 2010,” Stradling’s Cannon said.
In addition to dealing with enforcement agencies, law firms are anticipating helping clients with a number of regulatory goals in 2010, including compliance and mitigating risk across the board.
Firms with expertise and industry-specific understanding are poised to collect premiums for their risk mitigation services, according to lawyers.
“Fortunately, or unfortunately depending on how you view it, when the government takes a larger role in what a business is doing for the day-to-day level, it involves help from outside counsel,” Cannon said.
Some attorneys are predicting regulatory work to grow over the years, like it did after the Sarbanes-Oxley Act of 2002.
“Look at the costs that have been associated with Sarbanes-Oxley and the work accounting firms received in those days,” Cannon said.
Law firms are hoping to pick up broader business after being called in on regulatory work.
“What could be a small project on compliance with a certain piece of regulation could be the start of a larger relationship with a firm,” said Bill O’Hare, managing partner at the Costa Mesa office of Phoenix-based Snell & Wilmer LLP.
Another aspect of the regulatory work law-yers are seeing is from the fallout from the Ponzi schemes that were discovered in 2009.
“We’re no different from the rest of the country in that you’re seeing an uptick of enforcement work here locally,” Cannon said. “I don’t think it’s anything particular about here in that process.”
A lot of fear sprang from scandals by New York’s Bernard Madoff and Newport Beach-based financier Danny Pang, who was accused by federal regulators of defrauding investors out of hundreds of millions of dollars and who later committed suicide.
“There will be a whole outgrowth of litigation from those who have been burned tending to sue those with money, claiming that money should be returned on some type of theory,” Cannon said. “There could be litigation that is related to those that could go on for years.”
Even with the prospect of more regulatory work, most firms aren’t looking to hire lawyers.
“Save for a few strategic lateral hires, we won’t be adding to any lawyers to our staff in anticipation of regulatory work,” Bingham’s Loss said.
Litigation Bankruptcy
Regulatory work isn’t expected to replace litigation as most firms’ cash cow.
For most in 2009, litigation led the way in terms of billable hours. Litigation was up 20% from 2008 at Stradling, according to Cannon.
“In terms of hot practice areas, I think litigation will continue to be strong for various industries,” said John O’Hara, partner at Newport Beach-based Newmeyer & Dillion LLP.
Firms also saw a huge spike in employment litigation.
Much of the work is the result of massive layoffs and downsizing in 2008 and 2009. Some employees have turned to wrongful termination suits and claims about pay.
“There are more disputes than usual,” said James McDonald, office managing partner at Costa Mesa-based Fisher & Phillips LLP. “It’s something we’ve seen in past downturns.”
Most firms don’t see a slowdown in employment-related issues for the foreseeable future.
“The effects of the economy will continue to be seen from an employment law standpoint at least through the next year, if not beyond,” McDonald said.
Another booming practice for firms is related to bankruptcy issues, but many are expecting it to start cresting in 2010 before returning to normal levels.
Specifically, commercial real estate developers of office and retail properties—which survived longer than their housing compatriots—are expected to be in some trouble this year, O’Hara said.
Commercial developers and industries closely tied to consumers are likely going to need some bankruptcy help this year, O’Hara said.
Newmeyer brought its bankruptcy practice in house after years of farming it out to other firms.
“It’s something we’re happy to be able to offer our clients because there was always a danger when you referred someone out for bankruptcy work—they sometimes ended up getting more than bankruptcy help,” O’Hara said.
Although firms enjoy the bankruptcy work, most would prefer it to lessen soon.
“You don’t like to see bankruptcy people too busy too long,” Cannon said. “It’s not a good sign for the economy.”
