What’s been new in the legal field in the past year? To start off, the #MeToo movement exploded onto the nation’s front pages in October, and sexual harassment classes are top of mind at many companies.
What legal areas are booming or declining? Are fees staying the same? What areas of pro-bono work are in demand? The Business Journal’s Peter J. Brennan asked some of Orange County’s top attorneys for their views. Here are edited excerpts of their responses:
Michele Johnson
Partner
Latham & Watkins LLP
Much of my practice involves advising public and private company boards. A major trend for public company boards centers around shareholder activism, including from a spate of known activists, as well as smaller players backed by large investors who want to achieve particular short-term ends.
These shareholders build up stakes in public companies and agitate for change, such as by replacing directors, effecting share buybacks or special dividends, firing management, selling divisions, or—perhaps the Holy Grail—selling the entire company.
Boards need to carefully assess the risk of shareholder activism in advance and implement measures to prepare for shareholder outreaches, whether a simple request for information or a full-blown hostile acquisition attempt or other crisis.
Readers will recall how our then-Irvine-based Allergan was the target of a hostile takeover attempt by now-disgraced Valeant Pharmaceuticals, backed by Bill Ackman’s Pershing Square investment fund, which amassed a secret 10% stake in the company. Allergan’s success in fending off what would have been a disastrous activist shareholder-prompted transaction was rooted in the board’s clear-day preparation for exactly such attacks.
Other board trends that merit careful evaluation include diversity, particularly gender diversity among directors; the need for cybersecurity expertise on the board or among its advisers; and a response to—and embracement of—the #MeToo movement.
As one of the largest pro bono providers in the world, Latham has a deep and lasting commitment to increasing access to justice and serving the underserved in our communities. Last year, our firm provided more than 236,000 hours of free legal services valued at over $180 million. In Orange County, we have several long-standing relationships with nonprofit organizations, chief among them the county’s pro bono law firm, the Public Law Center. Our areas of pro bono engagement include asylum and immigration, corporate and regulatory matters, domestic violence, environmental policy and veterans.
I am personally involved in a recent engagement on behalf of the People’s Homeless Task Force, representing a group of homeless people with disabilities who live along the Santa Ana Riverbed and are being displaced.
Jennifer L. Keller
Partner
Keller/Anderle LLP
The trends in Orange County mirror those in the rest of the country. 1) The number of trials has decreased, with an explosive growth in the ranks of providers of alternative dispute resolution. 2) Corporate litigation clients are getting away from the billable hour and looking for flat fees per case stage, monthly flat fees for the entire course of litigation, contingent fees on plaintiff business cases, hybrid/reduced fees with a success component, and other alternative arrangements. Many large law firms are ill-equipped to be that flexible with fees.
The growing areas of law in Orange County are cybersecurity, privacy law, cross-border representation and white-collar criminal defense. The state courts have become much more active in prosecuting financial crimes, so previous experience as a deputy district attorney has become an advantage to white-collar defenders, most of whom grew up in the federal system and are sometimes ill at ease in the state courts.
Declining areas of law here are class actions, patent litigation, personal injury, where filings are at an all-time low, and medical malpractice, which is driven by the fact that MICRA fee and damages caps haven’t increased since 1975. Various diversion programs have decreased the number of criminal cases requiring an expensive defense. There are rumors of commercial litigation’s decline, but it’s booming at our firm. Generally, an area that can be automated, such as drafting and reviewing contracts, is an endangered species. Eventually, that will be true of legal research.
This is a bad time to be a sexual harassment defendant. Companies need to show they have aggressive programs in place to root out harassment, and demonstrate they will not tolerate it at any level. If that means losing highly placed executives, so be it.
In Orange County, fees have risen for super-elite law firms. But those are few and far between, and many charge higher “rack rates” to keep up appearances but then discount them substantially. The next tiers, and especially midmarket firms, are getting squeezed by corporate demands for lower fees, and many are trying to merge their way out of the doldrums. Some boutiques, which are more nimble and don’t carry massive overhead, are thriving. Those like ours, with something unique to offer, like deep trial experience in a world where most litigators have little or no trial exposure, are booming.
In pro-bono work, the need in immigration is greatest due to the Trump administration’s almost across-the-board anti-immigration stance.
It remains a challenge to get younger lawyers with jury trial experience. Smaller civil trials, where junior lawyers once cut their teeth, have been diverted out of the jury system because trying them is too expensive. About the only place a young attorney can try cases is in the public sector, in criminal prosecution or public defender offices. But there isn’t the turnover there once was in those places, as many lawyers have chosen to make careers in public law offices. Yet in business litigation, while there may be fewer trials, the ones that do see a jury tend to have larger stakes than ever. Corporations with hundreds of millions or billions of dollars at stake are unwilling to trust their trials to litigators with little jury trial experience. But the population of experienced business trial lawyers in graying. So where will the next generation come from?
Over the last decade, there have been structural changes to law practice. Once document review was done by first and second-year lawyers; now it’s done by programs that employ algorithms. Or it’s outsourced to cheap teams of contract lawyers abroad. The upshot is that we need fewer lawyers, but law schools are still churning out just as many as ever. Those from lower-ranked schools find it very difficult to get even entry-level, low-paying jobs. And many companies refuse to pay fees for the work of first- or second-year lawyers, which discourages firms from hiring “right-out-of-school” attorneys.
Alan Laquer
Salima Merani
Partners
Knobbe Martens
With the European Union’s General Data Protection Regulation taking full force May 25, companies in Orange County and elsewhere may soon be subject to additional data privacy regulation. Even if a company has no presence in the EU, it may still face GDPR liability if it offers goods or services into the EU, or collects data regarding activity within the EU, but fails to follow the new data regulation.
That increases the importance of companies understanding how data privacy laws worldwide impact their business, including their data security standards, personal data collection policies and breach notification standards.
As cybersecurity breaches increase in impact and public attention, companies are more carefully evaluating both their technical and legal safeguards. While generic ransomware campaigns are continuing to decline, system-tailored attacks of ransomware, cryptomining and other malware are increasing in frequency, sophistication and severity. Resulting legal trends include an increased focus on indemnification, mandatory incident notification and security audit rights in contracts between companies and their technical vendors.
We are seeing two dominant trends with boards of directors. The first involves increased scrutiny at the board level of intellectual property strategy. Board members seem to have increased first-hand experience with high-stakes IP plays that have either made the company a success or a show stopper. Some boards are now designating a special IP committee, typically made up of the CTO and one to two board members, that provides reports to the board.
The second trend centers around inclusion and, perhaps more significantly, a true appreciation of diverse backgrounds. The cynical among us might say that that’s simply for optics or a “check-the-box exercise.” In our experience, however, boards are increasingly placing significant value on leveraging different skill sets to better deal with globalization, workforce issues, retention and negotiation strategies.
James McDonald
Managing Partner, Irvine office
Fisher & Phillips LLP
Employment law is still a fast-growing area in California and Orange County. We continue to make new partners and to hire both lateral associates and new law graduates to keep up.
Wage-and-hour class-action lawsuits are still very active. Individual disability discrimination claims are still very popular. The state legislature keeps churning out employment laws, and we are seeing an uptick again in sexual harassment claims as a result of the #MeToo movement.
The #MeToo effect isn’t limited to Hollywood, moreover; we are seeing an increase in harassment complaints in OC. It is important that all businesses take a fresh look at what they are doing to prevent sexual harassment.
Policies against harassment should be written so as to encourage victims to come forward and complain internally, but not so broadly as to invite complaints about petty conduct that is not unlawful. Training of managers and supervisors is still important, but the training should be refreshed and tailored to make it relevant to each workplace. Managers should be taught not only about the required legal elements of harassment but also about the types of poor judgment by managers that often lead to harassment complaints.
When a complaint does arise, it must be addressed promptly with a thorough and unbiased investigation. Often in these cases there is a greater focus on what the employer failed to do than there is on what the alleged harasser did. What should it be?
Finally, employees found to have violated the policy against harassment must be held accountable. Termination does not have to occur in every case, but discipline must be consistent. Your employees should not perceive that key executives or top performers are exempt from the policy.
Beth Rautiola
Demosthenis Zeppos
Partners
Zeppos Rautiola LLP
We’ve seen energized economic growth in recent months throughout the Orange County business community, which has helped to fuel the continuing growth of our practice. Transactional services that are often sought by clients in this environment include contract reviews, new entity formation, joint-venture agreements, sophisticated payment incentives for executives and key management, and tax guidance for transactions.
In particular, we have experienced a steady increase of new business structure and reorganization engagements in the last 12 months. In this surging economy, we have been able to take advantage of legal opportunities for our clients and prepare for dramatic growth across multiple industries, including B-to-B and B-to-C.
For example, we have restructured clients’ existing corporations into a holding company with separate entities for equipment leasing, management and operation companies to service the same work that was previously administered in a single operation. This silo effect allows our clients far greater protections, opportunities and tax benefits.
Separating functions and assets within an operating business allows owners to streamline employee benefits, isolate risk, and shield assets from unnecessary risks. Separate functions also allow the business to explore new opportunities and joint ventures with systems and processes that scale with far greater efficiency and speed.
As California’s increasing compliance requirements and exposure to employee claims catapult into turmoil for business owners, businesses need to mitigate ever-increasing risks by grouping like-kind assets and activities into separate entities. Employers also find that the separate business operations make employee incentives easier to reward and track.
Large-cap businesses have been taking advantage of this system for decades. Now more than ever, midlevel businesses are seeing the need to take advantage of licensing requirements, insurance exposure, and general business opportunities. This solution isn’t new in the market but previously was often reserved for businesses generating over $100 million in annual revenue; it’s now more frequently made available to businesses making over $10 million in revenue.
James D. Stroffe
Managing Shareholder
Friedman Stroffe & Gerard PC
As a full-service business law firm, we are involved in many areas of the law, including corporate and transactional, real estate, construction, labor and employment, intellectual property and litigation. There have always been fluctuations in which practice area of our firm dominates. This is usually a result of economic shifts, of which there have been many recent examples.
Our real estate practice has seen substantial activity in certain market segments, while others have diminished. For example, where we were previously heavily involved in negotiating retail space and other business leases, the retail segment—including Orange County establishments—hit bad times recently and has dropped off substantially.
There has been a rise in labor and employment disputes in virtually all industry sectors in Orange County, with matters such as class-action wage-and-hour claims, wrongful termination and sexual harassment and discrimination disputes. In this arena, business owners not only request compliance assistance, but also value pre-emptive advice, and in the event of litigation, seek expert advice to navigate these disputes in a cost-effective manner.
For many years, we were involved with a number of action-sports companies that required a cross-section of our expertise, but the industry has been going through difficult times, and therefore the demand for legal services has diminished.
Business litigation will always occur in a vibrant economy such as Orange County’s, simply because of the sheer volume of transactions, but it seems to expand exponentially when the regional and national economies falter. We may be on the precipice of an expansion in business litigation. The economy is quite volatile right now.
We believe that it’s important to protect and advise clients with practical solutions, to negotiate and where possible settle disputes, and in most cases to litigate as a last resort. The cost of litigation today, especially for small businesses—with the vast amounts of electronically stored information that must be collected, reviewed and evaluated in business cases, and the need for experts of different types, not to mention delays due to courtroom overcrowding and budget constraints—is very high and should be undertaken cautiously. Even with a substantial up front retainer, litigation costs are inevitably considerable, and it’s difficult for individuals or small businesses to afford the fight, no matter how just the cause. Depending on the nature of the dispute, retainers of $25,000 or more are often insufficient.
While we represent some publicly traded entities, the majority of our clients are entrepreneurial ventures involving real estate development, manufacturing, retail, licensing entities, and service providers. Many are closely held, and it’s common to see disputes involving ownership and management issues with closely held and family-owned businesses. Especially now, with the aging baby boomer population, issues involving succession and transition of ownership are more prevalent.
Overall, practicing law has become much more competitive. Billing rates in Orange County are typically more affordable than those in Los Angeles, especially when those lawyers practice at a small to midsize firm structure that allows exceptional expertise without the high overhead of large national firms.
Edward Susolik
Supervising Trial Attorney
Callahan & Blaine
In recent years, more Orange County companies are hiring smaller, specialized boutique litigation law firms to handle litigation needs, as opposed to using the standard multinational law firm with a satellite Orange County office.
There are many reasons for that, including that such firms are more efficient and cost-effective, with only highly experienced lawyers working on cases. Boutique litigation firms are also more experienced in real-world litigation and therefore obtain better results in court. For example, one is hard-pressed to find even partners at large law firms who have actually conducted real jury trials, while boutique litigation firms have lawyers like my partner Dan Callahan, who has been named Orange County Trial Lawyer of the Year on three separate occasions. To that end, I have seen a number of new boutique litigation firms springing up around Orange County in recent years trying to take advantage of the trend.
The two biggest staples of Orange County law have been and continue to be business litigation and real estate litigation. As the Orange County economy continues to prosper and grow, both of those areas also continue to expand. Thus, lawyers and law firms who have expertise in those areas, especially if they have trial experience and real-world litigation experience, will continue to be extremely busy.
Another growing area of law here is labor and employment litigation. In fact, there has been an epidemic of class-action lawsuits against businesses all over California that focus on violations of wage-and-hour laws, overtime and break claims and what are known as PAGA claims. Those claims are typically driven by the fact that attorney fees can be recovered by lawyers for the plaintiffs if they can prove even minor and technical violations.
The biggest area of law declining here is personal injury litigation. The Orange County Superior Court is one of the most successful in California in getting cases to trial within 12 to 18 months of filing. Thus, in recent years many marginal personal injury cases that were settled because they took up to five years to go to trial are no longer being filed. In addition, defendants are taking many more cases to trial and winning, thus further deterring the filing of meritless cases.
I am working in cybersecurity on behalf of corporations that have suffered damages from breaches. My main area of practice is insurance law, where I’m known as one of the leading experts in the country representing corporations in maximizing insurance policy proceeds. Virtually every company has cyber insurance now, and more and more claims are being denied, either in full or in part. My practice has been very busy in recent years in assisting corporations recover claims and the full extent of damages from recalcitrant insurance companies. Moreover, because cyber coverage is such a recent insurance product, there is very little case law, allowing me to be creative and aggressive in prosecuting claims of my corporate clients against insurance companies.
Because of the significant trend of more OC companies hiring smaller, specialized boutique litigation law firms, the overall payment of attorney fees has gone down substantially in recent years. For example, such boutique litigation firms are significantly more efficient because they utilize only highly experienced lawyers to handle litigation, as opposed to training young lawyers on the client’s nickel.
We have a saying at my firm, that we get “Twice the Results at Half the Cost.” That is typical of many boutique litigation firms in Orange County.
