For attorneys caught up in the excitement of a pending law firm merger, expectations of more offices, more lawyers and more money can be heady.
But practitioners who have gone through the courtship warn that some very tough work — more than most firms expect — lies ahead in uprooting potential client conflicts created by the firms’ marriage.
They can bust up a pending merger deal, send partners packing or require lawyers to implore clients for waivers. And whatever the severity of the possible conflicts, firms are spending huge resources to determine if their clients will butt heads should the merger deal close.
Checking for these conflicts likely is the most underestimated cost of completing a merger, experts say, and it’s a continuing job demanding much of a merged firm’s attention as new business comes in.
“It’s an enormous task,” said DLA Piper Rudnick Gray Cary attorney William Campbell. He has worked on ferreting out potential conflicts of interest related to Piper Rudnick’s series of mergers, the latest of which was with London’s DLA. With the merger completed last month, the firm now has 2,700 lawyers in 49 locations.
Conflicts fall into two types: those related to former clients and conflicts pertaining to current clients. Besides a lawyer’s duty of loyalty to eliminate conflicts, which is a requirement of each state’s ethic rules, there are compelling business reasons for doing so. Attorneys who represent conflicted clients run the risk of malpractice liability and disgorgement of fees. But preventing them, especially when big firms get bigger, can be daunting.
“You have to collect the relevant data, you have to mechanically run computer searches, you have to analyze the results — and then you have to take action,” Campbell said.
Uncovering potential conflicts, which is part of the due diligence that firms conduct before any merger, usually starts during the second or third meeting between firms, when the lawyers sit down and exchange the names of their biggest clients. Those lists typically include clients with a long history at the firms and those that bring in more than $100,000 annually, said one attorney who worked on a major law firm merger and who asked not to be identified.
It is at this point that many potential mergers die, when firms discover that they have current clients in adverse positions. “I’ve seen mergers come to a screeching halt there,” said Ward Bower, principal at legal consultancy Altman Weil.
In the early stages, firms are focused on making a “business case” for a merger, Bower said, and look at client lists that do not include “the little ones.”