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Recession leaves lawyers rethinking strategies

The local economy leaves Jones Vargas President Joe Brown shaking his head. The veteran attorney said he has never seen things this bad in his 41 years of practice.

“This was far worse than anything I have experienced,” he said.

There have been other recessions during Brown’s career. The most notable occurred in the 1970s, and in the early 1980s and 1990s — but none were like this one. Brown and other lawyers are trying to adapt their firms to the changing economy. The process can prove painful.

Brown cuts costs anywhere he can these days. Expenses are cut in the least disruptive areas first. Company retreats are no longer trips to Phoenix or California’s Napa Valley. These treks have been replaced by outings and dinners at Red Rock Resort here in Las Vegas. Jones Vargas’ partners have also taken pay cuts, some as much as 10 percent.

A couple of job offers from Jones Vargas to associates also had to be rescinded due to the slumping economy. Even after reducing other costs, dreaded work-force reductions sometimes can’t be avoided.

“We laid one guy (lawyer) off,” Brown said. “We’ve had some natural attrition, from people retiring, or from people moving on to other jobs.”

Besides the lawyer, eight other full- and part-time Jones Vargas staff members were let go earlier in the year, Brown said. The law firm also has about 10 fewer attorneys than it did three years ago.

Associate salaries haven’t been reduced, but fewer summer associates were brought in this year — two compared with last year’s four. At the economy’s peak, years back, as many as eight summer associates would try out at the firm.

The good news for Jones Vargas is it has met its yearly budget, just barely, Brown said.

Another bright spot was the recent addition of a lawyer with star power: Brian Sandoval. The former Nevada attorney general, federal judge and announced Republican contender for governor joined Jones Vargas’ Reno office Oct. 19.

Most business law offices have halted hiring. Lionel Sawyer & Collins Managing Partner Paul Hejmanowski predicts exceptions will only be made in rare cases. Las Vegas law firms sound almost like confirmed bachelors the way he puts it.

“Somebody special comes along and you take a look at them,” he said.

Lionel Sawyer & Collins has tightened its belt. The Nevada firm reduced the number of summer associates as the economy slid, Hejmanowski said.

“Typically, we would have four to six summer associates, and this year we had two,” he said.

Lionel Sawyer & Collins has avoided layoffs so far, but Lewis and Roca hasn’t been so lucky. Earlier in the year, the Phoenix-based company cut six lawyers, including two in Las Vegas, local partner Dan Waite said.

“Our goal was to have one round of layoffs. We didn’t want to do it in stages,” said Waite, a member of Lewis and Roca’s policy committee.

Lewis and Roca has no hiring freeze in place, Waite said. However, some practice groups at Lewis and Roca may have halted hiring. The regional firm did not cut associate pay, Waite said.

Hejmanowski, like Brown, can put the recession in some historical perspective. He’s been a lawyer at Lionel Sawyer & Collins since 1972, and hasn’t ever seen the economy in this predicament. Many people celebrated as the Dow Jones industrial average passed 10,000 in mid-October, but Hejmanowski was wary.

“I think the Dow going to 10,000 is a little scary, because what is driving it?” he said. “Where are the earnings to drive it?”

Hejmanowski pointed to Las Vegas’ current 13.9 percent unemployment rate and said the downturn has affected law firms just as it has affected every other business. He isn’t looking for happy days to return anytime soon.

“The legal community is going to continue to be a different market to work in,” he said.

Law firms may be further down the food chain when it comes to paying bills.

“The clients, people we rely on for business, are under pressure,” Hejmanowski said. “They will pay their power company instead of paying their lawyers.”

The Las Vegas office of Armstrong Teasdale, a St. Louis-based firm, has mostly done away with traditional billing methods. Billable hours have been replaced with discounted hourly rates and performance bonuses. Fixed-fee structures have also proved popular with clients, Armstrong Teasdale partner Byron Francis said.

“Billable hours promote inefficiency in lawyers,” he said.

Partners and experienced lawyers could benefit from alternative rate structures.

“The more knowledgeable lawyers will make the most money, because they are the most efficient,” Francis said. “That is the way it should be.”

But Hejmanowski said the death of billable hours may be overhyped.

“That may be an exaggeration,” he said. “But I think (the popularity of) billable hours will be less than it is now.”

Lionel Sawyer & Collins is being flexible on some of its fee structuring. The law office did not raise rates in 2009 as it has in the past.

Other observers are also skeptical that the charging of billable hours — a century-old tradition — has reached its expiration date.

“I haven’t seen it myself,” Brown said.

Jones Vargas hasn’t reduced its hourly rates. The firm has always offered monthly retainer plans for clients. However, Brown can imagine clients demanding discounts.

“They might say, ‘I don’t want to be charged $400 an hour. Charge me $300 an hour or I will go to another firm.'”

Lewis and Roca has raised its rates, and evaluated client billing case by case.

“We raised rates, but with fewer clients than in the past,” Waite said.

The health of law firms, to a great degree, depends on their practice areas. Bankruptcy business is booming and litigation continues. Brown sees clients increasingly cutting their risks and opting out of lengthy litigation.

“We see more clients wanting to settle,” he said.

A little good news does come from the recession. Brown predicts cost-conscious companies will see Nevada firms as a value. And at least one firm is announcing expansion plans. Gordon Silver, a Las Vegas-based bankruptcy and litigation firm, is planning to open offices in Reno and Phoenix.

“We’re hiring,” Gordon Silver shareholder Gerald Gordon said. “We are looking to expand. The world can’t stay this way forever.”

Contact reporter Valerie Miller at vmiller@lvbusinesspress.com or 702-387-5286.

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