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Former offices of Heller Ehrman in San Francisco
Image: Shelley Eades/The Recorder
Brenna Louzin will never forget the day a Heller Ehrman partner walked into her office and began to cry.
It was almost a year ago, on Sept. 26. The 118-year-old firm's partners had voted to dissolve and the Seattle partner came to Louzin to tell her he was not taking her with him.
Louzin, who managed the Seattle library and reference librarians firmwide, had been at Heller for 19 years.
"I'd worked with him forever, and he started to cry. I just listened to him and we had a good talk," Louzin said. "It's just like one part of your identity being sliced out from all the other parts of your life. It's a tremendous loss."
On Sept. 14, a group of IP partners had said they were leaving to join Covington & Burling, and a week later, the firm's banks froze its accounts. Partners found out on Sept. 25, and a day later, they voted to dissolve.
Sadness, shock and anger coursed through Heller offices throughout the country that day, as partners, associates and staff took stock of their situation and struggled to believe what had happened. The wider economic world was in turmoil: Lehman Brothers had collapsed, Bank of America had absorbed Merrill Lynch, and the country's leaders were predicting an unprecedented downturn. The legal community watched with dismay as one of its own storied institutions collapsed, and the question began to percolate: "How did this happen?"
There may never be a clear answer to that question, but the collapse offered a few lessons to those it affected and those who were watching.
"Both Heller and Thelen were wake-up calls for big law firms," said Richard Gary, a consultant and former chairman of Thelen from 1992 to 2003. Thelen collapsed a month after Heller. "I think what the last year has shown is that the industry is remarkably resilient. Large law firms are resilient. They have reacted to market conditions."
Gary said law firms and partners took a good look at their balance sheets, and asked, "Do we have enough capital?"
Morrison & Foerster Chairman Keith Wetmore said his firm has been working for the last decade on minimizing its reliance on short-term debt by asking partners to contribute more capital.
"Certainly Heller and the other law firm failures from last year were important lessons in minimizing short-term debt, because in every death story from these law firms, the banks rang the bell," Wetmore said. "I was never in the 'who's next' school. Law firms are amazingly resilient, compared to other economic organizations. On one hand, we are fragile organizations in concept, but in reality we prove really durable."
In the months following Heller's collapse, a few more firms did fall: Thelen; Thacher Proffitt & Wood; and Wolf Block dissolved, and McKee Nelson was absorbed by Bingham McCutchen. But dire predictions about the death of Big Law altogether or San Francisco firms in particular did not materialize.
"For partners as individuals, in a big firm or not, if you didn't get it before, you get it now, that law firms are fragile," said Orrick, Herrington & Sutcliffe Chairman Ralph Baxter Jr. Orrick brought on about 40 Heller attorneys nationwide. "I don't think it's about San Francisco. It's about the consolidation in the practice of law, the challenges of leading and practicing law at the scale we have come to, with a business model that was not intended for this scale."
Baxter said big law firms must adapt to a new way of doing business.
"At the end of the day, we are still limited by some features we can't change, such as the inability to raise capital other than from the after-tax income for partners and debt," Baxter said. "But most things about the old model we can change."
Consultant Wendy Tice-Wallner thinks there is something about San Francisco that is affecting homegrown firms. In the past two decades, firms here had to either globalize or specialize, because San Francisco's clientele has been changing.
"There are two things that have impacted San Francisco firms: They have a shrinking industrialized base of small to midsize business, and there were too many firms competing for that business. If you stayed very regional, you were fighting over less and less opportunity."
For Heller's attorneys and staff, the lessons were more personal. Many, like Louzin, have struggled to find work.
Legal secretary Michelle Ozenne-Eakin landed a job in April at Buchalter Nemer after a five-month search.
"It starts working at your soul," said Ozenne-Eakin, a single mother whose daughter is in college, and living at home. "I couldn't show her how scared I was. I had to keep it all in. I couldn't show her that I was falling apart inside, until I got a job."
For Michael Charlson, a partner who was at Heller for 23 years, the dissolution was a sign of the changing legal world and even a change in why people become lawyers. He recalled that when Gunderson Dettmer Stough Villeneuve Franklin & Hachigian first raised salaries to $125,000 about a decade ago, Heller's associates came to him demanding raises, and he warned them to be careful what they ask for.
"When you start paying those salaries, the tolerance for people coming in at 1,500 or 1,600 hours a year, the commitment to pro bono, those tolerances shrink a lot," said Charlson, who launched Hogan & Hartson's Silicon Valley office this year with about 30 people from Heller, including attorneys and staff. "There was a lot of sadness about the fact that a place that could combine the quality of the legal work we provided with the humanity of the place just wasn't going to be able to make it anymore," he said. "In some sense it was a really sad statement about where the profession, if not the broader society, had gone."
