Clifford’s Notes: Reimbursement Issues

By Robert A. Clifford 
Clifford Clifford Law Offices

Paul J. Harris, a West Virginia lawyer, represented a client who had pursued a liability claim against a retailer after falling off of an allegedly defective ladder. He obtained a $25,000 settlement from the defendant in July 2005.

Medicare paid $22,549 for medical services on behalf of the injured man, a Medicare beneficiary.

After Harris provided Medicare with the details of the settlement payment, the Centers for Medicare and Medicaid Services (CMS) calculated that it should be paid $10,253.59 of the settlement amount. Harris then distributed the settlement funds to the client without retaining the funds for Medicare or paying it from the client’s funds out of the payout.

Because the amount was not paid within the 60-day statutory deadline, CMS sought a total of $11,367.78, which included interest. The client never paid the government at all, and it then filed a declaratory judgment action against Harris for the damages owed to CMS under 42 U.S.C. 1395y(b)(2)(B)(ii), which provides for the right to collect conditional payments from any entity that received money from the ”primary plan or proceeds of the primary plan.”

Harris filed a motion to dismiss, arguing that an attorney cannot be held individually liable when distributing third-party settlement funds to clients.

The U.S. District Court for the Northern District of West Virginia rejected the motion and stated that Section 42 of the U.S. Code provides that the government may recover payment from ”any entity that has received payment from a payment plan.” U.S. v. Harris, N.D.W.Va., No. 5:08CV102 (decided Nov. 13, 2008).

Since 1980 and the passage of the Medicare Secondary Payer Act, Medicare has had a right to reimbursement of money it pays for medical care rendered to an injury victim and to ensure that the victim’s future medical expenses are first paid by the recovery obtained from defendants.

This decision should be kept in mind in light of the Medicare, Medicaid and SCHIP Extension Act of 2007 (MMSEA) that is set to go into effect July 1 of this year. The new law now provides that insurance companies must register on behalf of a Medicare claimant in an injury case to ensure that Medicare is compensated or be subject to stiff monetary penalties of $1,000 per day.

Payments made by Medicare to beneficiaries in this situation are called “conditional payments” and are recoverable from the tortfeasor who is the primary payer. Under 42 U.S.C. 1395y(b)(3)(A), Medicare has a cause of action for double damages if it does not receive appropriate reimbursement.

The new law apparently does not deal with identifying future costs of care that are potentially covered by Medicare. That is left to Medicare Set Aside analysis. The question then is how a client who received Medicare benefits is to be efficiently paid once a settlement has been reached.

Although the government certainly is entitled to reimbursement, lawyers are fearful that overreaction to the new July 1 rule could take years of red tape and at the expense of the injured plaintiffs.

And what about due process for the injury victims?

Tort victims fear that insurance companies will put Medicare on settlement checks as a payee, which will considerably delay the ability to promptly pay out cases to a client. Partners at my firm were part of an ad hoc committee made up of plaintiffs and defense counsel selected by Chief Judge William Maddux who met with Judge James Flannery to ensure that procedures are in place to provide the expeditious conclusion of settlements in the Law Division.

One possible solution for plaintiffs’ attorneys is to inform the defendants that their law office has a firm Medicare compliance process in place, including the verification and resolution of Medicare’s reimbursement claim.

Plaintiff attorneys also need to include written Medicare allocations in their clients’ settlement agreements along with an explanation of why the allocation is reasonable for the injury victim.

Perhaps a trust could be set up whereby, with court oversight, arrangements could be made to put aside sufficient money to cover the Medicare lien.

Certainly, strict adherence to statutory time lines is necessary, but lawyers also need to be aware that they must have open and continuing dialogue with Medicare representatives in order to negotiate any outstanding conditional payments that are alleged right from the start of the lawsuit, even if the plaintiff is only Medicare eligible and hasn’t yet received any money from the government.

Further regulatory guidance from CMS on how the new reporting procedures will work is expected in the coming months, so that all of the parties involved can be assured they are properly following the directives without draconian recourse against an unsuspecting lawyer who is trying to do what is right.

15-05-09(9:49:47)

Attorneys in Transition Event on May 8, 2009

Attorneys in Transition event co-sponsored by Law Bulletin and The John Marshall Law School took place on Friday, May 8th at The John Marshall Law School. The purpose was to help those lawyers who need career assistance and support during these tough economic times. Here are some photos from the event. For more information about this event, visit our Attorneys in Transition Web site.

Click on the photo to view the caption.

Social Scene: Casino Legale hosted by the Chicago Bar Foundation

On Friday, April 24th, The Chicago Bar Foundation (CBF) Young Professionals Board and Chicago Bar Association Young Lawyers Section hosted their second annual Casino Legale event at the Chicago Cultural Center. Featuring casino games, prizes, live music, dinner, dessert and a full open bar, the event raised over $11,000 for the CBF’s comprehensive efforts to build the capacity of their pro bono and legal aid system and ensure equal access to justice for all Chicagoans. On top of raising funds to advance the CBF’s mission, everyone in attendance had an incredible time. While some experienced more gaming good fortune than others, it was clear that everybody enjoyed playing, eating, drinking and dancing. For more information on the event, visit www.chicagobarfoundation.org/casino-legale.

Climbing the Ladder - Braving the economic downturn

By Shermin Kruse
Barack Ferrazzano Kirschbaum & Nagelberg

I could write about the path to partnership, or the importance of having a mentor, or maintaining a work-life balance This is, after all, an advice column to help young attorneys climb the ladder of success.

But somehow, with everything that is going on around us, that type of ”advice” felt a bit ”Let Them Eat Cake” to me. After all, so many young associates in Chicago and around the country are more concerned about keeping their jobs than long-term career growth. And since we live in a culture of leveraging, chances are most of those affected do not have enough saved to last much longer than a few months without falling very short on mortgage/rent/car payments.

With phrases like ”bloody Thursday” in the press, low morale and tense work environments, these are difficult times indeed. There is, however, a silver lining. Believe it or not, whether you have been laid off or your job is safe, you are facing a unique opening for professional growth.

If you have escaped the guillotine, you remain employed and your place of employment is financially sound, you are faced with tremendous opportunity.

This is because there are ways to use the economic downturn to your advantage. Companies are not only putting their staffs through grueling evaluations and layoffs, but they are also doing the same thing to their service providers — their accountants, their auditors, and yes, their lawyers.

That means that, as a young lawyer who does not really have any clients to lose, this is a rare opportunity for you to try your hand at tasting some of this low-hanging fruit and developing clients of your own.

If you work in a small or midsize firm, the opportunity for client development is even greater. More than ever, small, midsize, and even large businesses are interested in cutting costs.

The big firm ”our client has unlimited dollars so we’ll bulldoze the opponent until they run out of money” approach is just not as appealing as it was back when share prices had not yet plummeted.

Companies are looking for smaller or midsize firms who can do work at a sophisticated level, but with a cost-effective budget. They are looking for a change, right when you are approaching that time in your career to face the world of client development. Timing, as they say, is everything.

What does this mean, in real, practical terms? It does not mean that business will flock to you if you give a talk or two, or write an article here or there. It does mean that you are more likely to get a meeting with a general counsel of a company if you ask for one. You’re more likely to hear a ”yes” when you ask a prospective client to dinner. That meeting or dinner may lead to another meeting or dinner, followed by months or even years of relationship building, before any real business comes in.

It is a lot of work, developing clients. But this is your chance to get your foot in the door.

That fall of the first domino is what this downturn provides you — it is up to you to monitor and encourage the effect.

If your head has not escaped the razor-sharp edge of the guillotine, first, kudos for reading this magazine. Your professional self is, first and foremost, a lawyer. That cannot be taken away from you.

Second, although losing your job can seem like a tremendous setback, it can also be a wonderful excuse to re-evaluate your career and life goals. Did you really ever want the job you just lost, or was it what you expected of yourself after law school? Worse yet, was it what someone else expected of you? This is your chance for self-examination. Do not miss it.

For those of you who really do love what you do, I promise you that you will find another job. Take your time, travel to Central America or Eastern Europe or wherever you have always wanted to travel, and this time around, do not base your employment decision on what is expected, but on what feels right to you.

When I was first interviewing with law firms, I was torn between a very prominent firm with offices all over the world, and the local but uniquely sophisticated firm of Barack Ferrazzano. I was told, repeatedly and by lawyers and non-lawyers alike, that the larger international firm was the safer choice. I chose Barack.

As it turns out, I did the right thing. The larger law firms are now laying-off associates who they deem disposable by the dozens, while some firms, like mine [insert shameless plug here], have made responsible cutbacks without laying off a single person or cutting well-earned bonuses.

Partly because they were more fiscally responsible, were not leveraged to the nines, and maintained respectable cash reserves. But partly because there is, it seems, some room for loyalty in this business, and it feels great to be with a firm that exemplifies that.

I followed my instincts when I chose Barack. It felt right to me. I was lucky.

This is your second chance to follow your instincts and start all over again. Take the challenge.

Surviving in the middle

By Maria Kantzavelos

In the last few years, Chicago has seen several of its midsize firms acquired by bigger, out-of-town shops.

But there are those firms that have embraced their place in the middle, resisted the urge to merge, and found the right formula for keeping their practices going for decades.

“The key to being successful in the middle is, number one: control your costs. Number two: be focused on doing a few things arguably as well as the large firms,” said Ward Bower, a principal of the law firm consulting business Altman Weil Inc. “If you can do that, then you have a chance to compete for good work. But if you try to be everything to everybody, then you’re caught in that no-man’s land, where clients will go to larger firms for important matters, and to smaller firms where price is important.”

Although the biggest Wall Street firms suffered first, and are suffering the most, from the nation’s dismal economy, the current climate is impacting virtually all law firms, said Joel F. Henning, law firm consultant for Hildebrandt International.

“But our midsize clients, for the most part, are generally weathering the storm,” Henning said. “It has to do with focus, strategy, knowing what you can do extremely well, doing it, and not trying to do everything.

“I see a great future for midsize firms that want to remain midsize, so long as they’re realistic, and operate very strategically.”

Chicago Lawyer this month talked with leaders at three long-standing midsize firms about their own business strategies for surviving and thriving as independent shops that have found a niche in a globalized profession and, now, in an economic crisis.

Barack Ferrazzano: ‘Atypical’ for midsize

While 2008 presented its share of challenges to some law firms as the economy took to its slumping slope, it was a record year for revenue and profits at Barack Ferrazzano Kirschbaum & Nagelberg, a 24-year-old Chicago institution with a global presence and nearly 100 lawyers.

As a business firm with a client roster that boasts such big names as Shell Oil Company and Volkswagen on the litigation side; Bank of America and Wells Fargo in the banking and lending arena; and, on the corporate side, Bernard Arnault’s LVMH Moet Hennessy Louis Vuitton — considered the world’s largest seller of luxury goods, “I don’t think, necessarily, we’re your typical midsize firm,” said Peter J. Barack, a founding partner.

“We represent a lot of large, sophisticated clients that other midsize firms may not represent, in terms of their product mix,” Barack said. “Last year was our best year ever. I think it’s doing us well in these perilous times.”

As such, Barack said, firm leaders have had no real interest in the continual merger inquiries that have come to them over the years from bigger firms, which tend to boast an international platform as part of the wooing process.

“It’s always nice to be romanced,” Barack said. “But we’ve always felt that we can have more fun, do our thing, do sophisticated work, and make comparable money within the model that we have.”

That model, he said, features an ability to cultivate close, long-lasting relationships with clients (Arnault, for example, has been a client since the firm’s founding), lean staffing of matters, and a focus on such practice areas as corporate law, real estate, litigation, banking, bankruptcy, tax, employee benefits, and intellectual property law — all from a standpoint that embraces the notion that the firm is “not all things to all people.”

“In a way, we can be like the small, agile mammal, running between the feet of the lumbering dinosaurs,” Barack said. “For a lot of these large clients, I think we fit into their sweet spot to some extent, in terms of being able to do things on an efficient basis.”

When Barack talks about how his firm’s approach differs from the model generally followed by the mega-firms, he likes to use a made-up term to show what his firm looks to avoid: The “businessfication” of the legal profession.

“If you look at the larger firm models, they really are, in a way, quite different in terms of their hierarchy, their rules and regulations, in terms of how it’s much less of a professional practice and more of a business,” Barack said.

“[In a smaller firm] you’re able to retain more of the elements of practicing as a profession than in a larger firm,” said Barack, adding that the “very informal” law firm is a place where lawyers can dress in jeans, and work in an environment that is light on rules, regulations, and bureaucratic constraints.

“It’s entirely different in terms of how you practice — the ability to have fun, the ability to develop relationships with your colleagues, your ability to establish relationships with your clients.”

Barack is a former Northwestern law professor who started his career as an assistant professor of business administration at Harvard Business School. He, along with former Northwestern law professor Dennis Ferrazzano, and two other lawyers who had been practicing at a small Chicago firm, opened up their own shop in 1985 with a quest to create a new model that departed from the standard mega-firm approach.

“We felt that we wanted to have fun practicing law and doing what we liked, and I think we tried to hire people who had the same sort of mentality,” said Barack, who noted that the firm has grown organically and gradually, both at the bottom and laterally.

Still, Barack said, the independent, midsize firm’s billing rates, as well as starting salaries for associates — many of whom are picked from the top law schools — are on par with the big firms in town.

“We think that we’re providing to the client a value added, which justifies what we are doing,” he said. “We can be more efficient, though, so I think the ultimate cost to the client might be less. We don’t have to lawyer a job up with associates upon associates.”

Barack said a key to ensuring the profitability and financial health of the firm, which also counts many Chicago-area businesses as its clients, is on the supply side.

“If you have good people, you have the resources to provide the services you need. You can be creative, you can be responsive, you can provide the very best legal services, and the clients appreciate and will come to you for that. Good people can generate the business,” he said. “And, ultimately, if you have the business, that will, of course, drive the profitability.”

After a record year of revenue and profits, it remains to be seen how this year will turn out for the firm. Barack said the nature of the practice this year has changed somewhat in the midst of the economic slump, with a greater emphasis on litigation, real estate workouts, and bankruptcy work.

He pointed out how the firm can foster a less stifling environment for its lawyers to work in.

“People are not necessarily pigeonholed to do just one thing,” he said. “There are litigators, of course. And, there are transactional lawyers. But we could have a real estate lawyer that might be involved in a corporate transaction and vice versa.

“Because we’re a business law firm you have to have a business sense. A business sense as to what is important and what is not important to the client, who is trying to run a business.”

In the mix at Freeborn & Peters

Since June 1983, when six lawyers with a business-oriented practice parted from an old-line Chicago firm to open up their own shop, Freeborn & Peters has grown to about 120 lawyers — without any mergers or acquisitions.

While the size of the firm has remained relatively stable for the last 10 years, its profitability has been on the rise, said Michael D. Freeborn, a founding partner.

Size, he said, has had little to do with the survival of this independent firm that focuses its practice on five core areas: business litigation, business law, real estate, government relations, and bankruptcy and creditors’ rights.

“Size has never been the driver for what we’ve been doing. It just happens to be the consequence of what we’ve been doing,” Freeborn said.

The firm, which typically hires laterally and gradually, based on the needs of its clients, eliminated its summer associate program in 2006 because, “in terms of being cost-effective, it was better for us to pick the stars — to cherry-pick and recruit that way,” Freeborn said.

And, he said, “We haven’t actually launched a new practice area or practice group betting on the come, or expecting the business to follow. It’s been more about, responding to clients’ needs.”

Freeborn said the firm has long focused on serving the legal needs of a particular set of clients: those looking for “boardroom-level” legal solutions, rather than “the commodity, or generic services that are lower priced and in which price is the determinant for whether you get the engagement.”

“Companies have legal problems that are sometimes routine,” Freeborn explained. “Other times they have unique, one-of-a-kind problems that rise to the level of drawing the attention of the members of the board. We’ve concentrated on equipping ourselves to handle those most serious corporate problems.

“When you’re talking about boardroom-level problems, companies are willing to pay for the best talent.”

That focus, Freeborn said, is among the three key ingredients that make up the recipe for the business strategy that has long been followed at Freeborn & Peters.

“The objective is to really have the power in those [five core practice] areas, and also the finesse to deal with things in bringing just the right level of firepower to the problem,” Freeborn said. “Had we, instead, tried to be all things to all people, we would have been watered down. We would not have had the success we have.”

The approach to staffing projects is a team-oriented one, Freeborn said, meaning it is interdisciplinary, without respect to rigid, department boundaries. And, despite its size, leaders consider the firm to be in competition with the big firms for business.

“When we’ve had beauty contests, we are typically the smallest of the participants at the beauty contest,” Freeborn said.

A formulaic and prospective compensation system for equity partners is another key piece of the firm’s business strategy.

“We basically decided we were going to take 75 percent of the firm’s net income, and that was going to get allocated according to predetermined percentages,” Freeborn explained. “That’s the part that takes care of the longevity, the loyalty, the job security.”

As opposed to the lockstep or “inverted wedding cake” kind of compensation system that rewards partners based on seniority, about 25 percent of a partner’s income is based on short-term performance in areas that include: business origination, the profitability of that business, the number of hours devoted to the practice, contributions made in the area of firm management, and handling engagements not originated by the partner.

“We considered that a performance-based portion of about 25 percent was about enough to make sure you had an incentive to get out of bed in the morning, because 25 percent of your income is enough to get you concerned,” Freeborn said.

The firm’s compensation system includes an important subjective component, referred to as a reverse review process, by which every person within the firm can review equity partners with whom they’ve had significant contact.

He offered this hypothetical to show how the “anonymous” and “unfiltered” reverse review process could work: “A guy in the mailroom will subjectively evaluate me and tell, through this review process, if I’ve been constructive, supportive, receptive on the one hand. Or, on the other hand intolerant or indifferent, or failing to instruct.”

“We have had equity partners who have lost equity units solely because of reverse reviews,” Freeborn said. “They may be performing in every other way — bringing in business, billing hours, doing all those things right. But if you are interfering with the culture of the firm you could lose your equity partnership in the firm.”

The third ingredient to the firm’s business strategy deals with the way the firm is governed.

Its “participatory governance” consists of a few committees whose members are elected by a partnership that recognizes “that just because you are a lawyer who controls a lot of business, doesn’t mean you know anything at all about managing an organization or providing leadership and structure to others,” Freeborn said.

As such, Freeborn added, many of the partners elected to those leadership roles are lawyers with backgrounds in business.

While there was a period of time in the firm’s 25-year history when leaders entertained the inquiries of out-of-town firms about the possibility of merging, the firm a few years ago adopted a philosophy that it would no longer engage in those discussions.

“We always had some trouble understanding why it would be beneficial. Why is big necessarily better for what we want to accomplish? Where’s the payoff for the client, and where’s the payoff for the lawyers? I just haven’t seen it,” Freeborn said. “If, in the end, you’re going to come to the conclusion you’re not going to get married, the breakup is an awkward conversation. So we, as politely as possible, turn down any overtures like that now.”

Firm profits have been on the rise in recent years, and the firm came “within nickels and dimes” of an “ambitious target” in its budgeted net income for 2008. However, Freeborn conceded, there have been some big challenges along the way.

“It hasn’t been just a linear slope upward, but I don’t believe there’s ever been a year in which we had a dramatic downturn in profits,” Freeborn said. “There’ve been plateaus, to be sure. But the rolling average going forward has been an upward trend.”

For this year, he said, “we’re looking at it on a month-to-month basis, just because so much of how we do depends on how our clients do. If a client sneezes we can get a cold, so our focus has been on keeping our clients healthy. Because, if they stay healthy, we stay healthy.”

Much Shelist: Up close and personal

In a sense, it could be said that the 85-lawyer firm of Much Shelist Denenberg Ament & Rubenstein looks to operate as a mirror image of the clients it serves: entrepreneurial, middle-market businesses based in Chicago.

“We’re fiercely independent,” said David T. Brown, who has served as chairman of the firm’s management committee for the last 10 years.

“We, absolutely, intend to stay midsize — and that’s our client base.”

Calls from out-of-town law firms inquiring about the possibility of a merger or an acquisition have been coming more frequently in recent years, Brown said. However, he stressed, those inquiries are typically answered with a question that reflects the client-oriented focus that is a crucial component of the business model at Much Shelist.

“The question really is: ‘Tell me how this would make our firm better in serving our clients,”‘ Brown said. “If you ask most of our client base, being part of a mega, national firm would do nothing for them. So, as a starting point, why would we even go down the path if it’s not going to help our clients?

“Most of our clients don’t want to be working with somebody from a different office that they don’t know. They like the intimacy of having us here in Chicago, and being close to their businesses.”

Founded in 1970 by Morrie Much and Michael Shelist, the firm for many years had a class-action practice that made for a unique corporate firm. Three years ago Much Shelist transitioned its business model, and its class-action lawyers, led by Steve Kanner and Michael Freed, moved on to form their own firm.

“We, actually, are on the other side defending class-actions now,” Brown said.

It was a question, he said, of redefining the firm’s identity, and investing in its corporate, real estate and litigation practice with a primary focus on the middle market, versus the class-action practice and the risk-taking associated with it.

“We couldn’t be the best trying to be a class-action firm and dedicating a significant chunk of resources over there and, at the same time, dedicating resources to being a business and litigation firm,” Brown said. “Now, there are no mixed messages, especially internally. Now, we know who we are.”

Today, Much Shelist touts itself as a full-service business law firm that remains focused on the middle market, with a client base that includes middle-market businesses, financial institutions, public and private companies, families and high-net-worth individuals.

And, with thousands of middle-market businesses in Chicago, Brown said, the firm doesn’t consider itself a contender for business with the big firms.

“They have a different niche,” Brown said. “Nobody is going to look at something and say, ‘Hmm — are we going to hire Much Shelist, or are we going to hire Kirkland?”‘

In today’s economic climate, however, “we’re getting different looks than we otherwise were.”

Those looks, Brown said, are coming from larger corporate clients who traditionally sent their legal work to the big firms and now see midsize firms like Much Shelist as an alternative for projects other than “bet-the-farm” matters.

For example, Brown said, “I met with another major company that is a Fortune 1000 firm and they have a general counsel, and they’ve been using a big firm. I said, ‘If you’ve got a billion-dollar deal that’s multinational, we’re not the right firm. But, if you have a deal size that may be $25 [million] to $250 million, or $500 million, and it’s a domestic deal, we can do that all day long at — if you will — a significant value proposition.

“The fact of the matter is, this is what we do day in, day out,” Brown continued. “We have a lot of experience in this segment. So, even the bigger companies are looking to a firm like ours because they know that we understand that middle-market business.”

The strategy for making that value proposition “different” from those of the big firms, Brown said, comes down to billing rates, staffing methods, and lawyers providing legal services from a business point of view.

“Their senior associates are billing more than are, probably, our equity partners,” he said. “And, we don’t have 25 people to put on a deal. When we staff, it could be three to five people. That’s it, depending on the size of the deal.”

The firm, which hires laterally, eliminated its summer associate program 10 years ago.

“We weren’t going to be able to compete with the Am Law 200 firms with salary and perceived prestige and all of that,” Brown said. “But, what’s interesting today is we are seeing tremendous candidates from some of the major firms in the city who viewed that those big firms were safe, and they’re not as safe anymore.”

When asked to sum up his firm’s business model, or strategy for survival, Brown returned to the people who make up the “fiercely independent” firm.

“Our most important asset is our attorneys,” he said. “That’s what makes our business model what it is.”

That is also why, Brown said, the firm decided on a 10 percent pay cut for all of its lawyers this fiscal year — rather than resorting to layoffs — as a means of balancing expenses against lower revenue projections in the midst of a slumping economy.

“That is, absolutely, consistent with our culture, which is: we value the people that are here. The idea was to preserve jobs; preserve relationships [between lawyers and clients],” Brown said. “We had a great fall, a great year-end, but we saw that with what was going on in the banking world and the business world, that we needed to do something to make certain we continue to be strong.”

The economic crisis has yielded fewer business and real estate transactions, and fewer bank deals for lawyers to work on, Brown conceded. However, “because we’re nimble enough, and because of our size, we can change directions and focus on what our clients need.”

As such, Brown said, many of the firm’s lawyers have been retooling, working on mortgage foreclosures, helping banking clients with troubled loans, and advising business clients on how to protect themselves in the current economic climate.

Much Shelist’s key to survival as a midsize, independent firm that has existed for nearly 40 years in Chicago, Brown said, was etched by its founders.

“I think the biggest reason we’re here today is that Morrie and Michael wanted this to be a second-generation firm, and a third-generation firm, whereas, if you look at a lot of the activity of the mergers in the last few years, a lot of it had to do with a lack of effective business succession planning,” he said. “We would not be here, but for their [the firm's founding partners] willingness to say: ‘We want this firm to continue on way beyond us, and to give the next generation reins.”

The right fit: Many lawyers and clients choose midsize firms

By Olivia Clarke

After about 18 years at a large law firm, Brad Lyerla realized that he just didn’t fit in.

He earned a good income and developed a lot of business, but he didn’t feel a sense of ownership to the firm. Lyerla made the move to a small firm, but again it wasn’t the right fit.

The firm was too small for his practice because he works with many large clients. After about three years, he moved to a midsize firm, and found the right size firm for him.

“I think that at a big firm you trade a lot of happiness and a lot of joy for money,” said Lyerla, a partner at Marshall, Gerstein & Borun, a midsize intellectual property firm. “At our firm we don’t make quite as much money, but we make plenty of money.

“Everybody here has a significant say. Everybody has a significant interest. We fight hard all day because this is our life. This is our firm. If any one of us stumbles, it’s not like it’s a huge organization and it won’t be felt. Every partner has to deliver every day, and it’s a wonderful, fulfilling challenge.”

Lyerla is one example of the many lawyers who opt to work in a midsize firm. Some spent years in a large or small firm, while others went directly into a midsize firm after law school because they subscribe to its goals.

Several years ago people talked about how midsize firms would someday not exist. Some experts anticipated that there would come a day when only small and large firms could function successfully. But due to the troubled economy, those days have changed.

Many midsize firms are weathering the economic storm by offering clients creative billing options and lower fees than larger firms. And many lawyers say that they feel stronger job security these days at a midsize firm.

Midsize firms attract new lawyers and clients every day.

These firms capitalize on the various reasons why clients choose midsize firms to handle many of their matters, and why lawyers choose to bring their books of business to them.

The size

Andy Tecson, president of Chuhak & Tecson, said he likes saying that his firm is the “Southwest Airlines of law firms.”

“We have one office. We’re big on customer service, and we provide a tremendous value to our clients,” Tecson said. “Second, we are a great home for lateral partners with business because our efficient infrastructure permits the laterals to avoid upward rate pressure and simultaneously keep more of the fees, which they generate.”

Founded in 1987, Chuhak & Tecson is today a midsize firm with about 60 lawyers. He said the firm does not plan to open other offices. Its size makes it easy for each partner to vote on significant decisions during its monthly meetings.

“We value the chance to be involved in cross-marketing opportunities,” he said, “and we provide people who are very entrepreneurial in marketing and developing books of business with a great platform to rapidly expand their client base.

“We service clients that range from the largest banks in the world and the largest healthcare systems in the Chicago metro area down to the very modest startups and family-owned businesses,” Tecson said. “We’re not trying to do the type of work that involves taking companies public, doing multibillion dollar securitizations. That is clearly something that the global firms are working to service.”

Jeff Sharp, managing partner of Marshall, Gerstein & Borun, said lawyers and clients like being associated with his firm because of its singular focus.

The firm, which has about 72 lawyers, concentrates on different facets of IP, and has the depth, resources, and expertise that do not always exist in smaller and larger firms, Sharp said.

“We work leanly and intelligently, paying attention to what clients needs are — not what the needs are of the organization,” Sharp said. “It is not a huge pyramid with someone pitching the work and somebody doing the work. The people who present to [the client] are the people who do the work. That can be different from what you see in a much, much larger firm.”

Every partner is an equity partner, so every partner owns the organization, he said. Lawyers like this model because they feel that they have a voice in its management.

“There are really great lawyers in large law firms, but to some extent I’m not sure they’re law firms in the traditional sense — groups of professionals who decided to get together to practice,” Sharp said. “I think there’s been the development of large corporate structures, and one of my partners calls them ‘law companies.”‘

Rich Ungaretti, a founder of Ungaretti & Harris — a midsize firm with about 110 lawyers — said lawyers often feel more in control of their destiny at a smaller firm.

“I think sometimes in a bigger environment where there are really large cases, people end up working for years on one case and it gets a little stale, maybe it gets a little inverted,” Ungaretti said. “Whereas we don’t have the kinds of cases where lawyers spend three years of their lives looking at documents.”

At Ungaretti & Harris, newer lawyers play an important role on matters early on, he said.

“I think firms of our size have a great number of years ahead of them,” he said. “Our rates are more conducive to what is going on in the economy. Our attitude is not to over-staff cases. We do believe we have a real competitive advantage over much bigger firms.”

Grantland Drutchas, a founder and managing partner of McDonnell Boehnen Hulbert & Berghoff, said midsize firms like his offer a more reasonable lifestyle that does not demand the kinds of hours that large firms demand. His IP firm has about 77 lawyers.

Clients like working with a midsize firm that specializes in IP because they do not have to reinvent the wheel, Drutchas said. The lawyers can answer questions without spending hours researching an answer, or they at least know how to jump into a specific research topic without fishing around, because this is what they do every day.

Many larger firms consider their IP practice groups to be service groups that support the general practice lawyers’ clients, he said. As a result, lawyers in those IP groups tend to not develop their own independent power base within those firms and don’t always get the respect they deserve.

“From an IP perspective, there are lots of general practice firms that will say they have 50 or 60 or 80 IP folks, but the vast majority of those may be those involved in one or two litigations involving a trademark or maybe litigation involving a patent,” Drutchas said. “But they certainly don’t have the same level of experience, for instance, that folks at a firm like ours would have.”

Midsize firms like Meckler Bulger Tilson Marick & Pearson attract lawyers looking for more flexibility in billing rates because it helps them build their business, said co-chair Joe Tilson. They also offer lawyers more opportunities to advance earlier in their careers. The firm has about 90 lawyers.

“Another reason lawyers come to midsize firms is to avoid the conflicts of interest that increasingly plague the mega-firms, with more and more consolidation,” Tilson said. “It is becoming more and more difficult to bring in new business when you are at a firm of 1,000 lawyers. The chances are someone in your firm is going to be adverse to a new client of substantial size.”

Some larger law firms say they can provide their clients with service that knows no geographic boundaries because of their numerous offices. But Tilson said some midsize firms have joined strategic alliances that pair them with other regional firms so they too can serve their clients around the nation and throughout the world.

For example, Tilson’s firm is a part of a strategic alliance, the Wage and Hour Defense Institute, which helps the firm compete with national firms.

Clients often enjoy working with midsize firms because they feel like the most important client in those firms. At the same time, they can save money because midsize firms often offer creative billing options, he said.

“Large firms nowadays are focusing more and more on transactional work, and bet-the-company litigation, which calls for the highest possible rates,” Tilson said. “Specialists in labor and employment law areas and other areas like that are increasingly being squeezed out of larger firms because of the rate structure.

“I think that there will be a resurgence of midsize firms in the coming years because companies are so focused on cutting costs that the value provided by midsize firms will become increasingly apparent.”

The clients

GE hired Marshall, Gerstein & Borun about four years ago to handle IP matters, said Buck de Wolf, senior counsel for litigation and legal policy at GE.

The company uses firms of different sizes, and which firm it uses depends on the case.

“Just because we are a huge company it doesn’t mean that all of our problems are huge,” de Wolf said. “We need a variety of firms to assist with those variety of problems. [Marshall, Gerstein & Borun's] got the expertise, but they are not a huge firm. But we don’t need a huge firm for all our matters.”

He said he works with Marshall, Gerstein & Borun mainly on patent litigation matters, but the firm handles other IP matters for the company as a whole.

Midsize firms bring more flexibility to billing rates, and often come up with alternative billing arrangements, de Wolf said. When dealing with a firm of that size, the company gets to work with the senior partner on a daily basis, not just on bet-the-company cases.

“Interestingly enough, you are getting a senior partner at a midsize firm and all that person’s attention for the same amount you pay a midlevel associate at a big firm,” de Wolf said.

Lyell Clarke, president and CEO of Roselle, Ill.-based Clarke Mosquito Control, said his father worked with Tecson’s father and that relationship with Chuhak & Tecson continues today.

Clarke said he likes the personal attention he gets from the firm and how even the receptionist knows his name.

“We feel extremely comfortable with the firm and I think the senior partners are very accessible,” Clarke said. “They can take a look at the whole picture for us. They can provide total oversight about how any legal matter affects the business and how it transcends business life or tax issues. I’m not sure you would get that quite as easily with a large firm.

“They have become a trusted partner for us and I think that would be hard to find at a large international firm,” he said. “I think that because it’s a midsize firm they are still very entrepreneurial, just as our company is very entrepreneurial. I tell people that Andy Tecson is not only my attorney, but he is my business advisor.”

Louis Wille, vice president and deputy general counsel — intellectual property for Princeton, N.J.-based Bristol-Myers Squibb, said the primary criterion for selecting a firm is the quality of the representation.

Good communication and experience in working with pharmaceuticals follow quickly behind, Wille said.

A firm must have, he said, “at least the size that can compete with some of the larger firms that we may find ourselves up against. It would eliminate in my mind the very small law firms because they just do not have the minimum size to handle a load of paper that might come from the other side.”

Bristol-Myers Squibb has worked with McDonnell Boehnen Hulbert & Berghoff for many years, and it is one of two firms that handle the company’s patent litigation.

The company doesn’t hire a firm for large litigation unless it’s worked with the firm on other issues first because it allows the company time to gauge the quality of the firm’s work, Wille said.

“It’s more than just selecting a firm based on their website or their billing rates,” Wille said. “After we focus on those quality firms we want to work with, we of course have discussions with the firm about preferred discounts, etc. That’s also very important to us, and a requirement for moving forward with one of the firms that we would choose.”

Obtaining that first piece of business from a Fortune 500 company can be challenging for a midsize firm, said Michael Philippi, a partner at Ungaretti & Harris. Marketing a midsize firm can be tricky because a big company’s board of directors does not necessarily know the firm, Philippi said.

“I was called by a client a couple years ago, a very big client, an important client of mine who had a very high-profile case, and asked what firm they should hire,” Philippi said. “And I said, ‘me.’ And they said, ‘No, it has to be a high-profile firm.’ They hired a name they knew and that firm handled the case for a number of months and things were going very poorly.

“The client was convinced to hire us, and we did a very good job and everyone liked us. The frustration is sometimes you’ve had great results for a client, and then when they get the big case they are a little gun-shy and want to hire someone that costs a lot more, but there is a safety factor.”

The attorneys

Ungaretti & Harris associate Nile Park said when she first started law school she only heard about the big firms.

But then when she interned for a judge after her first year of law school, a clerk mentioned that he planned to work at a midsize firm. His description of the firm sounded like the type of firm Park would enjoy.

“I went to a small liberal arts school for undergrad and I just like the smaller environment where I got to know the professors better,” she said. “That was something I was looking for in a firm too; where I would know the people I’m working with well. And I would have greater responsibilities.”

At job fairs and recruitment programs she looked for the midsize firms that recruited. She became a summer associate at Ungaretti & Harris in 2007, and the firm hired her in 2008.

“It’s really true. I hit the ground running,” Park said. “I am very busy right now, which I’m really happy about. I’m not just doing document reviews and drafting legal memos. I’ve been able to draft pleadings and substantial motions, which I really enjoy doing and I learn so much from.”

Philippi, from Ungaretti & Harris, said he likes working at a midsize firm because he gets to know the people he works with, and the same team often works with the same client.

“A lot of people who work here are refugees from big firms and they like the camaraderie and they like knowing each other and knowing each other’s kids,” he said. “Even back when the law market was bullish and the giant firms were paying a lot of money, we had more and more people come to our firm to make less money because they wanted to work here.”

Joshua S. Hyman, a shareholder partner at Chuhak & Tecson and member of the compensation committee, said he helps his firm recruit lateral partners at the equity partner level. He came to the firm about eight years ago after working at a smaller firm.

“After this call I am going to be interviewing an equity partner from a multinational firm who no longer can keep his clients or develop new business because larger firms like that have New York-based billing rates, which are not compatible with today’s economy and maybe the Chicago marketplace,” Hyman said.

“More and more lateral partners are looking to get with a firm that provides enough wraparound services to service clients, develop new business, but not have the restraints of high overhead, payroll for multiple offices, and lavish conferences rooms,” Hyman said. “Our firm is very cost-effective.”

Equity partners at Chuhak & Tecson can take between 40 to 47 percent of every dollar the firm brings in, he said. Most partners get around 23 or 25 percent of every dollar they bring in at other firms, he said, and they do not bring in as many dollars because billing rates sometimes price them out of the market.

“One of the reasons our firm is so profitable is because we have no debt,” Hyman said. “Our overhead is extremely modest on a monthly basis because all the partners take modest salaries and we are bonus-driven at the end of the fiscal year, and end of the calendar year through a bonus structure based on a pure meritocracy.

“We don’t have pressures to fund a high payroll. At the end of the year those partners who had done really well receive very large bonuses.”

Hyman said he plans to stay at this firm because he believes in meritocracy.

“For attorneys looking to go to midsize firms or a firm like ours [meritocracy] can be very appealing because the sky’s the limit,” he said. “You can make a hell of a lot of money at our firm, and still bill clients modest billing rates, still have modest billable-hour requirements, and do a really good job because all the attorneys buy into the business model.”

Joshua Rich moved over to McDonnell Boehnen Hulbert & Berghoff about 10 years ago from Seyfarth Shaw.

Rich wanted to move to a firm that handles exclusively IP work. Seyfarth did IP work, but it was part of the litigation department, he said.

He said he couldn’t build an exclusively IP practice there.

“It’s just nice being surrounded by people who have the same interests in science and technology, which often scares general practice attorneys,” Rich said. “Although the firm itself is smaller, the human capital is much greater in terms of having people with advanced scientific degrees and the legal understanding of intellectual property.

“I think that midsize firms tend to have less structure, which for us has been a huge bonus because it allows people to contribute according to their abilities.”

Lyerla, from Marshall, Gerstein & Borun, said clients like working with him and his colleagues because they can tell they enjoy doing the work. Clients come to the firm with sophisticated problems, and the lawyers know how to solve those problems, he said.

“Because we are a boutique with a narrow focus we can be both midsize and enormously sophisticated,” he said. “We have all the resources that anyone could possibly have in our field. It is just wonderful. I think that I have a practice that’s equal to the practice that many lawyers enjoy at huge law firms — the same caliber of clients, in fact some of the same clients that also use big law firms; and the same kinds of lawsuits, but I’m able to do them at this law firm in a way where I can emphasize the joy where they have to emphasize the money.

“Never trade money for happiness. I actually believe that the quality over a long period of time can suffer when you are just doing it for the money.”

Next Page »