Fall 2008 Practice Forecast

Fall 2008 Practice Forecast

Legal hiring is tied to the fluctuations of the economy and, therefore, is cyclical.  It is not surprising that, given the state of the US economy, the demand for legal services is down from previous years.  New York has been hit the hardest, with a decrease of over 4% from last year.  Legal work in Los Angeles is down by almost 3%.  The decline is not even across all practice areas, however. Hot practice areas change and depend upon a variety of other factors, as well, including new laws, current enforcement, technological advances, and the social and political climate.  The following is a discussion of what areas currently are hot, warm, and cold primarily in large law firm practice in California.

What’s hot?

Litigation and intellectual property are running neck-and-neck for the hottest practice areas in Los Angeles and Orange Counties, with intellectual property in the clear lead in Silicon Valley, San Francisco, and San Diego.  In many ways, California is the intellectual property capital of the world.   The state has several recognized “hot spots” in the IP world, such as stem cell research, pharmaceutical and medical devices, and hi tech biotechnology in Silicon Valley and San Diego; a high tech computer hardware and software hub in Silicon Valley; and entertainment and internet content licensing in Los Angeles.  Infringement litigation is especially strong.  The US District Court, Central District of California, based in Los Angeles, leads the country in the number of IP cases filed.

In addition to IP litigation, most firms say that their commercial litigation departments are the busiest in the firm, and that is where they expect the most growth.   The nature of litigation in California is varied, including such areas as securities, construction, product liability, business and contract disputes, and anti-trust.  A number of major firms have growing practices in white collar crime litigation.  And, in response to the credit and mortgage crisis, several California firms have developed subprime practice groups, pulling together specialists from many areas of practice such as real estate and finance transactions, in addition to litigators.  A new hot spot, credit swap litigation between banks, is expected to arise out of the banking industry implosion.  Furthermore, some of the shareholder litigation arising out of the recent bank failures will be handled in California.

What’s warm?

Corporate work has dipped in California, but not as dramatically as in New York.  Generally, there is more of a middle market focus here than in New York.  Traditionally, corporate legal work in California consisted of a mix of IPOs, equity and debt financing, and mergers and acquisitions.  IPOs are rare these days.  In Silicon Valley, there were no venture-backed companies going public last quarter, but there still is work to be done on merger and acquisition deals and pre-IPO venture capital financings.  Securities housekeeping, general business counseling and compliance with Sarbanes- Oxley is ongoing.  There is more activity in the corporate arena in Silicon Valley than in San Francisco or Southern California.

Employment law continues to be busy this year in California which has more stringent labor and employment laws than many states across the country.  Employment law in California seems constantly in flux, and employers need lawyers to help them comply with new laws, revise employee handbooks, and conduct training and counseling for management and employees.  However, growth in this area is fueled more by litigation than counseling.  There is a growing number of wage and hour class actions, and wrongful termination, discrimination and harassment cases always are active but rise with increased layoffs in hard economic times.

Environmental law also is a warm practice area right now as California continues to be a trailblazer in this area.   Traditionally, environmental legal work has been tied in with real estate transactions and land use because lawyers must assess zoning, contamination and water supply issues before a deal can go forward.  After an environmental assessment has been done, remediation efforts must go into effect which means obtaining permits, meeting regulations, and procuring insurance.  Despite the tie-in with real estate which is a cold practice area right now, there is growth in the environmental law area because there are an increasing number California law firms creating climate change, green technology and alternative energy practices.  These new practice groups are multi-disciplinary, including finance specialists, but they rely heavily on attorneys versed in the range of federal, state and local environmental regulations and related litigation, e.g., regarding emissions and greenhouse gases.

Bankruptcy is strong in a weak economy, but there is not as much activity involving business bankruptcies and reorganizations in California as one might expect.  Most activity from major business bankruptcies is handled on the East Coast since a large percentage of incorporations are done in Delaware, and New York lenders often require borrowers to file bankruptcy or for reorganization in New York or Delaware.   Currently, the bankruptcies and reorganizations of Wall Street firms and financial institutions are being handled by major New York firms.  However, there has been some increase in demand for bankruptcy, insolvency, and loan restructuring and workout attorneys in California as ripples from the Wall Street storm reach California.  The majority of expected related work will involve commercial, securities fraud, and white collar crime litigation more than bankruptcies, per se.  On the other hand, personal bankruptcy filings are up dramatically nationwide.  Most of that activity is handled by small firms and solo practitioners, rather than the larger or mid-sized business law firms.

What is cold?

Real estate work had been very hot during the past few years, but has undergone a major slowdown due to the lending crisis.  Lawyers representing homebuilders have seen a dramatic drop off in transactions.   In addition, there is speculation about the impact of the credit crunch on high-end commercial real estate deals.  Some law firms are reporting that deals are being stopped mid-flow, but others state that new deals are still getting underway.

Tax and executive compensation/employee benefits practices are cool because they are a secondary service for real estate and corporate deals.  The number of transactional tax job openings is a leading economic indicator because it is one of the first areas to evaporate when there is a slowdown in deals and the last to bounce back.  Employee benefits and executive compensation issues are involved in M&A deals, so those practice specialties rise and fall with the numbers of those types of deals.  Tax controversy work, which is primarily litigation, still continues even in a down economy.  Wealth planning for individuals and small businesses, including trust and estate planning, probate, business succession, and tax planning generally are handled by small firms and solo practitioners, rather than the larger business law firms.  The biggest source of competition for work in the tax area is from the large accounting firms, which continue to walk that fine line between tax planning and practicing law.

Banking and financial services practices are beyond cold; they are frigid in the aftermath of the recent Wall Street meltdown. Consolidation in the industry and banking headquarters moving out of state has reduced bank regulatory work in California.  Law firms that had been busy with lending transactions now are restructuring troubled loans, but the amount of new lending is down precipitously.  It remains to be seen what effect any governmental bailout plan will have on this area of practice in California.

Despite being on the Pacific Rim, California is not a hotbed of international business law.  Because many of the larger firms have gone global, with offices around the world, work that used to be done in the states is now done abroad.  In California, this is most impacted by the growing number of branch offices in Asia.  Asian markets are becoming more accessible to foreign law firms because many of those countries are easing restrictions on foreign lawyers practicing there.   Any remaining Asian work to be done domestically is handled in Los Angeles and San Francisco.  In Southern California, there is some work directed toward Mexico, Central and Latin America.  There not much European work here at all.

Valerie Fontaine
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