Boutiques Struggle To Keep Pace With Larger Firms

Portfolio Media, New York (May 3, 2006)--As bankruptcy proceedings grow increasingly complex, bankruptcy boutiques may have more difficulty staying on the cutting edge of the most important cases compared to larger firms with multiple disciplines.

Although only a couple sections of the Bankruptcy Code deal with labor matters, one bankruptcy case could face an onslaught of issues, such as employment, severance pay, hire contracts, termination or pension rights, that need to be handled on a daily basis and require attorneys that can address a number of esoteric areas.

“Boutiques will find it more difficult as years go by to maintain a competitive edge unless they join a larger firm,” said Richard S. Toder, head of Morgan Lewis’ bankruptcy practice.

Speaking from experience, Toder merged his bankruptcy boutique, Zalkin Rodin & Goodman with Morgan Lewis in February 1999. Toder and eight partners of the boutique believe they made a good move by joining Morgan Lewis, with its 24-member bankruptcy team and more than 500 litigators on hand.

He said after several months of due diligence to ensure his partners would be comfortable at the larger firm, he decided to bring his boutique to Morgan Lewis for the added expertise and for the opportunity to take on more complicated bankruptcy cases.

Toder also wanted clients to feel more comfortable to bring their business to the practice.

“If a client has a case involving billions of dollars, the client will be concerned about giving it to a smaller boutique firm and whether it has the resources to handle the enormous matter,” Toder said. “There is a comfort zone in going with a large firm because it has brand-name recognition and partners are less likely to be second-guessed.”

A number of boutiques have joined larger firms, including the boutique Siegal Sommers & Schwartz LLP, which joined Kronish Lieb, a full-service law firm in Manhattan. In January 2006, Angel & Frankel, a Manhattan boutique specializing in debtor work, joined Cole Schotz Meisel Forman & Leonard PA.

Larger firms do hold an advantage when it comes to humongous bankruptcy cases, agreed Myles Alderman, a founding partner and chair of Alderman & Alderman, a firm with eight partners that focuses on Chapter 11 reorganizations.

“If it’s a trans-boundary case, or involving a publicly traded company or unionized labor, those mega-cases are more efficiently handled by major law firms,” Alderman said.

He said putting together a team for a debtor of a large Chapter 11 reorganization or for a creditors committee can be incredibly difficult.

However, the majority of  reorganizations are still companies that are part of smaller cases.

“I don’t think the complexity of bankruptcy law is changing the way we practice. As there are more of these mega-cases, we certainly see a need for multi-disciplinary teams,” Alderman said.

Alderman's firm was involved in a restructuring case of an international fashion designer in a bankruptcy court in Manhattan in 2000. Alderman said the case involved assets within the bankruptcy case that included a wide range of intellectual property and a number of different national laws.

Coordinating his bankruptcy practice with an outside IP counsel and an external counsel on international law, he helped his client recover a claim worth $100 million.

“The real question for the client is how efficiently is the work done,” Alderman said. “Clients are best served by putting the best minds on the case. They may be at one, two or three firms.”

Yet the presence of bankruptcy boutiques is dwindling in larger cases, said Kevin Lamb, a shareholder at Gunster Yoakley & Stewart PA, a firm with 135 lawyers.

“From a profit perspective, firms have to ride out peaks and valleys in cyclical bankruptcies, and it’s better to weather the storm in big firms,” Lamb said. “It’s more cost-effective at a large full-service firm.”

If a boutique has a large bankruptcy case with litigation matters, it may have to refer its client to another firm for the litigation aspect, which means the boutique is not generating revenue in-house. Meanwhile, larger firms can introduce clients to its different departments for matters on litigation, tax or employment, and keep generating revenue under one roof.

Lamb said that a market for top-flight bankruptcy boutiques will remain in New York, Los Angeles and Chicago, but thinks that, from a national perspective, most will disappear.

Alderman maintains that smaller boutiques still have ample work available to them, especially in cases involving secured lenders, major venders and landlords.

“These cases can be confidently handled by good bankruptcy boutiques often with the assistance of another boutique,” he said.

Lamb admits that boutiques can offer a certain appeal to bankruptcy attorneys.

“They tend to be smaller shops for attorneys who like to call the shots and don’t want to deal with the bureaucracy of a larger firm,” Lamb said. “They are sure to be inundated with calls by larger firms. They are there by choice.”

--By Erin Coe,