The demise of Thelen Reid Brown Raysman & Steiner last week is being observed from afar by the UK legal community. It is the second major US law firm to dissolve in a matter of months and a stark reminder of the ill wind blowing through the US legal market.
But the first collapse fell closer to home. Heller Ehrman, which started to dissolve at the end of September, at least had an office in London, albeit a fledgling one of just 18 months’ standing, as well as some UK lawyers whose livelihoods depended on the outcome of the dissolution.
This made for some very tricky negotiations for the UK partners as they surveyed their options. And they did have options. It might seem strange that a bunch of venture capital lawyers had so many choices during this turbulent time, but there certainly was interest.
Last week, TheLawyer.com revealed that a deal had been struck with Orrick Herrington & Sutcliffe. The core of Heller’s corporate team starts at Orrick today (3 November), but it was a difficult deal to complete.
Bird & Bird was one of the interested parties. “We red-carded it,” says a Bird & Bird partner. “It was too expensive. There was a whole raft of complications that made it unattractive. The whole thing was just too messy.”
Orrick’s new team is led by partners Richard Eaton, Chris Grew and Struan Penwarden. It is thought that they were asking for £750,000 per partner, but a compromise has been reached.
The trio has worked together since a stint at Brobeck Hale and Dorr, the European joint venture of US West Coast firm Brobeck Phleger & Harrison and Boston’s Hale and Dorr. Eaton was head of corporate. In 2003 Brobeck dissolved and Hale and Dorr inherited the European operation. Hale subsequently merged with Wilmer Cutler & Pickering, but Eaton had some disagreements with Wilmer’s management and Wilmer had its own ideas in Europe.
The opportunity to hook up with another US West Coast firm seemed too good to be true and the trio launched Heller Ehrman’s London office in February 2007. It is thought the team brought in £4m during their first year at Heller. Not a bad start, although the sum is roughly the same amount the team billed in 2004 and 2005.
Although the team has a strong client following with technology companies such as Autonomy and Wolfson Microelectronics, it has not grown in the last three years and comes with a lot of baggage. As one interested party says: “In any dissolution, there are huge complications. Who takes on the insurance liabilities?”
Orrick’s team did not constitute Heller’s whole UK operation. There were also some US real estate lawyers, who are now launching Goodwin Procter’s London office, and a few more partners who have yet to find new firms. There are also around seven associates and numerous support staff facing redundancy.
As part of the deal, Orrick will help out with some of the liabilities, but the baggage was too much for many suitors. Mayer Brown looked at the office when it was negotiating a full scale merger with Heller earlier in the year, and Orrick’s West Coast rivals Cooley Godward Kronish and Wilson Sonsini thought about launching in the UK with the team.
It is generally acknowledged that none of the Heller partners will get their capital out of the firm. The very top people are owed in the region of $1.5m (£920,000). Now a Heller partner has been quoted as saying that the partners of the UK LLP will be suing the US LLP.
“When you take on these people, effectively it’s their problem but you want someone focused on building up the business. You don’t want someone looking over their shoulders waiting for a claim. And you don’t want bankrupt partners,” says a source.
As part of the deal, the partners will probably defer putting their capital in for a few years while they sort out their financial situations. Ultimately, Orrick thought it was worth the hassle.
“The synergies of their emerging companies practice with our existing emerging companies practice, particularly out of Silicon Valley, meant it was worth the effort to bring this thing through,” says Orrick UK managing partner Martin Bartlam.