Way back at the beginning of August, the head of litigation at one of New York’s most prestigious law firms admitted that litigation levels during the calendar year 2008 were “not hugely up so far”. Then September happened.
No one could have foreseen the world-changing events of the past few months. Every day seemed to bring a new financial services market shocker.
As one US partner put it: “I’ve been saving the front pages of the Wall Street Journal every day through September because each one is historic.”
Historic and horrifying. The most astonishing aspect of the crisis has been the pace at which the financial markets have unravelled. Now it appears inevitable that the avalanche of structural change and reform will lead to a significant upsurge in litigation – but only a few weeks ago not everyone agreed.
According to K&L Gates litigation group leader Tom Birsic, the market conditions in late summer-early autumn were unique, unlike anything he had seen in more than two decades of practising law.
“For the first time in my 25-plus years you’re seeing a trend of a chilling effect on litigation,” said Birsic, speaking in mid-September. “People are holding their capital. There’s a reluctance to commit precious liquid resources to dispute resolution.”
Birsic, ever the canny lawyer, added: “Probably it’s just a hiatus. People are holding their breath.”
Just weeks later, disputes are “coming from all sides”, according to Dechert New York litigation head Robert Cohen.
“People talk about the savings and loan crisis, the downturns of the 1970s and so on,” he adds, “but none of those were anything like this.”
To an extent the meltdown has primarily featured companies headquartered in New York. However, although the epicentre is Wall Street, the intertwined and international nature of the world’s financial markets means many of these battles will ultimately be cross-border.
As Simpson Thacher & Bartlett litigation partner Jonathan Youngwood puts it: “Any foreign company with interests in the US is going to end up having business in the US courts.”
Meet the elite
Inevitably, that means that the law firms that win instructions on the coming disputes will be those with either the best international network of
top-quality litigators or those with rock-solid referral relationships.
This is a theme The Lawyer has visited before. In May 2008, we broke new ground with The Transatlantic Elite, an analysis of the international transactional legal market and the strategies of the firms leading the way.
We highlighted an elite group of firms that had either invested heavily to build up an international network (such as the UK magic circle, Latham & Watkins and Cleary Gottlieb Steen & Hamilton), or had managed to maintain such a strong brand that clients continued to instruct them despite their lack of international muscle (Wachtell Lipton Rosen & Katz and Cravath Swaine & Moore). We named this group the ‘Sweet Sixteen’.
In terms of the growing cross-border disputes market, this group, along with a handful of other leading firms with standout disputes practices such as Paul Weiss, had been positioning themselves to win the quality work long before the credit crunch hit.
“We believe we’re extremely well positioned,” asserts Latham & Watkins global litigation chair Peter Wald. “Why? Because as commercial transactions increasingly become global in scope, it’s clear that a capacity to support those clients on their international disputes, wherever they may erupt, is absolutely vital. And we have that capacity internationally.”
In contrast to the strategies for winning international transactional work, which are likely to be consistent wherever the offices are, the approach to litigation necessarily varies in each jurisdiction. “With litigation, you can’t take a one-size-fits-all approach,” argues Youngwood.
So the first strategic question for any wannabe global litigation firm should be whether they want to deliver a consistent dispute resolution solution everywhere, or whether they want it to be more localised.
For the leading US firms, the decision is stark. Do they try to replicate their litigation capability overseas or not? At Skadden Arps Slate Meagher & Flom, for example, virtually all of the 24 offices have a significant litigation component. Other elite firms such as Simpson Thacher, Sullivan & Cromwell and Cravath Swaine & Moore have only had a disputes capability in their strategically critical London offices in recent years (in Cravath’s case, only since January), while others such as Davis Polk and Paul Weiss have no permanent litigation capability in the UK at all.
But it is clear that an expanded international arbitration capability is high on many firm’s to-do lists, with the best-positioned firms bracing themselves for a significant uptick in cross-border disputes.
“The current volatility is obviously going to spawn a great deal of disputes that go beyond borders,” says Lawrence Pollack, co-chair of litigation at Dewey & LeBoeuf.
Right now, the full extent of the litigation that will stem from the various collapses and rescue bids is hard to quantify. The core of any future courtroom battles are likely to centre on securities issues, bankruptcies and professional liability. There is also likely to be significant crossover into white-collar crime and fraud as well as government investigations.
Whatever the subject of the cases proves to be, the world’s leading law firms are already gearing up to advise on a wide range of disputes. As the global chair of litigation at one of the world’s largest firms puts it: “There’s going to be a lot of blood on the ground.”