The Lawyer’s revelation last week (23 June) that JPMorgan had banned Linklaters from its panel because of its role acting for Barclays in suing Bear Stearns has stunned the City.
“It’s just all wrong,” says one magic circle partner. “It makes law firms nervous about taking anything on that JPMorgan might not like.”
Another magic circle litigator is even more trenchant. “It’s pretty outrageous to be honest. Most lawyers I’ve spoken to say it’s just not grown-up. Obviously banks are very important to magic circle firms and have a huge amount of muscle. You’d hope they’d use that muscle fairly and not irrationally.
“One of the reasons that banks come to you is your expertise in the sector, and you get that expertise by acting for other banks in the market too – you can’t have your cake and eat it.”
The net result is that the pool of lawyers available to act against the banks is shrinking. Four years ago research by The Lawyer (27 September 2004) indicated that only four firms out of the top 30 would not be conflicted out of acting against the big five UK clearing banks of Barclays, HBOS, HSBC, Lloyds TSB and Royal Bank of Scotland. Some US firms would have been available for instruction, but even fewer of those with London offices would take on credit crunch litigation against US investment banks.
Driven by this, a group of litigation boutiques is emerging that explicitly targets this work. Usually small firms staffed with former litigators from bigger City firms, they include Fox Williams and Masseys, plus the latest arrival on the scene, US giant Quinn Emanuel, which launched in London earlier this year hoping to export its successful US model to the City. It hired Kirkland & Ellis restructuring partner Richard East and Bingham McCutchen partner Sue Prevezer QC and is beginning to market itself to larger London firms conflicted out of litigation. “[The JPMorgan-Linklaters story] is a timely reminder that what law firms are up against is not ethical restraints but serious business decisions,” says East. “Investment banks are very unforgiving.”
Also in the frame is Manches, which has a track record of taking claims against banks. Manches litigation partner Clive Zietman has had various referrals from firms such as Herbert Smith and Macfarlanes. “We’ve made an unequivocal statement that we have no difficulty in suing banks,” he says.
“It’s the age-old conundrum at the big firms – litigation always tends to take second place,” says Fox Williams litigation partner Tom Custance, formerly of Herbert Smith.
Fox Williams declared last year that it was targeting large-scale claims against banks. It has taken on claims against Goldman Sachs, Deutsche Bank, UBS, Lehman Brothers, Calyon, Société Générale and Fortis, with the most celebrated being IFE Fund SA v Goldman Sachs International (2007), as first reported by The Lawyer last year (20 August 2007).
Litigation boutique Masseys, which was set up in 2004 by a group of former Baker & McKenzie litigators, has also positioned itself for credit crunch-related work.
“We ;don’t ;have ;a ;corporate department, we don’t have a property department,” says Masseys litigation partner Sean Upson. “There are no holy cows for us.”
Masseys acted for an investment fund against Bear Stearns last year and is currently acting for several hedge funds on claims against banks. Instructions do come directly from those funds, says Upson, but also from the bar.
These boutiques may be the only possible advisers for claims against City financial institutions, and consolidation within the legal market has not helped matters.
Four years ago Richards Butler said it was willing to take on claims against banks. But that was before its 2007 merger with Reed Smith, which acts for a number of financial institutions in the US. The firm’s policy has now changed to an effective prohibition on suing banks. The firm’s last such case against a bank was Springwell, which is still awaiting judgment. And the bank against which Reed Smith is acting? None other than JPMorgan.
Your reaction to the ongoing debate over JPMorgan’s decision to axe Linklaters from its list of preferred advisers, following the magic circle firm’s role in suing Bear Stearns on behalf of Barclays Bank.
“Is there anyone out there brave enough to sue banks?”
• From: Anonymous. Date: 23 June 2008 @ 14:24
“We are. see www.quinnemanuel.com”
• From: Richard East QE. Date: 23 June 2008 @ 18:10
“Is it just me or must there be more to this story than meets the eye? A firm like Linklaters doesn’t make a stand like this out of principle. The effects on the bottom line are too great. I find it very hard to believe “Cheyne took a stand” that is going to cost his firm millions. There is something fishy going on here.”
• From: A sceptic. Date: 23 June 2008 @ 20:17
“Hats off to Mr Cheyne for taking this stand. Though Linklaters may have lost a lot of revenue because of their decision, there is something to be said about integrity and taking a stand for the right reasons. A client cannot be dropped just because of monetary reasons and external pressure. Once the client has been accepted, it is the duty of the law firms/lawyers to do their best for the client irrespective of how much money the client is paying.”
• From: Prash. Date: 24 June 2008 @ 03:44
“Lawyers have lost their independence a long time ago. But at least they’re well paid for it.”
• From: Anonymous. Date: 24 June 2008 @ 09:08
“Links would have known what they were doing when they took on the case. Reading between the lines, the Barclays case was presumably worth enough money that sacrificing what little relationship they had with Bear was a price Links were willing to pay… Then when JP Morgan ‘bought’ Bear, the price suddenly went up – but by that point US bar rules make it too late to turn back the clock, even though Links would now love to do so. It’s all in the timing.”
• From: Can see both sides on this one. Date: 24 June 2008 @ 13:06
“Links come up smelling of roses and JPMorgan look like bullies.”
• From: Ex-MC, now General Counsel. Date: 24 June 2008 @ 15:23
“This is a real poke in the eye for those within law firms who bang on about their ‘relationship management’. JPMorgan clearly regard Linklaters as being wholly expendable. What sort of a relationship is that? A one way street kind of a relationship, by the looks of things. Law firms really do need to get wise to the fact that greed machines like JPMorgan have no real interest in or belief in relationships. They just believe in money. No number of free secondees, lecture programmes, tickets for Wimbledon etc makes any difference when the chips are down. Clients like this would sell their own grandmothers to make a buck. A salutary lesson.”
• From: Bitter and twisted. Date: 24 June 2008 @ 22:29