Law firms see the impact of slump

March 2, 2009
| By Pete Daly |
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The volume of lawsuits being filed and the likelihood of collecting past-due fees are among the factors that law firms are closely watching during this recession.

A Coopersville attorney who is vice chair of the business law section of the State Bar of Michigan said that litigation is apparently way down and collections of past-due amounts have become much slower in the last year.

"I think that's a sign of the poor economy and lack of cash flow" in the business world, said Tania E. (Dee Dee) Fuller, of Fuller Law and Counseling in Coopersville.

"I think the slowdown has touched most lawyers," she said.

David R. Drain, deputy administrator at the 17th Circuit Court in Grand Rapids, said the number of civil suits filed there in 2008 was 104 less than in 2007, a decrease of 5.5 percent.

Drain noted that in the previous year, the number of civil suits had jumped almost 18 percent from 2006 to 2007.

Matt Vicari, an attorney with the firm of Miller Johnson in Grand Rapids and president of the Grand Rapids Bar Association, said the rate of litigation work seems steady at Miller Johnson but he conceded that in the legal system overall, it does appear that filings are down.

"I would say that probably 95 percent of the lawsuits are being filed by banks and other corporations, concerning lease agreements and defaults on promissory notes," said Vicari.

"A significant number of the filings are collection-related," he added.

Fuller said her husband works in insurance, and he has told her that while the number of insurance claims is up and the amount of loss per claim is up, the number of insurance claims in litigation is down.

She said that when the economy went sour back in the 1980s, litigation increased, but now "nobody can afford the litigation process."

As for the collection process, attorneys in business law have to worry about the solvency of their clients, she noted. If a client goes under, “then you don't get paid."

"The further out your collections go, the less likely you are going to collect. You're much more likely to get a 30-day collection than one that has gone 90 or 120 days. That’s just how that works, with every business," she said.

Fuller said she understands that workloads at many firms are down. Legal services for businesses, she noted, are often "not something that has to be done today," but rather, the services are part of the process of planning and preparation for the future. So some companies that can elect to delay legal work do so when cash flow is an issue.

Discounts are not uncommon among law firms, she said, although she noted that large firms tend to be less likely to have the flexibility to offer discounts.

"At a smaller firm like mine, we've got more discretion," she said. She has one attorney working for her, plus an administrative assistant.

"I know a lot of firms will offer discounts to encourage" prospective clients, or they will make a commitment to not charge in excess of a given amount, she said.

Miller Johnson’s Vicari works in fraud and embezzlement recovery cases. He said that type of work there is busy at this time.

"It seems that at times when the economy does hit a downturn, you have more of these embezzlements and fraud and Ponzi scheme types of cases. You can see it nationally, but you can see it locally as well," he said.

Ponzi schemes like the investment fraud allegations against Bernie Madoff in New York are criminal matters, but always involve civil suits by the victims trying to recover their losses.

"We've seen some significant ones over the past 12 months," said Vicari.

He said embezzlement cases involving employees, partners or vendors tend to be uncovered more frequently in the business world during a bad economy. At a time like this, he said, owners and managers are looking more closely at their finances. “They may find some irregularities they maybe wouldn't otherwise have come across."

Embezzlement and fraud don't discriminate, said Vicari. "It could be at a small, closely held company, or a mom-and-pop company, or it could be a Fortune 500 company."

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