Darrell Pierce, a commercial finance lawyer, has fielded many client questions during his 28-year legal career. But until last October, “I’ve never had clients calling asking what to do if the bank defaults.”
Unprecedented, unthinkable and unexpected questions have become the status quo for Pierce, the head of Dykema’s financial markets crisis task force, in the wake of the Wall Street credit crisis. This is true even though Pierce, based in both Chicago and Ann Arbor, Mich., helped shut down banking institutions during the savings and loan crisis more than 20 years ago.
“There’s a lot of moving parts here,” Pierce says. “Clients are watching [events develop on] TV while they’re talking to you on the phone and asking you what you think about it.”
Whatever they might label it—credit market distress team, subprime mortgage task force or global financial markets initiative—many large law firms are forming multidisciplinary groups to guide clients through the most sweeping federal intervention into private finance since the New Deal. Though such coordinated efforts among practice groups aren’t new—those formed during the S&L collapse and the dot-com bubble of the late ’90s come to mind—the current depth and breadth of coordination, not to mention the need to react to profound client needs and rapidly developing legislation, has distended the definition of task force almost beyond recognition.
Task Force: a temporary unit established to work on a single defined task or activity.
At Katten Muchin Rosenman, 25 attorneys in the firm’s advisory group on the U.S. Treasury Department’s proposed Troubled Asset Relief Program analyzed and summarized the 400-page bailout legislation within days of its Oct. 3 passage. The lawyers create client alerts on the effects of the new regulation and advise individual practice groups on crossover client needs, including real estate, bankruptcy, tax and energy practice issues.
Greg Markel, who is chairman of Cadwalader, Wickersham & Taft’s litigation department in New York City, says experienced partners not only guide clients in their areas of expertise—such as bankruptcy and private equity—they also train associates across a broad array of practices in a concerted effort to increase interaction among the groups.
Two Mayer Brown lawyers—Daniel Brown of Washington, D.C., and Jon Van Gorp of Chicago—have even authored a book, Credit Market and Subprime Distress: Responding to Legal Issues.
Rusty Conner, co-managing partner of DLA Piper’s Washington office, dismisses the notion that crisis task forces are merely part of law firms’ marketing plans to capitalize on nervous clients seeking reassurance. At DLA, “this is an internal matter rather than an external form of communication,” Conner says. “Things are developing rapidly for us and many jurisdictions around the world. This is an internal communication and coordination effort.”
Conner says the abruptly changing currents of the economy and government action make foreshadowing client needs a moving target for lawyers. When federal intervention was first proposed, “there was very little mention of investing in financial institutions,” Conner says. “Now that’s what it’s all about. In a matter of 48 hours, it all changed.”
Jay Rothman of Milwaukee, who officially became the head of Foley & Lardner’s financial crisis response team on Sept. 23, says his task morphs almost daily.
“When Paulson put things on the table, we knew things would accelerate,” Rothman says of U.S. Treasury Secretary Henry Paulson’s three-page bailout plan, which was sent to Congress on Sept. 19. “At that point we were meeting daily and on the weekends. We would have calls with lobbyists coming off the Hill and telling us where things were standing.”
“The rules are being written on a day-to-day basis. Even if it weren’t a highly politicized environment, it would be challenging, but that adds to it,” Rothman says.
Patricia J. Lane, a Foley & Lardner partner on the firm’s financial crisis response team, has addressed questions such as the one Pierce noted: With client deposits exceeding Federal Deposit Insurance Corp. coverage, what to do if the bank fails? Lane, of the firm’s finance and financial institutions practice, had clients with hundreds of millions of dollars not federally insured.
“It was a fact pattern nobody ever thought about, where banks are worried not about the borrower, but the bank where the borrower kept their account,” says Lane at the firm’s Milwaukee office. “Normally you rely on experience, but a lot of this is uncharted. So you try to be creative and think about what could happen and what the options are. It’s been novel.”
“There are questions you could not have anticipated the day before,” Lane says. “Because of the speed [of change], the parameters are very unclear.
“And then there are the rumors,” she adds. “There was a rumored troubled-bank list that everyone was trying to get their hands on. These rumors spread and one treasurer called” to ask about the list—which proved to be only a rumor.
Many other firms across the country have also formed financial crisis advisory groups and internal financial crisis response teams.
As for the “temporary” in the task force definition, task forces at many firms are advising clients on the best ways to deal with anticipated changes in the federal governance of the financial world, and may be doing so for months or even years.
“Right now, this is the tip of the iceberg,” Rothman says. “What we potentially see coming out of this is a reformation of the regulatory scheme in the U.S. It is a challenge to keep up with things as the Treasury creates [avenues] in which billions of dollars are moving.”
Although meetings among task force members and the number of published client advisories may have slowed as the year ended, when the new president takes office and Congress begins a new session this month, “there will be another surge of activity and we’ll be very much involved,” Rothman adds. “I could see this group intact a year from now, but with a different focus. Then it will be a more reflective purpose, to help clients prepare for the future.”
Several law firms foresee a continuing financial crisis as an issue on which they will be spending a lot of time. And Peter Zeughauser, a legal industry business strategist with consulting firm Zeughauser Group, says clients can expect cross-practice groups to increase.
“Firms are reaching out to their clients more,” says Zeughauser of Newport Beach, Calif. “There’s been a trend in this direction to work in teams more: There is an industry team, a client team, etc.
It’s part of a trend to break down the office and practice group silos in law firms.
“For the past decade, law firms have become more outwardly focused. The financial crisis accelerated this movement,” Zeughauser says. “We will see more and more of this type of movement.”