As lawyers continue to head for the exits at LeClairRyan, the Richmond law firm’s chief executive sought on Wednesday to dispel some of the rumors about its future that have swirled about this week.
The firm, which keeps its Richmond offices in the SunTrust Center downtown, has not formally decided to shut down – a rumor that’s been widely spread among the legal community since Friday, said CEO Erik Gustafson.
“Our partners have not agreed to do anything,” he said, referring to the fact that the firm’s shareholding partners ultimately would have to vote on what direction to take. “Right now it’s business as usual.”
“Business as usual” at the firm these days means operating with a depleted roster of attorneys and support staff, as dozens from its offices around the country have jumped ship for competitors, taking with them their books of business.
LeClairRyan is down to about 180 attorneys, which is less than half of its peak of 380 from about three years ago. It’s down to around 40 equity partners – those who are shareholders in the firm. That’s down from a peak of around 140.
Gustafson said the firm is weighing its options in the face of the mass defections, which began in earnest last year and have continued unabated this year, with more deciding to leave this week.
“We’re looking at all options that we think are appropriate,” he said, declining to answer whether those include winding down the firm, combining with another firm in some capacity, or to fall into some form of bankruptcy.
Asked whether the firm’s future is in doubt, Gustafson declined to comment.
One of the more consistent rumors among the legal community this week is that support staff at LeClairRyan was given 60 days’ notice of termination of their employment. Gustafson said he’s not aware that any such notice was sent out to those employees.
However, lawyers in and outside of Richmond say otherwise.
“We’re fielding calls from people looking (for jobs) because they received notice (that their work for LeClair is ending),” one local attorney said Wednesday.
Gustafson did say that any such 60-day notice would be issued by ULX Partners, a company created last year as part of a joint venture between LeClairRyan and law firm service provider UnitedLex.
That deal involved transferring around 300 non-lawyer LeClair employees to ULX, which would then lease back the employees to the law firm.
Messages left for executives at UnitedLex were not returned by Wednesday afternoon. No layoff notices had been filed for ULX Partners in Virginia or in Delaware, where the entity is incorporated.
‘This firm might be in a death spiral’
While many around Richmond and elsewhere have sought answers as to why exactly the firm is hemorrhaging attorneys, Gustafson said he’s “not authorized by the board to speculate on why people leave.”
Many former partners, who have spoken recently to BizSense on the condition of anonymity, said the departures are fanned in part by the firm not making budget and therefore not having money to fully pay out partners in the last several years.
Those former partners also say they haven’t been repaid for the equity they paid into the firm to become shareholders. They say they are owed a collective $8 million to $9 million, and fear they’ll never see any of that money should the firm dissolve in some way in the face of the mass defections and depleted revenue.
“The ‘run on the bank’ has happened,” one former partner said. “Now they’re in a lot of trouble. This firm might be in a death spiral.”
Chris Perkins, head of the firm’s Richmond office, told BizSense in February that LeClairRyan remained profitable, while not sharing any specific financial figures.
The firm’s gross revenue in 2018 fell to $122 million, down from $142 million in 2017, according to the most recent figure available in law industry publications. Those figures are down from $163 million in 2015. It did not share its profits per partner with those publications.
Many point to the UnitedLex deal as only adding to the firm’s issues – characterizing it as perhaps innovative in its approach to farm out some of the back-office costs, but one that didn’t pan out as planned.
The firm’s repeated explanation of the logic behind the ULX deal was to create the model for a “law firm 2.0,” one that would be more nimble in the modern age.
“There is no ‘law firm 2.0,’” said one former LeClair partner. “LeClair hasn’t figured out something no one else has.
“When you do enough bad deals and you bring in enough people who don’t have the business to sustain what you’re paying them, the whole thing unravels.”
‘We’re a national firm’
Others point to the firm’s appetite for growth, which began to ramp up around 2008, as playing a role in its current predicament.
Up until that point, LeClairRyan had less than 100 lawyers, all based mainly in offices around Virginia, with Richmond as its headquarters.
The geographical base then began to spread, when founder, namesake and then-CEO and Chairman Gary LeClair went on an expansion and hiring spree to give the firm first a super-regional presence, and then more of a national footprint.
“A couple of us are living on planes, trying to expand the reach of the firm,” LeClair said back in 2011, shortly after it absorbed a firm in New York.
The company also at that time began attempting to shed its image of being a Richmond-based law firm, as it spread around the country.
“We’re a firm that does not have a headquarters,” LeClair told BizSense. “We’re not a Richmond firm. We’re a national firm.”
LeClair stepped down as CEO in 2011 and as chairman in 2015, when the firm had two dozen offices and nearly 400 attorneys. He continues his law practice at the firm presently and also has branched out with an olive oil venture in France.
LeClair referred an inquiry last month about the firm to Gustafson and did not return a message left this week.
Upon stepping down as chairman in 2015, LeClair recounted to BizSense his vision when founding the firm in 1988, with a focus almost entirely on the venture capital industry.
“I was 32, I was young and didn’t know any better,” LeClair said in 2015. “We had a written business plan that said we were going to become four, maybe five lawyers.
“LeClairRyan now does more business before noon every day than we did in our first year of operation,” he said.