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Tags: Bankruptcy Law by Adrian Lapas, Eastern North Carolina Bankruptcy Attorney
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News today that Schnader Harrison Segal & Lewis is cutting associate—and partner—pay is the latest in a series of announcements that seem to signal a seismic shift in the way well-known law firms are managing corporate law practice. Even though the firm is on budget for the year, Schnader Harrison is chopping $10,000 from all associate salaries, and partners have also agreed to cut their own pay by 5 percent. With the announcement, Schader becomes at least the fifth Pennsylvania-based firm to change its compensation scheme in some manner in recent weeks, according to the Legal Intelligencer. But Pennsylvania's legal…more...

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Democrat Al Franken edged out his Republican opponent in a hard-fought election for a U.S. Senate seat by 312 votes, the Minnesota Supreme Court decided today in a unanimous ruling expected to give the Democratic party a solid 60-seat majority. After the court's decision, incumbent Norm Coleman conceded the race, reports the Associated Press. Initially, Coleman was reported to have a razor-thin lead when the ballots in the November 2008 election were first tallied, recounts Reuters. A total of about 2.4 million votes were cast. Minnesota Gov. Tim Pawlenty has said he will certify the candidate found by the court…more...

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Adding to a growing law firm economy trend intended to add value to corporate clients' legal spending, Schnader Harrison Segal & Lewis is implementing an across-the-board pay cut for associates and partners. Schnader is chopping $10,000 off of all associate salaries, and partners have also decided to cut their own pay by 5 percent, reports the Philadelphia Inquirer. High-earning staff members are targeted in the cost-cutting program, too: Those making more than $60,000 annually will have their salaries reduced by 3 to 5 percent, the newspaper recounts. Associates at the 200-attorney Philadelphia-based law firm earn from $125,000 to $156,000 a…more...

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Munger Tolles & Olson is No. 1 on the American Lawyer’s law firm A-List (reg. req.) of elite law firms. Munger Tolles got the top spot two years running, the American Lawyer reports. The firm has a strong cultural commitment to pro bono, minorities make up 22 percent of its lawyers, and its associates are satisfied, largely because there aren’t too many associates, the story says. The "Wall Street Journal Law Blog explains the magazine’s A-list criteria this way: “The A-List looks at four factors—revenue per lawyer, commitment to pro bono, diversity among lawyers, and associate training and satisfaction—swirls them…more...

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Adam Levitin already posted on this week's decision in Cuomo v. Clearing House Association where the U.S. Supreme Court struck down a regulation from the Office of the Comptroller of the Currency's (OCC). The regulation preempted state enforcement of consumer protection laws against national banks and grew out of subpoenas issued by the New York attorney general. At first blush, the opinion seems to be a big victory for consumers, and it certainly is a victory. As alluded in the comments to Levitin's post, the opinion might not be as big of a victory as it seems.

The Court struck down the regulation but also refused to enforce the subpoenas issued by the New York AG because of the particular wording of the National Bank Act. I'll leave out the details. The Court seems to be laying down a bright line rule: a state attorney general can file a lawsuit to enforce consumer protection laws but can't issue subpoenas under its own administrative powers. That seems to cut back a lot on what state attorneys general can do. Without the ability to force the turnover of information during their own investigations, the power that Cuomo returns to state attorneys general might not help a whole lot. The only recourse the state attorneys general have is to file a lawsuit.

I wonder whether this bright-line rule might not backfire against the national banks. Might the default position of the state attorneys general not have to be "sue first, subpoena later?" Sure, a subpoena from the state attorney general is a giant pain in the posterior, but it certainly is better than a lawsuit from the state attorney general. If the effect of Cuomo is to compel the state attorneys general to sue in order to enforce state consumer law against the national banks, the banks might come to regret what they asked for.

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Tags: Credit and Bankruptcy by Bob Lawless
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Chief legal officers surveyed are skeptical about all the talk at law firms about changing their model for the delivery of legal services. About 75 percent of CLOs gave law firms low marks when asked how serious law firms are about changing their legal service model to deliver greater value to clients, according to a survey by legal consulting firm Altman Weil. At the same time, in-house lawyers are taking steps to tighten their own belts by laying off lawyers and cutting back on outside legal work, the survey showed. The CLOs were asked to give firms a score ranging…more...

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Some other obligations have kept me away from blogging for the past few weeks. One great thing about a group blog is having great colleagues who pick up the slack. I had wanted to say a few words about the Supreme Court's June 8 decision to hear United States v. Milavetz. At this point, the Court's announcement is old news. This post is about what is at stake in the Milavetz decision and why Credit Slips readers might want to watch this case when it gets argued in the fall.

There have been several Credit Slips posts (here and here) about the lower court decisions in Milavetz. Some issues that were raised in the lower court decisions have dropped away, and before the Supreme Court, the case will involve section 526(a)(4) of the Bankruptcy Code, a provision added by the 2005 amendments. It provides that "a debt relief agency shall not advise an assisted person or prospective assisted person to incur more debt in contemplation of such person filing a case under this title or to pay an attorney or bankruptcy petition preparer fee or charge for charge for services performed as part of preparing for or representing a debtor in a case under this title." Yes, that is language that perhaps only a lawyer could love but probably not even then. The upshot is that section 526(a)(4) aims to prohibit bankruptcy lawyers from advising clients to incur debt right before they file bankruptcy. It was not intended to prohibit bankruptcy lawyers from charging for their services, although that might be a natural reading of the language. Rather, the section also tries to prohibit lawyers from advising clients to borrow money to pay attorneys' fees for a bankruptcy filing.

These rules might seem to make a lot of sense. Why should attorneys be able to advise clients to incur debts that they intend to have immediately discharged in a bankruptcy case? The answer is simple--they shouldn't. Incurring debts that you have no intention of repaying is at best civil fraud and might even constitute criminal theft. Long before section 526(a)(4) was ever around, an attorney who advised clients to incur debts they had no intention of repaying was a party to fraud and a possible co-conspirator in a criminal act. In addition to possible professional disciplinary actions, numerous civil and criminal sanctions might have been imposed. Section 526(a)(4) was not really necessary and was part of the package of punitive provisions in the 2005 bankruptcy law against consumer debtors and their attorneys.

As a rule that tries to regulate what attorneys can and cannot say, section 526(a)(4) touches upon First Amendment free speech issues as well as due process considerations about access to legal counsel. Those are the issues the Supreme Court will consider. There are legitimate situations where an attorney might need to counsel a debtor to incur secured debt or nondischargeable unsecured debt before a bankruptcy case. It would seem beyond question that the First Amendment prohibits the government from passing laws that ban legitimate legal advice. A constitutional scholar once told me that her opinion was that section 526(a)(4) was "way unconstitutional" if applied in that way. I've always liked the "way unconstitutional" standard and wish it could be incorporated into our formal jurisprudence. I will be amazed if the Supreme Court lets section 526(a)(4) stand without cutting back on its scope.

One possibility is that the Court will interpret section 526(a)(4) only to ban advice that already was illegal. That is the route urged by the Solicitor General, the Department of Justice official who represents the United States before the Supreme Court and to whose opinion the Court often gives special weight. This is the outcome that I think is the most likely. There is no First Amendment right to commit fraud, and so construed, the statute should be constitutional. So construed, the statute also makes no practical changes to the law that came before it. Finally, the Court might strike down section 526(a)(4) entirely, on the theory that it is overbroad and might have a chilling effect on speech, an outcome that I think is possible but less likely.

Thus, I do not think Milavetz will have a very big practical effect on the advice given in bankruptcy lawyers' offices. Attorneys will not be entitled to give advice to commit civil fraud before or after the decision comes down. If others with a closer connection to the daily tribulations of a consumer bankruptcy practice see that point differently, the comments are open.

I am watching Milavetz for more symbolic reasons. The Supreme Court has not had a case that revolved around the harsher provisions of the 2005 bankruptcy law. Milavetz interests me not so much for the legal arguments in the case but because it might provide a window into how the Court perceives the 2005 bankruptcy law. Will the Court treat the law as just another congressional statute it has to interpret? Or will the Court see the law for the special interest legislation it was and interpret it with skepticism for its public-regarding claims? How the Court casts its opinion could be an important signal of how it will handle future issues that involve the 2005 law as well as an important signal to the lower courts on how to approach that particular statute.

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Tags: Credit and Bankruptcy by Bob Lawless
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As Clifford Chance expands its practice in Asia, it is also eliminating one of its offices in Europe. Arbitration specialist Nish Shetty of the Wong Partnership will be establishing a southeast Asian disputes practice in Singapore for the London-based megafirm, reports the Law Central blog of the London Times. At virtually the same time, Clifford Chance has also announced that its Budapest office will be spinning off by the end of July. The new firm, Lakatos Köves & Partners, will continue to work closely with Clifford Chance. Managing partner David Childs explains the Hungarian lawyers did good work for Clifford…more...

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New salary figures for law graduates show a growing gap between associates at the big firms and everybody else. A survey of the class of 2008 shows 23 percent of the graduates made $160,000, the amount the big law firms paid to newly minted associates, according to a press release by the National Association for Law Placement. But 42 percent earned between $40,000 and $65,000. When the figures are placed on a graph, there are two peaks, one for those in the lower range and one for the higher range. “Prior to 2000, starting salaries for new law school graduates…more...

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