Plaintiffs’ Lawyers and Rainy Days

I read an interesting article in the Washington Post yesterday about the downfall of big Washington, D.C. law firm heavyweight Howrey, who closed its doors earlier this month. It is an unbelievably steep fall for a law firm that had $570 million in revenue in 2008.settlement2

In my heart, I really wished and wish this law firm and all of the people in it the very best. It’s true, scout’s honor. But every plaintiff’s personal injury lawyer gets a little feeling of validation for their career path as news continued to percolate about the demise of big defense law firms.

But that validation got stopped in its tracks when I read this sentence:

Revenue in the litigation business tends to be lumpy. You get paid only when there is a case to be tried and then often only after the trial is over. Howrey, in particular, had come to rely increasingly on revenue from such contingency fee cases, which rose to $35 million in 2008 and then fell to $2 million a year later.

Quickly, I had to jump off my high horse. That’s our business model.

When you look at a plaintiffs’ law firm like ours, you can’t help but be struck by how bizarre the business model is. On a cash flow basis, we lose money in a given month more often than not. The settlement of very large cases is what sustains our economic engine. It is a crazy way to run a business when you think about it.

For me, the take home message is that plaintiffs’ lawyers should always be preparing for the rainy days. Law firms like ours that handle exclusively personal injury cases should take particular heed because we are not – to use the business parlance which really applies here – diversified.

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