Cover Story: The Great Law Firm Merger
While the following is a fictional account, much of it is based on true stories.
|by Peter Vaira
Winter 2004, Vol. 66, No. 4
Some observers say it was the greatest law firm in United States history. Others say its formation and operation was unethical and possibly violated the antitrust laws. Whatever else one may say about Martier & Simpson, it was one giant law firm. As a result of numerous mergers and acquisitions, by 2001 the firm of Martier & Simpson boasted a membership of 9,850 lawyers. Some say it was the ego of the firms two key partners, Jack Martier and Collingwood Simpson, that caused the firm to attempt to reach 10,000 lawyers. It was that event that many say triggered the dissolution.
Starting in early 2002, the firm imploded in less than a year, resulting in at least fifty lawsuits, investigations by numerous state attorneys general, broken careers, broken marriages and a sour taste in the mouths of clients and the American public.
The Philadelphia Lawyer
, through interviews of former partners and associates, confidential sources and independent investigative techniques, has reconstructed many of the events that caused the destruction of that giant firm.
On October 10, 2001, the following scene took place in the elaborate office of Jack Martier. Martier is meeting with his personal confidential aide, Baker McCann.
McCann: Good news, J.M., it looks like we can pick up the Woodside firm in Seattle.
(Editors Note: Martier instructed all his partners and associates to refer to him as J.M. because he thought it made him sound more CEO-like. Some insiders say he got the idea from an old Spencer Tracy movie.)
Martier: Good going. What is the deal?
McCann: Their demands are a little high. All ten partners want a guaranteed draw of $600,000 per year for the next two years.
Martier: Well agree to that.
McCann: But J.M., I dont think the firm makes anywhere near that much in gross revenue.
Martier: Dont worry. Once they merge with us, the firm will bring in twice that amount. Weve done this sort of thing before.
McCann: OK, J.M., its a done deal.
Martier: Let Simpson know we are about to become 10,000 lawyers. Issue a press release.
McCann: Shall I have our press officer use the regular press release?
Martier: Tell him to jazz this one up. This is a once-in-a-lifetime event. Be sure to attach Simpsons and my picture with the release. Alert the media. Make sure we leak the information to our special reporter. I am available for any interviews.
(Editors Note: There are credible allegations that Martier & Simpson had compromised a reporter from the legal press. Sources who requested anonymity say Martier & Simpson leaked inside information on their acquisitions and mergers to him in return for favorable write-ups.)
The bankruptcy trustee representing the Martier & Simpson estate sued the Woodside firm for fraud for deliberately overstating its past annual revenues to the Martier & Simpson executive committee during the acquisition negotiations.
Some analysts say that Martier & Simpsons attempt to become an international firm in a very short time was a major miscalculation. The following is an interview with the managing partner of Martier & Simpson, Baxter Denby, conducted by a staff member of The Philadelphia Lawyer in January 2002.
TPL: Mr. Denby, would you please describe how your international practice began?
Denby: The firm has always had a vast number of international clients. We decided in order to service those clients we would open offices in the major cities of Europe, Asia and South America. For example, London, Rome, Prague, Shanghai and Cebu, to mention a few.
Denby: The Philippines. It is key to the Philippine banana trade.
TPL: Oh yes, of course. How many offices did you have?
Denby: We had twenty-three. Under the direction of our foreign office managing partner, Ambassador Brzonevk, we were on our way to being the most powerful international law firm in the world.
TPL: The latest reports are that you have closed all the foreign offices.
Denby: Yes, but I am not sure about Kiev. We have not been able to get a response to our inquiries to that office for at least two weeks. You know there is rebel unrest in that area.
TPL: What happened in such a short time?
Denby: Well, we ascribe it to a troubled world economy and the fear of world conflict.
TPL: Our sources tell us that the real reason was that none of the foreign firms you acquired had any meaningful clients of their own.
Denby: We were somewhat disappointed in the production of some of the offices.
TPL: We have also heard that some of the offices in third-world countries utilized your operating funds to bribe local officials in an attempt to get business.
Denby: We realize that business may be conducted in a different manner in some cultures. That is the price of practicing in foreign countries.
TPL: Is it true that Ambassador Brzonevk is not an ambassador? In fact, he is not a lawyer, but is a former dealer in the black market in the old Soviet Union?
Denby: When you are dealing in those economies that are new to democracy you have to make adjustments for the transition from old to new.
TPL: What you are saying is that the international practice has disappeared in a matter of months.
Denby: Lets say because of the world situation we have decided to concentrate on our American stateside clients.
TPL: Where is Ambassador Brzonevk?
Denby: He is running a consulting firm in Sevastopol.
Denby: It is a resort town on the Black Sea. He is working on getting us into the Russian caviar alliance.
The dissolution rapidly continued. The following conversation in April 2002, reconstructed by The Philadelphia Lawyer from reliable confidential sources, is typical of the management problems encountered by Martier & Simpson. Collingwood Simpson is meeting with his confidential aide, Marla Means.
Means: Mr. Simpson, I have some information that I dont quite understand about our Salt Lake City office.
Simpson: What is that?
Means: A representative from the Utah Attorney Generals Office says they have received a complaint from the Utah Bar Association that the bar association cannot find any registration regarding the firm we acquired, Delroy and Beacon.
Simpson: It is simply a mix-up in the acquisition.
Means: No sir, it is not that simple. According to the attorney general there never was a firm called Delroy and Beacon. There are no lawyers admitted to practice in Utah named Delroy or Beacon.
Simpson: That is impossible. I spoke with both of them on the phone just prior to the merger.
Means: The attorney general believes that they dont exist. Whoever you spoke with are not lawyers named Delroy and Beacon.
Simpson: Nonsense, they have a large suite of offices. There are thirty lawyers there. Our managing partner was there for the closing.
Means: The attorney general visited the address. The offices are vacant. The last tenant in that space was a personnel firm that supplied office temps. It closed in July 2001.
Simpson: You are telling me that we acquired a firm that didnt exist?
Means: I can only relate what the attorney general says.
(Editors Note: That episode was quickly hushed up by Martier & Simpson. The court-appointed trustee of the bankrupt estate of Martier & Simpson will answer no questions about Delroy and Beacon. All documents relating to the matter are under seal by court order. The attorney general of Utah will not comment on his investigation.)
An equally embarrassing episode occurred in the summer of 2001 when a person holding himself out as a Martier & Simpson partner from the firms Washington, D.C., office called the firms Philadelphia office. He requested several wire transfers to bank accounts purportedly held by Martier & Simpson offices in Atlanta, Sacramento, Miami and Phoenix for settlements of cases on behalf of Martier & Simpson clients. It was later discovered the caller was not associated with any of the branch offices, there were no such cases and that the money had been wired into sham accounts in those cities. The total loss was more than $350,000. It does not appear that any Martier & Simpson personnel were involved in criminal conduct. The matter has been referred to the U.S. Attorneys Office.
A young partner, H.L., who agreed to speak on the condition of anonymity, related a major contributing factor in the downfall of the Martier & Simpson firm. When I joined the firm fifteen years ago there were only twenty lawyers in the firm, the partners respected each other and there was a professional and social bond among them. It was a true partnership. Then the firm began acquiring lateral partners and associates because they purported to be revenue producers. We disliked many of them immensely, but we had to accept them because they contributed to the bottom line. According to H.L., the best example was a bankruptcy group that the firm acquired from another firm. The group purported to be a big player in the bankruptcy field. Everyone disliked the members of the group, and no one trusted them.
The group began to make demands upon the firm for special treatment. They demanded a catered breakfast buffet (at firm expense) every morning while they discussed the business of the day. They issued a letter to the other members of the firm that the buffet was off-limits to any other firm members after a senior partner, not a member of the bankruptcy group, stopped by and sampled a danish.
The group leader signed a contract, on behalf of the firm, for his personal shoe consultant to come to the firm and provide shoe shines for the group three times a week. The shoe consultant was guaranteed ten shines per visit, in return for which he would provide a free set of shoelaces every three months. Womens shoes were an extra expense because they had to be shined off the foot.
H.L. said the group finally disintegrated when the lead partners began to fight among themselves over perks such as office size and furnishings and Martier & Simpson management would no longer tolerate their demands. About the same time it became apparent that the groups financial figures were misleading and the revenues produced by the group were not what they were purported to be. In an attempt to salvage the groups position with the firm, the group ousted one of its senior partners, accusing him of malfeasance. The ploy was soon recognized for what it was, and the group broke up and drifted off to separate firms.
According to H.L., the venture cost the firm at least three million dollars. Martier & Simpson was required to settle a lawsuit filed by the shoe consultant for $5,000 for breach of contract when the bankruptcy group left the firm.
An auditor for the bankruptcy trustee listed the following actions by the executive committee that were questionable:
- Offering fifteen CLE seminars in Cancun, Mexico, for firm members and their wives.
- Sending 200 first-year associates to London for a weeklong seminar on firm procedure. The auditors especially questioned the private performance by the London Symphony Orchestra.
- Hiring a nationally known journalist to write the biography of Jack Martier with an advance of $350,000 for the first six months.
- Firing the journalist after three months when Martier disapproved of his text, and settling with the journalist for an additional $80,000.
- The hiring of a clothing style consultant in 1998 for $75,000 to advise attorneys on the art of dressing down; hiring the same clothing style consultant in 2001 for $85,000 to advise attorneys on the art of dressing business-style.
Raising the starting salary of 200 first-year associates for the year 2001 to $175,000, and then agreeing to buy them out of their contract for $190,000 each. In its defense, the executive committee argued that this was cost efficient because the firm actually saved money by not having to raise second-, third-, and fourth-year associates in a commensurate fashion. Jack Martier left the country and can be reached only through his lawyer. Martier informed the bankruptcy trustee that he feared for his life after receiving a series of personal threats from a group of former partners. Collingwood Simpson opened a small law practice in Aberdeen, South Dakota, where he shares office space with three other sole practitioners. When contacted by our reporter, Simpson said, What the 1990s has taught us is that law has become a business and not a profession. Its about time we become concerned with serving the client and getting to know his or her needs. Simpson said he had no program for summer associates.