Legal industry facing down pandemic pandemonium

Terrorist attacks, financial crashes and more have caused a lot of unrest over Larry Watanabe's 31 years in legal recruitment. But he says it's all paled in comparison to the dread caused by COVID-19.

"I've never seen anything like this," said Watanabe, a partner at the California legal placement firm Watanabe LLC. "Nothing has even been a blip on the radar like this."

Watanabe said most major law firms have been riding high off years of flourishing finance and business opportunities, with fiscal years 2018 and 2019 proving particularly strong. But with the immediate impact of event cancellations, business closures and travel limitations, legal industry leaders are looking at a bad start to fiscal year 2020, which for most began Jan. 31, just over a week after COVID-19 became a named event.

And given the most generous estimates for a post-coronavirus economy, Watanabe said the fiscal year's going to severely sting throughout the legal market. "Far too much global uncertainty" and an already devastated market made it difficult for Watanabe to see how any major law firm would hit their 2020 budget.

"2020 is already over. It's financially shot," Watanabe said, speculating things would only worsen as the fiscal year dragged on and the lingering benefits of a strong economy dried up.

Though the recruiting market has fared better in the onset of the pandemic compared to the legal industry as a whole, Watanabe said the firm leaders and potential laterals he's talked with are understandably concerned about complications. Even he had his doubts about how things would work.

"Is a law firm really going to pull a trigger on a deal without sending people to meet with them in New York? Are they going to be satisfied with a video?" Watanabe said.

Watanabe said firms are bracing for ripple effects from the crisis, already felt through the cancellation in recent days of high-attendance sports and entertainment events like March Madness and South by Southwest. The losses are hard to quantify, but South by Southwest's statistics indicate it generates hundreds of millions for the city of Austin, Texas plus tens of millions more for the entertainment industry and vendors.

Many entities affected will have to shoulder their own costs, given the high cost of insurance for an event on that scale. Jordan Bromley of Manatt, Phelps & Phillips LLP noted most insurance plans have also disqualified COVID-19 from coverage since Jan. 21.

Bromley, who leads Manatt's entertainment transactions and finance practice, said his team's looking at alternatives to shield clients from the full-scale financial harm of COVID-19 and bracing for impact where they know they can't.

"We want to get our clients ahead on mitigation of expenses and protection on the downside," Bromley said. "What expenses are coming up in the next six weeks? What do the force majeure provisions in our contracts say?"

Beefing up those force majeure provisions is chief among those considerations, Bromley said. A French phrase meaning "superior force," force majeure is legally defined as an unforeseeable circumstance preventing the fulfillment of a contract.

Neville Johnson, a litigator and partner with Johnson & Johnson APC, said the pandemic and the chaos it's causing will make for some tense negotiations over force majeure provisions in coming weeks and months. But for the immediate future at least, Johnson said lawyers will have to balance hard-balling on behalf of a client against working to put their own house in order.

"It is causing massive disruption in all aspects of the business including law," Johnson said. "The biggest problem is the uncertainty of how long this is all going to last."

While most duties can be handled through Skype calls and emails, Johnson said, it's a fair step down from being able to stroll into a colleague's office to ask a legal question or meet with a client for lunch.

"And we're still figuring things out logistically. How are we going to get paper out and get things copied? And discovery, where does that go? Is there someone there to accept it?" Johnson said. "What I am hearing from people is fear."