According to BTI Consulting's Litigation Outlook 2020, the U.S. litigation market is poised for its third consecutive year of growth with clients expecting more litigation in 2020. Yet many AmLaw firms hesitate to invest in litigation practices because of concerns about the potential ebb and flow of litigation work. This is short-sighted, especially considering the prospects of an economic downturn, continuing client pressures, and litigation trends. A strong litigation practice can have a significant impact on a firm's ability to compete effectively as well as drive revenue for the firm in all areas of practice.

Preparing for a Slow Down

The current U.S. economic expansion is in its 11th year, but financial analysts see slow growth in 2020 with concerns among law firms about a recession. Litigation is often thought of as a practice area that increases as others start to fall off during downturns. Some of this is already evident in the BTI survey. Clients report that they expect to spend more and see more litigation in 2020, particularly related to high-risk matters, which will create more new spending and drive the need for outside counsel to handle this complex legal work.

Growing Demand and Role of Litigation Finance

The economy is not the only factor influencing the demand for litigators. Litigation finance is also having an impact. According to the 2018 Litigation Finance Survey, there has been a 237% increase in litigation finance since 2012. Since the recession, clients have been pressuring firms to keep legal fees low and provide alternative fee arrangements. If the economy slows further, those concerns will only grow. Litigation finance is one answer to clients' complaints about high fees, providing a potential solution for both firms and clients.

For law firms, litigation funders provide nonrecourse financing in exchange for a portion of future legal receivables. As a result, firms can take on cases with less risk. The funding enables firms to offer alternative fee models and better compete for clients, yet have the flexibility to use the capital to meet the firm's needs whether it is to finance attorney fees and out-of-pocket costs or for other business purposes. As noted by Steve Susman of Susman Godfrey, a firm that offers litigation funding, "third-party funding is something every trial lawyer, including me, your biggest competitor, should welcome if the results are the filing of better cases and the more efficient handling of those cases that are filed."

Funding also benefits clients by allowing them to pursue litigation that otherwise would be cost-prohibitive, as well as to hire the best firms to handle the matter. As litigation finance becomes more prevalent, we are likely to see more growth in litigation work for law firms.

Pressures To Innovate

As litigation increases, so does competition among law firms. Another BTI survey, the Legal Innovation and Technology Outlook 2019, noted that general counsel and corporate decision makers are looking for innovation from law firms. However, "innovation isn't simply using new technology or offering a new product or service. Innovation comes when you find a new approach your client hasn't seen before to meet their needs." In particular, clients notice the law firms that are "[d]isrupting the legal industry by doing things other law firms don't … with no limits. From embracing new strategies, strategically hiring lateral partners (or groups), investing in targeted office openings, or moving away from the billable hour, these firms drive more recognition in the market as true movers and shakers than other firms."

This idea was echoed by Morgan Lewis & Bockius, which has appeared at the top of multiple BTI lists of firms that excel in specific litigation segments. Managing partner Steven Wall explains their success as follows: "We bring the entire litigation function of Morgan Lewis, no matter where you might be housed, to serve the client. Every day, we're using attorneys to staff where appropriate, and we're not beholden to some artificial boundary as to what practice group you actually belong to." In addition, the firm has offered alternative fees, which account for almost 30 percent of the firm's revenue.

While AmLaw firms recognize they need to be more strategic and better meet clients' needs, they hesitate to make big changes. As a result, smaller firms and boutique practices are stepping in to fill the void. For example, Selendy & Gay is a litigation boutique spun off from Quinn Emmanuel Urquhart & Sullivan. As noted by founding partner, Andrew R. Dunlap, the firm has invested in recruiting, training associates to be "well-rounded litigators who are excited about their careers," significantly changing the partner-associate model at many large firms. He argues this approach benefits the associates, the firm and clients creating teams at the top of their game. Boutique firms like Selendy can take advantage of new technology and flexible staffing. As noted by leading law firm consultant, Bruce MacEwen of Adam Smith Esq.: "If you choose the boutique, you're only going to get the A team. There is no B team." If smaller and boutique firms can innovate like this, why can't big law?

Despite the loss of attorneys to Selendy, Quinn Emmanuel is one of BTI's Fearsome Four litigation firms, which rates them as one of the firms GCs and other firms fear seeing across the table. Yet how many big law firms can say the same? Large firms risk losing business if they continue the status quo.

Additional Benefits of a Strong Litigation Practice

A litigation practice is good protection against a recession, providing the diversified practice that all big firms need. However, it also is valuable in recruitment for other practice areas. According to Michael Rynowecer, founder of BTI Consulting: "The ability to come in and address all of [a company's potential exposures] in one conversation will be crucial [for law firms]." Clients are looking for firms who can handle all their concerns, as are attorneys. Lateral hires in corporate and real estate want law firms that can service their clients' needs. Litigation is an important part of this service. A firm with a strong litigation practice will be appealing to litigators bringing their practice to a new firm.

Litigation also offers the firm valuable publicity opportunities. A success can be promoted and gain the kind of awareness that corporate deals don't get because so much must remain confidential. This publicity is also helpful in recruitment and business development as attorneys and clients seek out the well-known firms.

According to BTI, clients want big, strong law firm teams for complex work and are looking for firms they believe can scale up to a larger team if the need should arise. AmLaw firms should be embracing litigation practices and expanding their lateral hiring if they want to compete for this work.

If you are a litigation partner, it is also time to ask yourself whether your firm is committed to building a robust and innovative litigation practice that serves your clients' best interests.

Keith Fall and Ross Weil are partners with the New York-based legal recruiting firm, Walker Associates.