By Scott Graber
It is Thursday, early, and I’m at my wood-planked, dining room table watching the sky light up over Lady’s Island. It’s cold but one knows that later today the long-dormant “no-see-ums” will arrive.
This morning the Wall Street Journal (WSJ) tells us that Arizona is trying to decide whether or not to allow non-lawyer financiers — hedge funds — to buy into their law firms.
“Every other business is allowed to take growth capital to pay their expenses,” says Ted Ferrell, who runs Litigation Funding Advisors, which consults in the legal finance market. “The question is how much smart money wants to get in bed with lawyers?”
“It turns out, plenty,” says the Journal.
This piece is paired with another article telling us that the Rockland Regional Medical Center, a unit of Stewart Health Care System, has a problem with 3,000 Brazilian free-tailed bats that have taken up residence in the building. According to the WSJ, Stewart has been sued by the bat-removal company, Rentokil, for this allegedly unpaid (bat removal) bill of $936,320.
But this $936,320 is not Stewart’s only financial headache. According to today’s Journal they owe money to other vendors including $50 million in unpaid rent to their landlord, the Medical Properties Trust.
Some years ago Stewart sold their hospital buildings to MPT in order to get some ready cash, then leased them back. That, presumably, solved their immediate cash flow problem. But now they are faced with “$200 million in unpaid bills of other sorts.”
I want to be clear that I did not take a single economics or business course while I was in college. Nor did I take any course in finance, taxes or mergers in law school. Terms like “private equity” and “leveraged buy-outs” are not in my vocabulary. I am, candidly, one of those antediluvian luddites who believe that mixing money and medicine is not a good thing. But I do know something about profits and law firms.
I know that there is big money to be made in specific areas of the legal cosmos. Right now those profits seem to be in personal injury litigation, class action lawsuits and firms that help state and municipal governments prepare bond offerings. I know that most corporations are “risk averse” and routinely pay huge hourly fees to make sure they are not sued for some kind of omission or error or unfortunate behavior as regards women and minorities.
“The idea behind Arizona’s program is to bring in capital to make it possible for legal businesses to open that otherwise wouldn’t be able to. Many states have been looking to unconventional solutions to address the dearth of lawyers to help people with critical services such as evictions, divorces and immigration law …”
So, let’s see if I’ve got Arizona’s reasoning right.
Arizona is thinking that opening-up their law firms to private equity; to hedge fund investment; is going to make those firms get in the business of fighting unreasonable landlords, representing folk who find themselves in unconscionable, high-interest contracts with unscrupulous creditors, helping poor people.
Apparently Arizona thinks that hedge fund managers are not going to invest in lawyers who sell their car wreck settlement services on television. They’re not going to invest in large firms that protect corporations from their own avarice. No. they’re going to seek out those marginal, one-man firms that help undocumented workers get green cards or suddenly divorced women get adequate child support.
It is my experience that many lawyers emerge from law school with a desire to “give something back.” In the olden days some would go into legal aid programs where they might stay for three years or so.
It was also my experience that large law firms sometimes encouraged their just-hired lawyers to put in a certain number of pro-bono hours.
But these uneven, hit-or-miss efforts do not come close to meeting the need for free or inexpensive legal advice for those on the fringe. In South Carolina, for example, a recent survey shows there are 66 lawyers — out of 13,000 — in this pro-bono category doing 18,700 “intakes” and representing 13,715 clients. Everyone, including the S.C. Bar Association, knows this is not anywhere near adequate.
But Arizona somehow believes that allowing investors to buy equity in law firms will transform its mergers and acquisitions lawyers into advocates for the unwashed. It believes the magic of the “Market” will turn frogs into handsome, principled princelings.
Scott Graber is a lawyer, novelist, veteran columnist and longtime resident of Port Royal. He can be reached at cscottgraber@gmail.com.
