March 29, 2012 5:53 PM

Ex-Locke Lord Partner’s Tale Shows Toll That Thinning of Large Firm Ranks Can Take

Posted by Nate Raymond

For 34 years, Lord Bissell Brook was David McLauchlan’s professional home, and he earned a good living there. As a senior litigator and onetime executive committee member working out of Lord Bissell’s Chicago headquarters, McLauchlan earned half-a-million dollars a year at his peak with the firm.

Things began to change for McLauchlan in 2007 when Lord Bissell combined with Texas’s Locke Liddell  Sapp. A year later he was gone, his business off so sharply that the management of the newly merged firm asked him to leave.

McLauchlan’s problems, it turned out, were only beginning.

In his highest-earning years, he had been able to help keep up with the hefty mortgage payments on a Chicago townhouse; support a handicapped daughter; and give his former wife $14,000 in monthly support.

By 2010, two years after leaving what was then known as Locke Lord Bissell Liddell, McLauchlan was $1.5 million in debt, struggling to build a solo practice, and fighting with his ex in court over money.

The details of McLauchlan’s termination and how his life unfolded in the wake of it are detailed in a decision issued earlier this month by an Illinois state appellate court in connection with his five-year court fight over alimony payments McLauchlan says he can no longer afford. The proceedings provide a stark example of the financial and personal toll a law firm’s decision to lay off a partner—a once-rare act that became much more common amid the recession—can take.

“This case,” says McLauchlan’s lawyer, Howard London of Beermann Swerdlove, “is a perfect illustration of what happens when divorce meets recession meets downsizing.”

McLauchlan joined Lord Bissell as an associate after graduating from University of Illinois College of Law in 1972. He rose high in the years that followed: According to an online biography, he made partner in 1980 and was at various times a member of Lord Bissell’s executive committee and chair of the firm’s compensation committee. Much of his practice focused on defending large insurance companies such as Lloyds of London and New England Mutual Life Insurance Co.

By the time McLauchlan joined the firm, he had already been married four years to his wife, Patricia. While he climbed through the ranks at work, she stayed home. The couple lived in the Chicago suburb of Park Ridge in a house that property records show they bought in 1985 for $175,000. Patricia McLauchlan focused on raising her three children, one of whom, a daughter, was developmentally disabled. The family also had a vacation home in Key West, which records show they bought in 1993 for $139,900.

In 1999, after she and David had been together for 31 years, Patricia McLauchlan filed a petition to dissolve the marriage. A judgment issued two years later required David McLauchlan, as the family’s sole wage-earner, to pay Patricia $168,000 a year in maintenance. In the split, she also got the Key West house; half her ex-husband’s retirement account, or $600,000; and half the proceeds from the sale of their marital home.

The court calculated the maintenance payments based on McLauchlan’s past earnings at Locke Lord, as well his expected future income, court filings show. Court records also show that he was doing fairly well at the time: His average annual income from the firm in the five years before the divorce became final was around $540,318; in the five years that followed, it was about $550,000.

In 2006, however—the sixth year after the divorce became final—McLauchlan’s income fell “dramatically” from the previous year, to $371,746, according to the Illinois decision. By comparison, Lord Bissell’s average profits per partner fell 13.9 percent that year to $495,000 that even as gross revenue edged up less than 1 percent to $157 million, according to The American Lawyer‘s Am Law 200 data.

At about the same time, Lord Bissell began merger discussions with Locke, Liddell Sapp, a firm that enjoyed substantially higher profits of $831,000 per partner in 2006 (a 16.1 percent increase over the previous year). The talks moved quickly. The merger was announced in May 2007 and became effective that October.

So far, the tie-up can viewed as a financial success. Partners at the merged firm can tout having broken the seven-figure barrier for profits per partner in 2011, when they reaped $1.035 million on average—a 9.1 percent increase over 2010. Gross revenue, meanwhile, jumped 4.9 percent last year, to $416 million.

McLauchlan missed out on all of that. In 2007, as the firm where he’d worked for more than three decades was merging with Locke Liddell, his annual income dropped to $250,000, according to the Illinois decision. His made even less at Locke Lord in 2008: $165,652, according to tax returns cited in appellate briefs in the alimony dispute.

What went wrong? According to McLauchlan’s lawyer, it was mainly a matter of timing.

“In 2007, things were starting to turn bad,” London says. “From what he was saying, a lot of his clients were in trouble.”

In 2008, based on the sharp decline in his workload, the Locke Lord Bissell Liddell executive committee asked McLauchlan to leave, according to testimony by committee member Nick DiGiovanni. McLauchlan, according to his appellate brief, testified that the decline in his earnings was due to market conditions and client retirements and bankruptcies. He did not name any particular company or person.

Asked on cross-examination if McLauchlan’s work was “ebbing,” DiGiovanni said, “ebbing is a kind word,” and that “he was almost out of work.”

It is unclear if what happened to McLauchlan at Locke Lord is unique. Asked if the firm had forced out or stripped of their equity any other partners , firm spokeswoman Julie Gilbert declined to comment, adding that the firm “never comments on anything personnel related.” Head count figures collected by The American Lawyer, however, show the firm had 16 fewer equity partners in 2009, than it had a year earlier, and that Locke Lord’s overall head count shrank 9.3 percent between 2008 and 2009.

Rather than being terminated, McLauchlan negotiated a resignation effective at the end of 2008. After leaving Locke Lord, he started up a solo practice called McLauchlan Law Group, whose Web site promotes his skills as an arbitrator and litigator. Federal court records show he is currently representing masonry anchor company Heckmann Building Products Inc. in patent and antitrust litigation against rival Hohmann Barnard, Inc.

In his first year after going solo, McLauchlan lost $162,000 launching his practice, according to the Illinois decision. In addition to what he spent going into business for himself, expenses and other obligations began to pile up for him in the years before the recession.

Having remarried, he and his new wife had a $924,000 mortgage on a Chicago townhouse whose current value Zillow puts at $691,000. He paid at least $5,400 a year to support his handicapped daughter and was helping another daughter pay for college, court documents show.

By 2009, McLauchlan’s debt had swollen to $1.5 million. He tried to keep pace by dipping into his retirement accounts. By March 2010, he had tapped more than $806,000 of those funds. At that rate, he estimated at the time, his assets would be wiped out within four months at most.

By then, McLauchlan had already been fighting in court for two years with his ex-wife to reduce his payments to her. In November 2007, citing his lower income, he petitioned the court to terminate or modify his ex-wife’s maintenance. In 2010, a trial judge did modify the amount McLauchlan was to pay from a fixed $14,000 per month to 20 percent of his income, retroactive to 2008.

He lost his bid to dispense with the alimony entirely, though, because of what the judge said was his potential to earn more than his ex-wife in the foreseeable future. Based on that finding, the judge also found him in contempt for failing to pay her alimony of $245,470 from 2008 to 2010.

McLauchlan appealed, arguing that the judge, Judge Pamela Loza of the Circuit Court of Cook County, should have found that Patricia didn’t need his money. He noted, for example, that she still had the Florida home and $700,000 in investments and savings.

Writing for the three-judge appellate panel on March 13, Justice Sheldon Harris held that the record supported the lower court’s decision requiring that McLauchlan continue to give his ex-wife at least some monthly support. On the upside for McLauchlan, the appellate court partly reversed the decision on other grounds after determining that the trial judge’s “including David’s withdrawals from his retirement plans as income in determining maintenance is an improper modification of the parties’ property settlement agreement.”

It is unclear whether Patricia McLauchlan will ask the Illinois Supreme Court review the case. A lawyer representing her, Steven Klein of Swanson, Martin Bell, did not respond to requests for comment.

If his ex-wife does not appeal or if such a request is denied, London says McLauchlan will ask the lower court to recompute his maintenance. Patricia McLauhlan could also be forced to pay back at least some of the money McLauchlan continues to pay her in the meantime, London says.

While McLauchlan’s misfortunes may be unique in some ways, Kent Zimmerman, a consultant with the Zeughauser Group, says they are not that different from those endured by hordes of lawyers who grew accustomed to a certain lifestyle during the boom years and are now having to make do with much less. Many partners, Zimmerman says, counted on the fact that revenue per lawyer had been increasing 17 years in a row before the economy went sour.

“Many parters in law firms, including many who had kids in college and lots of other fixed expenses, counted on law firm performance and compensation being at a particular level and increasing year after year up until 2008,” he says. “Then Lehman Brothers fell and that thinking went out the window.”

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