Analysis

NewLaw Sees Upturn As In-House Attys Respond To COVID-19

By Michele Gorman
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Law360 (September 11, 2020, 7:47 PM EDT) -- Priori Legal, an alternative legal services provider, said it has seen a spike in business from both existing and new clients — especially from Fortune 100 companies — on matters ranging from contract overflow support to complex deal work and litigation amid the coronavirus pandemic.

The company, which helps in-house lawyers find, hire and manage outside counsel globally, is in "rapid expansion mode" and hiring for its own ranks, leaders say — a very different situation than the one faced by a slew of law firms and some in-house departments that have been forced to conduct furloughs and reduce staff this year.

Similarly, Factor, a spinoff of alternative legal services provider Axiom, has not only avoided layoffs but is hiring and now has a new majority stakeholder after an investment came last month.

The recent success at Priori and Factor are just two examples of a trend industry experts say will likely continue as in-house lawyers increasingly look for options outside of traditional law firms to meet the demands of handling more legal work with fewer resources.

"Cost savings and thinking about ways to strategically bucket legal work to different kinds of providers is more important to these kinds of companies and departments than it has been for quite a while," said Basha Rubin, CEO and co-founder of Priori. "We offer those kinds of clients an opportunity to save money ... while maintaining quality."

Alternative legal services providers, sometimes dubbed "NewLaw," range in size from small startups to larger corporations. For instance, the Big Four accounting firms — EY, PricewaterhouseCoopers, KPMG and Deloitte — continue to expand into some of the legal services traditionally handled by law firms. 

It hasn't been smooth sailing for every company, as some have struggled to take on BigLaw; for example, "next generation" law firm Atrium laid off a significant portion of its legal workforce amid an internal restructuring earlier this year.

Still, alternative providers, which began taking off in the wake of the 2008 recession, have overall made dramatic progress in recent years. In a state of the industry survey published in July by the Corporate Legal Operations Consortium, 34% of respondents said they had increased their usage of alternative legal services providers from 2018 to 2019. In all, 53% of survey participants said they used an alternative legal services provider.

And that was before the pandemic.

"Different kinds of litigation and regulatory work where we had some demand, we all of a sudden have a lot of demand, I think precisely because of the strategic rebucketing of how legal budgets are allocated," Rubin said.

While in-house teams still look to Priori to outsource some of their lowest-value matters, like routine contracts, they're increasingly approaching the company for more complex issues such as litigation and regulatory work, likely because of the budget pressures they face combined with an increased realization that high-quality legal services can be delivered outside of the BigLaw context, Rubin said.

Ed Sohn, head of solutions at Factor, said times of turmoil are often where his and other similar companies are the most valuable, because legal departments are simultaneously balancing cost pressures with being strategic advisers to the company.

"We're kind of fast-forwarding some of the maturity in our relationships, because our clients are in a pinch and they need us to actually be able to deliver more," he said.

Amid the pandemic, Factor won its largest regulatory mandate in the company's 10-year history, supporting one of the world's biggest banks' contract repapering program, and handled more complex legal work in highly regulated markets including the financial services and pharmaceutical industries, the legal services provider said.

And last month, Carrick Capital Partners announced it would multiply its original investment in Factor to become the majority shareholder.

"[Carrick] understood the market, the boom and demand, much of which is being accelerated in this environment," Sohn said. "That puts us in a position to really make big investments to keep pace with that acceleration."

With the investment, Sohn said he envisions the company will "do more than just increase our need to meet demand" by more aggressively creating new products and developing and expanding its capabilities.

For example, he said, clients can expect more from Factor in the legal marketplace as it continues to invest in client relationships and grow its sales force and specialist industry coverage with three dedicated practices: financial services, life sciences and pharmaceuticals, and enterprise.

Rachel Barnett, general counsel and secretary at Brooks Brothers Group Inc., is one top in-house lawyer who sees an opportunity for change in the current environment.

She works at a company that hit Chapter 11 in July after out-of-court efforts to sell the business were tripped up by the coronavirus pandemic and its resulting restrictions on businesses. Brooks Brothers said that by February, its supply chain was hampered by the difficulties associated with COVID-19 in Europe and Asia. When the virus reached the U.S., the company was forced to shutter its hundreds of retail locations.

Last month, a Delaware federal judge gave his nod to Brooks Brothers' $325 million sale to SPARC Group LLC, with the company saying the buyer plans to keep open 125 of its retail locations.

Now, Barnett said, handling legal matters efficiently and cost-effectively is even more crucial as she navigates a new legal department structure with the company changing hands.

"If you can get the services for a cheaper price but the quality remains and the exposure is less, then it makes complete sense to use alternative providers," she said.

Barnett said that alternative providers recognize and act on the inefficiencies in the traditional law firm structure, which include what she referred to as the "archaic" billable hour and the fact that clients increasingly value cost and efficiency over other factors.

"If you don't pivot now and modernize," she said, "Deloitte and Axiom and alternative suppliers are there to pick up the inefficiencies."

--Additional reporting by Xiumei Dong, Aebra Coe, Vince Sullivan and Rose Krebs. Editing by Alanna Weissman.

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