Bar News - November 15, 2013
Out-of-State Firms on the Rise in NH
By: Dan Wise
Out-of-state law firms are a growing presence in the New Hampshire legal community.
On the 2012 list of the 20 largest firms in New Hampshire (published in the December 2012 issue of NH Bar News), seven of the largest firms - measured by the number of licensed New Hampshire lawyers each employs - were headquartered outside the Granite State. In 2001, when we last published the list of the 20 largest firms, only one was based in a different state.
Will the trend of out-of-state ownership increase? Several market factors dictate whether a firm based elsewhere will seek to establish a strong presence in New Hampshire. While nationally, mergers are a common means for law firms to enter new markets, the New Hampshire market has seen only one merger bringing a new firm into the state; instead, most out-of-state law firms coming into the state have started local offices and expanded from an in-state base.
Nationally, law firm mergers are occurring more frequently. Altman Weil, a law firm management consulting firm, last month said law firm mergers nationwide were up 41 percent over the same period a year ago. Many of those mergers involved what Weil calls “small” firms - 15 lawyers or fewer. Consultant Thomas Clay predicts there will be continued interest by larger firms to enter new territories by this route: “When demand is flat, acquiring a small firm and its clients is probably the easiest way to get new business.”
Border-Crossing Lawyers It’s been 11 years since the NH Supreme Court created the admission-by-motion process.
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Today, more than one-third of active-status members of the NH Bar Association have offices out of state - 1,714 of the total 5,186 active members.
That’s more than double the number of out-of-state members there were in 1998 (876 of the 3,889 total on active status). It may surprise those who are ready to decry the end of New Hampshire practice as they know it, but the out-of-state share of active-status membership is only slightly larger than the 31 percent of the Bar members who had out-of-state offices in 2003.
It was clear that even before the regulatory barriers to admission eased with the then-Associate Justice Linda Dalianis’ championing of admission-by-motion in 2002, border-crossing had become a necessity for many attorneys in northern New England.
The following is a selective timeline of the evolution of cross-border practice in New Hampshire:
May 1980 - NH Supreme Court Clerk Ralph Wood informs Kathryn Piper, a Vermont resident who had passed the NH Bar, that the Court would not grant her a dispensation to obtain admittance to the NH Bar, even though she intended to work for a Littleton law firm.
March 4, 1985 - US Supreme Court strikes down NH residency requirement for admission to the Bar. saying it “violates the Privileges and Immunities Clause of Art. IV, §2, of the United States Constitution. The nonresident’s interest in practicing law is a “privilege” protected by the Clause.”
March 1998 - Total active-status membership numbers 3,889, with 876 from out-of-state (22 percent).
January 2002 - NH Supreme Court announces it is considering a series of changes to bar admission rules to allow experienced lawyers from other states to be admitted in New Hampshire without taking the state bar exam.
2003 to 2012 - Waive-ins, most from out of state, average about 100 per year; the total net growth of the entire Bar is modest, from 4,139 to 5,186 active-status members.
2013 - State-by-state admission by motions statistics show that Massachusetts, not surprisingly, accounts for 534 waive-ins, followed by New Hampshire residents (often newcomers who moved here) at 327, and small numbers from Maine (87) and Vermont (37).
2013 - The NHBA Board of Governors proposes an amendment to the bylaws to create an at-large seat to represent the interests of this growing sector of the Bar Association. (Learn more.)
- Dan Wise
That was the route followed by Pierce Atwood of Portland, Maine. In 2001, Pierce Atwood merged with Sanders & McDermott of Hampton, NH, becoming overnight one of the state’s largest firms. Today, it is the sixth-largest firm in New Hampshire, with 30 lawyers licensed here.
Jack Sanders, a founding partner of Sanders & McDermott, said the two firms had compatible cultures, and their client bases matched up well.
Sanders, who is now semi-retired and of counsel to the firm, said succession planning for the firm was one reason the merger made sense. Sanders was working full-time, but was considering retirement, while his co-founder, Edward McDermott, had already cut back to working three days a week. Another factor that drove the decision was the ability to serve clients with a greater array of services.
“We had several clients who had needs that we could not fulfill,” Sanders said. “We could not do all of their work; we lacked the breadth of experience they needed.”
Looking at Sanders & McDermott, Pierce Atwood saw a firm with a strong client base and experienced lawyers in an attractive market. Sanders said two things impressed him about Pierce Atwood: a compatible “culture” and high partner retention. Sanders and his colleagues were comfortable with Pierce Atwood’s origins in Maine, its commitment to community service, and the partners’ apparent high degree of satisfaction with the firm.
But in New Hampshire, to date, acquisitions by out-of-state firms has not been the favored port of entry.
Arthur Greene, a New Hampshire lawyer who now runs a law practice consulting firm with offices in Bedford, NH, and Ann Arbor, Mich., thinks he knows why. He has consulted with a number of regional firms that have sought merger targets in New Hampshire, only to turn away empty-handed. Greene says the firms’ economic structure and overhead wasn’t suited to the more modest cost structure here. “For large firms or mid-size regional firms, the cultural differences and the economic structures are too far apart.” Greene said the amount of income needed for a 10-lawyer firm in the Granite State to be successful is a lot less than what the larger firms expect partners to generate in fees.”
Ward Bower, another Altman Weil consultant who has worked in New Hampshire before, agreed. “Many firms operate on a higher cost basis than the firms in New Hampshire,” he said. “It’s a tough market to break into.”
Nevertheless, out-of-state firms have been coming into the state by following a different path.
A number of firms that are based elsewhere have followed the example of Nixon Peabody (formerly known as Peabody Brown), the first out-of-state firm to successfully establish itself in New Hampshire. The firms typically are New England-based and not extremely large. Bower says the primary reason these firms enter the New Hampshire market is that they are following clients with legal needs here. Rather than merging, they build slowly.
The Nixon Peabody model begins with an established New Hampshire lawyer or lawyers gradually building a New Hampshire law office that benefits from its connection to a larger firm. As a New Hampshire firm, that means not charging big-city rates.
Kevin Fitzgerald, the managing partner of the Manchester office of Nixon Peabody (#11 of the NH Bar Top 20), said several Boston firms - including Choate Hall, Hale & Dorr, and Wilmer Hale - tried to break into New Hampshire in the 1980s and flopped. They followed what could be called the “branch office” model.
“Their original model was to set up a local office in New Hampshire and hire an established attorney. Then they bring their other lawyers up and import their [higher] rates,” explains Fitzgerald. “When we started our office in Manchester, we grew it with local lawyers and we charged local rates.”
Nixon Peabody has also emphasized involvement in the community, and a number of its New Hampshire lawyers are in leadership roles in community organizations and are regularly involved in Pro Bono. “You need to be part of the community in a genuine way,” Fitzgerald said, and that includes keeping close ties to New Hampshire’s only law school. “We usually always have a UNH Law extern here,” Fitzgerald said, and the firm represented UNH Law in its merger work with the University of New Hampshire.
While out-of-state firms have become part of the New Hampshire legal landscape, Fitzgerald said their larger-firm connections and outside expertise have not sapped the market; he says they have expanded it.
“Clients don’t care where your desk is - we have had situations where the client might be from New Hampshire, but when we are talking to him, he could be on a conference call from Chicago, and my firm is calling on experts from several different offices.”
Adds Sanders: “Rivers don’t divide states anymore. There’s so much legal business crossing borders.”
“Competitors at first thought we were carving into a finite pie by moving in here,” Fitzgerald said. “But it was more a matter of creating a new pie, expanding the market, and bringing work here to lawyers in New Hampshire.”