Is a Small Law Firm Partnership like a Marriage?

My former law partner once argued with me that being in our law firm partnership was like being in a marriage, to which I quipped, “Yes, only without the love and affection part.”  Smile.

And, having been married more than once, and a partner in several small law firms, I now realize that his analogy, along with my quip, were fairly apt assessments.  So, if you are thinking about becoming a small law firm partner, here is some humorous advice from someone who been there and done that…

The Business Proposal Cartoon - Law Firm, Law Partner, Lawyer, AttorneyThe Proposal.

Like all marriages, a small law firm partnership starts with a proposal.  However, before accepting any proposal, be sure and check your prospective partner’s credit.   And, FYI – looking at the firm’s Profit and Loss Statements may not be enough, especially if they use a bookkeeper to pay their monthly bills.  Sure, the accountant may prepare their taxes, but if the bookkeeper is the one entering the data, then the data is only as good as the bookkeeper.  Here’s a perfect example:  once I asked a prospective firm’s bookkeeper, “I see the monthly bills for the car leases and business loans here under expenses, but where are the balances?  There don’t seem to be any long-term liabilities listed.”  To which she responded, “Hey, I’m just the bookkeeper.  I only cut the checks around here.”  It turns out, the firm’s two outstanding lines of credit and several car leases totaled more than $500,000 in outstanding liabilities!  Hmmm… this might affect how much I’m willing to pay for an equity partnership.

The Partnership Agreement,

Just Made Law Partner Cartoon - Law Firm, Law Partner, Attorney, Lawyer, Red Sports Car aka, the Marriage Contract.  Okay, now that you’ve verified their financials and accepted their proposal, it’s time to hammer out the Agreement.  And, because you are expected to pay your share of firm overhead expenses, you should find out exactly, and I do mean exactly, what all firm overhead includes.  For example:  ever come home and have your spouse show you the new car he or she just bought?  Well, I can tell you that it feels much worse when your law partner shows you the new red Maserati that the firm just leased for him.  Hmmm…, maybe it’s time to talk to the other partners about changing the firm’s car leasing policy to a more limited car “allowance.”

Business Partner Life Insurance,

and Unexpected Events.  Seriously, all small law firm partners should take out life insurance policies for each other.  Surprised?  Unfortunately, I’m speaking from personal experience here.  The unexpected death of a partner can be financially devastating to small firm, and since term life insurance tends to be pretty inexpensive, I think it is a prudent investment.  Hopefully, a policy you will never need to use.

Law Firm Dissolution Cartoon - Law Firm, Law Partner, Law Office, Lawyer, Attorney, Conference Room, Business Divorce, Property Settlement, Property DivisionThe Dissolution,

aka Divorce – plan for it.  Like most marriages, most small law firm partnerships do not plan for dissolution.  However, having been in more than one small law firm partnership, I’d say planning for dissolution is a must.  Of course, like with all divorces, the common areas of dispute involve custody (who gets which staff and clients) and debt.  Who me?  Assume the office lease?  That’s way too much space for just me and my secretary!  And, you know that personal line of credit was used for firm expenses…  Hello?  Hello?

Obamacare & Health Insurance CO-OPs

Did you know that Obamacare has Health Insurance CO-OPs?  Yes, the Patient Protection and Affordable Care Act authorized $6 billion in grants and loans to support “Consumer Operated and Oriented Plans,” what the IRS is calling “CO-OP Plans,” and what the media is calling “Health Insurance CO-OPs.”  In fact, Compass Cooperative Health Network     received $93 million dollars in loans to start Arizona’s first Obamacare “CO-OP Plan.”  Policies will be made public by October 1, 2013, and be available for purchase by January 1, 2014.

So, are “Consumer Operated and Oriented Plans,” aka “CO-OP Plans” cooperativesMeaning, are they non-profits?  Can their members participate in business decisions, such as coverage issues and the cost of premiums?  And, are they member-owned?  I’m still waiting to find out the answer to some of these questions, but here is what I’ve learned so far…

Yes, the “CO-OP Plans” under Obamacare are non-profits.  However, Obamacare created a new IRC Section especially for these “CO-OP Plans” called 501(c)(29) Many current non-profit health insurance companies, like BlueCross and BlueShield of Arizona, are 501(m) non-profits.  The difference between 501(c)(29) non-profits and 501(m) non-profits is considerable.

First of all, 501(m) non-profits, are subject to some federal taxation, while 501(c)(29) non-profits are tax exempt.  In 1986, Congress created 501(m) for “commercial-type” non-profit insurance, probably because of facts like these:  Blue Cross and Blue Shield of Arizona, a 501(m) non-profit, reported $1.4 Billion in Revenues and $75 Million in Net Income for 2012.

Secondly, 501(c)(29) “CO-OP Plans” have many additional requirements over 501(m)s.  These include, ensuring accountability to plan participants, being governed in way that protect against insurance industry involvement, and being subject to a majority vote of its members.

So, does being subject to a majority vote of its members mean that those members can participate in business decisions?

Maybe.  Obamacare requires “CO-OP Plans” members to elect an “Operational Board” within one year of the “CO-OP Plan” offering health insurance coverage.  However, this appears to be participation through representation only.  The extent to which the membership can vote directly on issues of governance, like the cost of premiums, remains to be seen.  Once the “CO-OP Plans” policies are made public, we will know more.

Finally, will these “CO-OP Plans” will be member-owned?  I would say probably not, because neither Obamacare nor IRC Section 501(c)(29) requires member-ownership.  Again, “CO-OP Plans” stands for “Consumer Operated and Oriented Plans” and not cooperatives , which personally, I find misleading.  It is as if the health insurance industry is trying to narrow the definition of “CO-OP” to mean just “Consumer Operated.”

However, it is interesting to note that there are no health insurance cooperatives in Arizona.  In fact, health insurance cooperatives seem to be pretty rare in general.  When I went to Wikipedia to look up the two most commonly cited ones, Group Health of Washington, and HealthPartners of Minnesota, I discovered that neither of them is still a cooperative.  They are, however, both “consumer governed” just like the “Consumer Operated” plans under Obamacare.

Unfortunately, it is still too early to tell whether or not these Obamacare “CO-OP Plans” will provide individuals and small businesses with more affordable and reliable health insurance.  But, as a small business owner, I am interested to see what Arizona’s Compass Cooperative Health Network has to offer.  Stay tuned…

Time to Start your Own Law Firm?

“Hurry,” I told my secretary as I got back from lunch, “We’ve got to get the table and all the chairs out of the conference room.  It’s got to be empty before this afternoon.”

Why?  She wanted to know.

During lunch, my colleague, Mr. Bennett* had casually mentioned that he was thinking about starting his own firm, but that he wasn’t sure yet.  He wanted to know what I thought.  He also mentioned that had a meeting with his boss later on that afternoon.

“Well,” I said in response to his question about what I thought, “I have a conference room that you can use for office space.  I could get it ready this afternoon, if you like.”

He looked puzzled.  He thanked me for my offer and said, “I’ll let you know.”

But, at 4PM, the phone rings and it is Mr. Bennett.  “Is your offer about the conference room still good?”

“Come on over,” I said, “It’s already empty.”  Box in hand, Mr. Bennett moved into my conference room at around 4:30 PM.

And, that’s how a lot of attorneys start their own law firms.

But, if you don’t want to be Mr. Bennett, here are some things you can do BEFORE you tell your boss.

1.  Download everything.  Download all the forms, letters, pleadings, etc.  Make sure you download the ENTIRE motions bank, if you can.

2.  Develop your own relationships with ALL the clients.  Make sure you contact and talk to each and every client, as many as you can, and as often as you can, even if the managing attorney yells at you to “stop calling the clients!”  (Your managing attorney knows his clients are always on the lookout for a better and cheaper lawyer.  Let this be YOU.)

3.  Make sure you “inform” your old firm’s clients of your new firm’s information and CHEAPER rates.  Now, remember, this is NOT a solicitation.  This is an ANNOUNCEMENT.  You are simply letting people know about your new firm, the legal services your new firm offers, and your firm’s CHEAPER rates.

4.  You should probably check your non-compete clause too.  It’s best to not violate the non-compete whenever possible.  However, remember, non-compete clauses must be reasonable in time and scope.  AND, most importantly – law firms do not own clients, clients hire law firms.

5.  Prepare an office space.

6.  When you are ready, tell your boss you are “thinking” about starting your own firm.  You will be immediately “let go” or “downsized.”  It is to your advantage to be “let go”  or “downsized” because you will be entitled to severance pay, any unused vacation and sick pay, and finally, you will be eligible for unemployment benefits, if needed.

Best of luck!


*Not his real name.


By Kim R. Brown, May 11, 2013

Death Does Not Become You, Or Your Personal Injury Claim – Part 1

“FOX 10 News is on the phone,” my secretary announced over the intercom.

“What?”  I was surprised, and then annoyed.  “What the hell do they want?”  It was 4:55 PM and I was trying to get out of the office.  I also needed to review Scott Johnson’s* file before court tomorrow morning.  I was covering my law firm partner’s case while he was away on vacation.  I hated covering court cases for other attorneys because you just never knew what was going to happen.  However, my partner had assured me that the hearing was very routine.  “Nothing out of the ordinary,” he said as he headed out the door and off to Hawaii.

“They want to talk to you about the Scott Johnson matter,” my secretary coolly replied.

What?  “Okay, put them through.” I sighed and picked up the phone.  “Kim Brown here.”

“Is your law firm representing Scott Johnson?”  The reporter wanted to know.  “Because we’d like to get your comment about the FBI raid on his house where he was shot and killed today.”

Pause.  Our firm was representing Scott Johnson for an auto accident case.  Why would the FBI raid his house and kill him?

Hmmm…. what to say?  “No comment.”

The next morning, at court, I announced my appearance to the court when the bailiff called the case.  “Kim Brown, representing the Plaintiff, Scott Johnson.”

The judge peered down from his bench, as if he were surprised that someone had actually shown up.  “You do know your client is dead, don’t you?”  He demanded.  He was an old crotchety guy who looked like he eaten something sour for breakfast.

“Yes, I do, Your Hon…”

“Case dismissed!”  He declared and he slammed down the gavel and cut me off mid-sentence.

(In Arizona, the pain and suffering portion of a plaintiff’s personal injury claim dies with the decedent.  It does not pass to the estate.  Therefore, Scott Johnson’s personal injury claim had essentially expired with him.)

“So — how’s everything back at the office?”  My law firm partner wanted to know.  He was still in Hawaii.  “How did the hearing go?”

Hmmm… what to say?  “Fine,” I said.  “Everything went just fine.  We’ll see you when you get back.”  I figured why ruin his vacation?


*Not his real name.


By Kim R. Brown, May 7, 2013