Litigation Growth Continues Flowing Away From Top Am Law Firms

Law firms have finally got transactional work back on track after a few years of sluggish performance. Just in time for the stock market to crash!

It’s great news for firms because — while all practices are capable of billing big hours — M&A team work makes the dream work in Biglaw (though M&A specifically is still down year over year), and despite whatever triggered this morning’s sell off, firms can smell the Fed’s looming rate cut. Counter-cyclical practices continued to drive revenue in Q2 according to the Law Firm Financial Index from the Thomson Reuters Institute, but for the first time in a while, firms didn’t entirely lean on the “Bad News Brigadiers” from the litigation and bankruptcy departments.

On the backs of resurgent transactional practices and solid fundamentals, law firms look stronger than ever at the end of the second quarter of 2024. The Thomson Reuters® Institute Law Firm Financial Index1 (LFFI) rose 8 points to a score of 67, among the top four scores of all time.

But as everyone celebrates the return of transactional work, another notable trend lurking in the report is the shift in litigation work to firms downstream from the deepest of Biglaw pockets:

Litigation is up overall, but the Am Law 50 figure has been either declining or growing slower than other sectors since the beginning of 2022. And last quarter it sunk considerably in the first trend divergence since this tracking started.

This may not be entirely bad news. In a counter-cyclical world, clients might be increasingly interested in porting their work to firms offering a cheaper price point. If today’s market represents a speedbump on the road to recovery rather than a reversal of fortune, client tolerance for spending on all work could shift back.

But if that’s the case it provides only short-term solace. Biglaw firms eyeing the next recession can’t be excited to see clients growing more comfortable walking away from the counter-cyclical practice groups. Firms rely on client stickiness feeding the coffers with bankruptcy bucks while commercial real estate licks its market-inflicted wounds. Clients recognizing that the Am Law second hundred and midsized firms provide quality work for a bargain would put a real crimp in the Biglaw model.

If things get really bad, we might even see partner profits shrink. Just kidding. That’s not something they’ll let happen.

Joe Patrice is a senior editor at Above the Law and co-host of Thinking Like A Lawyer. Feel free to email any tips, questions, or comments. Follow him on Twitter if you’re interested in law, politics, and a healthy dose of college sports news. Joe also serves as a Managing Director at RPN Executive Search.