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Texas law firms face unthinkable problem: not enough lawyers

November 23, 2018

What is something you never thought you would hear anyone say ever? There are not enough lawyers. Yet that is exactly the situation that has developed in Houston and Dallas.

Large and midsized corporate law firms in Texas suddenly face a shortage of experienced high-quality business attorneys to handle the growing legal needs of their clients, according to The Texas Lawbook, which interviewed 16 law firm leaders in Texas.

Compounding the problem, legal industry analysts say, is the invasion of dozens of national and regional law firms into Texas, which has severely fractured a relatively modest-sized business law community that witnessed little to no growth in its overall lawyer count since the Great Recession nearly a decade ago.

“There are too many law firms dividing up too few lawyers, and it is truly limiting the growth potential of many law firms here in Texas,” says Yvette Ostolaza, a partner at Sidley Austin, which has offices in Houston and Dallas. “The bottom line: We need more lawyers.”

The 16 corporate firm leaders told The Texas Lawbook that the shortage of talent is one of the biggest challenges they face in expanding their operations, and it is driving the price of legal services up.

“We have an abundance of legal work from our clients,” says Andy Calder, managing partner of the Houston office of Kirkland & Ellis. “As crazy as it sounds, we need more lawyers to do the work we have, and we are struggling to find the right people here.”

More than 60 national or regional law firms have opened operations in Texas during the past five years and up to a dozen more are reportedly looking to launch new offices, but the number of business lawyers practicing in the state has remained relatively flat since 2010 and the end of the Great Recession.

Texas Lawbook data show that there were 7,003 lawyers employed in the Texas offices of the 50 largest corporate law firms operating in the state in 2017 — a 0.5 percent increase over 2016 and only 1 percent more than 2015.

In 2009, the top 50 law firms in Texas had a headcount of 7,140 attorneys, according to a review of data published by The Texas Lawyer in May 2010.

Hilda Galvan, a partner at Jones Day, which has offices in Houston and Dallas, points out that a couple of dozen companies have relocated their headquarters to Texas during the past couple years, which means more sophisticated legal work for attorneys here.

“We have actually brought two lawyers from Jones Day offices in other cities to Dallas,” Galvan says. “We need more lawyers in the region to meet this growth. We are getting stretched very thin. There is especially a real demand at the associate level. ”

But the biggest reason for the increased demand for legal services is traced to the oil patch. Energy companies — large and small, upstream and midstream — have expanded significantly through acquisitions, joint ventures and mergers in recent years. At the same time, private equity firms have poured billions of dollars in investment cash into the oil and gas industry.

The legal work these clients needed was sophisticated and high-dollar, which attracted dozens of national law firms to open shop in Houston and Dallas.

“The legal world woke up one day and realized that Houston is the energy capital of the world,” says Jackson Walker Managing Partner Wade Cooper.

But the legal market came directly on the heels of the Great Recession, when corporate law firms trimmed staffs and hired fewer lawyers. At the same time, Texas law schools significantly reduced their acceptance — and thus graduation — numbers.

“Texas is witnessing an increased demand for a limited number of lawyers,” says Kent Zimmermann, a law firm consultant at Zeughauser Group. “As more and more law firms move into Texas, the law firms get more aggressive in competing for legal talent. The result is that law firms pay more for the talented lawyers who then charge more to their clients and the price of legal services goes up.”

Many corporate law firm leaders say the influx of national law firms should slow soon.

“It is getting incrementally harder and harder for out-of-state firms to attract a large enough group of lawyers to make an impact,” Latham & Watkins Managing Partner Tim Fenn in Houston says. “It is the same supply, but much more demand.”

If the pool of experienced business lawyers doesn’t get larger in the near future, according to Fenn and others, some national and regional firms will never get above 15 or 20 lawyers, and that is not a large enough team to justify having an office here.

When opening new offices, national and regional firms have been hiring lawyers already practicing at other firms in Texas to staff their operations.

“Traditionally, when companies move to a new headquarters, they relocate their most talented and successful leaders to the new location,” Zimmermann says. “Law firms don’t do that.

“As a result, fixing this problem is not so simple.”

For a longer version of this article, go to TexasLawBook.net.

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