San Francisco law firm Sedgwick, hit by an exodus of attorneys and unable to find a merger partner, told employees this week that it will shut down in early January.
The 85-year-old firm specialised in defending insurance companies in lawsuits against the companies and their policyholders. It had expanded geographically and into other lines of business but has been hit by a wave of defections this year.
In January, three Sedgwick partners, including Michael Tanenbaum, who served as the firm’s chairman from 2007 to 2015, left to start their own firm. They took with them 14 other Sedgwick attorneys, including three partners, plus 18 other staff members. The same month, Drinker Biddle & Reath announced it was opening a Dallas office staffed with 23 lawyers including nine partners from Sedgwick.
From there the departures continued, forcing the firm to close offices in Washington; Houston and Austin, Texas; and Fort Lauderdale, Fla. By August, the firm was down to 106 partners and 210 total attorneys, compared with 131 partners and 271 total attorneys at the end of 2016, according to as legal website Law360.
The firm still has offices in Chicago, Dallas, Kansas City, London, Los Angeles, Orange County, Miami, New York, New Jersey and Seattle, according to its website.
Sedgwick Chairman Michael Healy did not return requests for comment.
According to news reports, merger talks with Clyde & Co., a British firm with an office in San Francisco, fell through, but Clyde could end up hiring some Sedgwick employees.
“A lot of people thought (Clyde) might be the white knight. By the time they evaluated it, (Sedgwick) had lost so many revenue generators, partners, that they backed out,” said Larry Watanabe, a recruiter in San Diego County who placed some Sedgwick attorneys with other firms.
In an email, a spokesman for Clyde said those reports “are entirely speculative and have not come from us, although we are a fast-growing law firm in the U.S. with a focus on the insurance sector and a sizable California presence.”
In 2015, Sedgwick was 35th on a list of law firms ranked by the number of attorneys in California. At that time in had 147 lawyers in the state, down 16 percent from 2015, according to the list published by California Lawyer, which included firms with headquarters outside the state. That same year, it ranked 14th on a list of law firms based in California, ranked by total number of lawyers nationwide.
It’s common for struggling law firms to merge or be acquired, but not shut down completely, Watanabe said.
The last major San Francisco firms to close their doors were Heller Ehrman, which filed for bankruptcy in 2008, and Thelen, which dissolved less than a month later.
The Great Recession took a toll on law firms as corporate clients moved to slash costs. The legal profession took a “big sink” in profitability and productivity after 2007, said San Francisco attorney Bradley Marsh, a shareholder with Greenberg Traurig. Since then it has recovered, “but not by a whole lot.”
Many companies continue to move more legal business in-house, and are hiring accounting and consulting firms to take over much of the routine work normally done by law-firm associates, such as discovery and document review.
Some firms survive by charging top dollar — $700 to $1,100 per hour for partners — in premium areas such as white-collar criminal defense, intellectual property and tax law. Others go for high-volume work in commodity areas, including insurance, where partners charge $350 to $400 an hour. That can work, until partners start leaving with a big chunk of the business.
Watanabe doesn’t know what sparked the exodus at Sedgwick, but said that once it starts, its hard to stop. When employees see partners leaving and offices closing, “they get spooked,” he said.