By ROBERT CELASCHI
Sacramento Business Journal

In good times, attorneys are vital in helping put together business deals. In bad times, they are vital in sorting through the wreckage of deals that fell apart.

With this recession hanging on, litigators are working extra hours.

"I don't think litigation across the state has felt much of a downturn," said Bill Warne, a partner at Downey Brand LLP, the largest law firm in Sacramento, Calif. "Litigation has been pretty busy for the last couple of years."

That's making up for lighter work in other departments at Downey Brand, Warne said, adding that he's heard the same story at other firms. And it's likely to stay that way for a while, said Jeffrey Koewler, managing partner at Downey Brand. Litigation tends to hit the courts about six to nine months after a dispute rears its head. That means the newest cases are dealing with issues from last summer.

While litigation cases may be making up for slack work in other areas in a given firm, attorneys can't simply shift the work around.

"You can't just take an attorney who drafts wills and trusts or real estate contracts or handles bankruptcy matters and tell that individual that tomorrow he is going to litigate a case," said Tod Fogarty, head of the litigation practice group for McDonough Holland & Allen PC.

A big firm can, however, send attorneys across the hall to lend their expertise in certain aspects of a case. Those who know the ins and outs of title insurance, for example, might be able to lend a hand on a piece of real estate litigation.

Attorneys usually are glad to keep their billable hours up, but it's less happy work these days, said Louis Gonzalez, head of the litigation group at Weintraub Genshlea Chediak.

"We're not arguing about the terms of the deal, we are arguing about the small print," he said. "Everyone is either a debtor or a creditor right now. Banks are chasing developers, a lot of people are going into bankruptcy, so it really is just a lot of negative work."

In a prosperous market, litigation often involved such things as construction defects in new buildings, said Jennifer Duggan, a shareholder in the Porter Scott law firm. "Now you will see more mechanics' liens and finger pointing about why a deal might have gone bad."

Microscopic

Two areas are especially busy: real estate and employment law.

"Every big real estate deal that fell apart, those deals are put under microscopes," Fogarty said. In good times the warring parties might shake hands and part company if a deal went south. In this economy, they start wondering who made the mistake.

"Everyone starts pointing fingers," he said.

It's not just landowners, developers and contractors that file lawsuits against one another. It's also people who ended up holding the bag when completed offices, stores and homes turned out to be worth less than what was owed on them.

"We see a lot of these loans that were made, bundled up and sold on the secondary market, and the buyers of those loans find down the road that the loans were no good - either phony, or there are things they didn't know about," Fogarty said. Rather than write it off to a bad market, some people are tracing the deals all the way back to the title insurers and the appraisers who gave everything their stamp of approval.

The "phony" aspect deals with outright scams, often involving homeowners.

"Really, even in 2007 there were still people who thought they had a lot of equity in their homes and they couldn't qualify for refinancing," he said. Scammers came in to fill the vacuum.

Not going quietly

Employment litigation is the other hot area. In good times, someone who lost a job might shrug it off and concentrate on getting something else. Not now, in an era of double-digit unemployment and furlough Fridays.

Employment litigation is what economists would call a trailing indicator. Many lawsuits don't start until other mechanisms have been exhausted.

"I think there are a lot of claims that are working their way through the administrative agencies that are starting to hit the courts now," said Bruce Timm, who works on McDonough Holland & Allen's employment law team. "One of the areas that has been picking up is disability discrimination."

Litigation also includes current employees as well as those who were fired or laid off. Most today are termination claims, he said.

Weighing options

Only about 1 percent of civil cases ever get to trial. The recession doesn't change that. While plaintiffs might be more anxious than ever to recover some money, they have to weigh that against the cost of chasing after it.

"All the clients are much more conscious about the expenditure of legal fees and whether they are recoverable," Gonzalez said. "Why would you give me $50,000 to chase down a $200,000 judgment if you don't think you are going to recover it," Gonzalez said. Some clients might be willing to spend the first $10,000, but then pause to reassess the case before going any further.

Defendants can play against the clock, too. Debtors may stall for time hoping to make other financial arrangements, or even go into bankruptcy. Even plaintiffs with strong cases will give up if they don't think they'll get the money.

"Clients are more circumspect about spending their resources these days," agreed Tony Arostegui, who handles real estate and litigation for Trainor Fairbrook in Sacramento. "Cash resources are not easy to acquire, and certainly not easy to accumulate."

Cases are usually not handled on contingency, so the parties must pay as they go.

The cost-cutting gives some perspective to the volume of litigation work right now. Revenue at Weintraub is fine, even though cases aren't going as far.

"We have enough cases that we can take them halfway," Gonzalez said.