While many squabbles within wealthy families stay out of the press, the Rupert Murdoch trust trial playing out in Reno, Nevada, has gained global attention as the latest chapter in a battle between Murdoch’s children for control of the media empire the 93-year-old Murdoch built.
It’s also likely to be quite lucrative for the law firms involved, said Katten Muchin Rosenman private wealth chair Joshua Rubenstein.
“Trusts and estates litigation is not fee-sensitive in the slightest,” Rubenstein said. “People are trying to prove a point, and it’s frequently not a commercial decision; it’s really about who loves who more. You got that in the Murdoch trial—who should be in control—and they’ll pay a ridiculous amount of fees to prove a point.”
Murdoch, who is trying to alter an irrevocable family trust to consolidate control of his television networks and newspapers beneath his eldest son, Lachlan, is represented by Sheppard, Mullin, Richter & Hampton partner Adam Streisand. Meanwhile, the three Murdoch children—James, Elisabeth and Prudence—losing control of the media empire due to the alteration are represented by Cravath, Swaine & Moore litigation co-head Gary Bornstein.
The trial began in September after The New York Times revealed the formerly private legal battle in July. A closed hearing to determine whether Murdoch had acted in good faith concluded on Sept. 23, although the outcome of the hearing has yet to be reported.
Streisand spoke with The American Lawyer about his practice but declined to discuss the Murdoch trust trial, citing the sealed nature of the case.
“It would probably surprise people to know that I am one of the top originating business generators at the firm,” said Streisand, who has litigated disputes over the estates of Michael Jackson, Marlon Brando, Ray Charles and the conservatorship of Britney Spears. “This is an area of practice that is extremely profitable, extremely significant to the firm, and I’m not the only business generator in my group.”
Sheppard Mullin executive committee chair Lucantonio Salvi concurred. “Adam was very much a significant strategic component of us expanding that practice,” Salvi said in an interview. “We did some (private wealth litigation), but not nearly on the scale as we have since he arrived. It’s very much a strategic focus of the firm.”
Although practices like Streisand’s have the ability to create work for other practices such as tax, real estate, intellectual property, corporate and others, many of the nation’s largest firms by revenue and profitability have historically avoided the practice, which can be risky and expensive to insure.
But as more wealth transfers from the Baby Boomer generation to their children and consolidates within family offices, firms that weren’t steeped in the practice have begun to reconsider.
All In on Private Wealth
While private wealth remains a service practice at many firms, the law firms that have gone all-in on looking after the affairs of the rich often originate legal work for other practices, too.
“We believe that these family clients can generate the type of work that we would be doing in any event, just not as service work but as work that requires our skill sets, justifies our rates and commands the attention of the range of lawyers from senior partner to the most junior associate,” said Neil Kawashima, head of the private client practice at McDermott, Will & Emery. “That’s very different from the type of private client that may be using services in a one-off to get a will and trust done.”
Private client work left many of the top Big Law firms decades ago because of insurance costs and fee sensitivity, Rubenstein said: “At a white shoe law firm fee structure, who wants to pay $50,000 to get their will done?”
But the fate of the practice in Big Law turned around after the global financial crisis, when rising regulations on public companies incentivized a shift to the private markets. As family offices controlled more private investment vehicles, law firms that previously worked with those families in the public markets had to make sure they could handle the families’ increasingly private affairs.
“[Skadden, Arps, Slate, Meagher & Flom] used to have two or three trusts and estates lawyers, they must have 20 to 30 now. Sullivan & Cromwell only had a handful 10 years ago, now they have a good 20 private client lawyers at this point,” Rubenstein said. (Skadden lists 22 attorneys in its private client/trusts and estates practice; Sullivan & Cromwell lists 26 in its estates and personal practice.)
The private wealth practice is the top exporter of work at Katten, Rubenstein said, and it ties the bankruptcy practice for the most profitable.
“For my average family I represent, I bring in my real estate department, my income tax department, my IP department, and my financial services department,” he said, noting that the firm’s 65 private wealth lawyers represent 10% of the firm’s total attorney head count.
While McDermott’s private client practice is benefiting from the privatization of big business, Kawashima said the practice also sees demand tick up every time tax laws change. For instance, the firm is expecting more legal work from the upcoming expiration of an increased exemption to the generation skipping transfer tax, which would reduce the value of the exemption on taxing wealth transferred to grandchildren from $13 million to roughly $7 million.
“Tax law changes are always one driver of work, but I also think that, as these family units or enterprises become more sophisticated, they will continue to act more like corporate entities,” Kawashima said.
Risk Management
The downside of the increasingly in-demand and non-rate-sensitive practice is risk, practitioners said.
“Historically, trusts and estates practices have a reputation amongst malpractice insurers,” Kawashima said. “There’s something troublesome for them about highly personal work that people can bicker about and they might end up suing. And it’s highly technical.”
To mitigate the risk, Kawashima said McDermott’s practice puts “a lot of eyes on what we’re doing,” including outside advisors when the firm is collaborating with another party.
Indeed, the estate, trust and probate practice represents more than 10% of malpractice claims, according to the American Bar Association Standing Committee on Lawyers’ Professional Responsibility.
Streisand acknowledged that the practice is among the most expensive to insure against malpractice, and Salvi noted that Sheppard Mullin has implemented risk management strategies to make sure all of the practice’s outgoing work is double-checked and following protocol.
However, the ability to command high rates without any pushback makes the practice worth the risk, Streisand said. “I would never represent a client who questions my bills or tries to negotiate my bills or my rates. I’ve never done that in 34 years, and I never will,” Streisand said. “Very often both sides call me, and whoever calls me first gets me, and they pay my rates. You feel liberated from what a lot of other lawyers go through in terms of dealing with clients.”