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The center that wouldn't hold: how economic tensions in an evolving legal marketplace blew the Wallace firm apart.

The Center That Wouldn't Hold How Economic Tensions In An Evolving Legal Marketplace Blew The Wallace Firm Apart

Larry Wallace looks worn out. It is almost 6 p.m. on Wednesday, Feb. 6, and the normal work day is over. But Wallace, 46, is still in his elegant TCBY Tower office trying to understand how his seven-year dream of managing one of the state's largest and most prestigious law firms evaporated the previous week.

"I'm astonished," Wallace says of the breakup.

Visibly distraught, Wallace haltingly tries to explain the forces that broke the Wallace Dover & Dixon firm into three pieces on Feb. 1, just days after he abruptly resigned. Founded by U.S. Senator and U.S. Supreme Court appointee Joe T. Robinson, the law firm which had been one of the state's finest under the House Holmes & Jewell banner is no more, severing an unbroken chain of 70 years of esteemed legal practice.

In a series of rambling, disjointed answers, Wallace describes the pressures that destroyed the firm: $800,000 annual lease payments; young lawyers' egos; inner-office politics; non-stop management battles. Finally, Wallace pauses in his litany and with a resigned look, says, "I guess you'd have to be a psychologist to figure it all out." Wallace apparently never did.

In The Beginning

Economic tensions had been tearing at the House law firm for two decades when Wallace joined it in 1983. Those tensions eventually centered on a power struggle between a young faction of high-producing attorneys led by Philip Lyon and Donald T. Jack Jr. who were trying to lead the firm "into the 20th century." Larry Wallace was part of that transformation.

"Horace (Jewell) said back in the 1960s that the firm had to change," Lyon says of the House firm's struggles. The exact nature of what those changes would be, and who would make them, however, was devisive. "You were literally talking about a firm that didn't know where it wanted to go."

Directing the firm involved coordinating head-strong attorneys in the evolving legal climate of the 1970s and 1980s. "It was a very, very explosive situation," Lyon adds. So explosive, it finally blew the House firm apart.

Journey Across the River

When Wallace first arrived at what was then the House Jewell Dillon Dover & Dixon firm, he was a successful attorney in North Little Rock with a stable of lucrative clients. They included Twin City Bank, Arkansas Power and Light, Arkla Gas Co., and Moore Ford. Senior partner in a middle-sized firm that bore his name, the affable Wallace had gone far after a modest start as assistant city attorney.

While Wallace's legal star was rising, across the river on the 15th floor of the Tower Building, the respected House firm's economic base was eroding. The prestigious firm still retained its reputation for legal excellence, but had begun losing ground to competitors in the mid-1970s because of an inability to land new clients as old ones left. Jewell was nearing retirement and new leadership was needed. The legal climate was changing in Little Rock and across the country, turning lawyers into increasingly aggressive businessmen. In Little Rock, vying with House for a piece of the legal pie were four other major growing firms: the Friday firm, the Mitchell firm, the Rose firm and the Wright firm.

When its major client AP&L, which accounted for roughly 50 percent of total billings, began to spread its legal work around in the mid-1970s to broaden its political base, the worried House firm hired an outside consultant to strengthen its billings. Another consultant from Philadephia would visit again in 1983 before the House firm would finally make its move. Briefly, the goal for the firm was: Learn how to drum up new business.

Merging with Wallace seemed like a quick solution to the House firm's flagging growth. The young Wallace, then 39, was in legal slang a "rainmaker," someone who could shower plenty of new business on the House firm's competent staff. Sheffield Nelson, a friend of Wallace, was soon to leave Arkla and had said he would follow Wallace wherever he was.

Pairing Wallace and Nelson' business skills with the House firm's reputation for legal excellence would create an unstoppable corporate powerhouse. Or so the theory went.

"When the deal was put together, it was a marriage made in heaven," says one attorney close to the firm. "On paper, there was never a deal that made more sense than that deal."

As managing partner, Wallace worked tirelessly to promote the newly reorganized law firm's climb to the top of the legal ladder. He brought in new business, opened up a Washington, D.C., office, supervised the firm's move from its old quarters in the Tower Building to its plush TCBY Tower location and constantly courted attorneys and clients around the state. A racing box at Oaklawn was added to entertain, new attorneys steadily joined the firm and, as rainmaker, Wallace was successful.

By 1986, the firm's annual billings had doubled to $4 million with the help of Wallace's three television stations as the biggest client. Rainmaking was easy for Wallace, managing, however, was another matter.

What Wallace didn't realize when he arrived was that beneath the firm's sagging client base lay a deep, perhaps intractable problem: an earnings division between some young and old House attorneys. Plus, an emerging struggle as an increasingly restless Jack and Lyon tried to lead the firm into more aggressive growth. A direction that senior partners Darrell D. Dover and Philip E. Dixon acknowledged, but were more reluctant to pursue.

Rainmaking

Law firms are built like pyramids with the senior partners at the top, next the junior partners, and finally the young associates. The lower rung attorneys are on salary and profits are primarily spread amongst the partners.

As the previous client base began to wilt in the 1970s, the new generation of House attorneys noticed a growing earnings disparity between the generations. Younger lawyers like Jack, Lyon, Lawrence E. Chisenhall Jr. and Thomas B. Staley emerged as the big bread winners at the 30-member firm.

"Lyon was personally billing more than $300,000 annually in the mid-1980s, and keeping a staff of seven attorneys busy," says an attorney. "He built up the labor section from scratch." The labor department was so productive it accounted for nearly 50 percent of the Wallace firm's revenues by 1986, Lyons says.

In contrast, senior partner Dover, who has a reputation as one of the state's finest real estate attorneys, was individually billing just half of Lyon's total. More important, Dover was bringing in just enough work to keep a few lower rung attorneys occupied.

The real rub came at year's end when despite Lyon's clearly superior production, both men would make around $130,000. Lyon perhaps would get a few extra thousand dollars. But under the old House rules, you moved to the top based on longevity, not production.

"You had a few producers who were feeding everybody in the firm," says another attorney. "Of the 30 members in the firm, probably only about 10 were really producing, most of which were in the labor section."

Wallace's arrival was an attempt to remedy the problem by generating more work that could be spread throughout the firm. In recognition of his role, Wallace's name was given top billing at the firm as Dover and Dixon allowed theirs to be withdrawn (to prevent excessive length). The new nameplate read: House Wallace Nelson and Jewell. Plus, an executive committee would now preside over the partners, altering the previous one-man, one-vote structure. The executive committee would now preside over the partners, altering the previous one-man, one-vote structure. The executive committee would develop major decisions and, with the partners approval, implement them.

Dover and Dixon supported the new regime because they believed that the firm's corporate culture had to change or fall behind. "There was a need at the House firm, as there was in every firm as the practice of law was changing, to get more progressive," says Russell Gunter, 40, who joined the firm in 1979. What continued to be an issue throughout the Wallace years was how fast and in what manner those changes should take place.

"You're dealing with some sophisticated and high-powered egos. Mine included," Lyon says. Inertial resistance to change was strong at the firm and sticky issues would continually be revoiced at stockholders' meetings. "We thought we had agreed to something, but then they would keep hashing it out at the next meeting."

Another visit by a consultant in 1986 led Wallace to revamp the pay system to reward top producers and an open-door management style was adopted. But tensions at the firm continued as it prepared to move from its Tower Building offices to just-opening TCBY Tower. The consultant noted a sense of mistrust permeating the corporation.

"I think there was a lot of fear of the known, and the unknown," Lyon says of that time. A contributing factor was the rapid growth the firm was experiencing. From 1983 to 1986, the firm grew 50 percent. An additional 33 percent growth was expected within the next two years. "Larry wanted to eventually have 150," says an attorney of the early Wallace optimism.

Then, in the summer of 1986, the structure began to self-destruct. A private memo written by the volatile Lyon, and co-signed by Jack, surfaced at the firm. The memo was intended to let an angry Lyon blow off stream and was written only for Wallace and Nelson. Its public release ignited pent up tensions boiling beneath the surface.

"Philip had tendered his resignation one day and Don and I went out to see him in his hot tub," Wallace says of the 1986 memo. "We were sitting around in our suits trying to figure out what to do."

Wallace and Jack urged Lyon to write his anger down to clear his head. Lyon's blunt, caustic memo had two major themes: Turn over internal management of the firm to Jack and himself, and let Nelson and Wallace bring in business from the outside. He and Jack wanted salaries of $150,000 apiece for their management efforts and, if they were successful in accomplishing production goals, they wanted their names added to the nameplate after three years.

Although many lawyers agreed with much of what Lyon's memo said, they didn't like its implied dismissal of Dover and Dixon's role and its overall tone. "I read the memo three times and by the third time I agreed with almost everything he said needed to be done," says Chisenhall, who would leave in January 1989. "I just didn't like the way it discarded Dover and Dixon off to one side."

Dover, contacted for this article, chose not to comment. "I just think enough has been written already."

Fallout from the memo eventually forced Lyon and Jack from the firm in an emotional 45-minute meeting three to four weeks after its first appearance. An incensed Dover and Dixon pressed for their resignation and the firm took up sides. Nelson, unhappy with the meeting's outcome, resigned in protest, but didn't leave for a few more months. Others who would leave as a result of the meeting were: Staley, Stephen W. Jones, Scotty M. Shively, and William T. Marshall.

Ironically, the resignations came just after the firm had signed a 10-year lease at the TCBY Tower for three floors of prime office space, enough to eventually house 70 attorneys. Despite the loss of some of the firm's most productive lawyers, the approximately 30 remaining partners took a significant step: each personally guaranteed a $1.25 million remodeling loan needed to outfit the new space.

"They thought the firm could continue on," says another attorney. "They didn't realize that Jack and Lyon and all the others would manage to take many of their clients with them." Among the major accounts that left were: St. Vincent Infirmary Medical Center, the North Little Rock School District, and Flake & Co.

"Larry came by and said, "Everybody I've talked to has told me I can't make it," the attorney says of Wallace's reaction to the departures. Wallace was determined to keep the firm together.

Worried by departing accounts and the firm's ability to make its annual lease payments, a group of 10 attorneys soon began seriously discussing the possibility of leaving the firm. In the months that followed more would leave, including Paul W. Stanfield and Donald H. Henry.

Then, in January 1989, despite the dispersal of $500,000 in bonuses, three more partners would leaves to set up their own firm: Chisenhall, Jim L. Julian and Charles R. Nestrud. A Wallace associate, Janie Willbanks McFarlin, would join them.

As the lawyers continued to flee, Wallace says the firm's $800,000 lease payment and the remodeling note became a lightning rod of anxiety for the remaining partners. "At meetings, they would say, "We just can't make it."

The next 12 months would see more attorneys leave, but a scrambling Wallace would replace most of them. Keeping the firm going under such conditions was exhausting and last month, when Wallace confirmed a rumor that Dover and Dixon had discussed leaving, he bailed out.

"(Larry's) gone through living hell for the last couple of years," Lyon says.

Although Wallace professes no hard feelings, he is worn out from the management experience. "I've been working 99 percent of my time (managing) while earning 1 percent of my income from the law firm," he says. "I think they just asked too much from Larry."

With Wallace's departure, Dover and Dixon dissolved the firm and the remaining pieces broke into three parts. Dover and Dixon formed a new firm with a gathering of attorneys; John Bruce Cross and Russell Gunter kept the labor division intact as another firm; and the remaining attorneys spread themselves over the legal landscape (Wallace, John R. Clayton and three others formed a small practice).

Last week, the now-defunct Wallace firm's elegant conference room looked uncharacteristically disheveled after the collapse. Shelves holding historic law books were empty; a massive brass statue of the scales of justice was gone; a dirty ash tray perched on a waiting room table. In the firm's heyday, clients sat in the impressive room with its 14-chair meeting table and stared out the full-length plate glass windows at the panoramic view of North Little Rock and beyond. But on this day, what most caught the eye, were handwritten Post-it notes stuck to pieces of furniture in the room, identifying each splinter firm's claim to the remaining possessions of one of the state's oldest law firms.

Addendum:

The $1.25 million redevelopment loan that the Wallace partners personally guaranteed is to be paid off within the next few weeks. Wallace estimates that each partner will have to pay from $30,000 to $40,000 apiece to settle the debt.

In return, they will share a 9 percent ownership in the TCBY Tower.

PHOTO : Larry Wallace's seven-yea effort to build one of the state's largest law firms fell apart this month with the dissolution of Wallace Dover & Dixon.
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No portion of this article can be reproduced without the express written permission from the copyright holder.
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Title Annotation:Wallace Dover & Dixon
Author:Walker, Wythe
Publication:Arkansas Business
Date:Feb 26, 1990
Words:2517
Previous Article:Residential resurgence.
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