Storied law firm Heenan Blaikie sunk by a shifting legal landscape

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National law firm Heenan Blaikie LLP is closing after 40 years in operation, marking the largest failure of a law firm in Canada.

The partners voted on Wednesday evening to approve a plan to dissolve the firm, which has been the home base for many prominent Canadians, including former prime ministers Jean Chrétien and Pierre Trudeau.

Heenan, which was founded in the 1970s and later pioneered the creation of national law firms, had about 500 legal professionals until recently. But it has faced a raft of defections of senior lawyers to competitors – more than two dozen on Wednesday alone – and grappled to negotiate a restructuring plan as the competitive landscape for legal firms shifted rapidly.

An array of problems contributed to its demise, from new pressures on mid-sized law firms to a long decline in major corporate deals and demands from clients for lower billing. Some clients have abandoned traditional loyalty to a single firm and have been using smaller ones that offer deep discounts on routine work.

The firm said in a release late on Wednesday that an "orderly wind-up" will span several months and make it possible to "ensure a harmonious transfer" of clients to other firms. The partners also agreed on Wednesday to create a five-person committee to oversee the liquidation.

"It's sad, obviously," said Donald Johnston, a Montreal-based founding partner of Johnston Heenan Blaikie, whose name was removed when he was elected a Liberal MP in 1978.

"Heenans was the firm where everybody wanted to work. The best and brightest would come, and if [dissolution] happens, there are going to be a lot of young lawyers who are going to have to find other jobs."

However, some of the lawyers may stay together under a new roof. Partners in Toronto are in talks with DLA Piper in the United States about lawyers in Toronto and possibly Calgary joining the global firm, a source said on Wednesday.

The source said the talks were "pretty close," but that the two sides had yet to agree on key financial terms. A spokesman for DLA Piper had no comment.

It is relatively rare for large law firms to fail in Canada. Most opt for mergers when their financial footing weakens. The largest previous failure was Goodman and Carr LLP, which had 140 lawyers at its peak but had shrunk to 90 before it folded in 2007.

Robert Armstrong, a retired judge of Ontario's appeal court, said Heenan helped blaze a trail for national law firms at a time when provincial regulators made it difficult for lawyers from one province to represent clients in another.

"They were one of the firms in the vanguard of creating national firms," Mr. Armstrong said in an interview. "Ten or 12 years ago, when I was treasurer of the law society, if you wanted to go to PEI and act for a client, you had to go to the regulator for permission."

Heenan was also one of the few firms that began in Montreal and became national.

Wednesday's vote followed a traumatic day in which more than two dozen lawyers announced their departures. Most were from the Montreal and Ottawa offices, which were widely expected to close and not be part of an acquisition deal with DLA Piper.

Heenan announced last weekend it had launched a "major restructuring" due to financial problems.

Mr. Johnston cited a changed and more competitive legal landscape.

"There's a lot of evolution taking place in the legal system. … There was a Greek [philosopher] who said something like, 'Athens is not forever,' and I guess that's true of law firms as well. It's sad."

Mr. Johnston said fellow founding partners Peter Blaikie, and especially Roy Heenan, who was chairman from the firm's founding in 1973 until 2012, maintained a healthy "esprit de corps" among partners, even as it greatly expanded over the years.

"The firm has done extremely well," Mr. Johnston, who now serves as senior counsel alongside the likes of Mr. Chrétien and former Supreme Court justice Michel Bastarache, said in a phone interview early Wednesday evening. "This came as a shock and sadness for the firm ... It really came out of the blue."

Observers have said issues within Heenan also contributed to its demise, including an expansion to eight offices across Canada and a high-profile office in Paris, all stretching the resources of a mid-tier firm.

A recent exodus of lawyers after a meeting at Heenan's Toronto office on Jan. 20 created insurmountable problems. Many of the dozens who departed were among Heenan's most senior lawyers, making the law firm less viable without its top revenue-earners.

On Wednesday, Dentons Canada LLP confirmed it has hired seven lawyers from Heenan's Montreal office – including most of its real estate practice – while Lavery de Billy said on Wednesday it hired about 12 lawyers from the Montreal office this week. Fasken Martineau DuMoulin LLP said on Wednesday it has hired four lawyers from Heenan's Ottawa office and another four from Montreal.

Several other firms announced on Wednesday they had hired individual Heenan lawyers.

Ed Waitzer, a senior partner at Stikeman Elliott and former chairman of the Ontario Securities Commission, said Heenan Blaikie was an "iconic Montreal law firm" and its dissolution is "a reminder of just how fragile professional partnerships are."

As lawyers grow nervous about the firm's fate, "it starts to unravel pretty quickly. That's one of the challenges of managing a law firm."

Depending on the partnership agreement, dissolution may require more than a simple majority vote – as much as 85 per cent is not uncommon, Vancouver management consultant Colin Cameron said.

Partners in law firms put up the firm's working capital; when the partnership is dissolved, they are all responsible for outstanding debts.

"Somebody's got to stick around and make sure all the liabilities are dealt with," Mr. Waitzer said.

The biggest concern is "to make sure the clients are fully protected and secure," said Ottawa lawyer Eugene Meehan, a partner at Supreme Advocacy. "That comes first."

He said the firm could invite the Law Society of Upper Canada, the profession's self-regulating body, to ensure those interests are protected, and that files are transferred properly and with consent. The law society also could step in if it believes client interests are at risk, he said.

A spokesperson for the Law Society said it would not comment until Thursday.

Most professional partnerships set up management companies that sign leases, rent equipment and oversee the payroll for administrative staff. Once those are wound up, "you figure out what the partners are entitled to," Mr. Waitzer said. "They get their capital back first, if there is anything, and then they get their share of whatever is left over. In the meanwhile, they are all finding other places to go, and moving clients over. And clients are leaving. It's like winding up any business. It's not all that pretty but it gets done."

HEENAN BLAIKIE: A PRIMER

History: Founded in 1973 by labour lawyer Roy Heenan, who served as chair until 2012; founding partners included Donald Johnston, a future justice minister of Canada, and Peter Blaikie, a future president of the Progressive Conservative Party of Canada.

Number of offices in Canada: nine (Calgary, Ottawa, Toronto, Montreal, Trois-Rivières, Quebec City, Sherbrooke, Victoria, Vancouver)

Number of international offices: One (Paris)

Number of lawyers: 500

Former politicians and judges associated with the firm: Former prime minister Jean Chrétien is counsel to the firm; Pierre Trudeau was counsel for the last 16 years of his life. Others include former Quebec premier Pierre-Marc Johnson, former federal justice minister Martin Cauchon (a partner in Montreal), former Supreme Court justice Michel Bastarache and former Quebec Court of Appeal justice René Dussault.

Recent clients: Legal adviser to the Union of Quebec Municipalities at the Quebec inquiry into corruption in the construction sector; legal adviser to Gabon's Ministry of Industry and Tourism in the purchase of a 75 per cent stake in a mining company; defended the Regional Public Health Authorities and Agency of Quebec City in a coroner's inquest into an outbreak of Legionnaires' disease.