Shutdown Effect on Law Firms Will Get Only Worse as Time Goes On, Lawyers Say

The lawyers we interviewed cited a number of variables, including whether most clients are on retainer, which is more common for those who do legislative work than regulatory work. Most regulatory work is done on an hourly basis, with no set monthly payment.

"A couple of weeks you can make up, there’s three months to go in the year, but it starts to hit your bottom line if it goes longer than that,” said a wireless industry lawyer. “You won’t be able to make it up.” A lengthy shutdown would hurt, a broadcast lawyer said. “I don’t think anyone would feel it right away, but you can’t access the FCC website, you can’t file things,” the lawyer said. “Workshops get postponed. It certainly will have an impact on the legal and consultant community, no doubt about that."

Other lawyers already are feeling the impact. “From my perspective, the shutdown has had an immediate and adverse impact,” said Scott Harris, managing partner at Wilkinson Barker. “We and our clients work with the commission and other government agencies every day -- and dozens of meetings and filings have already been postponed. Perhaps even worse, the ongoing preparation for critical international meetings has come to a halt. The bottom line is that there is no sector of the economy that moves more quickly than the communications and technology sector and the government shutdown has already thrown sand in the gears."

Some “workarounds” are possible if the FCC website stays down, said longtime wireless lawyer Mitchell Lazarus of Fletcher, Heald whose firm subscribes to various services that offer documents online, though they don’t have all the information normally available. “I agree that having the webpages inaccessible is a hindrance,” he told us Friday. Lazarus warned of a looming problem -- that all filings that fall due during the shutdown will be due the day after the day the government reopens. “We won’t get access to the information we need to prepare some of those filings until the day the FCC reopens. We could have a backlog,” he said.

"Our main concern is for the clients who can’t get their renewals and who can’t get their equipment authorizations promptly and if this drags on for a long time it’s going to impact their business significantly,” Lazarus said. For example, he pointed to a client that manufactures handsets, which require FCC approval. “If we don’t get the FCC working again it’s going to impact their rollout of the next generation of handsets,” he said. Until the agency reopens, lawyers also won’t have access to the so-called knowledge database (KDB), with its interpretations of various rules on equipment authorization. “They become a body of common law, in effect,” Lazarus said. “If you have a question about how to test a kind of device, or what standards apply to a particular kind of device, you look it up in the KDB and very often the answer is there, except the KDB is not available."

Another lawyer compared the shutdown with “a cold, as compared to a bad case of pneumonia.” A shutdown of a couple of days is “mainly an annoyance,” only negligibly affecting billable hours, said Chris Savage, co-chair of the communications practice group at Davis Wright, with the main problem at the moment being an inability to get FCC clarification about the meaning of some of its rulings. For example, just before the shutdown, the Wireline Bureau assessed five wireless Lifeline service providers $14.4 million in notices of apparent liability. “It’s not clear at all, from what they released, what methodology they were using to identify the people they think of as duplicates,” Savage told us. In the normal course of business, an attorney would phone bureau staff and ask how they determined the duplicates. “We can’t do that."

"It’s a pain in the neck, but it’s not doing anything terrible yet,” Savage said. When will it be terrible? “That depends on when’s the first due date,” he said. In the case of the Lifeline fines, responses are due 30 days after the bureau filed its NALs. If the shutdown lasts that long, responses would be due the next business day after the commission opens. If lawyers have to respond without knowing precisely how the FCC made a decision, “that would be a problem,” Savage said.

The 1995-'96 shutdown meant a “huge financial hit” for Bennet & Bennet, which represents small carriers and other clients,” said Carri Bennet, and it took several months to recover. “The single biggest thing that helped the most in our recovery back then is that Congress passed the 1996 Telecommunications Act in February of 1996 that created a lot of innovation and competition in the industry and a huge amount of work for consultants and lawyers,” Bennet said, but she doesn’t see anything like that this time around. “When we do get back to work, we hope the FCC will try to make up for lost time. We feel for the FCC staff. They work hard and will be asked to work even harder on their return. I hope they are resting up for what comes next."

The down website and filing systems have an immediate impact on some projects, agreed Peter Shields, managing partner at Wiley Rein, but “we always have ongoing projects that don’t involve any of that,” he said. Wiley’s attorneys are in constant contact with their clients, helping them shape policy positions, working on transactions and assessing possible litigation, he said. To the extent clients can’t deal with the government, they'll focus on other priorities, and other aspects of regulatory issues, he said. Still, Shields worries about the impact on clients if the shutdown continues, and if clients want to implement something that involves meeting with the government. But because it’s only a few days in, “we're not really feeling that yet,” he said. “We're very diversified."

But John Nakahata, head of the telecom practice at Wiltshire Grannis, said things will be fine as long as the shutdown doesn’t drag on. “I don’t see even a month-long shutdown as having a significant impact on the work that our firm needs to do,” he said. “For instance, we've got to get ready to file comments on various things, E-rate, for example, when the FCC opens, and that means we've got to do the work that we were going to be doing anyway during this time period on those types of matters. … If they were closed for four or five months it would be a different thing, but that’s not going to happen.”

One lawyer told us that her firm will feel less of an impact because it represents enterprise customers, not traditional carriers. “But even end users (and so our workload) is affected by the shut down because: Routine corporate re-structuring or acquisitions require FCC approvals for things like transferring private radio licenses; The FCC’s dispute resolution work and mediation services are used by enterprise customers, for faster action on disputes with their service providers,” said Colleen Boothby of Levine, Blaszak in an email. “Those can’t go anywhere for now; There are huge dollar issues hanging fire in rulemaking dockets -- like re-vamping the USF contribution method, fixing special access, clarifying when services are regulated or unregulated -- that hit business customers hard until they're fixed."

For Alan Tilles, chairman of the telecom department at Shulman Rogers, the problems have already begun. “The impact of the commission being out of business for the time being is extreme for us, because there’s a lot of things that we do on a daily basis with the commission that we can’t be doing right now for our clients.” Tilles represents wireless clients, including radio manufacturers, utilities and transit agencies, and hundreds of public safety agencies. Shulman attorneys use the FCC’s Universal Licensing System (ULS) database “on an hourly basis, literally,” Tilles said. With the website down, they can’t query the ULS to determine expiration dates and license history, or to file applications to acquire licenses. “That’s very significant for a public safety agency that needs to fix a coverage issue, or to expand or upgrade their system,” Tilles said.

A shutdown that lasts a couple of days is an “inconvenience,” Tilles told us. Anything longer could have a “very dramatic, serious impact on business and public safety.” The inability to research and pursue new licenses “keeps the daily business of what we do almost at a standstill,” he said. And every day that passes could increase the risk to public safety, he said. Shulman recently prepared a waiver request for a municipality to move a transmitter site to cover a part of the city that lacks adequate coverage. With the shutdown, that application is on hold -- and spotty coverage could turn life threatening. “Every day you roll the dice, when you have a coverage problem, that there will be something there,” Tilles said. “The more days you roll the dice, the greater the likelihood that you're going to crap out."

"Any pain inflicted on Washington law firms pales compared to the pain afflicted on many others,” said Pantelis Michalopoulos, head of the telecom, Internet and media practice group at Steptoe & Johnson. To Michalopoulos, the main import of the shutdown is his attorneys’ inability to seek informal guidance from the agencies, bureaus, and by working with the general counsel’s office. Sometimes Steptoe attorneys need to confirm their views on what a certain law or practice is, or they would like to get the agency’s informal view before proceeding, he said. Of course, ex parte meetings to advance their clients’ interests aren’t possible when the agency is shut down, he said. The lack of access to filed comments in the Electronic Comment Filing System also hinders them. “It’s important to know what people said, in order to give advance and assistance,” he said. “We've actually had this precise problem in the last two days."

Shutting the website didn’t need to happen, said one telecom attorney. “In terms of working on existing projects, it’s like having the rug pulled out from under you,” he said. Attorneys have to spend a lot of time looking around for different sources of information, rather than getting it from the FCC’s site. It’s a “universal” sentiment among attorneys, he said. “Was it really necessary for the government to take down websites? Its seems like that’s an affirmative step that makes things less efficient."

"You're keeping busy, but in a different way,” said David O'Neill, partner at Rini O'Neill. O'Neill can’t file KidVid reports, or even prepare them beyond rough drafts that are missing a lot of information, he said. Without access to the FCC’s Consolidated Database System, he can’t look up ownership reports, applications, construction permits or license information. Transfer of control applications can be prepared, but not filed. “You can only do so much prep,” he said. O'Neill says he’s fortunate to be working on an asset-purchase agreement now, which will take a few weeks to complete. He’s also working on a few responses that will be due when the commission re-opens. The shutdown isn’t really affecting billables just yet. “It’s a huge inconvenience, but life goes on,” he said. “Talk to me in a month -- it may be a different story."

The pain hasn’t really hit yet, but it could, attorneys told us. Some clients have received special temporary authority permits to operate variances to their licenses. If those expire next week -- and the agency is still closed, not accepting filings -- what happens then? What about deals that have to get filed in October to close by the end of the year? The longer the shutdown lasts, the tighter their windows for closing deals, and the more uncertainty they face.

"I think we're all fielding a lot of questions from clients as to what it means and what about my deadline that’s due next week and what about a transaction and what’s going to happen with the shot clock,” said Gerard Waldron, who has a variety of energy and communications clients at Covington & Burling. “There’s lots of uncertainty as to what it means. … At this point it’s sort of a lot of procedural and technical issues.” Waldron said the FCC’s taking its website down “in the short term” is “as disruptive as anything."

A wireline lawyer who doesn’t represent carriers guesses that “at least the companies selling searchable data bases of FCC regs and decisions, like BNA and Lexis, are happy now -- the FCC website is down so they have no competition.” ,,