Big Help for Small Businesses

by Dan Sadowsky

With a proud grin, Jimmy Wilson flips a switch and sets an army of freshly starched shirts, pants, dresses, and suits humming along their roundabout path on the garment carousel. Wilson is the owner of Jimmy’s Dry Cleaning in North Portland. Three years ago, this corner storefront he rents was home to an auto parts warehouse, but now it houses Jimmy’s business along with a half dozen retailers and small offices. He has the space—and the plans—to add even more subleased businesses.

Wilson’s future here didn’t always look so promising. Last August, he received something in the mail that he feared might halt his renovation schedule, stymie his efforts to draw more tenants, and end his dream of someday buying the 5,150-square-foot space: a lease-renewal contract from his landlord.

“The lease had doubled in thickness,” recalled Wilson, a stout, gregarious African American with a broad smile, “and that probably was not in my best interest, but in theirs. I needed someone to decipher the language.”

Small-business advisors at Portland’s Black United Fund encouraged Wilson to contact the Small Business Legal Clinic for advice.

Lewis & Clark’s Small Business Legal Clinic, located in the Old Town neighborhood of downtown Portland, is a real-world training ground that serves a real-life need: affordable legal services for hardscrabble businesses and bootstrapping entrepreneurs who couldn’t otherwise afford a lawyer.

Staffed by Clinical Professor Maggie Finnerty, roughly a half dozen law students, and a cadre of local lawyers working at no charge, the clinic has so far helped more than 50 businesses with “transactional” legal assistance—lease agreements, third-party contracts, entity structures, and other business issues that don’t involve litigation. It’s precisely the type of legal help new businesses need to enhance their odds of survival, says Finnerty, a former finance attorney at Stoel Rives and one of the Portland Business Journal’s “Forty Under 40” leaders for 2007.

Unlike the law school’s other legal clinics, this one represents a private-public partnership. Of the nation’s 30-odd university-run law clinics for small businesses, none other boasts funding by a city, a chamber of commerce, and businesses and major law firms, or a coordinated pro bono component certified by a state bar, according to Lisa LeSage, assistant dean and director of business law programs and the clinic’s executive director.

“We wanted to build the clinic not only as a teaching tool, but also as a resource for small businesses and technical-assistance providers,” says LeSage, “as well as a forum for business transaction lawyers to offer their services pro bono.”

A Collaborative Vision

A uniquely collaborative small-business legal clinic was first envisioned by David Ellis, Lewis & Clark’s vice president, secretary, and general counsel, and later realized by LeSage and Steve Goebel JD ’04, CEO of DePaul Treatment Centers and an adjunct professor at Lewis & Clark Law School.

LeSage pushed the idea forward in 2005 with an extensive needs assessment that revealed a groundswell of support among organizations that offer technical assistance to disadvantaged small businesses. Then Goebel, who has strong ties to the business community, came aboard to help pitch the idea to law firms, local banks, and the city, stressing that it would promote economic development, legal training, and the health of the city.

“The concept was that it would not be a cloistered academic pursuit, but a community resource,” Goebel says.

The “sales blitz,” as LeSage calls it, paid off. By the end of 2005, the law school had received funding commitments from the major Portland law firms Tonkon Torp, Stoel Rives, and Schwabe Williamson & Wyatt, as well as the Portland Business Alliance and Bank of the West. In spring 2006, Mayor Tom Potter kicked in a $100,000 grant; this year, he highlighted the clinic in his State of the City speech and included $120,000 in additional city funding in his budget for the fiscal year beginning July 1. The Portland Development Commission, the city’s redevelopment arm, chipped in with reduced-cost office space in the 99-year-old Mason-Ehrman Building.

Strengthening Local Business

The clinic’s small-business clients represent the economic backbone of Portland, where 95 percent of firms employ fewer than 50 people. Sarah Rupp, a third-year law student from Colorado, describes the mostly women and minority clientele as “driven people who have huge aspirations of starting or growing a needed business, but who don’t have the means to consult an established attorney. And that can be really scary when you’re just starting out.”

Starting a small business is, of course, not only scary, but also incredibly risky. One-third of new businesses don’t make it past year two, according to a recent study cited by the U.S. Small Business Administration. In Oregon, 14,407 employer businesses closed their doors in 2004—more than were opened in the same year.

Finnerty, whose past corporate experience includes counseling better-funded start-ups, says many business failures can be traced to early missteps. “Perhaps they created the wrong kind of business entity, or didn’t know they couldn’t reassign their lease, or that one of their contracts with a third party required certain things of them.” The clinic wants to help small businesses avoid these pitfalls. “Lots of legal issues that seem ’small’ can cripple a small business,” Finnerty says. “That’s where we come in.”

One of the clinic’s first customers, Supriya Moffit, needed to make sure her fledgling software business wasn’t torpedoed by copyright infringement or liability lawsuits. She’d recently launched Abacus Business Solutions to customize financial accounting products for mom-and-pop businesses. Her initial business assets consisted of only a computer, Microsoft Office software, and a $150-a-month office lease. The next step—copyrighting her products and drafting software licensing agreements for her customers—would be costly. “I had done some research on the Internet and figured it would cost at least $3,000 to get a regular law firm to draft the documents.”

Moffit was referred to the Small Business Legal Clinic by the Black United Fund, one of several Portland-area providers of technical assistance to small businesses owned by minorities or women, or located in economically distressed areas of town. Finnerty assigned the case to Yoonhee Chang, a third-year law student interested in intellectual property law.

Moffit says the professionalism and preparation of the operation impressed her from the start. “When I went in for the first meeting, Yoonhee and Maggie already had everything ready. They had everything researched out completely.”

Two meetings later, Moffit left the clinic’s downtown office with a customer service agreement, six copyrights to file, and a better understanding of how the law applied to her business. “I think they’re providing a great and very badly needed service.”

A Training Ground for Students

Jimmy Wilson first visited the Small Business Legal Clinic last September. He forked over the clinic’s $25 fee, but acted circumspect during his meeting with director Maggie Finnerty and then-student John Lundry JD ’06. “I have to earn your trust, and you have to earn mine,” he told them.

It didn’t take long. At their very next encounter, Lundry handed Wilson a list of 14 contract provisions that favored the landlord’s interests over his own, including one clause that would severely limit Wilson’s income from subleases. “That earned my trust,” Wilson says. “I could see they were working for me.”

Students say the experience of handling a client and solving their legal issue is an invaluable complement to the classroom. The clinic course begins with two consecutive “Boot Camp” Fridays—all-day sessions that familiarize students with the basics of business organization, interviewing skills, ethics, and representation agreements. After that, students spend the bulk of their class time working under Finnerty’s direction at the clinic.

“The beginning was rough,” says Rahul Kukreti, 28, a third-year law student from Oklahoma. “In class, you’ll review a case, but it’s a lot different when someone tells you, ’I want to start a business, what should I do?’ Suddenly you’re faced with real-world implications of what the case law means.”

Kukreti’s early struggles trying to craft pithy memos and rambling too much during client interviews. (Finnerty videotapes student-client interviews to help students build skills at conveying “a sense of trust and confidence”; most students recall cringing on first viewing.) But after a semester spent drafting articles of incorporation and trademarks for a new clothing designer, Kukreti went into his current job as a legal intern at Oregon Health & Science University riding a wave of confidence. “I found that the clinic made everything else easier.”

Opportunity for Local Lawyers

The clinic also has made volunteering a lot easier for local business-transaction lawyers. State bar regulations say that every Oregon lawyer should “endeavor to devote 20 to 40 hours per year or to handle two cases involving the direct provision of legal services to the poor, without an expectation of compensation.” But business laywers complain that most free legal clinics staffed by pro bono attorneys deal with issues outside their expertise.

“The small business clinic is unique in that it gives lawyers like me the opportunity to help people in our comfort zone, working with the type of law we practice every day,” explains Darius Hartwell JD ’00, a business lawyer at Schwabe, Williamson & Wyatt.

Pro bono lawyers are usually assigned the most complex cases or those that seem destined to last beyond a semester, Finnerty explains. So far they’ve handled roughly the same number of cases as student interns. She’s hoping to soon pair up lawyers and students in a move to “bring together lawyers, law students, and clients in a way that would be completely new for legal education and traditional legal services.”

Building Out

In the end, Jimmy Wilson conceded most of the provisions in the new contract, but won the day on two of the most important: the right to profit from his subleases and the right of first refusal, which guarantees Wilson a chance to buy the building if his landlords ever contemplate a sale. “If it weren’t for the clinic,” says Wilson, “under the pressure of everything, I think I would have signed something that didn’t benefit me.”

Finnerty calls Wilson’s “hands-down the most complicated project” among the nine assigned to students during the clinic’s first term. Wilson returned to the clinic this spring with an easier assignment that involved helping him draft subleases for his own tenants. And he already has a project in mind for fall: negotiating a lease extension beyond the contract’s current June 2010 date to better position him to attract a restaurant to his building.

Accommodating more clients like Wilson may require additional support. Finnerty is stretched to her limit playing the roles of law firm partner, class instructor, administrative assistant, and pro bono matchmaker. From January through March, the clinic logged 108 calls for assistance, 30 of which were from potential clients “still waiting for us to call them back,” Finnerty said in early April. The clinic will add two months to its schedule—staying open through June with three new student interns—to help assuage demand.

LeSage envisions another sales pitch to new law firms, commercial lenders, and real estate agents—those whose livelihoods, she says, depend on the mom-and-pop businesses the clinic is meant to serve. The long-term vision includes a full-time director, two clinical professors, a slot for a visiting faculty member, and an administrative assistant. This structure would allow the clinic to serve more small businesses as well as more law students—adding to both sides of what Wilson calls a win-win equation: “The students get training; the clients get results.”