Gains seen by largest law firms as rainmakers, work shift East.

Many of L.A.'s largest law firms posted substantial increases in revenues and the benchmark profits-per-partner measure in 2003, thanks in large part to work generated in New York.

Fueled by big-ticket securities litigation and a revived corporate deal flow, particularly on the East Coast, the performance continued a trend of shifting the balance of power away from the firms' home base.

"Litigation was extremely hot, particularly in the securities regulation area," said Martha Jordan, managing partner of the L.A. office of Latham & Watkins LLP. "We also had a tremendous amount of deal work out of Washington, D.C. and, in the second half of the year, the high-yield market picked up in New York."

That gain helped two of L.A.'s largest firms, Irell & Manella LLP and Paul Hastings Janofsky & Walker LLP, join the exclusive ranks of those where profits per partner topped $1 million. Five firms hit that mark in 2003, up from three the year earlier.

Gibson Dunn & Crutcher LLP was the most profitable L.A. firm again, with $1.3 million per partner.

Increased revenues and profits have come as much of the work--and management--of L.A.-based firms has headed east.

When those outposts first opened they were seen as tokens, designed primarily to establish a presence in the market, said Edward Poll, president of LawBiz Management Co. Now, he said, those offices house some of their biggest rainmakers. That, in turn, is luring management away from Los Angeles.

Follow the money

"They will look at everything and go with what's most profitable," Poll said. "It won't matter where it comes from. A number of these firms are moving their chairmen around, and it's wherever the chairman happens to have his office that becomes the focal point."

Among indications of the shift:

* Arthur Culvahouse Jr., chairman of O'Melveny & Myers LLP, is based in Washington, D.C.

* Latham's chairman and managing partner, Robert Dell, is in San Francisco.

* Seth Zachary, chairman of Paul Hastings, is based in New York.

Bobble McMorrow, co-founder of consulting firm McMorrow Savarese, said L.A. firms are finally competing head-to-head with several New York-based firms.

"They made a stake in New York, and then they had to compete in New York," she said. "One of the drivers for profits per partner of $1 million is being in New York. New York is a completely different dynamic and run so much on 'the bigger the better,' in terms of compensation, salaries and platforms.

"Privately, you'll hear managing partners across the country say the rest of the firm pales compared to New York offices," she added. "New York just drives the economy of the world. It sounds like an overstatement, but pound for pound, you can't beat that city."

Nationwide, revenues at law firms increased about 10 percent, far less than the gains posted by L.A.'s largest firms, said Brad Hildebrandt, chairman of consulting firm Hildebrandt International. He said L.A. firms exceeded in litigation in a year that began with a trickle of mergers and acquisitions.

Latham and Gibson both saw revenues increase by more than 13 percent, while O'Melveny & Myers' revenues jumped 17.5 percent.

O'Melveny, which received the "Litigation Department of the Year" award for 2003 from American Lawyer magazine, represents Unocal Corp. against allegations of human rights abuses and Walt Disney Co. in the ongoing litigation involving the licensing rights to "Winnie the Pooh."

National Impact

Los Angeles-based firms are increasingly playing a role in matters gaining national attention.

Latham's Washington office successfully defended the University of Michigan Law School in its controversial affirmative action case, while locally the firm represented Philip Morris USA Inc. in its successful defense of a $17 million case filed by a smoker who had contracted lung cancer.

Gibson Dunn lawyers, including those in Washington, are representing PeopleSoft Inc. as it seeks to fight off a hostile takeover effort by Oracle Corp.

The real estate group in Paul Hastings' New York office represented Related Cos., developer of the $1.7 billion Time Warner Center in Manhattan.

"That is one of the largest construction projects in history," Zachary said. "It opened this year and has been a multi-year finance and transaction deal."

The work--and profits--are making L.A. firms look more like New York firms, Hildebrandt said. While many New York firms are reaching $2 million per partner, the million-dollar mark gets L.A. firms noticed in the Big Apple, he said.

"When you look at the Top 10 to 15 firms in New York," he said, "the growth of the out-of-state firms, particularly those in California, has been faster."

The firms have not relied solely on big litigation.

David Siegel, managing partner of Irell, attributed a 33 percent profit increase to cost-cutting, fee increases and improved technology.

"For years, we were just happy to be somewhat below the radar screen," he said. "But clearly, in today's marketplace, there's a benefit to the recognition that comes with it. It may make it easier to the extent we want to look for acquisition candidates."

Revenues at Sheppard Mullin Richter & Hampton LLP jumped 19.5 percent, to $202 million in 2003, but profits were sluggish. Guy Halgren, its chairman, attributed the growth to the firm's Washington office, which opened two years ago, and a big-ticket entertainment practice in L.A. He said the firm's Washington office grew from five to 25 attorneys in 10 months.

The expansions hurt profits per partner, however, which increased only 2 percent to $593,000 in 2003, he said.

"If we had not had the investments last year, we would have had more profits per partner," Halgren said. "As it turns out, the entertainment group exceeded our expectations, and so did D.C., so the costs to productivity was not as severe."

Case Sensitive

Fees from big lawsuits helped push profits higher at L.A.-based
law firms.

                                   2003        2002
                                  Profits     Profits
                                    Per         Per         2003
Firm                              Partner *   Partner *   Revenues *

Gibson Dunn & Crutcher             $1.37       $1.10        $645.3
O'Melveny & Myers                   1.28        1.03         658
Latham & Watkins                    1.27        1.14       1,030
Irell & Manella                     1.17        0.88         180
Paul Hastings Janofsky & Walker     1.06        0.94         537
Manatt Phelps & Phillips            0.77        0.70         161

                                     2002        2003
Firm                              Revenues *   Partners

Gibson Dunn & Crutcher              $537         254
O'Melveny & Myers                    560         245
Latham & Watkins                     906         490
Irell & Manella                      161          90
Paul Hastings Janofsky & Walker      488         845
Manatt Phelps & Phillips             132         156

* In millions.

Sources: Listed firms.

Profit Leader

Gibson Dunn & Crutcher LLP

Managing Partner & Chairman: Ken Doran, L.A.

Attorneys: 800

2003 Revenues: $645.3 million

2003 Profits Per Partner: $1.37 million

Key Practices: Corporate, finance, public policy, government contracts and white-collar criminal defense

Offices: 13

International Offices: Paris, Brussels, London and Munich

Founded: 1872, by Republican lawyer John Bicknell