It’s been just over a year since Shook, Hardy & Bacon dropped Lorillard as a client in order to continue representing rival tobacco maker Philip Morris. And though the firm insists the departure of 17 attorneys who handled Lorillard work to Hughes Hubbard & Reed went smoothly, the firm’s finances took a significant hit in the process.
In the wake of losing Lorillard as a client, Kansas City, Missouri–based Shook Hardy saw its gross revenues fall 7.2 percent in 2012, to $317 million, and its profits per equity partner plunge nearly 16 percent, to $900,000, according to The American Lawyer’s reporting. Thanks to a 34-lawyer reduction in overall head count, revenue per lawyer remained stable at $725,000.
Shook Hardy chairman John Murphy says the drop in revenue and profits was not unexpected given the loss of the Lorillard work. The firm’s profits also suffered as a result of expenses incurred after the year’s budget was set, Murphy says, including money spent to launch a Philadelphia office in May with a partner hired from Dechert and to recruit a seven-lawyer commercial receivables group in Washington, D.C., and Kansas City from Lathrop & Gage.
"It’s the cost of doing business," says Murphy of the firm’s lagging financial performance in 2012, adding that he prefers to take a long view rather than focusing too closely on any one year. Even factoring in last year’s falloff, he says, Shook Hardy enjoyed an 8 percent compound annual growth rate in profits per partner from 2004 through 2012.
The loss of the Lorillard lawyers—nine of them partners—notwithstanding, Shook Hardy’s total number of equity partners increased to 120 last year from 116 in 2011. The growth in the equity partnership ranks, Murphy says, was a product of the firm’s decision to proceed with its plans to promote several attorneys amid an admittedly challenging year. "We’ve made the conclusion that if somebody’s eligible for equity partner, we’re going to make it happen," he says. The number of nonequity partners, meanwhile, fell from 85 to 79, and the firm’s overall attorney head count dipped from 472 to 438.
Shook Hardy continues to earn the majority of its revenue from litigation work. In September, its lawyers successfully defended 7-Eleven, QuikTrip Corporation, and Kum & Go by winning the first jury verdict to date in what’s become known as hot fuel litigation—a series of putative class actions filed around the country on the heels of a 2006 Kansas City Star investigation suggested that the effect of hot weather on gasoline was costing consumers billions in hidden costs at the pump. A jury sitting in Kansas City, Kansas, federal district court found Shook’s clients did not violate the Kansas Consumer Protection Act by failing to disclose that gas contains less energy per gallon when temperatures rise.
Shook Hardy lawyers also spent last year continuing their ongoing representation of Philip Morris in so-called Engle progeny cases, which grew out of a 2006 Florida Supreme Court decision that broke up a proposed class action against tobacco manufacturers into individual suits. The firm won five defense verdicts for Philip Morris in 2012 and the early part of this year.
Shook Hardy also remains in the regular rotation for several other longtime clients, including Tyco International, whose product liability docket the firm handles on a flat-fee basis, and Sprint, which it represents in both patent prosecution and patent litigation matters. In one of its most recent assignments, the firm is representing 120 third-party defendants that have been sued as part of an effort to help cover the cost of remediating the alleged contamination of a system of New Jersey waterways.
Murphy says Shook Hardy is constantly working to diversify its practice to prevent the loss of a single client from having too great an impact on the firm. "At the same time," he says, "We’re proud of clients we have," including Philip Morris and several companies in the pharmaceutical industry. "They’re long-standing clients that we’ve worked with for years."
This report is part of The Am Law Daily‘s early coverage of 2012 financial results of The Am Law 100/200. Final rankings and full results for The Am Law 100 will be published in The American Lawyer‘s May 2013 issue and on AmericanLawyer.com. The Am Law Second Hundred will be published in the June issue.