(Diego M. Radzinschi/NLJ)

Dickstein Shapiro faced its worst year in more than a decade after contingency cases didn’t pull in income and the firm restructured, chairman James Kelly said in an interview. He called 2013 an “investment year.”

Gross revenue declined by $51 million to $207.5 million during 2013, a 20 percent drop. Net income fell even more, by almost 35 percent, from $55 million in 2012 to $36 million in 2013.

That number represented the lowest operating income Dickstein has reaped since before 1998, its first year on The American Lawyer’s annual survey of the 200 highest-grossing firms. (The American Lawyer and NLJ are affiliates.)

“I think, frankly, from my perspective, is we’ve got a portfolio of contingent cases. The time of investment of those cases and recovery can vary from year to year,” Kelly said. “Just because you work a case in a particular year doesn’t mean you get paid on a case in a particular year.”

No single contingency case accounted for the declines, Kelly said. In 2013, the firm filed a lawsuit for Freddie Mac against more than a dozen banks over their alleged manipulation of the LIBOR, or London Interbank Offered Rate, which provides benchmarks for interest rates. That case has not been resolved, and the firm has added other clients, including the Federal Deposit Insurance Corp., on the issue.

Early last year, the U.S. Court of Appeals for the Federal Circuit overturned a $482 million patent infringement award to a radiologist Dickstein represented. The court sided with Johnson & Johnson and subsidiary Cordis Corp., and the U.S. Supreme Court declined to take the case.

Kelly said contingency cases — he calls them “investments” — such as these are part of the firm’s core business ­strategy. The income from the cases can ebb and flow, he said, and historically the firm has seen ups and downs. For example, net income almost doubled from $107.5 million in 2002 to $174 million in 2003. Partners took home more than $1.9 million in profits that year. Net profits then dropped to $72.5 million in 2004. The fluctuation involved a windfall of revenues after the firm won corporate clients $2 billion in a price-fixing case in the vitamin industry.

RISKS, REWARDS

Dickstein partners understand the risks and rewards, Kelly said. The firm, however, shed almost a fifth of its lawyer positions during 2013, with proportionate cuts among equity partners, nonequity partners and all lawyers. That contrasts with how the firm retained personnel during the early 2000s, fielding about 300 lawyers each year.

Last year, the number of equity partners dropped by 11, from 58 to 47. The number of nonequity partners declined by 18, from 83 to 65. The firm’s lawyer headcount was 254 at the end of 2013, down from 308 in 2012.

“It’s fair to say we restructured our workforce. It’s fair to say there’s a variety of factors taken into account,” Kelly said.

That headcount decline compounded about five years of receding numbers among total lawyers and the equity partnership.

In 2008, the Supreme Court ruled to limit a multibillion-dollar award to one-fifth that amount for plaintiffs Dickstein co-represented on contingency in the Exxon Valdez oil spill. Dickstein rainmakers have gradually left since then for other firms or retirement, further depressing yearly revenues, according to former partners who asked to remain anonymous because of their continued relationships with lawyers at the firm.

Robin Cohen, an insurance litigator and the former managing partner of Dickstein’s New York office, left in 2010 with more than a dozen colleagues for Kasowitz, Benson, Torres & Friedman. Cohen now leads that firm’s insurance recovery group.

In 2013, eight energy and corporate attorneys, including former practice head Larry Eisenstat, moved to Crowell & Moring.

Two insurance partners, John Schryber and Andrew Weiner, went to Reed Smith in October. Two intellectual property partners, Keith Sharkin and Clark Lackert, also moved to Reed Smith last year.

Dickstein brought in two lateral partners in 2013: Jason Eig in corporate and finance and Atulya Agarwal in intellectual property. Dickstein made other changes involving its contracts with vendors and recruiting. Individual practice groups now recruit their own associates from law schools, rather than having the firm oversee associate hires, Kelly said.

Although most financial measures slipped by 15 percent or more, revenue per lawyer declined by 3 percent, or $25,000, to $815,000.

The relatively steady number “really demonstrates the strength of our client base,” Kelly said. “That’s what we’ve been pivoting off of.”

Business from the firm’s 50 largest clients has almost doubled during the past five years, Kelly said — the firm reviewed its client mix and chose to cater to them. He declined to name the largest clients.

“We made a strategic commitment to be a market-leading specialty firm,” he said. “We decided we’re not going to be everything to everyone.”

The firm hopes to maintain strong practices in areas including insurance coverage, government contracts, lobbying and state attorneys general work, Kelly said.

Kelly took over as Dickstein chairman on Jan. 1, when chairman emeritus Michael Nannes’ 10-year tenure ended. Kelly worked with Nannes during a six-month transition period in 2013, following his selection as chairman in June 2013.

Washington-based Dickstein maintains smaller offices in New York; Stamford, Conn.; and Los Angeles, Irvine and Palo Alto, Calif.