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Lauded just a year ago as one of the hottest legal markets in the country, Phoenix has quickly cooled into an economic downturn, leaving many law firms that muscled up during the boom with some time on their hands. Rapid population growth, a buoyant hospitality market and explosive commercial and residential development sent many law firms to Phoenix from 2004 to 2007. At the same time, law firms already entrenched in the area added associates and partners to take advantage of the good times. But the recent credit drought has stalled development in the area, as have a $1.9 billion state budget deficit and an uptick in unemployment, leaving some law firms with some idle practitioners. Real estate transactions have “almost ground to a halt,” said Stephen Savage, managing partner of Philadelphia-based Ballard Spahr Andrews & Ingersoll‘s Phoenix office. While mergers and acquisitions, public finance and environmental work are still healthy, he said, “pure” real estate deals, largely, are gone. From 2000 to 2006, Phoenix experienced a 24 percent population growth, making it one of the four fastest growing cities in the nation. Fueling the expansion were burgeoning hospitality, real estate, construction, aerospace and electronics industries. In 2007, it was the fifth-largest city in the nation with 1.5 million people. Hoping to capture legal work related to the growth, several law firms moved into Phoenix in 2007, including DLA Piper; Jackson Lewis; Ford & Harrison; and Chicago-based Meckler Bulger & Tilson. Also opening offices in recent years were Sonnenschein Nath & Rosenthal; Ballard Spahr; Ogletree, Deakins, Nash, Smoak & Stewart; and San Francisco’s Gordon & Rees. Those law firms entered a market also served by Phoenix’s homegrown players, including 438-attorney Snell & Wilmer and 184-attorney Fennemore Craig. A BRAVE FACE Most law firms are putting on a brave face about the downturn, but legal recruiter Kelly Patten paints a bleaker picture for Phoenix. He is president of Patten-Babcock & Associates, a legal placement firm with eight offices, including locations in San Francisco, Chicago, Washington and abroad. “It’s a massive slowdown,” he said, adding that the steady stream of transaction and real estate work that Phoenix law firms were handling has evaporated to a trickle for many. “You just see everybody getting onesies and twosies,” Patten said. Several banks in the Phoenix area reported losses for the first quarter of 2008. For example, the First National Bank of Arizona suffered a $131.3 million loss for the first quarter, an increase from an $88.4 million loss in the last quarter of 2007. Much of the loss came from its mortgage business. In June, Standard & Poor’s reported that Phoenix and Miami were the worst performers in the Case-Shiller home prices indexes, with both cities showing 3 percent declines. In addition, state officials in March announced a $1.9 billion revenue shortfall, partly the result of sales tax collection that plunged. As recently as six months ago, law firms were humming with “all corporate work,” Patten said. “All of a sudden, everything has come to a standstill.” While real estate work and related business have slowed, litigation is brisk, said Tim Berg, chairman of the executive committee at Fennemore Craig. “Things are busy, but the mix is different,” he said. Phoenix’s slump is affecting global firms differently from regional firms, said Mark Nadeau, co-managing partner of DLA Piper’s Phoenix office. It has 18 lawyers. “The word is that they are struggling right now,” he said. “Many of their stalwart clients over the last six or seven years are struggling.” DLA Piper opened its Phoenix office in February 2007, with Nadeau and partner Cindy Ricketts joining from Squire, Sanders and Dempsey. Much of the office’s business, said Nadeau, is coming inbound from global companies with interests in the Southwest and elsewhere. In September, the firm brought aboard corporate and securities attorneys Steven Pidgeon and David Lewis from Snell & Wilmer. They handle work from clients with Phoenix ties that have interest there and beyond, he said. Nadeau attributes a lot of the work his office handles these days to “so many players shifting positions with respect to their investments.” Sonnenschein Nath & Rosenthal, which opened a Phoenix location in May 2006 with real estate and hospitality lawyer Richard Ross from Squire Sanders, insists that the change in the economy has not affected the office, which also includes Indian law, tribal representation and corporate and litigation practices. In the spring, Sonnenschein laid off 37 attorneys firmwide and nearly 90 other employees. The firm lists 11 attorneys in Phoenix on its Web site. “The majority of attorneys’ project work occurs outside of Arizona,” wrote Ross in an e-mail message. He was not available for a telephone interview. He added that the office has seen a “significant increase in international projects” this year. Ross said the Phoenix office was not affected by the layoffs. Thomas Hoecker, managing partner of Snell & Wilmer, said his law firm approached 2008 “cautiously,” as the local economy began dipping in the second half of 2007. But he remained tightlipped about specifics. In 2006, the firm had 448 attorneys, according to the NLJ 250, The National Law Journal‘s annual survey of the nation’s largest law firms. Its tally for 2007 was 438 attorneys, with 199 in Phoenix. “Some practices are stronger than others, but all practices are doing things,” Hoecker said. The recent decline in Phoenix’s economy is part of the up-and-down history of the city, driven primarily by the real estate and construction industry, Patten said. The city experienced similar growth in the mid-1990s. In 1995, the Phoenix metropolitan area had 2.4 million people, about 400,000 more than five years earlier. “It gets incredible growing pains,” he said.

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