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If 2002 was a rough economic year, somebody forgot to tell Los Angeles law firms. While their counterparts to the northtook a financial drubbing in 2002, L.A. firms not only rode out the hard times, but thrived. According to The Recorder ‘s annual survey of law firm finances, several of the region’s top firms boasted double-digit revenue and profit growth for the year. And almost all increased or maintained their attorney headcount levels. Driving this growth were the L.A. shops’ strong litigation engines, along with their wide-reaching geographic footprints and stable mix of institutional clients. The Southern California firms had a phenomenal year, particularly given the state of the economy, says Los Angeles legal consultant and recruiter Larry Watanabe. “I would assume a lot of that to be attributable to litigation.” While L.A.’s top-grossing firms run the gamut from international powerhouse Latham & Watkins to regional players like Irell & Manella and Allen Matkins Leck Gamble & Mallory, all share a strong litigation bent. In a down economy, when transactional work dries up and disputes tend to increase, that litigation orientation is a crucial asset. Many of the local firms “actually have more than 50 percent of their firm tied up in litigation,” says Edward Poll, a Los Angeles-based legal consultant. One new entrant on the list, Quinn Emanuel Urquhart Oliver & Hedges, focuses exclusively on litigation. Since the Los Angeles firms didn’t place as many of their bets on the dot-com boom during the late 1990s, they weren’t dragged down by expensive overhead and debt as some Silicon Valley firms were. Half of the Bay Area’s largest firms experienced declining revenues in 2002 as they continued to feel the sting of the troubled technology sector. Financial figures for the top L.A. players were, on the other hand, uniformly up — in some cases, significantly up. Six of the top 10 Southern California firms grew their revenues by more than 10 percent in 2002. But the strong performance of the Los Angeles set is not simply a result of Southern California’s more limited exposure to the technology market, say some attorneys and legal experts. Many of the L.A. firms are reaping the benefits of offices in key legal markets outside of California. “When you look at O’Melveny, or a Latham or a Gibson, you’re not looking at L.A. firms the way you did five or 10 years ago; you’re looking at firms that have significant practices on the East Coast and internationally,” says Seth Aronson, the head of O’Melveny & Myers’ L.A. office. Indeed the top four L.A.-based firms — Latham & Watkins; Gibson, Dunn & Crutcher; O’Melveny & Myers; and Paul, Hastings, Janofsky & Walker — all count between 11 and 21 worldwide offices. And with 100-plus attorneys at their New York and Washington, D.C., offices, these are major bases of operations that can make significant contributions to the bottom line. Underscoring the importance of this strategy, O’Melveny doubled the size of its New York office in 2002 through its acquisition of O’Sullivan. The move not only swelled O’Melveny’s New York ranks to more than 200 lawyers, but it added a new private equity capability to its practice portfolio. Meanwhile, O’Melveny’s average profits per equity partner soared 18 percent, to $1.109 million, bumping the firm into the $1 million-plus profits per partner club. Much of this growth came from the firm’s litigation and restructuring practices, says O’Melveny Chairman Arthur Culvahouse Jr. “And we watched our costs like hawks,” he adds. Latham & Watkins not only maintained its top spot as L.A.’s highest grossing firm, but it also recorded one of the year’s biggest revenue increases. The firm boosted its revenues by 17 percent, bringing $906 million into its coffers. And the firm’s headcount rose by more than 200 attorneys, through a combination of a large first-year associate class and lateral hires. “Our success was the product of a strategy we’ve been pursuing for 10 years, which is to have a very highly diversified firm that could withstand economic cycles,” says Latham Chairman Robert Dell. “So, in this year where the economy was quite soft and our M&A and corporate finance practices were down, other aspects of the firms were quite busy.” Like his counterparts at other L.A. firms, Dell flagged litigation as the busiest practice, with securities, antitrust and toxic-tort litigation proving especially active. While litigation was clearly important to Gibson, Dunn & Crutcher, Managing Partner Kenneth Doran says the firm’s transactional team managed to stay busy. The firm’s M&A practice ranked second in the country for announced deals in 2002, according to Doran. “We just managed to get a bigger piece of a smaller pie when it comes to M&A activity,” said Doran. Gibson retained its title of California’s most profitable firm, with partners bringing home $1.185 million on average. And Paul, Hastings, Janofsky & Walker continued its profitability momentum, with average profits per equity partner of $940,000, compared with $875,000 in 2001. In a tough year like 2002, firms buckle down and pay more attention to managing their businesses, says Sheppard, Mullin, Richter & Hampton Executive Committee Chairman Guy Halgren, whose firm’s $580,000 average profits per partner figure was up almost 9 percent from the year before. “So you throw that, together with broad practices,” says Halgren, “and you can end up with a good year.” Related charts: Top 10 Highest-Grossing Southern California Firms Growth Spurts California’s 15 top-grossing firms in 2002

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