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Arter & Hadden, until recently a rapidly expanding national firm, is struggling to ward off dissolution or bankruptcy as excess office space and a string of lawyer departures sap the firm’s revenues. The executive committee of the Cleveland-based firm met Monday with partners in a firmwide conference call to outline a laundry list of cost-cutting measures. Their goal: to stave off more drastic action by appealing to landlords who hold leases for its offices across the country, including five in California. Arter peaked at 425 lawyers in 1999, and its 10 offices still have enough space to house that many attorneys. But headcount has declined to about 250 lawyers, partners said. “The firm is trying to restructure its lease agreements,” said a partner who has been with the firm for more than 10 years and who spoke on the condition of anonymity. “If it is unable to do that, it will dissolve or seek bankruptcy protection.” The partner sounded a dubious note when asked if he thought Arter would pull through. He answered, “I don’t think so.” Arter’s managers would not comment on the specifics of what they presented to partners Monday, including whether dissolution was an option the firm might be forced to consider. “We’re looking at a number of restructuring and other options for the firm,” said Dan Bailey, Arter’s Cleveland-based chairman. “I just don’t want to get into what is on the table.” Founded in 1843 in Cleveland, Arter has been a highly regarded brand name in the Midwest when it comes to full-service law and litigation. In the 1990s, the firm started expanding in California and other parts of the country. In a five-year period ending in 1995, the firm opened up satellites in Los Angeles, Irvine, San Diego and San Francisco. It also opened a satellite in Dayton, Ohio, near its home base. The firm’s other California office is in Woodland Hills, a Los Angeles suburb. Arter’s recent lease woes seem to echo those of Brobeck, Phleger & Harrison, which collapsed in January. Rapid expansion — including committing to long-term leases in a palatial East Palo Alto office building — has been blamed, in part, for Brobeck’s demise. Arter’s problems seem to extend beyond California to its outposts in Washington, D.C., and Dallas, where the firm is also trying to renegotiate leases. At its peak in 1999, the firm grossed $146 million, though its profits per partner, at $260,000, were still modest, according to Recorder affiliate The American Lawyer magazine. By the end of 2000, the firm had started bleeding lawyers. The senior lawyer who spoke on condition of anonymity said the firm didn’t lose large groups of attorneys. Instead, individual partners exited at a steady pace. Among the more significant departures was the exit of Thomas Loeffler, a former four-term congressman who played a key role in national Republican politics and in President Bush’s 2000 campaign. Loeffler left Arter after the November 2000 election to launch his own firm, taking with him a significant number of lawyers from Arter’s San Antonio and Austin offices, plus a handful from Dallas and Washington, D.C. By August 2001, the firm’s headcount had shrunk to 374 lawyers, according to figures compiled by The American Lawyer. That year, profits per equity partner had climbed to $310,000, but revenues declined to $134 million. Continued departures contributed to an 8 percent decline in revenue in the first quarter of this year, said the anonymous partner. Kim West, managing partner of Arter’s San Francisco office, which peaked at 25 lawyers but is now down to 13, said the firm would be performing well if it were smaller. West, who serves on Arter’s seven-member executive committee, said per-lawyer revenue and hours have actually increased in recent years. “The good news is we have a good, core group of committed lawyers,” West said. “We are undertaking a series of measures to try to get our cost structure more in line with revenue.” Reporter Jahna Berry contributed to this report.

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