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In the late 1990s, shrewd law firm managers deepened their litigation, bankruptcy, and white collar crime practices in hopes of capturing business during an anticipated economic downturn. Now they’re quietly calculating which practices will ripen next. Many of D.C.’s biggest firms are preparing for a transactional comeback, hanging on to corporate lawyers despite low billables and even starting to hunt for laterals. Others are honing in on European regulatory work or arbitration. Still others say that, while evergreen, health care is a solid bet for growth. What they all agree on, though, is the necessity of preparing for cyclical shifts. Litigation is expected to remain strong at most firms, but there are indicators that practices like bankruptcy have passed their zenith. “We’ve probably seen the peak of bankruptcy,” says Hildebrandt consultant Lisa Smith. “We’re certainly not going to stop seeing bankruptcies, but not as many of the huge, high-profile ones that have generated so much of the fees either.” A Hildebrandt International midyear report issued last week notes recent movement in the transactional arena, including a $6.7 billion merger between IDEC Pharmaceuticals and Biogen; Nike Inc.’s purchase of Converse Inc.; and Arvin Meritor Inc.’s repeated multibillion-dollar hostile bid overtures to the Dana Corp. Still, the report suggests it is too early to gauge the impact on corporate and mergers and acquisitions practices. Nonetheless, some firms are already focusing on the recruitment of corporate laterals. “When the economy was really rolling, we didn’t have enough people to fully take advantage, and we don’t want to miss that again,” says Akin Gump Strauss Hauer & Feld chairman R. Bruce McLean. “We’ve been through a very difficult period in our economy, but it will turn.” The firm is hoping to add transactional laterals in the late fall or early part of next year, says McLean. Steptoe & Johnson is enjoying the fruits of countercyclical practices like litigation, bankruptcy, and white collar crime, with average profits per partner up $65,000 last year. But the firm isn’t resting on its laurels. Instead, it has been taking advantage of the soft market for corporate laterals, says chairman J.A. “Lon” Boucknight Jr. The firm has added corporate partners Harold Freilich and Donald Meiers and a senior associate, Rajesh Swaminathan. The goal: helping the firm maintain its momentum when the economic outlook brightens. In the mid- and late-1990s, many firms got a taste of just how much it could take to lure transactional attorneys, paying premiums for signing bonuses and headhunter fees. Taking steps to avoid that crunch while still balancing excess capacity in M&A can be tricky, says Dickstein Shapiro Morin & Oshinsky managing partner Angelo Arcadipane. “It’s been the worst three years for corporate activity in decades, but it is turning around, and there is talent out there,” he says, noting that the firm is searching for corporate lateral partners, but hasn’t yet begun pursuit of associates. THE CAUTIOUS APPROACH But some firms aren’t casting their nets just yet. “Nothing I see on the economic horizon is pointing to a strong recovery,” says Wilmer, Cutler & Pickering chairman William Perlstein. Right now, his firm is focusing more on opportunities in the regulatory arena, particularly antitrust work in the European Union and beyond. The idea that the European Union’s capital is fertile ground for U.S. firms isn’t new, but a PricewaterhouseCoopers study released in June underscores the expansion of merger laws in the EU and dozens of other nations. The report shows that since 1990, the number of jurisdictions with merger control regimes has jumped from only about a dozen to more than 100. And last fall, the EU adopted significant antitrust reforms that make EU merger rules more like those in the United States — an added plus for D.C. firms. Wilmer, Cutler partner Thomas Mueller, whose antitrust practice focuses on EU competition law, says that within the last five years, the firm’s Brussels office has grown from 10 lawyers to 25, and he anticipates further expansion. Howrey Simon Arnold & White managing partner Robert Ruyak notes that EU regulators are also becoming more aggressive about taking companies to task on cartel and merger issues. Ruyak says the demand could mean that his firm, which already has offices in Brussels, London, and Amsterdam, will open an additional European location, either in Germany or France. “There’s been a strong increase,” says Ruyak. “Europe is developing government regulatory enforcement practices that will impact U.S. companies doing business over there.” Ruyak adds that over the next five years, he anticipates the EU framework will increase its regulatory attention on issues of corporate responsibility. Antitrust powerhouse Arnold & Porter is also bullish on the EU. The firm recently announced its plans to open an office in Brussels late this summer. Managing partner James Sandman expresses more measured enthusiasm. He says that the move to Belgium has been a longtime strategic goal for the firm and that he expects steady growth in antitrust work as transactions increase. Indeed, the reality of investing in European capitals can be tough, given the competition from firms based there, says Hildebrandt’s Smith. “It should be interesting,” says Smith. “Some firms think Brussels will be the next Washington.” LOOKING TO ADR Arbitration is another area many managing partners have set their sights on, noting that alternative dispute resolution clauses are making more frequent appearances in both employment and commercial contracts. Wilmer has put a focus on increasing its arbitration capabilities in both Washington and New York. Over the last few years, the firm has placed a half-dozen of its U.S.-based lawyers in London, a center for international dispute resolution, to work with partner Gary Born, who acts both as counsel and arbitrator. J. Warren Gorrell of Hogan & Hartson agrees that a rising number of major companies are focusing on arbitration as a way to resolve disputes, particularly those across borders. “Our litigators believe there will be more commercial arbitration,” says Gorrell. “It’s been very active outside of the U.S., but I won’t be surprised if there are more clauses between companies domestically.” Howrey’s Ruyak foresees arbitration emerging in intellectual property disputes in Europe, as well as in complex corporate dispute litigation and insurance recovery. “We’re building heavily toward an international arbitration practice,” says Ruyak. Another area that managing partners have earmarked for expansion is health care. With the growing elderly population, an overhaul of Medicare benefits, and a possible pension crisis, Dickstein’s Arcadipane and Wiley, Rein & Fielding managing partner Richard Wiley see business opportunities. Wiley anticipates growth in pharmaceuticals regulation, while Arcadipane expects increased representation of corporate clients regarding contributions to pension plans and health-insurance- related issues. Wiley Rein recently brought on two partners and two senior associates in health care. Expansion of Dickstein’s seven-lawyer health care practice will take a few years, according to Arcadipane. “We’re looking out further than tomorrow,” he says.

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