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Leaner and with a tighter focus on more profitable practice areas, the San Francisco Bay area’s 10 highest-grossing law firms hauled themselves out of the recession in 2003, with all but one posting a boost in revenues. That compares to a dismal 2002, when four of the firms in the top 10 � Wilson Sonsini Goodrich & Rosati, Cooley Godward, Gray Cary Ware & Freidenrich, and Pillsbury Winthrop � saw grosses slide. Generally, the firms’ individual revenue gains in 2003 were modest, but there was at least one standout. Heller Ehrman White & McAuliffe’s aggressive acquisitions of Venture Law Group, Brobeck, Phleger & Harrison’s San Diego office, and a 19-lawyer firm in Hong Kong drove robust financial results. The firm grossed $430 million for the year, a 21 percent leapfrog over the $354 million reported for 2002. The increase made its way into Heller partners’ paychecks, with average profits per equity partner jumping 18 percent, to $835,000, from $710,000 in 2002. “We had very clear plans on how we wanted to grow and where we wanted to grow, which put us in a position to take advantage of those opportunities when they presented themselves,” says Heller chairman Barry Levin. Despite the brighter picture, it may be another year before the region’s legal market recovers from the demise of Brobeck, which went out of business in a dramatic burst in February. Despite gains at nine of the firms, the combined revenue for the top 10 was down 1 percent from last year. In 2003, the 10 highest-grossing firms pulled in $3.24 billion, compared with $3.29 billion in 2002. The dip is largely due to Brobeck’s collapse. The firm brought in $353 million in 2002 � making it No. 6. While Brobeck’s demise made room on the top 10 for Sedgwick, Detert, Moran & Arnold, Sedgwick is no Brobeck. The newcomer’s $136.5 million gross in 2003 is less than 40 percent of Brobeck’s 2002 tally. Belt-tightening measures and refocusing on more profitable practice areas, such as intellectual property litigation, paid off for most firms. Making good on promises to get tough with under-performing partners and to shed low-margin practices, Gray Cary posted per-partner profits of $615,000, a 34 percent jump over 2002′s $460,000. The bloodletting continued last year at several firms, though not as deeply as the previous year, when the top 10 firms slashed 540 people. In 2003, the top 10 shed a net of 222 lawyers, bringing the total employed by the firms to 5,276. In the past two years, the top 10 eliminated 12 percent of its lawyer ranks, dropping 762 lawyers from the 2001 peak of 6,038. In 2003, Wilson alone accounted for 100 fewer people, a 15 percent drop from 2002′s 670. But some firms swelled their ranks, including Sedgwick, which added 41 attorneys, a 14 percent increase over 2002′s 285. The good news is what’s on the horizon. Several firms gained momentum in recent months, reporting stronger third and fourth quarters and a full pipeline of work heading into the new year. “I think 2004 is going to be a very strong year,” says Morrison & Foerster chairman Keith Wetmore. “The market has supported strong pricing, and people are busier than they have been in the last couple of years.” Retaining a firm grasp on its top dog status for the third consecutive year, MoFo posted $540 million in revenue, up 7 percent from 2002′s $505 million. Orrick, Herrington & Sutcliffe moved up a spot to No. 2, and Heller jumped up two spaces to No. 3, bumping Pillsbury back two spaces to No. 4 and Wilson back a space to No. 5. With Brobeck gone, Cooley; Thelen Reid & Priest; Gray Cary; and Littler Mendelson all edged up a space, to Nos. 6, 7, 8, and 9, respectively. Sedgwick edged out Fenwick & West � which grossed $134 million � to win the No. 10 spot for the first time. Morrison & Foerster With modest boosts in revenues and profits, Morrison & Foerster retained its status as the top-grossing firm. The firm’s gross increased 7 percent over 2002, to $540 million, while profits per partner rose 6 percent, to $740,000. “We enjoyed the benefits of a firming economy,” says Wetmore. “Lawyers per hour were on the mend and the market supported our practices.” Wetmore says the firm’s busiest practices included litigation, real estate, mergers and acquisitions and joint venture work in Japan, state and local tax, bankruptcy and restructuring, and asset-based lending. The practices that have been in decline � technology company work on the corporate side � “hit bottom and started their assent,” he says. Among the firm’s major deals, MoFo represented Fujitsu Ltd. in the merger of its flash memory operations with those of Advanced Micro Devices Inc. The deal, which resulted in the formation of a new company, was valued at $1.2 billion. In the litigation arena, the firm represented United Parcel Service Inc. in a suit against the government of Puerto Rico over its taxation of interstate services, and the Oakland Coliseum against claims it lured the Raiders football team back with false promises of a packed stadium. MoFo also served as chief antitrust counsel for the Oracle Corp. in its hostile bid for PeopleSoft Inc. and represented the El Paso Corp. in its settlement of claims arising out of California’s 2001 power crisis. During the year, MoFo also brought on 21 lateral partners, opened an office in Shanghai, and distributed a $1 million grant to nonprofit organizations through the Morrison & Foerster Foundation. Orrick, Herrington Orrick, Herrington & Sutcliffe held on to its ranking as the most profitable firm in the bay area, with equity partners taking home an average of $945,000. While revenue per lawyer remained flat at $700,000, profits per equity partner increased 8 percent and average compensation for all partners rose 4 percent, to $715,000. Gross revenue climbed 12 percent in 2003, to $448 million. Orrick Chairman Ralph Baxter Jr. says litigation, particularly intellectual property litigation, was the firm’s strongest practice in 2003, followed by securitization and public finance work. “We had a lot of trial victories,” Baxter says. Notably, he cites a defense verdict for Cadence Design Systems Inc. in a patent infringement and trade secrets suit brought by the Mentor Graphics Corp., and a defense verdict for Advanced Micro Devices Inc. in a wrongful termination suit brought by a former executive. On the corporate side, Baxter says securitization had a record year. When Citigroup Inc. acquired Sears, Roebuck & Co.’s credit card business, Orrick counseled Citigroup on the deal’s securitization aspects. Baxter says the acquisition involved $29 billion in receivables. Among other highlights for the year, Baxter says the firm strengthened its white collar practice, hiring Walter Brown Jr. and Melinda Haag, both former assistant U.S. attorneys, and Lanny Davis, who was special counsel to former President Bill Clinton. Baxter says Orrick’s top strategic priorities in the coming year will be to build the firm’s presence in San Francisco and New York. “We may open additional offices in 2004 depending on how we do identifying groups that fit our culture and economics,” Baxter says. “We want to continue our expansion in Europe. That may happen in 2004, and it may not.” Heller Ehrman For Heller Ehrman White & McAuliffe, 2003 was a transformative and lucrative year. Much of its growth came as Heller capitalized on unexpected opportunities like Brobeck’s dissolution. The additions boosted Heller’s IP and emerging companies groups, and altered Heller’s practice profile. While litigation traditionally accounted for 65 percent of the firm’s attorneys, with corporate representing the other 35 percent, Heller now has a more evenly balanced 55-to-45 litigation-to-corporate ratio, Levin says. Levin attributes the firm’s healthy financial growth to a busy year, particularly in the litigation and real estate groups. Heller resolved a number of significant contingent-fee-based cases in 2003, providing an extra revenue bump. Ongoing matters, like representing the Pacific Gas & Electric Co. in litigation related to its bankruptcy, yielded more than $7.5 million in attorney fees. Heller also played a lead role in a number of other high-profile, high-stakes cases, such as defending Microsoft in an antitrust battle waged by several state attorneys general, and a class action targeting Heller client Visa, as well as MasterCard, that carried an estimated liability of $50 billion. (Visa settled in April for about $2 billion.) Pillsbury Winthrop Pillsbury Winthrop stayed the course in 2003, completing its three-year strategic plan drafted after its cross-country merger and re-electing Mary Cranston and Marina Park to serve as chairwoman and managing partner, respectively. The election also moved David Snyder into the newly created post of executive vice chair, an acknowledgement of the increasing managerial demands that have come with the firm’s expansion. Growth continued in 2003 as Pillsbury opened a Houston outpost that now counts 20 attorneys. While initial expectations were for the Houston office to turn a profit after only a few years, Cranston says it’s already expected to break even. Overall, the firm’s financials were relatively flat in 2003. Pillsbury grossed $422.5 million in revenue, about 2 percent higher than 2002′s $415 million. Nevertheless, the modest revenue growth is a positive sign for the firm after annual revenue slid 6 percent in 2002. Average profits per partner inched up to $720,000 in 2003, compared with $710,000 the year before. Cranston attributes the modest results to the ongoing softness in West Coast transactional work. “Our corporate groups in California did have sort of a down year. It wasn’t until the last quarter that we started to see an uptick,” says Cranston. Pillsbury suffered a significant setback when rainmaker Robert Mittelstaedt took eight attorneys with him to launch Jones Day’s San Francisco outpost. But Pillsbury continued to grow its attorney head count in 2003. Pillsbury chalked up several important litigation victories for clients, including Deutsche Bank and Everypath. And Pillsbury’s life sciences group helped boost billables with a number of big deals, including representing Idec in its $6.5 billion merger with Biogen. Wilson Sonsini With corporate work in the Valley continuing to limp along through most of 2003, Wilson Sonsini Goodrich & Rosati didn’t have many options for increasing revenue. So the Palo Alto securities firm slashed its lawyer head count by 15 percent in 2003 to boost the productivity levels of its remaining lawyers. Associates bore the brunt of the cuts. The firm’s total head count had dropped 15 percent, to 570 as of Aug. 31, from 670 a year earlier, while the ranks of partners increased to 146, from 139. Donna Petkanics, Wilson’s managing director of operations, says the firm targeted its largest group, corporate, for shrinkage in light of the continued slowdown in transactional work. Cuts came primarily through attrition, she says. The firm may still pull off a modest increase in revenue by the time its fiscal year ends Jan. 31. Wilson Sonsini is taking a conservative approach by estimating its 2003 gross will be $360 million. Last year, it did the same thing, estimating grosses of $360 million. But by the time its fiscal year had ended, the firm had collected $387 million. What’s different this time around is the firm’s more positive profits outlook. Petkanics estimated the firm would net $121.1 million. That would put profits per partner at $830,000 � a 3 percent raise for partners. Revenue per lawyer, a leading indicator of productivity, increased by 9 percent in 2003, to an estimated $630,000, from $580,000 the prior year. Petkanics credits the firm’s cadre of stable public companies that required ongoing corporate expertise � as well as strict controls on spending � with helping plump the firm’s bottom line. “That’s a sustaining base of business when there aren’t a lot of transactions,” Petkanics says. “We’ve managed the firm well through this third year of the economic downturn in the country.” Still, the firm managed to have a hand in a number of large transactions that helped generate billable hours. About 100 of its lawyers, for example, logged time on the acquisition of Wilson client J.D. Edwards & Co. by PeopleSoft Inc. and the litigation that sprouted from the Oracle Corp.’s uninvited bid for PeopleSoft. Cooley Godward Despite a slight drop in gross revenue and net income, Cooley Godward boosted its profitability in 2003. Profits per partner climbed 4 percent, to $765,000, placing Cooley at No. 4 among bay area firms. While gross revenue fell 4 percent, to $289 million, the falloff was less dramatic than the 15 percent decline in 2002. Net income also dipped 1 percent, to $101.8 million. “Productivity, with continued vigilance on the expense side, drove a high margin and resulted in a higher net income per partner,” says Mark Pitchford, Cooley’s chief operating officer. According to Pitchford, the litigation practice was extremely busy, and the business department saw better productivity in the latter half of the year. Although there were few initial public offerings last year, Cooley benefited from the uptick of capital markets activity. The firm took four clients public in 2003 and formed 30 venture and private equity funds, Pitchford says. On the litigation side, the firm had several major cases, including the confirmation trial for the PG&E Corp.’s bankruptcy, the largest in U.S. history. Cooley also represented eBay Inc. and the AT&T Corp. in intellectual property disputes and PacifiCare Health Systems Inc. in two separate cases before the California Supreme Court and U.S. Supreme Court. In 2003, Cooley avoided instituting the mass layoffs it did the previous two years. The firm closed its Kirkland, Wash., office at the beginning of 2003, which affected about seven attorneys and 15 staff, and folded its Sand Hill Road outpost into its other Silicon Valley office. During the year there was much speculation in the legal community about Cooley’s possible merger with another firm. It most recently pursued a deal with Orrick, but talks broke off when Orrick declined to give Cooley a greater leadership role in the combined firm. Pitchford says Cooley is continuing to look for a deal that would benefit the firm and its clients. “The management of the firm believes we owe it to ourselves to be looking for that,” he says. “But not because we need to do anything. “We have come through [the high-tech downturn] as well-positioned as we could be and are ready to ride the wave in 2004.” Thelen Reid & Priest Troubled energy companies and asbestos litigation proved to be a boon for Thelen Reid & Priest in 2003. The 406-lawyer firm grossed $235 million last year, a 12 percent increase over 2002′s $209 million. And it managed a healthy 20 percent bump in net income, logging $72 million in 2003 compared with 2002′s $60 million. Partner Mark Weitzel, Thelen’s San Francisco-based vice chairman, says a core client base of energy companies gave the firm a solid foundation, but the year brought some new business as well. “The bay area technology downturn didn’t have much effect on us,” he says. “It was a very good year.” Profits per partner also increased, though more modestly than overall net income. Profits per partner were $550,000, up from $510,000 in 2002. The nation’s cash-strapped energy companies, Thelen’s historic client staple, were driven by depressed energy pricesto tap the firm for help in restructuring debt and raising additional operating capital. The firm represents more than 100 energy producers and suppliers, including the Calpine Corp. and the TXU Corp. The firm is also working with Harrison Goldin, who was appointed an independent examiner in the Enron Corp. bankruptcy. Weitzel says more than 30 of the firm’s lawyers logged significant amounts of time on the matter. On top of that, Thelen landed a handful of new litigation clients with asbestos troubles in 2003, including the Shell Oil Co., the Ford Motor Co. and the DaimlerChrysler Corp., Weitzel says. The three companies named the firm national litigation counsel in the defense of a slew of products liability suits, he says. Gray Cary Profitability was job one at Gray Cary Ware & Freidenrich in 2003. Gray Cary’s profits per partner jumped to $615,000 in 2003 � a huge leap from the anemic $460,000 it logged in 2002. Revenue, meanwhile, barely cleared 2002 levels. The 374-lawyer firm grossed $209 million, a 2 percent hiccup over the $205 million the firm collected in 2002. Chairman J. Terence O’Malley says the firm started cutting its associate ranks and re-evaluating partner productivity in 2002 after profits plunged in the wake of the economic downturn. “We made a series of difficult decisions to right size the firm in 2002, and 2003 proved out that judgment,” O’Malley says. “Our productivity per lawyer improved materially as the economy improved.” The firm shrank its number of equity partners to 77, a 13 percent decline from 2002′s 89. The firm also cut its total lawyer head count by 7 percent, to 374 from 400 in 2002. Gray Cary also targeted its corporate and transactional practice for downsizing � historically up to 60 percent of the firm but now the same size as litigation, contributing equally to revenue, O’Malley says. A bump in capital markets activity helped boost the group’s contribution to the bottom line, O’Malley says. Companies began raising capital with debt instruments, follow-on offerings, and even initial public offerings in 2003, and corporate firms like Gray Cary were beneficiaries. Gray Cary took three clients public in 2003 and represented the underwriter in a fourth IPO. But the firm also managed to bag some big-ticket pieces of litigation, O’Malley says. The firm is West Coast counsel for German drug-maker Bayer AG in a handful of products liability suits involving a cholesterol drug. Littler Mendelson Littler Mendelson continued to shuffle the pieces on its chessboard in 2003, launching new offices and initiatives while eliminating some ventures. Through it all, the firm continued to increase its financial results, grossing $173 million for the year, up 5 percent from 2002′s $165 million. “We’ve had, so far, simply a banner year,” says Littler president and managing director Wendy Tice-Wallner, citing increasing hours per attorney and a good collections season as factors in the results. The labor and employment firm continued to benefit from the spate of wage-and-hour litigation, as well as an increase in discrimination cases and traditional labor work like collective bargaining agreements, says Tice-Wallner. Average profits per equity partner shot up 10 percent, to $430,000, from last year’s $390,000 � the firm’s first double-digit profit increase in several years. While Littler lost nearly 10 equity partners to other firms in 2003, its total equity head count remained stable as a result of its own lateral hires. The firm shuttered its tiny Santa Rosa, Calif., outpost early in 2003 and pulled the plug on its 16-month-old immigration practice. But Littler launched a joint venture with Phoenix immigration boutique Bacon & Deer in February. Littler planted its flag in Charlotte, N.C., and Miami in 2003, giving the firm 28 offices in 16 different states. Littler opened its 29th office, in Boston, on Jan. 5. The new offices “have very much hit the ground running,” says Tice-Wallner. “They have been contributing to the revenues and controlling their costs.” Sedgwick, Detert Sedgwick, Detert, Moran & Arnold managed a modest 5 percent increase in both its revenue and net profits in 2003. That puts the firm’s gross at $136.5 million and net income at $28 million. That was enough of an increase to land Sedgwick among the top 10 bay area firms for the first time. Nationally, the firm has been edging up among the 200 highest-grossing U.S. law firms, as ranked by The American Lawyer. In 2002, the firm landed in 133rd place, a bump from the prior year when the firm placed 154th. “2002 was a fabulous year, and we did not budget to exceed it,” says Chairman Kevin Dunne. “But we did exceed it somewhat, to our surprise.” Though revenue grew, the firm’s equity partners suffered a 13 percent decline in profits per partner, which dropped to $520,000 from $600,000 in 2002. Dunne says Sedgwick is absorbing a slew of new hires � the firm increased head count by 14 percent, to 326 in 2003 from 285 in 2002. The firm also paid for some major technology upgrades, he says. The firm’s expertise handling insurance disputes, and in particular representing Lloyd’s of London, was an unexpected help. The Sept. 11 terrorist destruction of the World Trade Center in 2001 has given rise to numerous insurance coverage disputes. About 10 percent of Sedgwick’s revenue stemmed from representing investment banks that act as reinsurers through Lloyd’s of London, Dunne says. Sedgwick is beefing up its marketing to reinsurers and is targeting Bermuda, where many of the firms are based, Dunne says. The disputes involving the World Trade Center matured during 2003 and Sedgwick’s international arbitration expertise in insurance came to bear, Dunne says. Some 50 Sedgwick lawyers are involved in representing clients being sued over who should pay the lion’s share of claims stemming from the destruction of the office towers, he says. The firm experienced some declines in demand in other areas. The firm represents the tobacco corporation Brown & Williamson, but saw six of its cases dropped in 2003 following court rulings that limited punitive damages, Dunne says. The firm is bracing to lose more of its cases, but at same time is preparing to re-deploy its lawyers for new kinds of disputes, he says. “The amount of work there has been dramatically reduced,” Dunne says. “The plaintiffs bar has already created new areas, and we’ve already begun to represent insurance companies in wage-and-hour class actions.” Managing editor Lesley Guth, senior writer Renee Deger, and reporters Brenda Sandburg and Alexei Oreskovic contributed to this report, which first appeared in The Recorder, the American Lawyer Media daily newspaper in San Francisco. For more coverage, consult www.callaw.com.

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