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Chart: Highest Grossing Los Angeles Firms Chart: The Profits-Per-Partner Derby For California law firms, Los Angeles roots seem to have been the secret to healthy growth in 2003. The top 10 highest grossing Los Angeles-based firms closed the books on an explosive financial year, turning in the kind of results that exist only as a boom-time memory for their struggling counterparts in Northern California. While the total gross revenue for the top 10 Bay Area firms in 2003 increased 5.5 percent from the year before, the top L.A. players boosted their overall revenues by 13.8 percent for a net gain of $460 million, according to The Recorder’sannual survey of law firm finances. Seven of L.A.’s top ten firms saw double-digit revenue growth, while Irell & Manella and Quinn Emanuel Urquhart Oliver & Hedges increased their average profits per equity partner by a whopping 30 and 37 percent, respectively. Irell, Latham & Watkins and Paul, Hastings, Janofsky & Walker all hit major milestones in 2003: Latham broke the $1 billion annual revenue mark while Irell and Paul, Hastings both joined the elite club of firms with $1 million in average profits per equity partner. “A group of L.A. firms have risen to the challenge and are making a very serious run at being among the leading national firms,” says legal consultant Peter Zeughauser. “They’re doing better than some of the Wall Street firms.” For Latham, grossing $1.033 billion in revenues means more than just bragging rights. The cash gives the firm a war chest with which to finance new strategic initiatives. In 2003, for instance, Latham leased and remodeled new offices in Paris, Frankfurt and Brussels without taking on any debt. Instead, says Chairman Robert Dell, the firm paid for the moves directly from operating income. The firm’s average profits per equity partner didn’t appear to suffer much from the expense. Partners took home an average $1.275 million each in 2003, up 12 percent from the year before. Dell attributed the strong year to the firm’s long-running strategy of expanding its portfolio of offices and practices, which “begins to feed on itself in that we can now offer clients services across a wide array of needs, in ways that we couldn’t when we were half the size.” For the Big Four L.A. firms — Latham, Gibson, Dunn & Crutcher, O’Melveny & Myers and Paul, Hastings — last year’s results had a lot to do with conditions outside the firms’ hometown. Paul, Hastings’ New York real estate group represented the developer in the recently opened $1.7 billion Time Warner Center. And practices with strong New York ties, like investment management and project finance, were a big source of revenue for the firm. Likewise, O’Melveny, whose $658 million in annual revenues represented a 16 percent increase, benefited from its New York finance and private equity practice. Additionally, says Chair Arthur Culvahouse, the firm’s investment in China, where it has three offices, started to yield dividends. The L.A. firms have a longer and more successful track record of colonizing other cities than some rivals, says legal consultant Steve Barrett. “I think probably a decade or two ago, everybody started realizing that the Fortune 500 firms were slowly eroding in L.A., and �We better get out, we’ve got to go find other fields to play on,’” Barrett says. Paul Hastings, which was founded in downtown L.A. more than 50 years ago, now has more lawyers East of the Mississippi than it does West, and its chairman, Seth Zachary, practices in the New York office. O’Melveny & Myers’ Culvahouse practices in the firm’s Washington D.C. office. The expansion continued in 2003, as Gibson added a new office in Brussels, and Paul, Hastings opened new Shanghai and San Diego offices, and announced plans to acquire a French firm with offices in Paris and Brussels. “Growing in Europe and growing around the globe in principal financial centers is central to our long-term strategy,” says Zachary. Even Sheppard Mullin, long a regional, California-only firm, opened a Washington D.C. office in 2003 and began hunting for a New York office. Having a national and international footprint not only insulated the L.A. firms from regional downturns (� la Silicon Valley), it has also allowed them to take on lucrative, multi-office legal work. Gibson, Dunn’s defense of PeopleSoft in Oracle’s $9.4 billion hostile takeover bid, for instance, involves corporate lawyers, antitrust lawyers and securities lawyers stretching from Palo Alto to Washington, D.C. “Those kinds of transactions by their nature will involve many disciplines, many lawyers, often many offices,” says Gibson Dunn Managing Partner Kenneth Doran. He said the firm’s role in contested deals like PeopleSoft, as well as Atlantic Coast Airlines and ArvinMeritor, were important contributors to its financial results in 2003. Once again, Gibson, Dunn captured the distinction of being California’s most profitable firm, with average profits per equity partner of $1.375 million, up 16 percent from the year before. To keep profits growing, the firm kept a tight lid on expenses and saved money by renegotiating several of its office leases. The firm’s conservative approach towards adding new partners didn’t hurt the bottom line either. Gibson Dunn was conspicuously absent from the feeding frenzy that swept over most of its California rivals at the beginning of 2003, when the collapse of tech outfits Brobeck, Phleger & Harrison and Skjerven Morrill flooded the lawyer market. Overall, Gibson’s headcount grew by a modest 26 attorneys, just five of them equity partners. Sheppard, Mullin, buoyed by its brand new 30-attorney entertainment practice, raked in nearly $200 million in revenues, a 19.6 percent jump from the year before. The entertainment group has been “magnificently successful,” says Sheppard, Mullin Chair Guy Halgren. “We represent virtually every major studio in the film business as well as a broad array of other entertainment clients.” Of course the addition of the entertainment lawyers, and a new office in Washington D.C., took a toll on profits per equity partner, which remained relatively flat at $595,000. Manatt, Phelps & Phillips, Irell, Munger Tolles and Quinn Emanuel all had solid revenue growth as well. As in prior years, litigation practices continued to be key assets for L.A. firms. Quinn Emmanuel, which focuses exclusively on litigation, pumped up its revenues and profits, with its trial lawyers bringing in a number of high-stakes courtroom victories. The firm won a $300 million verdict on breach of contract and other claims against Bertelsmann AG and its former CEO, and got a $600 million shareholder suit against Hughes Aircraft dismissed. Irell, which boosted its average profits per equity partner to $1,170,000, was active in several major intellectual property litigation cases. But partner Morgan Chu said the firm’s success was the result of keeping all of its practice areas busy and focusing on basic “blocking and tackling.” “If we’re looking at a dozen or two dozen variables and we do just a little bit better on all those variables, then it all tends to add up,” Chu said.

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