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After a year of negotiating, Carpenter, Bennett & Morrissey, one of New Jersey’s oldest firms, has reached an agreement in principle to combine with one of its fastest-growing, McElroy, Deutsch & Mulvaney, in the largest in-state merger of law firms in state history. The combined firm, McElroy, Deutsch, Mulvaney & Carpenter, will have about 190 lawyers with revenues of roughly more than $60 million, making it New Jersey’s fourth largest firm based on number of lawyers and somewhere between the sixth- and ninth-largest firm based on gross revenues. The merger tops the 1988 in-state merger of Trenton’s 29-lawyer Sterns, Herbert, Weinroth & Petrino into Roseland’s Hannoch Weissman, producing a 128-lawyer firm second in size only to McCarter & English in Newark. Edward Deutsch, managing partner at 130-lawyer McElroy, Deutsch, says the synergies among the new partners, along with the larger size, will make the new firm more competitive. Frank Dee, who sits on Carpenter, Bennett’s executive committee and heads the firm’s labor and employment group, says, “I don’t get excited about a lot of things business-wise, but I’m excited about this. This is a once in a lifetime oportunity that is a perfect fit.” McElroy, Deutsch’s executive committee will run the combined firm with Deutsch staying managing partner. That’s fine with Dee, who says he prefers to practice and leave the management up to Deutsch and the existing committee. After a year, the firm name will return to McElroy, Deutsch & Mulvaney. The dropping of Carpenter from the name will close a 105-year history of a firm that has and continues to serve some of the largest corporations in America and worldwide, including Johnson & Johnson, DuPont, Lucent, Prudential Insurance Co., AT&T, General Motors, Merck, ITT Industries, Deere & Co. and Owens-Illinois. Carpenter’s Newark office will be kept, though it may be downsized. McElroy, Deutsch has offices in Harding Township, New York, Denver and Ridgewood. Carpenter had been among the state’s 10 top-grossing firms for decades, but it dropped out of the Law Journal‘s top 20 list for the year 2001. Its lawyer count has gradually slid from about 85 seven years ago to 60 now, excluding the partners about to leave. In the survey for 2000, it showed revenues per lawyer of $325,300 and profits per partner of $358,300. Splinter Group Not everyone at the firms is happy about the deal. Seven McElroy, Deutsch partners, who walked out of the partnership meeting last Wednesday before the merger vote was taken, will not be part of the new venture. Neither will four partners at Carpenter, Bennett. The defections make it more difficult to gauge what the combined firm will look like, not only because of the prospect of lost business and billings, but also because the McElroy, Deutsch defectors might make offers to their colleagues, particularly to associates. Deutsch says the seven partners plan to form their own firm, and one McElroy, Deutsch source sympathetic to the defectors says they “have already arranged to lease enough space for 50 lawyers.” Deutsch confirms what had been speculated when word of the merger talks leaked out: that one of the wrinkles was whether McElroy, Deutsch should take all of Carpenter or just the employment group. “I think that was an issue for other people,” he says, meaning the defectors. The source sympathetic to the defectors says they were displeased not only about taking in the entire Carpenter firm but with the process, complaining of Deutsch’s aplomb in pushing the deal through. For his part, Deutsch notes that the seven had resigned before the vote by the equity partners. A call to McElroy, Deutsch partner Kevin Coughlin, who is part of the rebellion and has challenged Deutsch’s leadership in the past, was not returned. Deutsch confirms that in early 2002, Coughlin moved to expand the firm’s three-member executive committee to five, and sought to be on the larger committee. But he and his supporters lost on both counts, as the committee remained at three and partner Joseph LaSala was voted on to replace name partner and former state court judge William McElroy, who died in late 2001. In addition to Coughlin, the other McElroy, Deutsch partners who are bolting are Timothy Duffy, Robert Kelly, the brothers James and Paul Lisovicz, Suzanne Cocco Midlige and Kevin Wolff. All but the Lisovicz brothers do coverage work. Dee confirms that he was determined to keep the firm together, acknowledging that there had been offers for the employment group only. He also says that Carpenter has been courted over the years by national and regional firms. Deutsch and Dee see an advantage in marrying Carpenter’s employment group with McElroy’s key practice areas, particularly its insurance coverage and defense litigation. The firms also have common practice areas, including product liability and environmental defense. Both men also acknowledge the need to grow as firms consolidate and as general counsel continue to cut their lists of outside counsel. Dee calls it “bench strength,” saying the larger size will allow it to handle more product liability cases requiring 10 to 15 attorneys without disrupting the rest of the firm. He also says that while his employment group is already big enough to tackle most large cases, “We can’t take on a national class-action that needs up to 25 lawyers without staffing up, and then cutting back.” Deutsch agrees. “We need the ability to put 10 to 15 lawyers on a litigation, but also on the corporate side, some transactions require 20 people.” At present, “perhaps we can do three deals [simultaneously] but not five.” Not long after they received an initial green light from their respective executive committees, both firms engaged the law firm consultant Smock Stirling of Lake Forrest, Ill., and the accounting firm of J.H. Cohn LLP in Roseland. According to Deutsch, while all Carpenter equity partners will join the new firm as partners, not all will be equity partners in the traditional sense. Some will be paid their buyout from Carpenter over time based on their partnership agreement there. A few non-equity partners will be of counsel for a year and then the partners will decide what happens, he adds. Both firms have a tier system. McElroy, Deutsch uses high leverage. In the Law Journal‘s survey of 2002 of the top 20 firms in the state, the firm had 18 equity partners in a firm of 128, for a ratio of 7.1 equity partners to lawyers in the firm. That, along with lower rates paid out by insurance companies, has resulted in a firm that produces a relatively low revenues-per-lawyer number compared with a relatively high profits-per-partner number, which for McElroy, Deutsch was $472,200 for 2002. In 2002, the firm had about 42 partners.

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