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California may be the Golden State but some of that gold seems to be moving elsewhere when it comes to the revenues and rankings of the nation’s largest law firms. Not that California’s largest firms are hurting. After all, only one such firm appearing on The American Lawyer magazine’s latest annual list of the nation’s top-grossing firms reported a revenue decrease last year. And four California-based firms either moved up or stayed in the same place in the new Am Law 100 compilation. On the other hand, eight firms dropped in the rankings at the expense of law firms based elsewhere around the country.
Chart: Am Law Top 25 in California

The combined revenue at California’s 13 Am Law 100 firms increased 8.4 percent in 2004 compared to the year before. But even that number lagged a bit behind the 10 percent revenue increase posted by all Am Law 100 firms, according to figures published in the magazine’s July issue. (The American Lawyer and GC California are both part of ALM.) The highest-ranking California firm on the Am Law 100 list is Los Angeles’ Latham & Watkins, which edged past Jones Day to claim the No. 3 spot. “I think that Latham has shown itself to be a top tier player because of its incredible growth and success in key markets around the world,” says Peter Zeughauser, a legal consultant. “I wouldn’t underestimate Gibson, Dunn & Crutcher or O’Melveny & Myers. But Latham has a much more significant footprint.” Paul, Hastings, Janofsky & Walker, also based in Los Angeles, moved up one position to No. 22 while San Francisco’s Heller Ehrman advanced one spot to No. 35. The biggest gainer, meanwhile, was Los Angeles-based Sheppard, Mullin, Richter & Hampton, which, after returning to the Am Law 100 list last year, moved ahead nine spots in the current list to No. 83. Guy Halgren, the firm’s chairman, attributes the surge to a growth push that began in 2001. Sheppard, Mullin has grown from four to nine offices since then and increased the number of attorneys from 290 to 440 during that same period, according to Halgren. Leaders at other California firms on the list offered their own interpretations of the Am Law 100 numbers. Ralph Baxter Jr., chairman at San Francisco-based Orrick, Herrington & Sutcliffe, says it’s easier for firms to make a big move on the list when they are starting toward the bottom of the chart. Sheppard, Mullin’s nine-spot jump, for example, was the result of a $31.5 million revenue gain in 2004. Orrick, however, slipped four rungs down the ladder, to No. 33, despite adding $36 million in revenue. “With all due respect,” says Baxter, “getting up from No. 92 is a different degree of difficulty than [moving up] from No. 29.” Sheppard, Mullin’s sharp move up the list was balanced out by a steep decline at Palo Alto’s Wilson Sonsini Goodrich & Rosati, which dropped back eight places to No. 54. Two years ago, the firm had been at No. 36. Wilson Sonsini was also the only one of the California firms on the Am Law 100 list to post a revenue decline in 2004. The firm reported 2004 revenues of $377.4 million compared to $381.5 million in 2003. Another firm, San Francisco’s Cooley Godward, slipped two notches to No. 70 while posting $289 million in revenues, the exact number reported by the firm for the previous year. The performance at technology-focused firms like Wilson Sonsini and Cooley Godward reflects a continuation of the Silicon Valley slump, says Zeughauser. But he also thinks the downturn “may be coming to a close, and in 2005, I think you will see a resurgence of those firms.” All told, 37 of the Am Law 100 firms � including five California-based firms � reported profits per partner above $1 million. At the top of the profits chart is New York’s Wachtell, Lipton, Rosen & Katz, which reported profits per partner of $3.5 million. Eight firms on the Am Law 100 list — all of them based in New York � said their profits per partner exceeded $2 million. Zeughauser notes that California firms have been making profit advances but aren’t likely to catch up to the New York firms anytime soon. “The elite New York firms are not asleep at the switch,” he says. Among the out-of-state firms with a significant Bay Area presence, Sonnenschein Nath & Rosenthal, Nixon Peabody and Reed Smith saw the greatest leaps on the revenue chart. Reed Smith, which acquired Oakland-based Crosby, Heafey, Roach & May in 2003, moved up two notches to No. 31 in the revenue rankings. Managing partner Gregory Jordan attributes $50 million in new business to the combination, two thirds of which came in 2004. “The transaction worked well the first year, but it was really super the second year,” says Jordan. “And we continue to gain momentum.” Marie-Anne Hogarth is a reporter at The Recorder, which publishes GC California.

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