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The bicoastal firm Thelen Reid & Priest has a lot to crow about. Fiscal year 2005 saw profits jump by a third, growth unparalleled since the firm was created in a 1998 merger. Both average billable hours and rates are up, and thanks in part to a $25 million contingent fee (recovered for the California Department of Insurance from Cr�dit Lyonnais), profits per partner rose from $589,000 to $848,000. But with all the focus on profits, the firm’s managers seem to have overlooked a stampede for the door. Since February 2005 the firm has lost 17 partners — 14 from New York — several of whom contributed substantially to its bottom line, according to former partners. From a high of 154 lawyers in 1998, the firm’s New York office slid to 136 in 2003 and is now down to 84 (50 partners, 11 counsel, and 23 associates), according to Thelen’s Web site. And they aren’t going quietly: Two former partners say they and five others plan to file individual claims against the firm, alleging that Thelen did not compensate them fairly for their 2005 contributions or for their financial support during the seven years when the contingent fee was deferred. Although the contingent fee may have been a factor in the three 2006 departures, it is unlikely to be true of the 14 who left in 2005. The contingent fee was received in early December 2005, only days after two partners, Willie Dennis and Robert Matlin, left for Kirkpatrick & Lockhart Nicholson Graham, thus forfeiting money that would have vested had they stayed another few weeks. “Those who decided in early 2005 that the firm was now clearly headed in a direction that was incompatible with their practices left,” says a partner who exited in 2005, “taking the long-term view that staying for the [California Department of Insurance] money wasn’t really worth it.” Problems at the New York office are hardly a secret. “It’s been perceived as a pretty shaky shop for the past three years,” says a New York legal recruiter, who spoke on condition of anonymity. Vice Chairman Michael Elkin, a New York entertainment lawyer who heads the litigation practice, says that only one departing partner took substantial business. “Some of the folks who left were a complete bust,” he says, referring to several laterals who joined post-merger. “They were folks who claimed they would bring in clients and didn’t end up doing so.” It wasn’t supposed to be this way. In 1998, when San Francisco-based Thelen, Marrin, Johnson & Bridges merged with New York’s Reid & Priest, the resulting superfirm was to be a blend of California’s construction, litigation, and labor-and-employment practices and the New York-based corporate practice, with an equal number of lawyers on both coasts and no home office. ESCAPE FROM NEW YORK But eight years later, the marriage is seriously lopsided, with 242 lawyers on the West Coast and 166 on the East Coast. After a seven-year struggle over firm direction, the battle is over — and the core New York group appears to have voted with their feet. Problems began the first year post-merger, when a disparity developed between profitability in the California and New York offices, says Richard Gary, a former Thelen, Marrin managing partner who served five years as the firm’s first chairman. New York partners averaged $500 an hour in 2002-03, while average rates in California remained around $350-$400 an hour, say two former partners. “Some San Francisco lawyers were saying, �Wait, I’m generating $3 million in business just like that guy in New York,’ ” says a former New York partner. “ And the New York guy was saying, �I generated that with higher rates and fewer people.’ “ Gary worked at building the more profitable practices in the New York office and spearheaded the 2002 move to a luxurious new space designed to house 220 lawyers. He also froze growth in the more rate-constrained practices. That grated on some, who rallied around two California partners — first, Charles Birenbaum, who headed labor and employment, and then Stephen O’Neal, who headed the construction practice. “The lavish investments in New York didn’t pay off,” says a former West Coast partner. Exhausted by the conflict, Gary left the firm in 2003 to do consulting. “One of the serious problems the firm had, and probably still has,” he says, is that “partners promote the interests of their own practice ahead of the [firm's] interests.” O’Neal responds tartly: “Many of the perceptions that [Gary] alluded to do not reflect the firm as it is constituted now or has been for some time.” After Gary left, Thomas Igoe Jr., a Gary ally and former Reid & Priest chair, was elected over Birenbaum by one vote. But Igoe, who did not return calls, could not bridge the divisions, ex-partners say. In April 2005, O’Neal took the helm in an uncontested election. That’s when the departures picked up speed. In the week after O’Neal was elected chairman, nine New York-based partners left, most prominently, Richard Swanson, 50, former head of the securities litigation and enforcement group, who brought his reported $5 million in billings to Arnold & Porter. At the same time, Eric Cowan, 48, a telecom M&A partner and vice chairman of the business department, went to LeBoeuf, Lamb, Greene & MacRae with four other partners. Cowan has an $8 million to $10 million book of business, several sources say. Spring 2006 brought further defections. In March, Martin Bunin, co-chair of the bankruptcy group, and bankruptcy partner Craig Freeman left for Alston & Bird. Bunin bills $3 million to $5 million a year, according to a former partner. Bunin and Freeman did not return calls for comment. As a result of these departures, New York’s corporate practice has taken a body blow, former partners say. Whereas five years ago there were 60 partners and roughly the same number of associates in the New York corporate practice, there are now 34 partners and six associates. The office has retained two corporate rainmakers: Robert Reger Jr., an energy finance lawyer, and Burton Haimes, an international transactional lawyer. (Reger carried more than $6 million in annual billings, and Haimes had $5 million to $6 million, three former partners say.) But the New York office has also lost rising stars: first, Michael Fitzpatrick Jr., in 2003, to Dewey Ballantine; then Safal Joshi, Reger’s heir apparent, in 2004, to an in-house post with Thelen client TXU Corp. In February, Gregory Pavin, 42, a transactional tax partner, jumped to Winston & Strawn. O’Neal dismisses the significance of the losses. “We’re committed to having a business practice,” he says, “and we’re committed to growing it.” GROWTH IN D.C. Recruiters say that O’Neal has been a vigorous presence in California; San Francisco-based legal recruiters praise him for strong leadership. The firm has hired a dozen lateral partners in the past year, most in Washington and San Francisco, and elevated eight associates to partner, including two business partners — but none in New York. O’Neal notes that Thelen recently lured laterals Robert MacPherson and Jeffrey Cruz to the construction practice in New York. And Eulalia Mack joined the New York capital markets practice. The New York office also plans to add nine first-years, bringing the partner-associate ratio to roughly 5-to-3. But critics say attracting top lawyers in New York will be tough. Compensation peaks around $1.3 million, with most partners earning closer to $500,000. The firm competes with roughly 40-50 national firms also trying to grow in the city, many with higher profitability. And the hemorrhaging may not be over. The New York market has been flooded with Thelen r�sum�s recently, two recruiters say. The contingent-fee windfall may also be a double-edged sword: “The money has now been paid out,” says one veteran recruiter. “That’s when people start leaving.”
Julie Triedman is a staff writer for The American Lawyer , the ALM publication in which this article first appeared.

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