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If it’s tough to be tiny, it’s even tougher to be small and specializing in insolvency. San Francisco bankruptcy boutique McNutt & Litteneker began shedding attorneys in the summer of 2005 in tandem with a drop in business. The firm several years ago had 10 full-time lawyers � eight of whom were associates. Last week’s departure of its three remaining associates have name partners Scott McNutt and Rebecca Litteneker not just running the show � they are the show. Gregory Nuti, Kevin Coleman and Christopher Hart, all senior associates who had been with McNutt for at least five years, last week joined the San Francisco office of Philadelphia-based Schnader Harrison Segal & Lewis, forming the foundation for that firm’s West Coast bankruptcy practice. Lawyers in the bankruptcy field say it is a rare boutique that is growing � or even holding steady today. Even at large firms, bankruptcy specialists have retooled to handle other types of work until the next upturn. Notorious for running counter to the general economy � the bankruptcy practice booms in recession and wanes when business is strong. The most recent downturn in bankruptcy work hit McNutt & Litteneker especially hard. But some former M&L lawyers say it wasn’t just the economy that thinned the ranks. They point to a loosely knit culture, associates who were under-challenged, and limited opportunity for professional development. Former associate Sarah Borrey, who joined Ropers, Majeski, Kohn & Bentley in March 2006, said a primary reason for her move was a desire to expand into corporate transactional work. Yet working on one bankruptcy case and handling administrative tasks at M&L meant “I was less busy than I could have been,” Borrey acknowledged. Other former M&L lawyers said there were few opportunities for advancement. For Coleman, Nuti and Hart, the move to Schnader meant they would immediately become partners. Hart, for example, joined McNutt in 2001 as a fifth-year associate, meaning that he was a 10th-year associate at the time of his departure. “Was [advancement] the reason? No,” Hart said. “Was it something I had to consider when evaluating the opportunity that Schnader made me? Yes.” Schnader is a national firm with six offices east of the Mississippi, including New York and Delaware. “If you’re doing bankruptcy, that’s where you want to be,” Hart said. Founded in 1999, M&L never had more than the two name partners. Litteneker, who is managing partner, declined to address the topic of professional advancement. “We feel as employers and professionals that it’s inappropriate to comment on personnel issues,” she said. She did say, however, that the firm is currently recruiting people to be on partnership track. At M&L, Borrey said she worked closely with the three senior associates who most recently left. “I reported to Chris, Kevin and Greg,” she said. “We didn’t see much of the partners. Now I work on a daily basis with the partner I work with and we’re in the trenches together, and that’s how you learn the most.” M&L has a good reputation in the bankruptcy community, Orrick, Herrington & Sutcliffe partner Frederick Holden said, adding that the firm has been particularly strong and well-established in representing the official creditors’ committee in Chapter 11 cases. They earned their stripes in the [email protected] bankruptcy, he said. “It’s a fortunate bankruptcy lawyer whose practice is growing or steady at the moment,” Holden added. “It’s a shrinking pond.” McNutt said the departures came as a surprise. “This is an unexpected situation causing us to accelerate our recruiting efforts,” McNutt said, acknowledging that it won’t be easy to find the attorneys they seek: those with at least three or four years of bankruptcy litigation experience. M&L tapped a recruiter several months ago, McNutt said, but has yet to make any hires. In the meantime, he said, contract attorneys provide support. McNutt continues to represent about 140 former employees in the Brobeck bankruptcy and several cases that are in final stages, including Webvan and [email protected] McNutt said new work has rolled in. The firm represents the Chapter 11 trustee in the Connaught Capital Partners case and handles litigation connected with the Legacy Vineyards bankruptcy. The firm also represents two New York hedge funds in various matters. How fast M&L is able to bounce back will depend on its ability to attract new lawyers. Boutiques are more subject to downturns in the bankruptcy business, said Skadden, Arps, Slate, Meagher & Flom’s West Coast restructuring practice leader Van Durrer II, because large firms have the luxury of hiring and training bankruptcy lawyers at a time when they won’t necessarily be busy with bankruptcy work � they can handle corporate or securities matters instead. “I think their challenge is attracting [talent] because all a boutique firm has to offer is the work and professional advancement,” Durrer said. “And in this environment it’s challenging for such a firm to demonstrate either one.”

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