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Amid Napa Valley’s rolling, grape-filled fields, Buchalter Nemer attorneys spent a recent weekend playing golf and tennis in the 80-degree weather. Over dinner in Merryvale Vineyard’s cask-lined dining room, Managing Partner Rick Cohen told his partners that the firm needs to identify younger lawyers to lead it. Later that weekend, he prodded them to ramp up business development. “If everyone keeps doing what they’ve been doing, we won’t be dramatically more successful,” he said he told his partners. “I asked everyone to figure out what they can do differently.” Standard retreat fare, to be sure. But at Buchalter, it comes with added urgency: Its anchor client, a leading subprime lender, may soon be out of business. The fate of Orange County-based Ameriquest � which lawyers at the firm say accounts for as much as 20 percent of Buchalter’s business � is one of a number of challenges facing Cohen and his firm as it struggles to maintain its position as a mid-market regional player. The firm’s headcount has been up and down over the past two decades; it went from 200 to 100 lawyers in the early 1990s, when its insurance defense lawyers left. It’s now at 150 lawyers. The firm reached $94 million in revenue in 2005, but last year, several groups of partners and associates left, sending headcount down 7 percent, and revenue per lawyer up just 2 percent. Meanwhile, the departures added to a deficit of mid-career lawyers. Cohen, who has headed the firm for four years and who partners describe as a natural salesman, says the firm’s culture � including pizza Fridays and regular cocktail hours � will be the key to its continued success: “This is a special place where partners want to be,” he says. A native New Yorker who talks with his hands, Cohen can get everyone “to drink the Kool-Aid,” one former partner says. But for some, it’s left an unpleasant aftertaste. Partners describe Cohen’s style as heavily hands-on; he walks the halls daily to see what’s going on, and if there’s a dispute between partners, he’ll invite them into his office to hash it out. He pushes out e-mail on even the most mundane matters. And he strictly enforces the expense policy and its $125-a-person cap on client dinners. While some partners says his blunt approach keeps conflicts from festering, others say it can be abrasive. Last year, Cohen was forced to address what one former partner describes as his “at-your-throat or at-your-feet” style. Cohen made an emotional appeal during a firmwide teleconference, explaining that he may come across as headstrong, but is open to working out disagreements. “He addressed it the way he addresses everything � he confronted it,” recalled partner Michael Williamson. “At times, people had issues with his style, but we all voted to keep him in place.” Cohen said he took his most recent re-election as a vote of confidence: “There are always going to be questions about style and choices, but I try to be transparent. When issues arise, my view is to address my partners � it’s the only way I know how.” SUBPRIME TSUNAMI One issue arising now is how to replace the work provided by its anchor client, Ameriquest. The privately held lender has fed Buchalter a steady stream of work in recent years. In 2005, Buchalter lawyers helped it hammer out a $325 million settlement of predatory lending claims. But the company has let 4,000 employees go over the last year amid mounting worries, on Wall Street and elsewhere, that defaults are swamping it and other subprime lenders. “It’s clear that a tsunami is hitting this industry and Ameriquest is one of the worst players � how they could possibly survive is beyond me,” said David Olson, a founder of Wholesale Access Inc., a research firm that studies market lending. Olson expects Ameriquest to go under within several months. Adam Bass, the Ameriquest relationship partner at Buchalter, did not return a call and Cohen said he didn’t want to discuss that client beyond the observation that “life is always changing, and you have to adjust constantly.” Then, he paused, wiped some imaginary dirt off his sleeve, and offered this story. In his early days at Buchalter, one client, Lorimar Productions � responsible for TV’s “Dallas” and “Knots Landing” � contributed about 25 percent of the firm’s overall revenue. Then Lorimar was bought out, and the work went away. “Today, without Lorimar, we are more successful than we’ve ever been,” Cohen said. “If we have to do that again, I have no doubt we can do it successfully.” To that end, Cohen stressed the importance of diversifying the client base at the Napa retreat this month. In a speech he gave on the lavender-covered grounds of the Vintage Inn, he implored each attorney to generate an additional $800 of new business each month. “You build by adding the little stuff,” he said. Revenue in 2006 was $90 million, a 5 percent dip, but profits per partner were up 3 percent to $615,000. Under Cohen’s leadership, the firm has moved from what he calls “the teacher’s pet system” to a compensation formula that factors in origination credit and work done, as well as a category � the firm dubs it “all sorts of crap” � for less quantifiable contributions. Equity partners know how much everyone is getting paid. “You feel like you’re in control of your own destiny,” said partner Carol Lucas, who joined the firm two years ago. But one former partner pointed out how it could be frustrating: “You look at what you make in a vacuum, and it’s all great. But I looked at some of the salaries, like what the board paid themselves, and I thought �you don’t deserve that.’” Williamson said he could see how some partners would chafe at the formula. “Partners with big business often tend to think they should be treated differently, whether it’s with compensation or reimbursement. But here, it’s the rule, whether you’re a $3 million or $1 million partner.” The approach means a partner’s compensation can soar or plummet depending upon the year� something that has been a point of contention in the past, one former partner recalled. And frustrations with the rigid adherence to the formula may have played a role in some of last year’s goodbyes. While the party line given by the people who left has been the standard “we were looking for a national platform,” some of the departures may have been spurred by disagreements with management over the compensation structure, according to parties with knowledge of the situation. One high-profile departure last year was business litigator Abraham Colman, who left with several other partners and associates for Reed Smith, taking a book valued at about $5 million. Colman did not want to go into detail about his reasons for leaving. “I have nothing to say about any of this,” he said. “The reason I left is because of the opportunity afforded by joining a law firm with a national platform.” The Orange County office also was shaken when a group including Alan Kessel departed for Manatt, Phelps & Phillips. A partner and associate also left last year for Duane Morris in San Francisco. Cohen wouldn’t comment directly on Colman or any other departures, but pointed out that though the firm’s revenue dipped slightly in 2006, revenue per lawyer edged higher, to $655,000. “If a guy’s rates are low enough, he’ll get a huge book � there are a lot of dynamics going on,” he added. In Cohen’s first years as managing partner, some partners were looking for assurances his personal relationship with the firm’s chief operating officer wouldn’t create problems. Cohen acknowledged that when word first got out that he was romantically involved with partner Pamela Webster � who preceded him as managing partner and now serves as the COO and CFO � there were some questions about the firm’s power being so concentrated in the hands of one couple. For example, the pair comprises two of the five votes on the firm’s expense approval committee. “I think people really worried about [the relationship] before, but we’ve dispelled that,” he said. Cohen says they did that by keeping the firm’s well-being a top priority, and being clear that they are comfortable with disagreeing. “We don’t govern by fiat. People view it as fortunate that me and Pam are complementary in management.” He touts another benefit as well: “We work on firm business 24-7.” Webster declined to comment. Partner Donald Lee said he remembers some attorneys’ concern when word first circulated, but, “I don’t think there has been any conduct that would seem improper or not transparent.” Williamson said the relationship hasn’t been a concern for him, and the dynamics between the two work well, though “there are some funny moments when they disagree over minor issues and Rick might say the occasional snippy comment he might not say if she weren’t his partner.” SEEING OPPORTUNITY The firm has positioned itself as a strong regional firm. It doesn’t compete for bet-the-company work with the larger firms, but tries to get a share of the smaller matters for big companies, such as Bank of America. They also target smaller companies where they can secure the majority of the legal work. It can be a sustainable strategy, recruiters say. “There is a future in L.A. for a good firm with a solid middle-market practice that can position itself with comfortable billing rates,” said Michael Schulman, a managing director for Major, Lindsey & Africa in Los Angeles. With billing rates of $325 to $500 for partners and $225 to $350 for associates, Buchalter can entice laterals from larger firms whose practices don’t support the rates big firms often require. Lucas, who joined the firm from Fulbright & Jaworski two years ago, said she’d been “in danger of being priced out of my own client market” and yet was charging her small business health care practice clients $100 less per hour than other corporate lawyers there. Williamson, who joined from O’Melveny & Myers in 2003, said he grew his book from about $700,000 his first year at Buchalter to more than $2 million today. “It’s the kind of place that if you’re entrepreneurial and hard-working, there are terrific opportunities,” he said. That entrepreneurial emphasis is going to come in handy as Buchalter attempts to diversify its client base. Cohen’s goal is to grow to 200 lawyers in the next three to five years, and to bring revenue up $10 million to $100 million next year. He’s also talking about geographic expansion, building up the offices they already have in California and Arizona and maybe moving into Nevada or Sacramento. Buchalter today is heavy on lawyers in their 50s and 30s; what’s missing is a pipeline of potential leaders in their 40s.”When Pam and I were younger lawyers, one notable characteristic of the firm was the youth � it was run by people in their 40s,” Cohen, 54, recalled. “Now we have a number of graying partners.” Cohen said his biggest project as managing partner will be to identify younger attorneys who have the potential to take the firm into the future. Lee, 40, whose business quickly propelled him through the firm’s nonequity tier to equity partnership in less than two years, could be one of them. “I definitely plan on being here and having an important role in the firm,” Lee said.Two years ago, on the heels of failed merger talks with Reed Smith, the firm’s board of directors adopted a policy that the firm will not be acquired. The merger talks collapsed, in part, because Reed Smith insisted that a quarter of Buchalter’s partners be de-equitized, Cohen said. For now, Buchalter � and Cohen � are planning for the immediate future, and well beyond. “A key goal of mine is to have us here for 50-plus more years,” Cohen said.

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