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Things look glum for the Washington office of Cleveland’s Arter & Hadden. The office has lost more than 40 percent of its partners and nearly 70 percent of its associates since 1998 — bringing the overall head count from 90 to about 50. Since October, at least six D.C. partners have left, including the head of Arter & Hadden’s firmwide litigation practice and two former members of Congress. A seventh partner has said she will depart within a month. Associate defections have run rampant, knocking the ratio of expensive partners to moneymaking associates way out of whack; most firms have more associates than partners, but the current leverage in Arter & Hadden’s D.C. office is two partners for every associate. As a result, the depleted firm was forced to sublease 14,000 square feet of its K Street offices. And last year, the firm’s average partner profits sank more than 10 percent. Arter & Hadden communications partner Howard Liberman puts the firm’s predicament bluntly: “You make more money if you go someplace else.” Eight former Arter & Hadden lawyers, who spoke with Legal Times on the condition that their names not be disclosed, attribute the firm’s woes principally to a disconnect between firm headquarters in Cleveland and the District’s fiercely competitive legal market. It’s an irony of the white-hot market that Arter & Hadden faces increased pressure to perform well but has not garnered more of the region’s booming legal business. The firm’s plight serves as a reminder that in this town with nearly 200 branch offices, some will hit hard times. And in an era when a firm’s bottom line often seems to matter most, the divide between the haves and the have-nots has never seemed greater. ‘A CULTURAL STRUGGLE’ Rooted in a city with a more leisurely pace and lower billing rates than Washington, 400-lawyer Arter & Hadden has been slow to embrace the mechanisms necessary to boost profitability — such as enforcing higher standards of productivity for equity partners. And as a result, the once-flourishing D.C. office has been unable to hold on to attorneys, say those who have left. “There’s a cultural struggle going on inside the firm that is causing it to kind of run in place,” says one former partner. “In Cleveland or Columbus, a partner might be perfectly happy making $130,000 a year and having a nice quality of life. But in D.C., more profitable firms are able to pick off our partners.” Firm leaders acknowledge that the D.C. office has had trouble keeping pace with the competition. “We are trying to meet the market, but it’s a real challenge right now because Washington is so darn hot,” says Arter & Hadden’s Cleveland-based managing partner Stephen Ellis. D.C. managing partner Philip Horowitz says that 1999 was a disappointing year, but that the firm is committed to rebuilding the Washington office. Per-partner revenue figures for the first six months of 2000 show six-figure gains on 1999, according to Horowitz. “We’re starting to pick up momentum,” he says, noting the recent lateral addition of intellectual property partner Robert Rathbun, formerly of counsel in the D.C. office of Baltimore-based Venable. Including Rathbun, the firm has added three intellectual property partners in 2000. “We don’t think our current size or even the size we were in 1998 is our optimum size. We are currently engaged in discussions with a number of individuals, as well as groups,” Horowitz adds. But while management pursues expansion, some Arter expatriates predict more departures in December, when it is most financially advantageous to exit the partnership. Partners choosing to leave the firm at other times of the year may forfeit portions of their capital accounts, says one former partner who took a personal hit upward of $50,000. Horowitz says firm management is taking steps to ensure that won’t happen. “In the past, we’ve had more departures at year-end than at any other time of the year because that’s the most profitable time. That’s among the things we’re addressing,” he says. LEAVING OHIO BEHIND Arter & Hadden’s D.C. office, founded in 1978, was the firm’s first venture outside Ohio. Initially an outpost to serve Cleveland-based clients in the nation’s capital, the firm’s Washington presence grew steadily in the 1990s, doubling in size from 1993 to 1998 with the addition of several boutique practices. But in 1999, the office suffered a series of demoralizing partner defections, including product liability litigator Adele Baker, who left private practice entirely, and trademark attorneys David Wilson and James Bikoff, who joined D.C.’s Bagileo, Silverberg & Goldman — now Silverberg, Goldman & Bikoff. On the lobbying front, former Rep. Dennis Eckart, D-Ohio, joined the D.C. office of Cleveland’s Baker & Hostetler, while former Rep. James Chapman, D-Tex., left for the D.C. office of Houston’s Bracewell & Patterson. The firm’s lobbying revenues dropped from nearly $4 million in 1998 to $2.6 million in 1999. In September, recently recruited patent litigators Don Pelto and Jeff Schwartz left for McKenna & Cuneo after less than two years at the firm. And at the end of the year, labor partner David Shaffer moved his practice to the D.C. office of Thelen Reid & Priest — a move followed by the departures of structured finance partners Joseph Gatti and Michael Murphy for, respectively, the D.C. offices of Akin, Gump, Strauss, Hauer & Feld and Chicago’s Katten Muchin & Zavis. THE UNKINDEST CUT Perhaps the biggest blow, however, was firmwide litigation chairman Paul Friedman’s January move to Philadelphia’s Dechert Price & Rhoads — now known as Dechert — after more than two decades at Arter & Hadden’s D.C. office. “I spent a lot of years at Arter & Hadden, and I have a lot of friends there,” Friedman explains. “I just found there was a better platform for me. I was able to provide more support to my clients,” says Friedman, who joined the firm in 1978 fresh out of law school. Horowitz downplays the departures, noting that, of the attorneys who have left the D.C. office, only one was among the firm’s 25 top-grossing partners. “Partners leave firms for a variety of reasons, and we’re no different,” he says. “Some people left due to conflicts. In some instances relationships just didn’t work out.” Horowitz concedes that the office’s 2 to 1 partner-to-associate ratio is cause for some concern. “Two-to-one is clearly not where we want to be. We’ve had some losses because of the turmoil this year,” he says. “The firm typically has been more in a one-to-one ratio.” Ellis, Arter & Hadden’s firmwide managing partner, points out that attrition in Washington has been unique; the firm’s 12 other offices in Ohio, California, and Texas continue to grow. “We have spent the past five or six months trying to get our arms around why that is,” Ellis says. “I think a lot of the departures have been driven by the velocity of Washington as a city. Lawyers in Washington are much more mobile than any other city where we have an office.” Former Arter & Hadden lawyers, however, are quick to point fingers at Cleveland for the hard times in Washington. “There was always an outflow of money, never an inflow,” complains one. “We worked up to D.C.-level standards, and no other office in the firm did. It was quite acceptable for associates to bill 1,500 hours in other offices.” Another suggests that the firm failed to appreciate how important profitability was in recruiting laterals. According to law firm consultants and managing partners, such grievances are hardly unique to Arter & Hadden. Indeed, most law firms based in smaller legal markets — such as Cleveland, Pittsburgh, or Milwaukee — face similar problems as they expand into Washington. “These firms are usually king of the hill in the city they’re from, and here they’re not,” says Lisa Smith, a D.C.-based consultant with Hildebrandt International Inc. “The management view is limited because in the firm’s primary location they have no trouble getting business.” Peter Zeughauser, a legal consultant based in Newport Beach, Calif., says lower billing rates of firms based in secondary cities can hurt them in top markets. “It’s extremely tough for those firms to make it in Washington,” he adds. “The profit levels in the secondary markets don’t allow firms to pay competitive compensation.” Of course, it’s not impossible for firms based in smaller cities to thrive here. Just consider Cleveland’s Jones, Day, Reavis & Pogue. A 54-year fixture in Washington, Jones, Day’s D.C. office has grown to more than 180 lawyers. “It was a different time when they did it,” says Zeughauser. “Raiding offices and attorneys jumping from one law firm to another wasn’t the way the world worked in those days.” WHAT NOW? Despite the challenges, Arter & Hadden seems committed to bouncing back from a rough year and strengthening its D.C. office. The firm recently hired a new executive director to implement rigorous collection policies, a deficiency in the past that contributed to last year’s disappointing profits. In January, Horowitz, a partner widely respected by his colleagues, replaced longtime office leader Richard Dean and has been working to recruit laterals, particularly intellectual property lawyers. Communications partner Liberman, who joined the firm in 1982, says he tries to keep the difficulties in perspective and learn from them. “A number of different people left us for a number of different reasons. You can’t avoid the fact it’s depressing” Liberman says. “On the other hand, 48 isn’t that small.”

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