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Last month, three longtime Hoge, Fenton, Jones & Appel lawyers in San Jose, Calif., left to form a new firm with a couple of associates. They’ve got plenty of company. In the past two years, more than half the firm’s lawyers have moved on and been replaced, part of what its leaders say is an ongoing transformation of the 39-lawyer firm’s practice areas that began a decade ago. Once primarily focused on insurance defense, the firm, like many peers, is angling for higher-margin work from small and midsize businesses. The early returns seem encouraging, if not earth-shattering. According to a former managing partner who left the firm almost a year ago, profits per partner exceeded $200,000. As with other firms in transition, it’s involved a lot of turnover. “Six years ago we launched into our strategic plan,” says managing partner Michael McSweeney. “As a consequence, we have brought on board attorneys with skills in the business litigation and business transaction field. Whenever there are changes, there are always people who don’t fit in.” That includes attorneys who do mostly tort defense, like the lawyers who left Oct. 1. Partners Peter Kirwan and Mark Davis, and of counsel O. Philip Young, launched six-lawyer Needham, Davis, Kirwan & Young, with Hoge associate Anne Jones Kepner and Marc Cardinal, who’d left Hoge a year ago. Davis had been with Hoge, Fenton for 23 years, Kirwan for 15 years and Young for 38. “None of us ever worked anywhere else,” Davis says. But Davis, who spends much of his time defending public entities in tort cases, said it was clear that he would either need to expand his practice area to meet the firm’s new business model or get out. “We just thought it was better for both sides to do it elsewhere,” Davis said, who called the move an exciting challenge. “It wasn’t bad blood.” Davis said fellow partners had long encouraged him to switch his practice to get higher rates. “The focus was to reorganize to get to more high-end work. I think it would have been difficult to have a 30- to 40-lawyer firm doing insurance defense,” Davis said. “I can’t fault the logic if you can bill everyone out at double.” Partners say the need to transition has been talked about since the late 1980s. Executive committee member James Towery remembers that when the firm tried raising insurance defense rates back then, “There were a group of insurers who came and picked up their files.” The lesson? “We had to get rid of the clients that paid $130 an hour for a 30-year attorney,” says Towery, a business litigator and former State Bar president. ‘MODEST GROWTH MODE’ Hoge Fenton was launched in Monterey, Calif., in 1952 and later added offices in San Jose and San Luis Obispo, Calif. At its peak, before the Monterey and San Luis Obispo offices broke away in 1993, the firm counted about 90 lawyers, the majority handling insurance defense work. With the help of consultants, the firm drafted a strategic plan in 1995 aimed at moving it away from low-margin insurance work. Today, the firm counts 20 corporate lawyers and 19 business litigators. The exit of Davis, Kirwan, Young and Kepner doesn’t mean a complete end to insurance defense. Janice Fox, the third member of the firm’s executive committee, says Hoge has kept a few higher-paying insurance clients, and a couple of lawyers continue to work on those cases. In 1999, Hoge opened an office in Pleasanton, Calif., which partners describe as an untapped market. The office relocated to a larger space this summer and now hosts nine lawyers. Partners acknowledge that, like other midsized San Jose firms, they didn’t strike it rich in the tech boom. But they say a diverse client base has its advantages. “Certainly we didn’t experience the run-ups or the highs, but we’ve laid off no one and we don’t plan to,” McSweeney says. Still, the firm’s seen many lawyers leave. Of the 44 attorneys working at Hoge Fenton in 1999, 27 have left to go solo, join other firms or change careers. Even the firm’s past two managing partners — Nora Frimann and Thomas Denver — have left, for what they describe as personal reasons. Denver, who left at the end of last year to start a mediation firm, said his departure had nothing to do with the firm’s per partner profit figure — which he pegged at more than $200,000 — or its strategic plan. “From what I’ve heard from friends at the firm, the attitude and morale seem to be pretty good,” he says. To replace the lawyers who’ve left, Hoge has hired 21 new attorneys in the past two years, absorbing small firms and solo practitioners as well as recruiting summer associates. Partners acknowledge the sometimes painful effects of the firm’s refocusing, as well as the attrition caused by the red-hot economy in the late 1990s. But they say Hoge is hardly unique. “What we are experiencing is not that different than what our competition firms are experiencing,” says Towery. He and other partners say the firm is now in “modest growth mode,” emphasizing its real estate, estate planning and employment law practices. While the firm’s new practice areas put it in a field crowded with competitors, partners are optimistic. The firm is close to signing a new 10-year lease on its Market Street offices in San Jose, and plans to add lawyers in Pleasanton. Meanwhile, Davis, the partner who left last month, says the split has been amicable. He said his old firm had even referred a client. And he says the firm is about where it wanted to be when it drafted its strategic plan. “I think the lawyers who are still there are busy and are developing their practices. It’s just smaller volume. I think it’s overall positive,” Davis said. “If you look at the number of people who’ve left, the impression could be that firm is falling apart. But if you are inside the firm you know why people left.”

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