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Over the last two years, San Francisco-based Howard, Rice, Nemerovski, Canady, Falk & Rabkin closed its only two satellite offices and suffered a spate of partner defections. But the firm’s leaders are putting on a happy face. They say they’re glad to be rid of the overhead of the Orange County and Silicon Valley, Calif., outposts and lament the departed partners only to the extent that they’ve lost some good friends. Instead of moping about their losses, they say they’re basking in the glow of high-profile bankruptcy work for Pacific Gas & Electric Co. and handling Charles Schwab’s $3.2 billion acquisition of U.S. Trust. And they offer up Howard Rice as a model of a mid-size firm that works. With a reputation for exclusivity, the 44-year-old firm prides itself on slow measured growth and a low partner-to-associate ratio, which keeps the firm small and gives associates more hands-on experience. Its 58 partners and approximately 70 associates focus on litigation and transactional work for both new and old economy clients. Partner Larry Rabkin, the unofficial spokesman of the firm, blames the lawyer departures on a misperception: “Many of the larger firms promoted the impression that midsize firms could not survive, and I would not be surprised if some fear was engendered that, in the swirl of consolidations, our firm would be acquired.” Ironically, Rabkin said, Howard Rice just had its best year ever and is still doing extremely well, despite the economic downturn. “Many of the firms that questioned the viability of the midsize firm are the ones who are laying off significant numbers of lawyers and are extremely publicity-shy about their contraction.” The publicity-shy firm does not disclose profits or revenues. But a few senior partners who spoke on the condition of anonymity said profits per partner averaged out at $780,000 for 2000 and net profits were between $45 million and $47 million. Rabkin and managing partner Stuart Lipton said in 2000 the firm saw record profits and victories in cases for clients including Montgomery Securities and Major League Baseball. It also saw the firm undertake transactional work on behalf of Thomas Weisel Partners and IP work on the merchandising rights for the upcoming “Lord of the Rings” film trilogy. The firm also recently acquired three lateral partners, including IP lawyer Neil Smith, who left Limbach & Limbach when it went under. The firm’s leaders contend these successes offset the losses of the last few years, when the satellite offices closed and a total of 12 partners were bled from those locations and from Howard Rice’s San Francisco headquarters. The bulk of the lawyers who left were IP practitioners, who said they were drawn to firms with national and international offices, as well as patent prosecution groups, which Howard Rice does not have. “Some people feel that if they have a different platform it’s easier for them to succeed, but that’s not necessary for us” to succeed, Lipton said. But the lawyers who left said they found greater success outside of Howard Rice. “They have some great lawyers in their core areas of financial services and litigation, and I think they’ll continue to have success there,” said IP lawyer Anthony de Alcuaz, whose jump from Howard Rice to McDermott, Will & Emery last summer precipitated the closing of the firm’s Silicon Valley office. “Where they have stumbled a little is in trying to expand out of San Francisco and trying to get out of San Francisco. It just hasn’t worked for them.” But Lipton and Rabkin insist the firm is actually a better place since being relieved of the challenges of trying to integrate outlying offices into the rest of the firm. “If you can get everyone under one roof it’s just a better, more collegial environment,” Rabkin said. The Palo Alto, Calif., office closed when de Alcuaz left last summer, soon after the office’s strongest corporate lawyer, Daniel Winnike, left for Fenwick & West. Partner Joseph Greco also left for Skjerven Morrill MacPherson. “It became clear to me that it was going to be difficult to succeed in my practice area in the Valley as a partner at Howard Rice,” said de Alcuaz, who had helped open the office late in 1997. De Alcuaz said he wanted to work at McDermott because of its large national IP practice and its higher profits per partner. (Profits per partner at McDermott topped $850,000 last year.) “Since I’ve been here this has proved out,” he said. Lipton and Rabkin said the firm has been able to service its Silicon Valley clients seamlessly from its San Francisco office. Howard Rice’s Orange County office opened in 1990, but lost some of its momentum three years ago when partner Fay Morriseau also jumped to McDermott, taking with him clients GTE, Cabot Corp. and Compaq Computers. Shortly after, partner Robert Weil also left and is now at McDermott. But the death knell for that office came in the fall, when rainmaker William Rooklidge and the office’s founding partners, Martha and Robert Gooding, were given a more appealing offer by Howrey Simon Arnold & White. The lease was transferred, and Howard Rice’s Orange County office became Howrey Simon’s Orange County office. “It was an opportunity we just couldn’t pass up,” said Martha Gooding. “Howrey had an international platform with international litigation and IP, and it just fit beautifully with our practices.” Rabkin called the Orange County office a “litigation outpost,” and said lawyers there were spending a lot of time supporting lawyers in Northern California. Attorneys in that office said they were busy with their own books of business, much of which went with them when they left. “We didn’t succeed in building an indigenous client base there,” Lipton said. “It wasn’t an abject failure, but it needed to make more money to justify keeping.” Two winters ago, Howard Rice’s IP group took a double hit when partner Patricia Thayer headed to Heller, Ehrman, White & McAuliffe, and Laurence Pulgram jumped to Fenwick & West. At Fenwick, Pulgram began his high-profile litigation on behalf of Napster. “They have more of a general litigation practice than a high-tech litigation practice,” said Pulgram, who said he was drawn to Fenwick because of the depth of its IP and high tech practice. And last month corporate partners Paul Rogers and Ross Meador left the San Francisco office for Preston Gates & Ellis, Rogers bringing with him the cache of having recently ushered Israel-based Verisity through its IPO. But trademark head Susan Heller let out a gasp when asked whether the firm’s IP practice has suffered with the departures of the last few years. “Our IP practice right now is exploding,” she said, adding that about 17 lawyers are doing transactional and litigation work in IP. “In the seven years I’ve been here it’s never been this busy.” Heller said IP rainmakers Ken Hausman, Ray Haas and Ronald Star are busy serving clients The Gap, Starbucks, American Express, Hewlett-Packard, Time Inc., Esprit, Barclay’s Global Investors and The Wine Group. But echoing what some of the departed had said, Heller acknowledged that the lack of a patent prosecution department may have prompted some talented lawyers to seek firms with such groups. “We haven’t made a decision about whether to do patent prosecution,” she said, pointing out that many lawyers don’t want to be conflicted out of future litigation work by writing patents now. Rabkin and Lipton insist it is a virtue of the firm to not make rash decisions about growth, and to take slow, measured steps. “We’re smaller, we’re more agile,” said Lipton, who thinks the firm is more favorably positioned for an economic downturn. “We’re not as dependent on a particular area as other firms.” “We’ve never grown helter skelter just because we could get more work,” Rabkin said. The slow growth shows in the firm’s low partner-to-associate ratio, which is 1.2 associates per partner. By comparison, the average for the Bay Area’s 10 highest-grossing firms is 4.35 associates per partner. While many firms have worked to increase leverage, Rabkin said the low partner-to-associate ratio allows work to be staffed by nearly as many partners as associates. And associates say they are getting to work side-by-side with partners — instead of being relegated to less meaningful roles. “The minute I started trademark work I was dealing with clients really quickly,” said associate Alison Shames, who started off four years ago in litigation but was allowed to transition into the corporate group. “They’ve definitely allowed me to build my career on my terms.” First-year litigation associate Clara Shin came to the firm last fall off of a White House fellowship because she wanted to be at a place that was at the forefront “of issues of national importance.” She’s working on the PG&E bankruptcy team and says she’s thrilled with the experience the firm has given her — especially when she hears about the experiences of associates who get “trapped” doing menial work at larger firms. “Because the ratio is what it is I work so closely with partners and feel I’m advancing more quickly,” she said. “I know I’m sounding like a cheerleader — and I’m really not that kind of person. I guess it just reflects how very happy I really am here.”

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