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They are unlikely competitors — two law firms in very different weight classes. Headquartered in New York, Skadden, Arps, Slate, Meagher & Flom boasts more than 1,300 lawyers. In Washington, D.C., Elias, Matz, Tiernan & Herrick can muster just 17 lawyers — 20 if you count of counsel. The firm isn’t even large enough to be included among the 846 listed in the Law Firms Yellow Book. Yet both were among the most frequently used firms when financial companies needed lawyers to solve litigation problems, according to The National Law Journal‘s annual survey “Who Defends Financial America.” Elias Matz didn’t beat Skadden Arps in clients represented. Skadden finished first with 13 financial companies. But Elias Matz tied for first among savings institutions and tied for 10th place overall. Even more surprising, Elias Matz doesn’t employ any litigators and, in its 29-year history, has never litigated a single case. It isn’t as strange as it sounds. Elias Matz advises clients on litigation, hires litigators on their behalf, assists and monitors these lawyers and occasionally even reins them in. It acts, in many ways, the way a general counsel does. Why? Few financial institutions have more than a skeletal legal staff; many employ no full-time lawyers at all. Even those that do have lawyers are rarely prepared for the sort of complex litigation that is Elias Matz’s specialty: lawsuits that complete a merger, win a proxy battle or thwart a takeover. Lawyers who work at financial institutions mostly oversee mortgages, loans and compliance with banking and consumer laws, says Raymond Tiernan, a partner at Elias Matz. When they find themselves facing a large problem or a large opportunity, with a lot of money involved, they are often only too happy to seek help from “people who do complicated cases all the time,” Tiernan says. “We’re highly specialized,” he explains, “so when we’re called in, it’s usually for a very specific purpose. For example, we may be engaged to assist a company with a merger. In connection with that transaction, litigation could ensue.” Almost every time his firm has assisted a client with litigation, it had a prior relationship with the company. In the majority of those cases, Elias Matz worked on the transaction that became the subject of the litigation. A BROOKLYN BANK Independence Community Bank Corp. of Brooklyn, N.Y. is a case in point. Independence and its counsel, John K. Schnock, have used Elias Matz more than once in recent years. When Independence acquired Bay Ridge Bancorp in 1996, Schnock didn’t hesitate to call the firm, as his predecessor had. Tiernan assisted in negotiating the deal, securing regulatory and stockholder approval, and closing the deal. He also helped respond to a suit filed by a Bay Ridge stockholder unhappy with the purchase price. Schnock is his company’s only lawyer. Most of the litigation for which he usually hired outside counsel involved real estate foreclosures and “nuisance-type lawsuits,” he says. He didn’t know any firms in Delaware — where Bay Ridge was incorporated and where the lawsuit was filed — until Tiernan recommended Wilmington’s Potter Anderson & Corroon. After Independence hired the firm, Tiernan “kept track of [the lawsuit], offered help and suggestions — basically helped us see it through” until the case was dismissed, Schnock says. Timothy Matz, Elias Matz’s managing partner, says that when a company faces litigation and asks for assistance, his firm generally recommends three law firms — three because conflicts are common, especially when proxy fights are involved. Venue, legal issues, quality and cost are all taken into account. Tiernan sometimes asks firms to submit proposal letters and always suggests that they emphasize cost control, he says. “Our clients tend to be cost-conscious,” Matz agrees. “Most banks are. They tend to look not only for the best lawyer, but the best lawyer at the price. “Law firms tend to charge what the market will bear. We’re conscious of hourly rates, so we know what people should be billing.” The billing range, he adds, is anywhere from $250 to more than $600 an hour. And the hours are “sometimes open-ended. Sometimes these things go on and on. Litigation is probably the most profitable part of the law business.” HIRING LITIGATORS In the early days, back in the 1970s, when Matz found himself working on deals opposite firms like Skadden Arps, he asked whom they used for litigation. But these days, he generally recommends lawyers he has worked with before. As examples, he rattles off the names of four firms: Washington, D.C.’s Miller & Chevalier; Philadelphia’s Drinker Biddle & Reath and Saul Ewing; and Los Angeles’ Manatt, Phelps & Phillips. “In any law firm,” he says, “it’s not so much the firm as the individuals you get on a project. And you can’t always control that.” Furthermore, lawyers perfect for one case may be wrong for another. “Someone has to look at the cost and the benefit,” Matz says. “You can derive satisfaction out of suing and trying to redress your grievance, but at some point, it doesn’t make sense anymore. And someone who is a little more dispassionate than the people involved has to make that determination.” He points to a case involving a default on a $20 million loan for a housing development. Two lenders — one of them his client — are locked in litigation. To fight the suit, Matz brought in a firm that had been “very effective” implementing an anti-takeover strategy, he says. But it has been taking depositions for a year, and costs are piling up. They think they’re doing a good job of litigating, Matz says, and they probably are, “but it’s not worth it.” The case has already cost his client $500,000 and will cost nearly half as much again just for depositions. Then they go to arbitration. Matz recommended a settlement three months ago, but his client “can’t quite let go.” That makes his law firm a kind of HMO of the litigation industry. “If the client is only addressing the litigators, who have a direct financial interest,” he says, “there’s a fundamental tension there. I think you should have third-party advice — someone who doesn’t have a direct financial interest. We serve as the guard at the gate.” One reason litigation spins out of control, he says, is that companies enter into it without clear goals. When a company is contemplating a lawsuit, Matz says, “before you even get involved, you have to have an exit strategy. You have to know how this is all going to end. A good litigator for a plaintiff is someone who is going to advise you of all the pitfalls before you even file the papers. “When you’re the defendant,” he says, “a good litigator should advise you whether you should just settle it immediately, depending on the strength of the case, or litigate it. And to what point.” When David Campbell was considering litigation a few years ago, he was glad to have Matz’s advice. Campbell, now chairman of the board of Harbourton Financial Corp. in Tysons Corner, Va., was then on the board of the company that became Harbourton, and that board was badly split. Campbell was in the minority and sought out Matz, who had helped him when he worked at another company. The first thing Matz did was help the board work out a compromise. “I gained a great deal of respect for Tim because he doesn’t push the litigation,” Campbell says, calling Matz “a builder of consensus.” This time, however, the board reneged on the agreement, and Campbell concluded that a lawsuit was necessary after all. Matz “was able to go into the mode very efficiently of assisting us in the litigation,” Campbell says. “He helped us understand what our next step would be. I am a banker. [Securities and Exchange Commission] litigation and corporate governance is not something that many of the independent directors had been directly involved in.” On Matz’s advice, Campbell’s independent directors hired Tony Trenga of Miller & Chevalier, who has worked with Matz as lead litigator on a half-dozen cases in recent years. During litigation, Trenga says, “Tim is the quarterback.” They work well together, he says, because Matz knows “I’m going to be involving him in all the tactical and strategic decisions.” Typically, Matz informs clients of developments and sometimes helps prepare them for depositions, Trenga says. Clients often profess “all they want to do is get in there and tell the truth,” he adds with a laugh. Matz readies them for lines of questioning they haven’t anticipated. As the liaison between the lawyers and the board, Matz “brought the legalese from the litigators back to the business approach of the directors,” says Campbell, whose faction ultimately wrested control of the company. HOURLY RATES For the services he offers, Matz bills $395 an hour, he says. His colleagues typically bill $325 an hour. When litigation is involved, their bills never amount to more than a small fraction of his clients’ legal fees, he says, and they usually save much more than they cost. “These are continuing clients for us, and if our bills get out of line, they get very unhappy.” In many instances, he adds, clients view his firm as their general counsel and have a monthly fee budgeted. If there are overruns, there will be problems. “While it’s a huge business,” Matz says of banking, “it’s a very small community. You don’t want to develop a reputation as delivering the smallest number of services for the highest cost.” Most of their business, he adds, is “word-of-mouth.” That’s the only way they can compete against Skadden and the rest. So far, Elias Matz has done that surprisingly well. As Tony Trenga puts it, “It’s remarkable that they can compete with some of the largest securities shops in the country.” “Banks are always merging,” Matz says, “and there’s always an aggrieved or a greedy shareholder out there. It’s a great business for lawyers.” Related Charts: Most Frequently Mentioned Firms The NLJ Client List: Who Defends Financial America

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