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ARNOLD & PORTER: BACK ON TOP Thanks to a terrific year, Arnold & Porter edged out Hogan & Hartson for first place in the annual rankings of the 20 highest-grossing law firms in the Washington, D.C., metropolitan area. Revenue rose to $206 million last year from $185 million the year before, an 11 percent jump. That put Arnold & Porter just ahead of Hogan & Hartson, which had held first place for three years running. “We had a lot of growth last year, but there is no single explanation,” says managing partner James Sandman. “Our litigation practice continued to be very strong, both in traditional areas like product liability and in newer areas like intellectual property.” Although Arnold & Porter’s overall revenue was just slightly ahead of Hogan’s — $206 million vs. $203 million for Hogan — the firm clobbered Hogan in revenue per lawyer. According to the D.C. 20 survey, there was more than a $200,000 difference between the firms, with Arnold & Porter’s per-lawyer revenue at $640,000, compared with $410,000 at Hogan. Neither Sandman nor Hogan’s managing partner, J. Warren Gorrell Jr., want to speculate on why the gap was so large. “Our principal competitive advantage is to help clients at the intersection of business and government,” Gorrell says. “We need a diverse practice to be able to do that.” He adds, “We did a good job in 2000.” Among Arnold & Porter’s big cases last year was the copyright infringement suit that its client, Universal Music Group, brought against MP3.com in the U.S. District Court for the Southern District of New York. The firm won record damages of $53.4 million in a settlement reached in mid-November. Arnold & Porter also represented General Electric Co. last year and this in its successful bid for Justice Department antitrust approval of its $45 billion purchase of Honeywell International Inc. The Justice Department approved the merger in early May, but the deal appears to have run aground in Europe over antitrust objections by European Union officials. Arnold & Porter did not handle the European application. “Our transactional practice has continued strong, and our regulatory practice is very busy, especially antitrust,” Sandman says. He notes that the firm’s intellectual property litigation practice is growing and busy. “We hired a number of patent litigators in 2000 and continued to add more this year.” This isn’t Arnold & Porter’s first time in the top slot of the annual revenue and profits survey. For many years, Arnold & Porter was the local revenue leader until Hogan overtook it in 1998. “Being first in total revenue in this market is not a particular goal of ours,” Sandman says. “We are functioning in a national and international marketplace, and we focus on the strength of our practices and their profitability.” – Claudia MacLachlan DICKSTEIN SHAPIRO AND SHAW PITTMAN: GROWTH SPURT The standout revenue gainers last year among the D.C. area’s biggest law offices were two home-grown firms: Dickstein Shapiro Morin & Oshinsky and Shaw Pittman. Dickstein’s revenue jumped a whopping 33 percent — to $134 million from $101 million — for the biggest percentage increase recorded by any of the 20 largest firms. The boost pushed Dickstein into 10th place on the D.C. 20, up from 12th the year before. Shaw Pittman rose to 5th place — from 10th the year before — due to a 31 percent rise in revenue. Gross income shot up from $117 million in 1999 to $153 million in 2000. Others also showed remarkable revenue growth: Covington & Burling and Morgan, Lewis & Bockius grew by 23 percent, while Swidler Berlin Shereff Friedman registered a 22 percent increase. But no others approached the rise exhibited by Dickstein and Shaw Pittman. Both firms attribute the gains to “disciplined” growth and busier practices. Shaw Pittman added 65 lawyers to bring its total head count in Washington to 342, while Dickstein added 30 for a total of 238 lawyers in the D.C. metro area. Dickstein managing partner Angelo Arcadipane points out that his firm had resisted the stampede to Northern Virginia and focused instead on New York, where it added a 25-lawyer firm at the beginning of this year, boosting that office to 45 lawyers. “A lot of people told us we should be in Tysons Corner [Va.],” Arcadipane says. “But our strategic plan calls for us to grow in New York in the corporate and finance area.” Despite the addition to its New York practice, Arcadipane does not expect a replay of last year’s record revenue performance, noting that the firm handled some big, one-of-a-kind cases last year. For example, Dickstein represented the Potomac Electric Power Co. (Pepco) in the $2.65 billion sale of its electric generating assets to Southern Energy Inc., and it represented three Northeast power companies, among them the Consolidated Edison Company of New York, in the $903 million sale of generating assets. At Shaw Pittman, managing partner Paul Mickey Jr. attributes the strong revenue growth to basic “blocking and tackling.” He says the firm did not intend to add so many lawyers, but came across opportunities it could not resist, like acquiring the dozen-member patent group from D.C.’s Crowell & Moring and a zoning group that became available from D.C.’s Wilkes, Artis, Hedrick & Lane. The firm more than doubled its Tysons Corner office. (Outside Washington, the firm added offices in Los Angeles and doubled the size of its London office.) Like Arcadipane, he does not expect to repeat last year’s revenue performance. “That much growth puts a strain on all your systems,” Mickey says. “We will grow, but we will also consolidate and make sure all the different parts are integrating well.” – Claudia MacLachlan HOWREY: WHISTLE WHILE YOU WORK Howrey Simon Arnold & White’s 2000 profits seem to defy logic. How did D.C.’s Howrey & Simon — a firm with profits of roughly $575,000 per equity partner in 1999 — absorb Houston’s Arnold, White & Durkee — a firm with profits per equity partner of roughly $350,000 — and see average profits per partner soar to $769,000? The simple answer is that antitrust and intellectual property — two of Howrey’s specialties — are in high demand. The firm’s roster of Fortune100 clients includes the Procter & Gamble Co., Texaco Inc., and PepsiCo. Inc. But there’s more. Howrey’s dramatic gains in its first year post-merger required a combination of controlled growth, shrewd management, and sometimes difficult decision making. “We did a lot of reorganizing last year,” says chairman Robert Ruyak. “Everyone in their brain was saying, ‘This is going to save us money.’ It’s been very satisfying to see some of those theories prove true.” In 2000, Howrey added approximately 200 lawyers through the merger with Arnold White and a series of smaller acquisitions, including the addition in April of more than 20 lawyers from what was then D.C.’s Collier, Shannon, Rill & Scott. Howrey was able to absorb the growth without making significant new investments in real estate, technology, or support staff, Ruyak says. For instance, in Washington and in Menlo Park, Calif., Arnold, White & Durkee lawyers moved into Howrey office space following the merger. In addition, Ruyak estimates the firm saved millions of dollars when it combined the two computer networks of the legacy firms. The equation — increasing revenue while holding overhead steady — led in part to the firm’s highest profit margins ever. “From the merger we believe we achieved some unique efficiencies,” says Barbara Preston, Howrey’s chief financial officer. “The firm’s investment in finance, accounting, technology, and marketing is now spread over a larger population.” But perked-up profits did not come from growth alone. In the aftermath of the merger, Howrey also made controversial cuts, shedding practices and individuals no longer seen as fitting into the firm’s goals. Among the groups affected were Howrey’s government contracts, energy, environmental, and international trade practices. Firm management also urged a handful of partners nearing retirement to give up their equity status. “We made some tough decisions last year,” Ruyak says. “We had made a decision to narrow our focus to three or four groups and there were folks that just didn’t fit anymore.” Ruyak says the majority of the departures and retirements were on friendly terms. But some former partners say Howrey’s glowing financial picture hides serious cultural problems. “It’s a firm of fiefdoms,” says one former partner. “Everyone is out for themselves and not for the group. There is a real disconnect between who is doing the work and who is getting credit for the work.” Factoring in the departures, Howrey’s national head count increased from 325 to 435 lawyers in 2000. Meanwhile, the firm’s top tier of partners and those divvying up the largest share of firm profits grew at a far lesser rate, climbing from 89 in 1999 to 94 in 2000. Although the firm added 27 equity partners through its merger with Arnold White and the acquisition of lawyers from Collier Shannon, the influx was offset by a wave of departures. In fact, the D.C. office ended the year with nine fewer equity partners. Overall, the firm added about 30 nonequity, Level 1 partners. “As a group, Level 1 partners are very profitable and very productive,” Preston notes. With income up nearly 20 percent and equity partner ranks holding steady, it’s no wonder Howrey’s partner profits are near the top of D.C.’s firms. – Vanessa Blum PATTON BOGGS: BLAME IT ON QATAR Patton Boggs partners saw their average profits nose dive last year down to $442,000 — nearly $100,000 less than in 1999. Most D.C. 20 firms enjoyed a healthy surge in profits in 2000. What happened at Patton Boggs? It appears the tiny nation of Qatar is a major, if indirect, cause of the firm’s decline in fortunes. Managing partner Stuart Pape says that the firm’s 10 percent net growth on the expense side in calendar year 2000, which included the hiring of several lateral partners, hurt the bottom line, as did increased associate and support staff salaries. But Pape also notes that the firm enjoyed an “extraordinary premium billing event” in 1999 that dramatically increased revenue and profits that year. No such luck in 2000, he says, which is why profits appear to be down so dramatically. Set aside the “extraordinary” payday in 1999, he suggests, and Patton’s profit growth from year to year would be “healthy.” The firm recorded gross revenue of $130 million nationwide in 2000, $100 million of which was generated in D.C. Pape declines to name the client that delivered 1999′s bounty. But he explains that it consisted of a “result bonus in the neighborhood of $10 million” relating to litigation in which the firm secured a settlement. The settlement, he says, was “a home run” for the client. Public records reveal one payment to Patton Boggs that fits the facts pretty neatly. In 1999, according to Justice Department Foreign Agent Registration Act records, the government of Qatar paid out the sheikly sum of $10,560,470 to Patton Boggs. According to the registration records filed by the firm, the payments related to a host of services, including guidance on “international law, commercial investment, litigation, contracts and commercial issues.” Pape declines to comment on the Qatar filing and would not confirm that Qatar was in fact the client of the year in 1999. Patton Boggs partner Charles Talisman, who has represented Qatar in litigation in the past, also declines comment. The firm reaped a similar windfall from Qatar once before. In 1997, FARA records indicate, the oil-rich emirate paid Patton Boggs about $12,000,000. “That was round one of the same event” that led to the 1999 payment, Pape says. Qatar remains a valued client of the firm, Pape confirms. No doubt his partners are eagerly hoping there will be a round three. — Otis Bilodeau CROWELL & MORING: OUT, BUT NOT DOWN Sidelined by partner defections, Crowell & Moring slipped last year from its long-held place among the 20 biggest revenue producers in the D.C. metropolitan area. With $89 million in revenue at its D.C. office, Crowell fell just shy of the $90 million it took to make the 2000 rankings. “2000 was a rebuilding year for us,” says managing partner John Macleod. Although Crowell has more than recouped its losses, thanks in part to a big litigation payout this year, Macleod says that the firm was deeply rattled by back-to-back defections in late 1999. “We thought, ‘How could this be happening to us?’ ” Macleod recalls. “ We probably sucked our thumbs for a month or two and then said, ‘Let’s get on with it.’ “ There is plenty of irony in the Crowell tale. The first group to defect — securities partners Richard Morvillo and Joseph Goldstein and two associates — returned to Crowell in January, apparently deciding the grass wasn’t that much greener over at the D.C. office of Pittsburgh’s Kirkpatrick & Lockhart. The firm suffered other losses in 1999, including that of Donald Flexner, the head of the antitrust practice, who took another partner and two associates with him just before Christmas to join his longtime friend David Boies at Boies, Schiller & Flexner. “He was our biggest revenue producer,” Macleod says. A few months later, the firm’s 11-lawyer IP group moved to D.C.’s Shaw Pittman, taking five legal assistants with it. The defections thinned the firm’s D.C. ranks by 10 percent, cutting the number of lawyers from 223 in August 1999 to 199 on Aug. 31, 2000. Revenue fell less dramatically, from $93 million in 1999 to $89 million in 2000. But it was enough to knock the firm off the D.C. 20 list. And if Crowell had collected its litigation fee when it should have in late 2000, it would still be among the top 20, despite losing three big practice groups. “2000 was a difficult year for us,” Macleod says, “but it turns out to have been a bump in the road.” The rebuilding started last fall when Crowell strengthened its health care practice by adding 17 lawyers from D.C. health care boutique Michaels & Bonner. Crowell’s health care practice originally concentrated on regulatory and compliance issues and defending companies in government investigations of alleged health care fraud. The Michaels & Bonner group added corporate and antitrust expertise, Macleod says. In May, Crowell re-established its patent practice with the addition of 16-lawyer IP boutique Evenson, McKeown, Edwards & Lenahan. That firm, founded in the District in 1990, ranked among the top 20 U.S. law firms last year in the number of patents secured, according to the publication IP Today. Most recently, the firm hired litigation partner Wilma Lewis, who just finished three years as U.S. Attorney for the District of Columbia. Lewis will be working with another former alum of that office, Stuart Newberger, who once was an Assistant U.S. Attorney. Newberger has built a highly successful practice at Crowell representing victims of terrorism. In January, the firm got a piece of the $46 million that its client, former hostage Terry Anderson, received for being held captive in Lebanon for more than six years. Newberger won’t reveal the firm’s share of that award, which was paid by the U.S. Treasury and which Crowell had expected to receive in December. Newberger has a similar case pending on behalf of Tom Sutherland, who was held with Anderson but for not as long. Sutherland is seeking $100 million in compensatory damages, and Newberger expects a decision any day from U.S. District Judge Royce Lamberth. The Anderson and Sutherland cases are covered by a special law signed last fall by then-President Bill Clinton that frees up $400 million held in a frozen Iranian bank account in the United States to cover compensatory payments to victims who won judgments against Iran. Crowell lobbied hard to get that law passed, Newberger says. “These kinds of cases come to us because of the work we have been doing,” Newberger says. “Last year is very misleading,” he says. “We would hope to be one of the most successful firms in the Washington area this year and probably for the next several years.” – Claudia MacLachlan DOW, LOHNES & ALBERTSON: A RECORD DOW D.C.’s Dow, Lohnes & Albertson is not one of Washington’s 20 largest law offices. But when it comes to profits, Dow Lohnes dwarfs its D.C.-based brethren. Profits per partner at the 150-lawyer firm last year averaged $1 million. In an era when most law firms of its size are struggling to merge or expand, Dow Lohnes has taken the opposite approach — and flourished. “There’s nothing extraordinary about 2000,” says firm Chairman Leonard Baxt. “This has been an era of huge consolidation in the telecommunications and media industries, and we’re one of the few places for one-stop shopping for those companies.” Since its origin in 1918, Dow Lohnes’ core business has been the representation of media and communications companies. Major clients include Cox Communications Inc., the Paxson Communications Corp., and Media General Inc. And unlike most native D.C. firms, which specialize in regulatory and litigation work, Dow Lohnes developed a strong transactional practice. When deal fever hit the communications sector in the late 1990s, Dow Lohnes attorneys saw profits soar. But while Dow Lohnes may be raking in profits, its pro bono record is far less impressive. The firm’s 150 lawyers logged just 825 pro bono hours in 2000 — a dismal figure compared with many area firms. For instance, D.C.’s 300-lawyer Steptoe & Johnson, an average pro bono performer, contributed 20 times more pro bono hours. Baxt says the firm is committed to pro bono work, but has less opportunity than firms with larger litigation groups. “When agencies call up, they’re usually looking for someone comfortable in a courtroom,” he says, adding that associates’ pro bono work is treated the same as billable work for compensation purposes. Despite Dow Lohnes’ enormous financial success, firm leaders are circumspect about future growth — shying away from expansion, potential mergers, even marketing. Baxt says the firm will continue to build its presence in Washington and Atlanta, but is unlikely to open any new offices. The caution — extreme even in the conservative legal industry — springs from lessons learned in the down economy of the early 1990s. When recession hit, Dow Lohnes was forced to close offices in New York, Europe, and Asia. “In the 1980s we grew rapidly and it didn’t work,” Baxt says. “Our view now is that size alone is not a guarantee of success.” – Vanessa Blum MORGAN, LEWIS & BOCKIUS: PHILADELPHIA FLYER Time has been good to the D.C. office of Philadelphia’s Morgan, Lewis & Bockius. A well-known figure in the D.C. 20 list, the office for years boasted steadily increasing figures for gross revenue and profits per partner. Jumps between $15,000 and $50,000 in profits per partner were not uncommon. This past year, Morgan Lewis blew away its previous track record. In just one year’s time, the office gross revenue flew up by $27 million to $147 million, and profits per partner leapt up approximately 40 percent, from $510,000 to $711,000. But it would be erroneous to chalk up all the growth to a hot market, says D.C. managing partner Michael Kelly. While acknowledging the role that the then-burgeoning market played in Morgan Lewis’ growth, Kelly points to a long-term restructuring of the firm as the more important factor. Although “the payoff all came in one year,” Kelly says, “it didn’t happen last year.” It began about two years ago, when Morgan Lewis’ partners decided to move to a structure reminiscent of the corporate model. The more streamlined approach focused on practice groups, says Kelly, where groups were given objectives and incentives, and leaders were “empower[ed] … to focus on their own practices.” “We’re all objective-oriented people, and it worked,” he says. Morgan Lewis is not alone in its success with the corporate model. “We’re seeing a significant trend among the large firms” to move to this type of governance, says D.C.-based legal consultant Lisa Smith of Hildebrandt International, whose company helped Morgan Lewis set up their new arrangement. “Clearly, the larger firms are moving to a more centralized model of governance, if not a corporate model. … I think it’s working,” she says. Not only did the formula work for Morgan Lewis’ D.C. office, but the rest of the firm saw its revenue and profits skyrocket as well. Gross revenue increased $185 million over last year’s figure of $429.5 million, and firmwide profits per partner saw an increase of roughly $200,000, to $705,000. “The performance firmwide,” says Kelly, “was virtually identical. One could almost write the same story about the firm.” And while Kelly predicts continued growth for this fiscal year, he knows this year’s unprecedented growth may be hard to match. “This is a different year,” he says. “Last year in Washington, for example, any one of our practice groups had a great year … and that was true firmwide” as well. This year, however, the transactional practice, as in many other firms, is no longer as hot. But leaders at the firm are still optimistic and looking to the future. “People here are pretty pumped up, in part because the firm made good strategic moves, in part because of a good economy,” but mainly due to the focus on the practice groups, says Kelly. But with profits per partner approaching three-quarters of a million dollars comes the understanding that times may not always be this heady. “No matter what you’re doing today,” says Kelly, “it won’t be good enough tomorrow.” – Jennifer Myers Related Charts: Revenues and Profits of Washington’s Top Law Firms, By Gross Revenue Profits Per Partner of D.C. 20 Firms Revenue Per Lawyer of D.C. 20 Firms Profits Per Partner of D.C. 20 Firms, By Net Operating Income Pro Bono Hours of D.C. 20 Firms

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