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The queasy uncertainty that has gripped clients since Sept. 11 has spread to many of their Washington, D.C., law firms. While most firm leaders say they’ve not seen a steep drop in booked billables, they also acknowledge that the ripple effects of the terrorist attacks may have not yet reached the bottom line. This year has been anemic for corporate practices, and partners at several D.C. firms say they were expecting profits to be flat or slightly lower for the year even before the disasters at the Pentagon and the World Trade Center. But for some firms, an already difficult year just got worse. The attacks hit the U.S. economy when it was down, and notwithstanding the recent uptick in the capital markets, managing partners are now acutely aware that they may face a challenge collecting on some of their bills. Firms typically make a strong collections push at the end of the calendar year, and the fourth quarter is often the most lucrative for firms, measured by the amount of cash that comes in the door. Whether that will be true this year remains to be seen. Even more than a collections lag, partners say they’re concerned about the prospect of strapped clients with clipped share prices cutting back on legal services. “If we don’t get consumer confidence back and more activity in the capital markets, intake will probably be affected as we go forward,” says Barry Direnfeld, managing partner of Swidler Berlin Shereff Friedman. The sour economy is not likely to hit the profits of D.C. firms as hard as it will those at New York firms. But it has certainly brought an abrupt shift in orientation. A market that had enjoyed a technology-spurred surge in corporate legal work is again proudly acknowledging its government and litigation underpinning. It’s not all gloom for D.C. firms: The Securities and Exchange Commission’s moves to avert market meltdown have kept securities lawyers busy. Government contracting is expected to spike as agencies ramp up on new technology and security. And emergency legislative efforts — like the airline bailout and the economic stimulus package — mean long hours for some lawyer-lobbyists. The fallout from Sept. 11 has led to other kinds of business. Firms with big insurance practices — such as Howrey Simon Arnold & White; Dickstein Shapiro Morin & Oshinsky; and Covington & Burling — say they’ve fielded numerous calls from clients in the wake of the attacks. “We’ve got 60 people [in the insurance group],” says Covington & Burling partner Andrew Friedman. “When they start hopping — and they’re hopping now — that’s a big deal for us.” Swidler Berlin’s New York real estate practice “had an enormous, crisis volume of work” as scores of displaced companies raced for new quarters, says managing partner Direnfeld. And at Crowell & Moring, which has cultivated an unusual practice suing foreign governments on behalf of victims of terrorism, inquiries from would-be clients have been pouring in. “I’ve told them repeatedly, ‘It’s too early,’ says Stuart Newberger, who heads the firm’s terrorism group. “There’ll be plenty of time for the president and Congress to tell us if any [foreign] states were involved in this.” But despite the pockets of activity, prospects for the fourth quarter, and the future, remain uncertain for many firms. “One could barely detect billable hours for the week of Sept. 11,” says Stuart Pape, managing partner at Patton Boggs. Pape’s experience is not unique. Virtually every firm shut down on Sept. 11, and, like their clients, many lawyers found themselves monitoring CNN, calling friends from high school, or staring into space for several days afterward. Robert Ruyak, managing partner at Howrey, says he doesn’t think the loss of time made much of a dent. “We were effectively closed for two days,” he says. “It may have had the impact like if you have a snowstorm.” Others are less sanguine. “You’re selling time, and there was a good deal of time lost,” says B. Dwight Perry, managing director at Dow, Lohnes & Albertson. He estimates that his firm’s billables for the month were down as much as 10 to 12 percent. But Perry agrees that the near-term drop in billables isn’t what really worries him. “If there’s a slowdown in business, it’s going to hit us in the first quarter next year, not right away,” he says. The challenge Perry and his counterparts at other firms face is twofold: trying to collect from clients that may be hard-hit by the attacks, distracted, or just plain broke, and trying to bring in new business at a time when companies everywhere are “just holding their breath,” as one D.C. partner puts it. Collections may be particularly tough for firms with clients in struggling sectors, like tourism and telecommunications. Partners at Wiley Rein & Fielding; Swidler Berlin; and Dow Lohnes — all firms with sizable telecom practices — say their collections haven’t suffered. But dozens of telecom companies have already filed for bankruptcy this year. 360networks Inc. Covad Communications. E.spire Communications Inc. Rhythms NetConnections Inc. The litany of imploding businesses leaves many corporate and regulatory lawyers in line with other unsecured creditors trying to get paid. If the economy fails to pick up, clients may want to trim legal expenses further, partners predict. That could mean tougher fee negotiations or even fewer new matters altogether. “I do think it’s quite foreseeable that clients will identify some legal expenses as discretionary,” says Ralph Baxter Jr., chairman of Orrick, Herrington & Sutcliffe. “But where we’re at risk is that people will cut back on fundamental transactions and litigation.” Ruyak, at Howrey, says he hasn’t seen a slowdown in new matters. But he acknowledges that “the merger clearance part [of the firm's antitrust practice] may soften.” He says he thinks the opposite will be true in the future, however, as struggling industries go through business consolidation. Shaw Pittman’s Paul Mickey Jr. predicts an increase in new telecom work. “I think there’s going to be a resurging interest in building our communications infrastructure,” he says. But managers at other D.C. firms acknowledge that the flow of new work has already slowed. “September activities make up a big slug of the quarter’s work,” says one partner. “A lot of firms will not have that ingredient for their December collections.” Another dilemma partners face in the wake of the Sept. 11 attacks is how to market their services without giving offense. Ellen Katkin, Swidler’s marketing director, relates how she struggled with the wording of a best-wishes card for clients in the World Trade Center. “We came down to the last line — ‘If we can help you in any way, please let us know’ — and we thought, does it sound like a business pitch?” Most law firms haven’t adopted new management strategies or tactics in response to the current climate. Managing partners at several firms say they didn’t ratchet back on offers to last summer’s class. And most say they aim to bring in about the same number of summer associates next year. “You don’t want to change hiring,” says Covington partner Friedman. “It invariably bites you further down the road.” At least a few firms have opted to trim recruiting, though. At Swidler, for instance, recruiting director Katherine White says her firm plans to bring on eight summer associates at the D.C. office in 2002; the firm had 15 this summer. Hogan & Hartson’s J. Warren Gorrell Jr. also says he expects “a somewhat smaller program next year.” Managing partners are scrutinizing discretionary expenses and beating the drum about collections — but most firms were doing those things already. “We run a pretty lean ship here,” says Dow Lohnes’ Perry. “We can’t cut a lot of expenses.” So for the time being, partners say, they’re waiting and watching. “Right now, I’m looking at the whole world with the same uncertainty as everyone else, and we’re just trying to manage our business,” says Swidler Berlin’s Direnfeld. “It’s pretty hard for businesses to do rational planning.” It was already a tough time to manage a law firm. Now it’s worse. What lies ahead?

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