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After a week of swirling rumors and intense negotiations, it appears that corporate partners Richard Jaffe and Robert Krauss are leaving Philadelphia’s Schnader Harrison Segal & Lewis for Ballard Spahr Andrews & Ingersoll. The pair, considered the crown jewels acquired by Schnader Harrison during its 2000 merger with Mesirov Gelman Jaffe Cramer & Jamieson, will be joined by veteran tax and estates partner Harvey Shapiro. Neither Krauss nor Ballard Spahr management would comment on the record late Friday but Schnader Harrison chairman Ralph Wellington said the departures appear to be imminent. “I understand, but cannot confirm, that three of my lawyers … may be going to Ballard,” Wellington said. “This is a natural dynamic of the Mesirov-Schnader union. The vast majority of Mesirov lawyers are well integrated into the firm and are enjoying the benefits of the combination. But it’s not unusual for it to not work out as anticipated for certain people.” “I also think things were exacerbated by the economic downturn. I’m disappointed by the departures but I don’t think they will have a significant impact on the firm. We have 150 new lawyers that have joined our firm in the past few years — most being in the corporate area. We had a firm retreat in Virginia this past weekend and everyone expressed excitement over the direction of the firm.” Several sources said the deal has been finalized and the key figures are merely waiting to inform lawyers at both firms before making a public announcement. Many local industry insiders say the departures signify the failure of the Schnader Harrison-Mesirov Gelman merger, which, despite profuse denials over the past year from both sides, was hampered by integration problems and the economic downturn. The Legal Intelligencer learned last Monday that Schnader Harrison management announced at a weekend partnership retreat that Jaffe, Krauss and Shapiro had informed Wellington of their intention to leave. For that reason, the three partners did not attend the retreat. Jaffe and Shapiro appeared headed for Ballard Spahr while Krauss was considering Ballard Spahr or going to a client, Penn National Gaming, sources said. But sources said Schnader Harrison has made a big push to keep some if not all members of the trio, which has caused the group to reconsider leaving. Wellington and other members of Schnader’s management huddled with the trio Thursday night but Jaffe, Krauss and Shapiro finalized their decision to leave on Friday afternoon. Several members of the local legal community said it would be a major blow for Schnader Harrison, which invested a lot of time and money to bring in the 45 Mesirov lawyers two summers ago and integrate them into the firm. But several sources have said the integration process has not progressed smoothly and the firm has lost several partners in the past year, both Mesirov imports and original Schnader Harrison lawyers. “The reason for the deal was to do what Schnader has been unable to do for decades — establish a [more significant] corporate presence in this city,” one industry insider said. “Everyone wanted the Jaffe corporate group [from Mesirov in 2000], but no one wanted the whole firm, which Richard insisted on, except for Schnader, which had a unique goal to transform their corporate practice. And this was the problem. Schnader absorbed a lot of people from a firm that had minimal `A’ players. “You cannot blame the economic downturn on bad management [at Schnader Harrison]. But you can blame management for overpaying to get them in the first place and integrating the old and the new firms poorly.” Wellington said losing three lawyers, no matter their stature, cannot make or break a merger. “We brought over 45 lawyers,” Wellington said. “As much as I respect Richard and Bob, it’s not just about them. It’s also about [partners] Bernie Kolodner, Ken Rosenberg, Marc Cornblatt and others. Look, there have been bumps in the road. But it doesn’t mean an entire merger has not worked out. There were just certain pieces that didn’t work out.” Sources familiar with the situation say two fundamental issues that perpetually plague law firm partnerships — money and power — might have hastened the departures. Jaffe, the former Mesirov Gelman managing partner, was placed on Schnader Harrison’s executive committee upon his arrival. But sources say he was upset that he was not re-elected to the committee, which serves as the firm’s chief policy arm, this past January. In addition, Jaffe, Krauss, Shapiro and other Mesirov partners were guaranteed 2000 year-end allocations based on what they received at the end of fiscal year 1999 at Mesirov. That arrangement did not carry over for fiscal year 2001 and their allocations diminished. Jaffe has earned a reputation as one of the city’s premier corporate finance attorneys. But sources familiar with his practice said that it has been hindered in recent years by a decline in assigned work from top client Sidney Kimmel, who now uses Wolf Block Schorr & Solis-Cohen attorney Matthew Kamens to handle more of his business affairs. And because many of Jaffe’s clients are in the venture capital world, the economic downturn has affected his practice significantly, sources said. Even so, sources say Jaffe is still a valuable commodity because of his skill level, reputation and the likelihood that his practice will be on the upswing when the economy turns around. Krauss, who was named co-chair of Schnader Harrison’s corporate practice group when the merger was announced, handles all aspects of mergers and acquisitions. With the departures of several top Schnader Harrison corporate partners before and after the Mesirov merger, Krauss had assumed a lead role in the business department. Shapiro is a member of Schnader’s trusts and estates department and the tax practice group, and has a practice that emphasizes business and tax counseling and estate planning. In addition to handling the tax planning side of mergers and acquisitions and other transactions, Shapiro also represents family businesses through intergenerational transitions. During an interview with Wellington, Jaffe and Krauss last summer — a year after the merger — all agreed that the previous 12 months had been nothing short of chaotic. The deal came only five months after Schnader merged with 50-attorney Goldstein & Manello of Boston. And the Boston deal came on the heels of expansion into San Francisco and additions in various other markets. In all, Schnader Harrison added roughly 150 lawyers in an 18-month period. Combined with the decision to keep pace with peer firms in the associate salary wars, the cost of expansion has led to a decline in profits per partner in 2000. “They basically completed a five-year strategic plan in about two years,” Krauss said last year. “You’re going to take a hit anytime you do something like that. But things are starting to turn around as everyone becomes more integrated. “The first six months to a year after a merger you are always in a defensive mode, and we’re just getting out of that. I would think at the end of 2001 we will be back to 1999 [profit] levels and in 2002 we’ll be up.” In addition, the firm had to deal with the fact that it had lawyers in two different Center City office locations — Schnader Harrison’s 1600 Market site and the old Mesirov Mellon Bank Center offices. In late 2000, the firm conducted a complicated move, switching lawyers to different offices so it could have practice groups together. Schnader Harrison recently announced plans to bring all the lawyers together in 1600 Market by the end of this year. One question that comes into play with the departures is what affect they will have on the remaining original Mesirov Gelman partners at Schnader Harrison — specifically those on the transactional side. Former top SEC attorney Albert Dandridge is said to have close ties to Jaffe and Krauss. Other corporate partners include Marc Cornblatt and Arthur Brandolph. Other original Mesirov partners staying at Schnader Harrison include labor partner Allan Dabrow, real estate partners Ken Rosenberg, Bernard Kolodner and Allan Schnierov and tax and estates partner Barry Frank.

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