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In the race to expand in the New York market, the largest California law firms all share certain advantages over firms from elsewhere. Their large and wealthy home market supports highly sophisticated and specialized practices and billing rates just shy of those in Manhattan. Their location on the West Coast gives them an international profile firms in the South and Midwest lack. Beyond that, however, the story of California law firms’ expansion into New York is, to a large degree, a familiar tale of two other cities. While both Los Angeles and San Francisco firms have targeted New York for growth, their competitive positions in the New York market reflect their experiences in the west. Generally speaking, the major Los Angeles firms are well-entrenched New York players; the San Francisco firms are newer entrants with big ambitions fueled by the massive tech boom. “The Los Angeles firms came to New York to be full-service firms,” said David Gordon, the managing partner of the 225-lawyer New York office of Latham & Watkins. “The Bay Area firms’ practice mix has been much more weighted in the technology area.” The Los Angeles firms’ early expansion east stems from the fact that, though San Francisco has long been considered the financial center of California, Los Angeles became a prime destination for the investment banking community in the 1980s, with Michael Milken’s Drexel Burnham Lambert trading floor famously located on Wilshire Boulevard. Los Angeles firms developed aggressive and innovative financial services practice groups and opened branch offices to compete directly with New York and San Francisco firms. By the late 1980s, the large Los Angeles firms were regarded as major corporate players and were considerably more profitable than the large San Francisco firms. In 1986, the most profitable Los Angeles firm in The American Lawyer‘s AmLaw 100 was Latham & Watkins, with profits per partner of $570,000. The most profitable San Francisco firms that year were Brobeck, Phleger & Harrison and Orrick, Herrington & Sutcliffe, both with $260,000 in profits. The technology boom of the late ’90s transformed the fortunes of Northern California law firms. Though much of the glory went to Palo Alto firms like Wilson, Sonsini, Goodrich & Rosati, virtually all San Francisco firms benefited from the boom; in 2000, Brobeck was the most profitable California firm in the AmLaw 100, with profits per partner of $1.2 million, edging out Latham’s $990,000. Even the most old-line San Francisco firms positioned themselves as tech firms as they expanded heavily in New York, where many sought to capture still more lucrative tech work from East Coast new media startups. Now, with the technology bubble burst and Silicon Alley at a dead end, the competitive prospects of the major California firms in New York seem governed by the limits of their exposure to tech wreckage and the strengths they exhibited before dot-com mania took hold. At the same time, the deep tech slide has also awakened many California firms to concerns they share with firms from the Midwest, the South and elsewhere. Many managing partners of California firms agree with their peers across the nation that the profession will see a wave of consolidations that may leave behind firms that lack global scale, to which a thriving New York operation is key. CORPORATE CLIENTS Even its California rivals think Latham & Watkins is the leading West Coast contender to take on super-firms from New York, London and Chicago. Again the most profitable firm in California, with profits per partner of $1.1 million, Latham probably has the most high-end Wall Street practice of any non-New York firm. The firm that represented Henry Kravis and served as house counsel to Drexel Burnham Lambert during the go-go ’80s paid a price in the early ’90s after Drexel collapsed, but it retained the fearsome reputation it developed in the early days of the junk bond. Gordon said the firm’s early domination of the high-yield arena gives the firm relationships with investment banks and leverage in other areas of Wall Street. “We’re one of the few firms that came to New York with top-tier corporate finance work,” he said. Among American firms, Latham was the highest-ranked non-New York firm in terms of deal value in the 2001 rankings of M & A law firms compiled by Thomson Financial, a business-information and research company. The firm ranked 15th worldwide with announced deals worth $115.5 billion. Though the firm wants to continue to expand its M & A, capital markets, project finance and litigation practices, Latham’s focus towards the high-end of the market means the firm is not likely to grow by the leaps-and-bounds strategy of the Chicago firms. Though it has had merger talks with some of the large London firms, Gordon said the firm is not interested in a combination now. He also noted that Latham has one of the most stringent processes for bringing aboard lateral partners. Each candidate is required to spend a full day at each of Latham’s 11 domestic offices. Gordon said the firm will pass up stellar candidates if it lacks a strategic plan to build depth in that partner’s practice area. GROWING IN NEW YORK Latham’s Los Angeles rival Gibson, Dunn & Crutcher is sticking with a similar strategy. “There’s a limit to how fast firms can grow without sacrificing quality and culture,” said Kenneth M. Doran, Gibson Dunn’s recently appointed firmwide managing partner. “We’re willing to be slow and patient.” Like Latham, Gibson Dunn pitches its New York office at high-end corporate practice, with a focus on M & A and strength in the high-yield area. Doran said the office also fields a strong complex litigations department. All of these groups he expects to grow healthily, and organically. “New York is the largest, most sophisticated market for legal services in the world,” he said. “It’s inevitable that we will grow there.” Paul, Hastings, Janofsky & Walker has taken a more aggressive approach. In June 2000, the firm acquired New York’s Battle Fowler, bringing aboard 120 of the firm’s 170 lawyers. At about 225 lawyers, the New York office is now the firm’s largest. The firm has only recently consolidated its operations in Battle Fowler’s 55th Street offices. Barry Brooks, chair of Paul Hastings’ New York office, noted there was room for 350 lawyers in the space. “We’d like to bulk up,” he said, “though we only want to grow in a smart way.” The Battle Fowler acquisition gave Paul Hastings a leading New York real estate practice. Now the firm is looking to expand its corporate and litigation practices. Brooks said the firm was basing its Wall Street strategy on specialized industry expertise, particularly telecommunications and aerospace. “If a deal involves an aircraft leasing, we’re always on the list,” he said. O’Melveny & Myers is on the list when the deal involves Latin American finance, restructuring or M & A, said Jose Fernandez, O’Melveny’s New York managing partner and head of the firm’s New York-based Latin American practice group. New York is the firm’s number-one priority, Fernandez said, but the firm is going to build on its existing New York strengths in bank finance, litigation, intellectual property and Latin America. While a merger is off the table, Fernandez said the firm would be looking for practice group acquisitions in those areas. On the other hand, the firm has no immediate plans to try to jumpstart a major capital markets practice, where Fernandez acknowledged the firm’s New York office was not a major player. “You have to be realistic and pick your spots,” he said. Among San Francisco firms, Orrick, Herrington & Sutcliffe stands out as an exception of sorts. It has long had a major New York footprint; New York is, in fact, the firm’s largest single office and Chairman Ralph Baxter said he expects that will continue for some time to come. Orrick’s New York presence is commensurate with its focus on Wall Street. The firm is a leader in the securitization area, along with Chicago firms Sidley Austin Brown & Wood and Mayer, Brown, Rowe & Maw. Like those Chicago firms, Orrick is looking to expand aggressively in New York. “We’re going to explore expansion in every way,” said Baxter. “We’re open to combinations and we’re open to individual partners.” The firm has taken in large numbers before. In 1998, Orrick discussed merging with now-defunct Donovan Leisure Newton & Irvine. The merger fell apart, but Orrick proceeded to hire Donovan Leisure’s entire litigation department, about 40 lawyers. Gaining ground in the market for high-end M & A and capital markets work is the “highest priority” at the firm, said Baxter. Technology has been an important source of growth for Orrick, and Baxter said he expected that sector to recover and fuel the firm’s West Coast growth, but he acknowledged the outlook for the New York technology practice was uncertain. “We’ve had some redeployment and refocus there,” he said. ALL ABOUT REFOCUSING Pillsbury Winthrop is all about refocusing. The former Pillsbury, Madison & Sutro was once known as the most blue-chip of San Francisco firms, with a client list counting Bank of America, Wells Fargo and Chevron. But a wave of corporate consolidation moved a lot of those companies’ headquarters and business elsewhere, and the firm missed the initial blooming of the Silicon Valley-based tech economy. “We were definitely slow to react,” Mary Cranston, the firm’s chairwoman acknowledged. “We sat up in San Francisco waiting for them to come to us.” Winthrop, Stimson, Putnam & Roberts was a similarly sleepy New York firm. The two firms’ merger in January 2001 has given both a chance to reinvent themselves. Pillsbury Winthrop has established itself as a major tech player in both Silicon Valley and in New York. Cranston said the firm will continue to make technology a pillar of the firms’ practice profile in New York, but was also seeking a “more balanced package.” The firm’s other major New York practices are in capital markets, energy and litigation. Now at 200 lawyers, Cranston said the firm hopes to have 300 lawyers in New York within two years. She said the firm is also open-minded about future combinations of any size. “Firms that have done [mergers] are not scared of them,” she said. Like Pillsbury, Morrison & Foerster was an old-line San Francisco firm that repackaged itself on the East Coast as a cutting-edge tech firm. For “MoFo,” the repackaging proved successful. While the firm was outshone on the West Coast by tech powerhouses like Brobeck, Wilson Sonsini and Cooley Godward, the New York office became one of the premier tech shops serving the venture capitalists and new media startups of Silicon Alley. Of course, tumbleweeds blow through that alley now, but Howard Heiss, the managing partner of the firm’s New York office, said the office was always more diverse than may have appeared, given the firm’s marketing. The office was founded on its litigation practice, and Heiss said that and intellectual property were practice areas that the firm would continue to grow. Moreover, the firm will concentrate on the technology area, in anticipation of a recovery. As to whether it will refocus in other practice areas, Heiss said, “We’re evaluating that right now.” SELF-EVALUATION Perhaps no firm has done as much self-evaluation lately as Brobeck. The former poster child for the Internet economy, Brobeck is now the whipping boy. Profits per partner went down to $660,000 in 2001 from the previous year’s $1.2 million. Already roiled by firmwide layoffs, buyouts and departures, this month the firm expelled its former chairman, Tower Snow, after he attempted to organize a group defection to Clifford Chance Rogers & Wells. The New York office has not been spared the pain. Down to 50 lawyers from 80 last year, Brobeck is trying to reconfigure its New York operations. It will continue to focus on the tech sector and build its litigation practice, said Richard H. Gilden, the firm’s New York managing partner, but more emphasis will be placed on new practice areas. “Things were happening so fast in the late ’90s, it was hard to get the work done, much less think about new practice areas,” said Gilden. Now the firm is looking to drum up business for its newly launched financial services practice group, a group the firm has in San Francisco but not on the East Coast. A New York real estate practice group is also in the works. Noting that the firm’s San Francisco office has always been a model of practice diversity, Gilden said the tech boom delayed diversification in New York. “The fact that New York is the financial capital of the world and we don’t have that practice is odd,” he said.

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