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The economic slump is gradually impacting New Jersey’s legal market, but don’t cry for the state’s big firms just yet. The downturn to date, while causing firm leaders to scramble, is merely slowing the growth. The New Jersey Law Journal‘s annual survey of the Top 20 firms shows the rate of growth for gross revenues, revenues per lawyer, profitability and firm size down for the year 2001 compared with the prior year. Records were broken, nevertheless, in all of those categories, as the 20 firms collectively pushed revenues up another 5 percent, to almost $897 million, with McCarter & English of Newark leading the way as it has since the survey of 1987. Profits, though, as measured on a per-partner basis, limped forward by less than 1 percent, coming within a hair of breaking the $400,000 plateau. New Jersey’s performance, moreover, mirrors the national scene, as the country’s largest firms pushed up revenues and profits per partner despite a sluggish economy. But as The American Lawyer reported earlier this month, the rate of growth across the board is down for the third straight year as corporate clients struggle and the stock market continues to tank. And the shock of Sept. 11 seems to have taken a toll on collection of fees that weren’t billed until the fourth quarter of the year. The distinction between the top New Jersey firms and the regional and national ones continues to erode as the out-of-state powers make more inroads locally and as the state’s firms keep on expanding elsewhere. In January, Newark’s Sills Cummis Radin Tischman Epstein & Gross opened a six-lawyer San Francisco office to service telecommunications, technology, venture capitalist and product-liability defense clients. McCarter & English just expanded its Philadelphia branch by adding a bankruptcy practice. Morristown’s McElroy, Deutsch & Mulvaney expanded its insurance-defense outpost in Denver to 17 from six, raiding local firms during the past 18 months, and just took new space to accommodate 35 attorneys. And four months ago Gibbons, Del Deo, Dolan, Griffinger & Vecchione of Newark continued its drive into the intellectual property market by buying an eight-lawyer boutique in Manhattan, ballooning the firm’s New York operation to 38 lawyers. Two multistate firms that gobbled up good-size New Jersey operations — Drinker Biddle & Shanley and Fox, Rothschild, O’Brien & Frankel — are in the top 20 for the third straight year, and it seems just a matter of time before more national names make the list. Numbers for those two firms, both based in Philadelphia, represent only their New Jersey offices, while the survey continues to report the revenues and lawyers of the New Jersey firms from all their locations, including those that are outside the state. To that extent, the ongoing regionalization of the legal landscape makes the survey less than a true apples-to-apples comparison. As in past years, the majority of the top 20 firms lost partners or practice groups to the out-of-state firms, all bringing their books, and sometimes associates, to New Jersey branches of these regional and national brand name houses. Stewart Michaels, who heads a firm that specializes in recruiting partners for the national firms, Topaz Attorney Search of West Orange, says he sees no letup in the cherry-picking and “an acceleration by the global firms.” Michaels says the number of out-of-state firms with a presence in the state, counting single-lawyer satellites, is more than 50. Riker, Danzig, Scherer, Hyland & Perretti of Morristown was hit twice: The head of its trust and estates department, Robert Borteck, moved his three-lawyer practice to the Short Hills office of Edwards & Angell of Providence in late 2000. Last July, Alan Krause took a four-lawyer litigation group to the Newark office of national giant Latham & Watkins. Riker Danzig slips in the 2001 survey from sixth to seventh, and is one of the three firms in the top 20 showing a decline in revenues, though by just 1.8 percent. NORRIS MCLAUGHLIN IN, CARPENTER BENNETT OUT The defection in January 2001 of four midlevel equity partners from Newark’s Carpenter, Bennett & Morrissey, who opened a Newark branch for Pittsburgh’s Klett Rooney Lieber & Schorling, played a role in knocking Carpenter, Bennett out of the Law Journal‘s survey for the first time since the initial top 10 was published for the year 1987. The old-line firm, which had long been a fixture in the state’s top 10 in gross revenues, had slid to 17th place on the 2000 chart. Sliding into 20th position is Somerville’s Norris, McLaughlin & Marcus, which makes the survey for the first time, in part by bringing aboard lateral partners as the firm moves into more lucrative practice areas, including intellectual property. “Those [multistate] firms pay more,” Wilentz, Goldman & Spitzer senior partner Frederic Becker says dryly. His Woodbridge firm lost a four-lawyer creditors’ rights practice when department chairman Louis DeLucia defected to the Princeton office of Pittsburgh’s Buchanan Ingersoll in March of last year. In turn, Wilentz Goldman snared Sills Cummis senior associate Eric Sleeper, making him a partner as he and the firm rebuild the bankruptcy practice. Thus, the scramble, which in recent years, and particularly last year, has been working both ways with the New Jersey firms continuing to pick off younger talent from the national firms. Sills Cummis managing partner Steven Gross says the picking got better last year “because the big firms, chasing the dot-com and high-tech craze, overexpanded and are hurting now, and there are some very good lawyers now available.” Not untypically for the larger in-state firms, Sills Cummis turned over its associate corps by nearly 30 percent, with a few heading to Manhattan, but restocked with laterals and wound up down just four lawyers from the year earlier. Another part of the scramble in the midst of the economic downturn is a keener appreciation of the need to identify which practice areas to be in, which to shed and what level of staffing is required for each to be competitive. For starters, most of the large firms still do considerably more litigation than corporate/transactional work, which again has shielded New Jersey’s market from the much wider swings of the national powers. Paul Rowe, managing partner with Greenbaum, Rowe, Smith, Ravin, Davis and Himmel in Woodbridge, says, “Litigation carries New Jersey when transactional work is down.” Half the lawyers at his firm are litigators. Yet Rowe and others say transactional work remains vibrant in New Jersey. “We’re very active,” says Rowe. Edward Deutsch, managing partner of MeElroy Deutsch, agrees, saying that banking, transactional and mergers and acquisition work “grew dramatically” in 2001, though he acknowledges some slowdown midway through this year. DIVERSIFICATION AND PRICING The diversification of practices, coupled with pricing that still considerably undercuts the national firms while offering enough size and sophistication to get the work, has continued to keep New Jersey firms on a steady climb compared with the more volatile national picture. While the growth rate for revenues per lawyer among the nation’s biggest firms — as measured by the Am Law 100 — slid from 12.3 percent in 1999 to 6.1 percent in 2000 to 2 percent in 2001, the state’s top 20 firms posted much more consistent increases in revenues per lawyer for those years, from nothing to 3.26 percent to last year’s 2.2 percent. Revenues per lawyer averaged a record $381,700, with seven firms breaking the $400,000 barrier, up from five in 2000. According to managing partners queried, the keys to that performance include an increase in billable hours and blended rates. Blended rates are rising, they say, in part because of price increases and an improved practice mix. In the case of Porzio, Bromberg & Newman of Morristown, that combination propelled the firm into the top spot in revenues per lawyer, at $498,400, up from $418,300 a year earlier. Managing partner D. Jeffrey Campbell reports more billable hours across the board, including the firm’s 78 paralegals, who logged an average of 1,716 hours and generated $8.4 million in revenues to help the firm grow revenues with fewer lawyers. Assisting Porzio Bromberg along the way also was its plaintiff practice, which grossed $3.1 million, up from $1.8 million in 2000. All together, the firm had a blended rate of $128, jumping to $214 for lawyers. Porzio Bromberg also led in profits per partner, with $618,200, becoming the first firm in the survey to crack $600,000. Porzio Bromberg again did it with huge leverage — 5.36 lawyers for its 11 equity partners. However, the king of leverage is now McElroy Deutsch, with a lawyer-to-equity partner ratio of almost 6 to 1. Overall profits per partner rose just 0.86 percent, largely because of the addition of 27 more equity partners, representing a 3.53 percent jump. That is the biggest increase in equity partners in the top 20 since the early 1990s. Incidentally, 12 of the top 20 firms now report a two-tier partner system, up from 11 a year ago and eight just two years ago. McElroy Deutsch jumps the most this year, moving from 19th to 12th, continuing as a firm that loses very few lawyers and that grows by modest pricing and gradual expansion into fast-growing areas, in particular labor and employment defense. As for the new firm on the chart, Norris McLaughlin, managing partner John Eagan says the firm has reached its highest gross ever by identifying the right areas, in particular, intellectual property, and by aggressively bringing in one lateral at a time to reach the critical mass needed to hold his or her own in each practice area. Three lateral partners were brought in last year, with the IP group expanding to 12, from just one in 1998. “We call it integration,” says Eagan, fully aware of the firm’s experiences in the past, when the acquisition of a 17-lawyer health-care firm at the end of the 1980s led to the bulk of the new lawyers leaving. The open question now is whether the slowdown will whip the state’s legal market late, even as the nation pulls out of the recession. That is what happened after the recession of the early 1990s, when profits per partner for the top 20 fell for the three years ending in 1993 and barely edged ahead in 1994. New Jersey firms expanded rapidly then, however, something that has not happened in the great ride from the last downturn until this latest slump. In fact, there were nine firms with more than 100 lawyers in the state in 1993, and it took until 2000 for that feat to be duplicated. The current survey shows 10 firms with 100 or more lawyers, a very modest trend that suggests a lack of the excesses of the boom years of the 1980s and early 1990s. That’s probably the most logical reason that 16 of the 20 firms in the 2000 top 20 grew in revenues. Related chart: New Jersey’s Top 20 Grossing Firms

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