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By the time Oakland, Calif.’s Crosby, Heafey, Roach & May merges with Pittsburgh’s Reed Smith in January, 30 of Crosby’s equity partners will have been defrocked. And high-profile partners Howard Janssen and Stephen McFeely — who say they were asked to stay and would have retained equity status — are headed out the door. Crosby Heafey’s merger partner, 780-attorney Reed Smith, says the equity changes are part of its plan to financially gird its newly acquired California offices and to entice lateral hires. The firm plans to make its presence known in health regulatory, intellectual property, mergers and acquisitions, transactional and life sciences legal arenas, said Reed Smith Chairman Gregory Jordan. “We are going to be growing like crazy,” Jordan said during a recent swing through Crosby Heafey’s California offices. “We do think that over time, the combined firm will be more profitable.” Jordan said there will be no staff or lawyer layoffs. He predicted that in 2003 the combined firm will have profits per partner in the “$500,000-plus” range. In 2001, Reed Smith’s profits per partner increased nearly 20 percent, to $400,000, from $335,000 the year before, whereas Crosby Heafey’s dipped 10 percent, to $314,000, from $352,000 during the same period. Jordan and Crosby Heafey Chief Executive Officer Kurt Peterson said in a joint interview that they want to dispel the notion that the merger was a marriage of unequals. Although Crosby Heafey has lower profits per partner, it has had parallel increases in revenue per lawyer — a figure that more accurately represents the strength of the business, Jordan argued. He said both firms have revenue per lawyer that is just under $450,000, Jordan said. Jordan and Peterson said a key in achieving higher profits is to trim the number of partners who have an ownership stake in the firm. Crosby Heafey, which at one point had a 1-1 ratio of equity partners to non-equity attorneys, had too many people splitting profits. By stripping 30 partners of equity status, the ratio will shift to three non-equity lawyers for each equity partner at the combined firm. The 3-to-1 ratio was something that Crosby Heafey was “pushing for” even without the merger, Peterson said, and both he and Jordan said the equity issue was not a “deal breaker” for the merger. Fifty-five Crosby Heafey equity partners will join Reed Smith, which will give the nearly 1,000-lawyer firm a total of 240 equity partners. According to Recorder affiliate The American Lawyer magazine’s statistics, Crosby Heafey reported that it had 87 equity partners in 2001. Next year the newly merged firm will determine how much of an ownership stake the Crosby Heafey equity partners will have in Reed Smith. Jordan said there’s no set formula for the process, adding that “some people will go up and some people will go down.” Jordan said Peterson and other Crosby Heafey leaders will have a strong say in the equity divisions. Half of the Crosby Heafey partners who lost equity status — such as former managing partner Ronald Rosequist — are staying with the firm. The rest have left, firm officials say. Rosequist would not comment this week, but Peterson said the former managing partner had “slowed down” his practice, so the move made sense. Other than Rosequist, Peterson refused to name any Crosby Heafey partners whose equity status was removed. Peterson acknowledged that some partner defections over the past year were linked to the firm’s merger effort. Others, he said, were not. The Recorder reported in June that 13 partners had left the firm in the previous 18 months. “When you are doing something that is so fundamentally different, it’s not for everyone,” said Peterson. Marquee litigator Janssen is leaving in December to start his own firm in Lafayette with Richard Doyle Jr., currently a Crosby Heafey of counsel. Former Crosby Heafey Managing Partner McFeely has signed on at Foley & Lardner’s Los Angeles office. Janssen said he fully supported the merger, but decided to leave so he could represent a client in a patent case. “I made a commitment to a client and from my perspective it’s important to keep that commitment,” Janssen said. “The issue is a complicated conflict issue that we are trying to resolve,” said Peterson. The Crosby Heafey CEO said it’s possible that Janssen will return to the firm after his case is completed. Janssen has taken a high-profile role in some of the firm’s major cases. He was California trial counsel for Sulzer Orthopedics Inc. in the national joint implant class action that settled for $1 billion earlier this year. Janssen and McFeely have each tried cases for about three decades and both are on a five-name list that the firm has used on its Web site to tout its trial expertise. Janssen is a former prosecutor who was once rumored to be a candidate for the federal judgeship that went to then-U.S. Magistrate Claudia Wilken. He worked under U.S. District Judge D. Lowell Jensen when Jensen was Alameda County’s district attorney. Doyle, who is leaving to go into business with Janssen, referred questions to Crosby Heafey Chief Operating Officer Jack Nelson. “He does not intend to move to Reed Smith Crosby Heafey,” Nelson said. “We wish him well.” Doyle is an intellectual property attorney who joined the firm in 2001. According to his firm bio, he has been in the field for 20 years and negotiated more than $120 million in business deals for clients in the past seven years. McFeely has periodically served as Crosby Heafey’s managing partner, and the firm opened a San Francisco office under his watch. McFeely said he was an advocate for the merger, but decided to join Foley & Lardner. “When something like this happens, we all sit down and take a deep breath and think about ‘Where do I want to be?’” McFeely said. He added that even if he had stayed with Crosby Heafey, he would have essentially been working at a new law firm next year. McFeely said he will do commercial trial work at Foley, and that he took clients with him. He would not disclose their names or the size of his book of business. “Stephen is a great guy who I worked with for years,” Peterson said, adding that he is sorry to see McFeely go. In addition to the equity partner shift, other changes will take place to meld Crosby Heafey and Reed Smith. To aid the transition, two or three partners from Reed Smith’s East Coast offices are expected to work in Crosby Heafey’s offices, and some Crosby Heafey lawyers will work back East. Crosby Heafey COO Nelson will run Reed Smith’s new California offices. Also starting next year, three partners from Crosby Heafey will have permanent votes on Reed Smith’s executive committee, which will give the panel a total of 18 members. Crosby Heafey’s Peterson will have one of those posts. Peterson and Jordan said it’s not clear who will fill the other two positions. All of the changes over the next year will help Reed Smith leverage its national status, Jordan said. In terms of practice, Reed Smith is one-third litigation, one-third corporate and one-third other practice areas — while Crosby Heafey’s division is two-thirds litigation and a third corporate and other practice areas. Reed Smith wants to add Crosby Heafey’s litigation power in the life science, IP and appellate areas. Crosby Heafey has 20 IP lawyers, many of whom handle litigation matters. After the merger the combined firm will have 75 IP lawyers. Ironically, San Francisco partner Scott Baker secured a $200 million IP litigation verdict against telecommunications company Qualcomm Inc. — which is a Reed Smith client. “Needless to say he won’t be doing that anymore, but it just shows what kind of capabilities they have,” Jordan said. “Hopefully, he’ll be representing Qualcomm now.” Crosby Heafey is one of the leading California firms in representing pharmaceutical companies. While Reed Smith does some of that work, it focuses on representing those companies on a host of matters nationally. On the transactional side, Jordan said, Crosby Heafey offers Reed some presence in life science, mid-market corporate and venture capital work. Jeff Blumenthal of the Legal Intelligencer contributed to this story.

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