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British legal giant Clifford Chance is closing its offices in San Francisco and Los Angeles after the defection of several partners to San Francisco-based Orrick, Herrington & Sutcliffe. The London-based firm said the California closings were the result of lower-than-expected profitability from the securities litigation group the firm recruited two years ago from the now-defunct Brobeck, Phleger & Harrison. But Michael Torpey, the former head of the San Francisco litigation practice and one of the eight partners joining Orrick, denied that profitability in the group had been an issue and instead attributed the parting to Clifford Chance’s failure to expand its West Coast operations. Aside from Torpey, San Francisco-based Clifford Chance partners joining Orrick include James Burns, Karen Johnson-McKewan, James Kramer, Robert Varian, and L. Christopher Vejnoska. Jerry J. Walsh and Daniel Tyukody will become partners in Orrick’s Los Angeles office. Clifford Chance will retain a seven-lawyer Palo Alto, Calif., office and a five-lawyer San Diego office. The firm entered the California market amid great fanfare in June 2002, when it attracted a large group of lawyers led by former Brobeck Chairman Tower Snow. The move was the first on the West Coast by a member of London’s Magic Circle of leading corporate firms. It was widely regarded at the time as a sign of Clifford Chance’s commitment to massive expansion across the United States. John Carroll, Clifford Chance’s New York-based managing partner for the Americas, said Monday the firm remained committed to the United States but was revising its strategy in light of its experience in San Francisco and Los Angeles. While he praised Torpey and the other departing California partners as a “strong group of people,” Carroll said the firm’s management had been “somewhat disappointed” with the group’s performance. He attributed its lowered profitability to the changing nature of securities litigation practice. “A significant factor is that, coming out of the [technology] bubble, securities litigation has shifted from an issuer practice to one focused on financial institutions,” said Carroll, who noted that the firm’s New York-based securities litigation practice is heavily focused on representing the banks now targeted by the securities class action bar. He also noted that the West Coast marketplace and its billing rates are different from New York. “It’s a difficult market to hit East Coast profit goals,” said Carroll. Torpey acknowledged that the securities litigation practice had changed, but he said the San Francisco-based practice had been almost as profitable as the New York practice. “The securities litigation group in San Francisco was one of the most profitable in the Americas for the immediate past fiscal year,” he said. But Torpey said the securities litigation group was unable to leverage its client contacts into building substantial transactional practices at Clifford Chance. He said potential corporate lateral hires were hesitant about joining a new entrant in the market. He said those hesitations increased after Clifford Chance partners on the East Coast began leaving in substantial numbers. “When you’re talking to lateral partners, it’s tough when you always have to explain things,” he said. The firm’s East Coast offices, most of which came to the firm in its 1999 merger with New York’s Rogers & Wells in 1999, first began to experience trouble in the fall of 2002, after a memo by New York associates detailing harsh work conditions became public. The first high-profile departure came when New York-based antitrust co-head Kevin Arquit left to join New York’s Simpson Thacher & Bartlett in December 2002. Partners began leaving in increasing numbers after Steven Newborn, antitrust co-head with Arquit, left with three others to join the Washington office of New York’s Weil, Gotshal & Manges in October 2003. Arquit and Newborn had been two of the firm’s biggest stars and its highest-paid partners. The firm subsequently lost several intellectual property partners, including group leader Leora Ben-Ami, who joined New York’s Kaye Scholer. In January, litigation chairman Kenneth Gallo left to join the Washington office of New York’s Paul, Weiss, Rifkind, Wharton & Garrison. Banking group co-head Robert Finley joined the New York office of Atlanta’s King & Spalding, and former global securities head Kevin Kelley left to join the New York office of Los Angeles’ Gibson, Dunn & Crutcher. The firm has also added a number of partners, most recently Washington-based antitrust partner James H. Holden, but recruiting efforts have thus far failed to keep pace with the number of defections. Torpey said California partners had some of the same cultural issues with London as some of the East Coast partners. But he also said there were issues between the U.S. offices as well. In particular, he said, the New York securities litigation group never tried to work closely with its West Coast counterparts, preventing the establishment of a true national securities litigation practice. One former New York partner at Clifford Chance who asked to remain unnamed said the expansion into the West Coast had been driven somewhat by the belief of both New York and London partners that the firm needed to be poised to take advantage of a rebound in the technology sector. But he said many of the firm’s British partners had been skeptical about the expansion from the beginning. “It wasn’t immediately clear to them why California was a market they had to be in,” he said. Torpey said the group had begun looking for a new home by the end of last year. He said they were happy to be joining Orrick. The firm’s chairman, Ralph Baxter, said the addition of the Clifford Chance partners significantly expanded Orrick’s West Coast litigation practices, meeting a major strategic goal for 2004. “We are tremendously pleased to have these outstanding partners join the firm,” he said. Carroll said Clifford Chance is committed to building its Palo Alto office. He expressed confidence that the firm will soon begin attracting partners to stop the contraction of its American operations. He said “smart observers” would conclude the firm was stronger for having jettisoned the two California offices. “They’ll see that we’re big enough and strong enough to make a hard decision,” he said.

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