Kaye Scholer saw its gross revenue fall by nearly 5 percent, to $400 million, its profits per partner dip by about 3 percent, to roughly $1.35 million, and its revenue per lawyer drop by 2 percent, to $965,000, in 2012, according to The American Lawyer‘s reporting. The figures marked the second straight across-the-board falloff for the New York–based firm.
Kaye Scholer cochair and managing partner Michael Solow says last year’s results were largely driven by the fact that the firm wrapped up several large litigation matters in late 2011 and early 2012, including a pair of major product liability cases for Pfizer, as well as the firm’s role in the massive docket over defective Chinese drywall.
"We are still heavily driven by our large case litigation, and in 2012 it was a year where we had finished off those cases and we were building back a portfolio that will carry us forward," says Solow. He adds that though the firm anticipated "95 percent" of the difficulties it wound up facing in 2012, it also suffered some unexpected partner departures. "Overall we had more partners leave this last year than we have traditionally had," Solow says.
The firm suffered a net loss of two equity partners last year, going from 126 to 124. (Overall attorney head count fell 3 percent, from 427 to 414.) The defectors included New York partner Leora Ben-Ami, who, in a move first reported by The Am Law Daily, led a group of patent litigators to Kirkland & Ellis in May. During their tenure at Kaye Scholer, Ben-Ami and her group handled major intellectual property disputes for clients including E.I. du Pont de Nemours and Company, Gilead Sciences Inc., Hoffmann-La Roche Inc., and Pfizer Inc.
Kaye Scholer is among the firms who are a part of Pfizer’s Legal Alliance—the 20 or so firms that are paid a flat rate for all the work they do for the pharmaceutical giant each year. When asked about the firm’s relationship with the company, Solow says, "We are still on [Pfizer's] list, we are still one their most significant providers, and we count them as one of our most important clients." As our Am Law Litigation Daily colleagues have previously reported, Kaye Scholer lawyers successfully defended a patent challenge by generic drug companies to the company’s cancer drug Tarceva in May.
Kaye Scholer’s IP litigation department suffered another significant loss in September, when, as the Lit Daily first reported, Washington, D.C., partner Alan Fisch left with a group of patent litigators to open his own trial boutique. Over the years, Fisch’s clients have included McDonald’s, Juniper Networks, General Dynamics, and Barnes & Noble. Asked about the D.C. litigator’s decision to open his own shop, Solow says: "I’m never happy to see our partners decide that they need to leave, but if they decide it’s best for them to do, then that’s what’s best."
Although the firm’s nonequity partner head count remained flat at 23, nonequity compensation dropped more than 26 percent, from $15 million to $11 million. Solow says the firm has taken a look at its nonequity tier and that it is now a "younger group" than it was prior to the recession. "It was very easy during the first decade of this century because billing rates continued to rise and there was an abundance of work, so you just kept people on," he says. "They were active and clients were happy. The world changed in 2008 and we’ve had to take—like a lot of firms—a hard look at our personnel and have adjusted."
Solow says Kaye Scholer’s profits also suffered last year from a kind of domino effect brought on by the impending move of its New York office from its current location at 425 Park Avenue to 250 West 55th Street in 2014. The decision to relocate the New York office after 55 years, Solow says, prompted partners to consider taking on less space and finding other ways to cut expenses. That, in turn, led to the January announcement that Kaye Scholer is joining the ranks of firms consolidating their back-office operations in smaller, less expensive cities. In Kaye Scholer’s case, that means shifting about 100 support staffers—most of whom currently work in the firm’s New York headquarters—to a new operations center in Tallahassee. Solow says that while the search for space caused the firm to incur expenses last year, consolidating the support staff in Florida should begin to produce substantial savings beginning next year.
Looking ahead, Solow says the firm has budgeted a modest increase in profits per equity partner for 2013, and that he’s "cautiously optimistic" about how the year will play out given that returns to date are exceeding projections. He says Kaye Scholer recently took on an unexpected—and significant—product liability litigation matter, but declined to provide further details. As further reason for optimism, he also points to two practices that have enjoyed double-digit growth for two straight years amid an otherwise challenging economic climate: the firm’s real estate finance group and its practice representing clients on mergers that have potential national security implications before the Committee for Foreign Investment into the United States.
As previously reported by The Am Law Daily, Solow’s own bankruptcy practice recently agreed to forfeit $1.5 million in fees it earned for its work on behalf of bankrupt investment firm GCS Group Inc. to the U.S. Trustee. From a financial standpoint, Solow says, the settlement was not material to the firm’s past financial returns and would not have a material impact on 2013.
This report is part of The Am Law Daily’s early coverage of 2012 financial results of The Am Law 100/200. Click here to see an interactive chart comparing this firm’s 2012 finances to those of other Am Law 100 and Second Hundred firms that The Am Law Daily and its sibling publications have reported on to date. Final rankings and full results for The Am Law 100 will be published in The American Lawyer’s 2013 issue and on AmericanLawyer.com. The Am Law Second Hundred will be published in the June issue.