UPDATE: 10/1/13, 12:30 p.m. EDT. Kelley Drye has hired IP litigation partner David Long in Washington, D.C., where he chaired the patent practice at Dow Lohnes after joining the firm in 2011 from the dissolving Howrey.

Dow Lohnes, a former Am Law 200 firm with offices in Atlanta and Washington, D.C., has lost nearly half its lawyers over the past three years amid a spate of lateral defections.

Now down to fewer than 100 attorneys and hurt by the loss of key client Cox Enterprises, the firm is engaged in merger talks with possible suitors, according to a half-dozen sources who spoke with The Am Law Daily on the condition of anonymity.

The sources include four former Dow Lohnes lawyers and two legal consultants, one of whom labeled the firm’s ongoing merger talks as the “worst kept secret” in D.C.’s rapidly consolidating legal market.

Should Dow Lohnes wind up merging with another firm, it would be the latest shop in the nation’s capital to combine with a larger rival at a time when the financial pressures buffeting the legal industry are hitting smaller partnerships especially hard.

“It’s harder to survive these days,” says Sheldon Cohen, who merged his D.C. tax boutique Cohen & Uretz with Morgan, Lewis & Bockius back in 1985. “Smaller firms hinge on a few key partners, so it’s harder to hold things together.”

Cohen, now retired from Morgan Lewis and working as a director for D.C.-based investment firm Farr, Miller & Washington, says it was questions about succession planning that led to his firm’s merger. And while he doesn’t regret the decision, he notes that not every tie-up works out.

A Shrinking Market

Not all of D.C.’s small firms are struggling.

Kellogg, Huber, Hansen, Todd, Evans & Figel—which focuses on litigation and telecommunications law—and tax and political law boutique Caplin & Drysdale are two that have managed to remain independent. (Mortimer Caplin, who founded the latter firm in 1964 and recently celebrated his 97th birthday, continues to practice tax law.)

And Buckley Sandler, a financial services boutique formed in 2009 by Am Law 100 alums, has grown to 151 lawyers and climbed onto The American Lawyer’s annual Am Law 200 list in 2011.

Still, many smaller D.C. firms have opted for the merger route. Most recently, 10-lawyer energy boutique Bruder, Gentile & Marcoux was absorbed by Schiff Hardin, according to our previous reports. Within the past six years, other D.C. firms have been snapped up by Bingham McCutchen, Cozen O’Connor, Davis Wright Tremaine, Edwards Wildman Palmer, Greenberg Traurig, Kilpatrick Townsend & Stockton, and Troutman Sanders.

Any merger involving Dow Lohnes, which was founded in 1918 and has resisted combining with other firms over the years, would be the largest in the D.C. market since Bingham acquired 120-lawyer McKee Nelson in 2009. As of now, the firm is not acknowledging that such a deal is a possibility.

“Dow Lohnes has premier practices in the communications, new media, and higher education sectors,” the firm said in a statement provided to The Am Law Daily. “Our firm is focused, as it always has been, on serving the legal needs of our valued clients in these and other areas. We do not comment on speculation, clients, or attorney departures.”

Heading for the Exits

This year’s attorney exodus began in February with the departure of D.C. lobbying and public policy partners Kenneth Salomon, James Burger, and Christopher Murray to Thompson Coburn. Salomon, a former chairman of Dow Lohnes Government Strategies, had spent 33 years at the firm.

In making the move, the group brought along a roster of lobbying clients that include Overstock.com, STMicroelectronics, and the Association for Information Communications Technology Professionals in Higher Education, according to sibling publication The Blog of Legal Times. Four months later, telecom regulatory partners Gary Lutzker and J. Christopher Redding left for Baker & Hostetler in D.C., with Redding joining the firm as of counsel.

Then came an even bigger blow.

Sibling publication the Daily Report reported in July that Dow Lohnes’s Atlanta office was undergoing a major shakeup thanks to Cox’s decision to rely on other firms for legal representation. The privately owned Cox—whose holdings include The Atlanta Journal-Constitution and Cox Communications, the country’s third-largest cable system operator—had until then provided the firm with an array of corporate, litigation, regulatory, and tax work. A former Dow Lohnes partner says that Cox was the firm’s largest client.

Deep Ties to Cox

Dow Lohnes’s relationship with Cox began nearly three decades ago with the 1980s launch of the firm’s Atlanta office—its first outside D.C.—following the hire of partner Marion “Chip” Allen III, who brought with him Cox as a client. In addition to leading the Atlanta office, Allen went on to serve as chairman of Dow Lohnes until his death in 1998 in a plane crash near Atlanta that also claimed the lives of three other Dow Lohnes partners, all of whom did work for Cox.

Allen, 53, was piloting a twin-engine Cessna jet when it collided with a second, smaller plane. The families of the four Dow Lohnes partners later sued the federal government and a Georgia electric utility in connection with the crash, agreeing to a $42 million settlement in 2000, according to the Daily Report. (In the years since, Cox has hosted an annual conservation award named in Allen’s honor.)

Dow Lohnes continued handling work for Cox in the wake of the tragedy, advising the company in litigation (including a high-profile libel suit filed against the Journal-Constitution by Richard Jewell, a former security guard wrongfully accused of bombing the 1996 Olympics), advertising disputes, wireless spectrum sales, telecom mergers, and other transactions. In 2006, for instance, the firm handled Cox’s $3.2 billion sale of two cable television systems. Three years later, it advised Cox on its sale of a 65 percent stake in the Travel Channel.

The ties between firm and client endured in other ways. Former Dow Lohnes partner Andrew Merdek spent more than 22 years at Cox—including 17 as general counsel—until retiring in 2010. Longtime Cox in-house lawyer Shauna Sullivan Muhl, who did not come from Dow Lohnes, succeeded Merdek as the company’s in-house legal chief. Former Dow Lohnes associate Robin Sangston continues to serve as Cox’s vice president of compliance. And former partner Peter Cassat left the firm in 2011 to become general counsel of the AutoTrader Group, a Cox subsidiary.

While Cox’s in-house attorneys did not respond to requests for comment about the decision to go in another direction for outside counsel, a Cox spokesman told The Am Law Daily that the company was looking to diversify its legal panel.

Dow Lohnes will continue handling communications law matters for Cox, but as noted by the Daily Report, the firm’s exclusive relationship with the company is effectively over. Dow Lohnes must now compete with other firms for Cox work.

With Cox also saying that it will consider using Dow Lohnes lawyers if they move to other firms, Peter Canfield, the firm’s local managing partner in Atlanta, told the Daily Report that the office will stay open as the firm works to help partners shift their practices elsewhere.

Those transitions are already under way. Atlanta’s Wargo French added Dow Lohnes corporate and real estate partner Lawrence Humphrey this summer, and earlier this month Atlanta real estate boutique Sheley, Hall & Williams hired Dow Lohnes real estate partner David Lester, senior counsel Jaimie Johnson, and associate Kay Stanley, all of whom have done work for Cox, according to the Daily Report. (Stanley joins her new firm as counsel.)

In another potential Cox-related setback, Atlanta-based AutoTrader—the owner of Autotrader.com, the country’s largest automotive classified website—pulled plans in January for a $300 million initial public offering on which Dow Lohnes was advising. Cox, which founded AutoTrader in 1997, owns 75 percent of the company after selling a 25 percent stake to Providence Equity Partners in 2010.

Legal fees related to the shelved AutoTrader IPO are not available. Dow Lohnes had previously represented the company in connection with another effort to go public in 2000. Retired partners Stuart Sheldon and John McNamara handled that potential offering—which, though ultimately withdrawn, yielded $900,000 in legal fees and expenses, according to an SEC filing at the time. (Dow Lohnes also advised AutoTrader in 2010 in connection with its $500 million acquisition of the Kelley Blue Book vehicle-pricing database.)

U.S. Senate records show that Dow Lohnes Government Strategies receives about $160,000 a year for its lobbying efforts for Cox related to potential tax reform legislation, telecom retransmission issues, and cyber-security concerns. As of Friday, the firm’s contract with Cox is still active.

More Defectors Move On

The departures from Dow Lohnes accelerated in the wake of Cox’s decision to tap other firms to meet its outside counsel needs.

In August, Kilpatrick Townsend picked up four Dow Lohnes lawyers in Atlanta, including labor and employment partner Russell Jones. Also leaving Dow Lohnes’s Atlanta office last month were corporate partner Matthew Block and litigation partner Jason McCarter, both of whom joined Sutherland Asbill & Brennan, according to the Daily Report.

The Am Law Daily reported last week on Kelley Drye & Warren’s addition of Dow Lohnes’s sports and entertainment practice led by partner Adisa Bakari, a registered agent who represents such National Football League players as Antoine Bethea, Matt Forte, and Maurice Jones-Drew. (Last year Robert London II, a non-lawyer serving as a president of Dow Lohnes’s sports group and a former general manager candidate for at least one NFL team, left the firm to start his own agency.)

Sutherland raided Dow Lohnes again last week to pick up five technology, media, and telecom industry lawyers in D.C., including partners William Dudzinsky Jr., Michael Hepburn, and Paul Lang, as well as several junior lawyers, according to The BLT. The attrition has whittled away at a firm whose head count had remained steady for many years before the recent losses.

In 2005, Dow Lohnes’s D.C. office had 113 lawyers, 59 of whom were partners, according to data compiled by sibling publication The National Law Journal. When The NLJ expanded its national head count survey to 350 firms last year, Dow Lohnes came in at No. 346 with a combined 113 attorneys in D.C. and Atlanta. The latter office has traditionally been home to more than 30 lawyers. It now has 15 and Dow Lohnes officially dropped off The NLJ‘s 350 list this year.

Like many firms affected by the abrupt economic downturn that began five years ago, Dow Lohnes has felt the recession’s sting. In 2008, the firm had 160 lawyers, gross revenue of $106 million, and profits per partner of $750,000, according to The American Lawyer’s annual Am Law 200 reporting.

The following year—one of the worst for Am Law 200 firms in recent memory—Dow Lohnes’s head count dropped to 150 lawyers and its gross revenue dipped to $98 million. On the upside, profits per partner held steady at $745,000.

In 2010, the firm’s head count slipped again to 142 lawyers, though gross revenue was down only slightly to $95.5 million, and profits per partner were actually up a healthy 12.7 percent to $800,000. The firm’s performance was not strong enough in either 2011 or 2012 to qualify it for inclusion on The Am Law 200.

Dow Lohnes renewed its D.C. lease for 147,000 square feet of space in 2006. The firm had a New York office it closed after unwinding a merger in the mid-1990s and until last year had an outpost in Norman, Oklahoma, headed by former Midwestern regional managing partner Christopher Meazell, who was teaching at the University of Oklahoma’s law school. Meazell remains of counsel with Dow Lohnes and is currently director of the master of studies in law program at the Wake Forest University School of Law.

Valuable Assets Remain

Even amid the departures, the financial struggles, and the Cox loss, one former Dow Lohnes partner notes that though the firm missed out on the “matchmaking game” when approached by larger suitors in the past, the firm still has many key partners and practice areas that could be attractive to potential merger partners or firms looking to poach certain groups.

Dow Lohnes bolstered its lobbying practice in 2007 with the addition of Rick Kessler and Stephen Sayle in order to expand the group beyond its traditional telecom ties. While Sayle appears to have left the firm—he is no longer listed on its website and an email sent to his work address bounced back—Senate records show Dow Lohnes has reaped more than $700,000 in lobbying fees so far this year representing clients like Calpine, Chevron, the Electric Power Supply Association, the Iroquois Gas Transmission System, ITC Holdings, J2 Global, National Grid, Qualcomm, and Tenaska.

Michael Goldstein—who founded and cochairs the firm’s higher education industry practice, one of the nation’s leading groups advising postsecondary education clients—is another notable name still with the firm. Dow Lohnes, which served as regulatory counsel to a private equity consortium that acquired Education Management Corp. for $3.4 billion in 2006, also handles lobbying work for such education-related clients as Career Education Corp., DeVry, and the Florida Barber Academy, according to Senate filings.

Dow Lohnes is also a longtime leader in the telecom sector. Past assignments include advising private equity firm Thomas H. Lee Partners in its role as part of a consortium that acquired Clear Channel Communications for $17.9 billion in a deal completed in 2008 after some legal wrangling.

This summer, Dow Lohnes grabbed the role of regulatory counsel to Allbritton Communications on its $985 million sale of several TV stations to Sinclair Broadcast Group, a deal that is likely to get a close look from regulators. The firm is also serving as corporate and regulatory counsel to Local TV Holdings in connection with its proposed $2.73 billion sale of 19 TV stations to the Tribune Company in a transaction that received Federal Trade Commission approval in July.

Last year Dow Lohnes was one of several firms retained by Japanese telecom giant SoftBank for its $20.1 billion buy of Sprint Nextel. Dow Lohnes served as regulatory counsel to SoftBank, which received the necessary approvals this summer to complete its acquisition of the third-largest wireless provider in the U.S. (The American Lawyer recently named the tie-up beween SoftBank and Sprint as its Global M&A Deal of the Year.)

Further evidence of Dow Lohnes’s prowess in the telecom sector can be found in the names of the former firm lawyers who have gone on to take top in-house roles both in private industry and government agencies.

Kevin Latek, who spent 14 years as a partner at Dow Lohnes, left last year to become a senior vice president at Gray Television. Another former partner, Suzanne Underwald, left Dow Lohnes last year to become senior vice president of legal affairs for Scripps Networks Interactive.

To-Quyen Truong, the onetime head of Dow Lohnes’s telecom practice, left the firm in 2009 to join the FDIC before moving on last year to become the Consumer Financial Protection Bureau’s deputy general counsel for litigation, oversight, and enforcement support.

The firm’s younger generation is also on the move. Marc Sher, a media lawyer whom Dow Lohnes managing partner John Byrnes Jr. touted as a “rising star” in announcing his promotion to the partnership last year, left last month to become an associate general general at Gannett. And Leah Stupak, an associate specializing in FTC matters, joined eBay this month as a marketing and product counsel.

What Does the Future Hold?

Byrnes, who joined Dow Lohnes’s management committee a decade ago and succeeded corporate department head and current chairman Leonard Baxt as managing partner, clearly faces some challenges in what is an uncertain environment for all firms. (Neither Byrnes nor Baxt returned calls seeking comment.)

Two large firms with roots in D.C., Howrey and Hogan & Hartson, pursued separate strategies in recent years, with Howrey opting for growth through aggressive lateral hiring—and ultimately dissolving—and Hogan & Hartson joining the ranks of the international giants by merging with British firm Lovells.

Dow Lohnes leaders must now decide which path they will follow. Those familiar with the current situation are eager to see what transpires.

“It’s a good firm, and I don’t blame management, because it’s easy to play Monday morning quarterback,” says one former Dow Lohnes lawyer. “Mergers don’t always work. It’s such a tough market. The question really is—can the little guy survive?”