An improving economy, corporate confidence, and a large measure of Yankee ingenuity are the ingredients in a steady return to pre-recession economic health for Connecticut's top firms.
But everyone in the Trib 20 rankings of the state's highest-grossing firms is still being cautious.
"It's important to be right-sized," says Pullman & Comley partner D. Robert Morris, whose Bridgeport-based full service law firm ranks ninth in the survey.
Morris, a tax lawyer, explained a trend that created a significant 2012 fourth-quarter surge in business for firms with estate and corporate practices. Ironically, it was a frenzy triggered by stagnation — the gridlock and suspense in Congress that was preventing America from knowing what the tax rates and inheritance laws were going to be this year.
This phenomenon was also reported by managing partners at Hartford's Updike, Kelly & Spellacy, Murtha Cullina, Shipman & Goodwin, and several others.
"Many clients were very motivated to complete their transactions by the end of the year," said Morris, "because they were concerned there would be a tax law change in capital gains rates. They knew we had 15 percent capital gains rates at the federal level, and nobody knew whether it was going to 20 percent, or potentially more than that. Congress is unpredictable."
In the depressed economy, with depressed prices, people have been reluctant to sell major assets like a family business, appreciated land or securities. But the improving economic climate was one motivation for sellers to explore finding a buyer. The tax law uncertainty added an urgency and a deadline to sell before year's end, which resulted in an unexpected flood of new transactional business in late 2012.
"Transactionally, on the corporate side, it was wild — the busiest I've had personally in 26 years," said Updike managing partner John Wolter, a banking lawyer, whose firm is 13th in the Trib 20. "It was really the last quarter, and it was tax-driven."
Wolter said banks were scrambling at year's end to facilitate deals. One strategy, Wolter explained, involved borrowing to fund corporate dividends. "Companies were looking to borrow money and lock in low interest rates, and then use that money to do stock redemptions and things like that." If the companies passed on those funds as stock dividends at 2012 rates, it was going to be taxed at 2012 rates, Wolter explained.
"So a lot of companies distributed money out to shareholders at levels way above what they would usually do, borrowing money to do that. Now, over the next three to five years they're going to be paying that back, so they won't be paying out dividends at the same levels. They essentially borrowed to pay it out all at once."
For many firms, this produced a one-time windfall of legal work. Wolter said: "As we approached year end, we were wondering what would we be doing in June . Did we suck all the air out of the 2013 balloon in 2012?"
Well, did they? "On a certain level, yes," Wolter said. "We've been very steady, slightly ahead of 2012 at this point."
According to the Trib 20 charts, which are based on firm reports and Law Tribune research, Updike's revenues were up by close to a million dollars last year — a notable accomplishment.
Finding opportunities for clients — and themselves — in even the worst economic scenarios has traditionally been the secret of lawyers' success.
"We have to make hay even when it's raining," said Elizabeth Stewart, managing partner of Murtha Cullina. With gross revenues of $50 million, up from a 2011 gross of $48.3 million, her 107-lawyer firm had "a surprisingly good year," Stewart noted.
One phase of this diversified firm's practice — bankruptcy — began to thrive for a fairly counter-intuitive reason. In prior years, businesses did not have enough money to go bankrupt!
Stewart explained that for years after the 2008 Wall Street meltdown, the "debtor-in-posession financing" needed to fund the bankruptcy work-out process was either non-existent or prohibitively expensive. "At the beginning of the recession, back in 2008 and 2009, things were so grim that, for example, with the auto companies, the United States government had to get involved, because they could not afford to file for bankruptcy."
Debtor-in-possession financing simply wasn't available, as financial institutions tightened lending policies across the board after the economic meltdown, Stewart said. "That whole general phenomenon slowed down bankruptcy practices a lot," Stewart said. But in 2012, "for us, anyway, our bankruptcy practice came back and was quite strong. Particularly toward the end of the year."
One major bankruptcy case involved New England Compounding Pharmacy, in Massachusetts. "They were, unfortunately, accused of causing meningitis in many people around the country because of contamination of their products," Stewart said. "Not surprisingly, the company had to file for Chapter 11. We took them into Chapter 11 and we had some other big bankruptcy matters as well."
Stewart heads an unusual insurance practice at Murtha, which is focused on representing claimants and making sure insurance companies make good on their policies. The firm decided to take up this practice strategy after deliberation, an inventive decison to fill an all-but-empty legal niche.
One of Stewart's clients is the Archdiocese of Hartford, which is suing insurers that don't want to cover settlements paid to victims of priest sexual abuse.
Another large insurance matter contributing to Murtha's 2012 revenues is the R.T. Vanderbilt complex litigation case unfolding in Waterbury. Murtha partner Francis Brady is the lead litigator in a sprawling case in which corporate plaintiffs contend their insurance policies should provide coverage when the U.S. Environmental Protection Agency launches enforcement actions against them.
The managing partners who are interviewed for the Trib 20 often reveal how surprisingly different Connecticut's law firms are from their superficial reputations. Take 65-year-old Ivey, Barnum & O'Mara, in prosperous Greenwich. It, predictably, has a solid trust and estates practice, and is thriving as real estate transactions begin to heat up again. Managing partner Michael Jones reports bidding wars as would-be buyers duel over land offers. "It's something we haven't seen for six years," he said.
Less well known, however, is the fact that Ivey Barnum, which is No. 20 in the Law Tribune survey, has a growing personal injury and wrongful death practice — with overtones of glamor, murder and exotic leisure destinations. Two years ago, prominent New York tort lawyer John Q. Kelly joined the firm. Kelly won a civil verdict for the survivors of Nicole Brown against O. J. Simpson, famously aquitted in his earlier criminal trial. Kelly divides his time between the Ivey Barnum offices in New York and Greenwich, and focuses on complex and scintillating wrongful death cases.
"We were just down in Florida on a wrongful death for an airplane crash," Jones said. "We've always done it, but it wasn't a specialty." The firm also represents the family of Natalee Holloway, the vacationing blonde high school girl murdered in Aruba, as well as two victims of a 2009 Taconic Parkway crash in which a wrong-way driver slammed into another car, killing a total of eight people.
Ivey Barnum's always had a strong litigation department, which was particularly welcome during the recession, said Jones. "When the real estate trailed off, the litigation department carried the firm through the two worst years, 2008 and 2009, and part of 2010," he said. "Now I would say it's back to where both commercial and residential real estate have really started to bring the money back into the firm."
The Trib 20 contains a mixture of firms. Some offer a diversified smorgasbord of services to clients, while others focus on doing a few things very well. ???At the Stamford insurance defense firm of Ryan Ryan Deluca, which is 19th in the Trib 20, managing partner Robert C. E. Laney says the economic vicissitudes are less of a problem due to the nature of the practice. "As the economy sometimes turns south, litigation heats up," he said. "It's the nature of the beast. We're in the happy circumstance of being somewhat immune from economic ill-winds."
Representing insurance companies on the defense side doesn't mean a steady flow of trial work is guaranteed. "There are pressures on insurance carriers to try to reduce their legal spending and control their costs, so one of the first things they look at are their litigation budgets," said Laney.
Compared to a decade ago, he added, "Our clients are probably more aggressive in looking for early resolution opportunities. But we don't see any decrease in the number of files coming in the door."
One emerging strength of Ryan, Ryan Deluca is its focus on professional liability defense. It's not just medical malpractice – legal malpractice is a growing specialty. "Eight or nine years ago, we didn't have more than one or two files. In the past six or seven years, it's grown to about 35 percent of my work, and a fair amount of [partner] Chuck Deluca's work and Mike Ryan's work. It's an area that didn't exist on our radar a decade ago."
One of the more diversified firms in the state is Shipman & Goodwin, where managing partner Scott Murphy is charged with keeping 156 lawyers productive and profitable.
The Hartford-based firm had a good year in 2012, Murphy says, picking up two prominent laterals early in 2012 from the disintegrating Dewey LeBoeuf — J. Dormer Stephen and Andrew Davis. Stephen is a private equity and mergers and acquisitions lawyer. Davis has a national reputation in natural resource damage claims and environmental response matters.
As the third largest Connecticut-based firm, Shipman is physically rooted in Connecticut, with only one out-of-state location. It has a Washington, D.C. office, which works on complex insurance coverage matters. These, Murphy said, involve "multiple insurance companies and multiple layers of insurance and reinsurance over a period of policy years – who's at risk for what losses. Those tend to be very complicated, large cases on a national basis."
Already home to the state's largest school law practice, Shipman now represents 110 municipalities in Connecticut. "It's everything from teacher negotiations to student discipline, special education, first amendment and other constitutional issues in a public school setting," Murphy said. "It continues to grow — with the latest new growth area being private secondary schools."
Increasingly, Shipman is getting work from large national corporations that are beginning to realize they can buy top quality legal work from locations outside New York, Boston and Washington D.C, Murphy said. Of the firm's top 20 clients, two are based in Minnesota, one is in Colorado, one is in Texas and one is in New Jersey.
The week Murphy was interviewed, Texas Governor Rick Perry was in Connecticut attempting to drum up excitement about exporting Connecticut businesses to the Lone Star State. Murphy said he's pleased with Shipman's ability to attract national business from far and wide, and maintain a mix of geographic diversity without moving an inch. He added, "I'm certainly not moving to Texas."•