Like their counterparts in the Top 20, New Jersey's second tier of high-grossing law firms took a breather from the growth spurt of the prior two years, but it doesn't seem cause for worry.

The Second 20 firms' earnings were stagnant in 2012, but profits also stayed flat, avoiding the dip experienced at the Top 20. [See "Earnings Plateau, Profits Dip at Top N.J. Firms," April 29.] And if their lawyer ranks sagged, it was only slightly.

That's mostly sanguine news for the firms that in some ways are more indicative of the health of New Jersey's legal profession. Some are branches of out-of-state firms but most are homegrown with a footing in the local economy. For them, growth can't outstrip the available food supply.

As such, these firms seemed to have consciously kept a lid on leverage: the old formula that said, essentially, if you hire, the work would follow.

The Second 20 firms together brought in $569.2 million in gross revenue, less than a 1 percent slide from $573.5 million in 2011. That compares with 3.6 percent growth in 2011 and 11.54 percent in 2010, the comeback year from the recession.

Profits stayed virtually unchanged at $208 million. That may seem a let-down compared with a 7 percent hike in 2011 and 14.6 percent in 2010.

But the leaner profits didn't cause much pain because there were fewer equity partners to share them: 392, a drop of 36, or 8.4 percent, from 428 the previous year. Equity partnerships had, by contrast, grown by 1.9 percent in 2011 and 6.1 percent in 2010.

Total lawyer ranks were also down, falling 6.2 percent to 1,168 from 1,245. The Second 20 had added 2.22 percent new lawyers in 2011 and 7.7 percent the prior year.

Due to the drop in lawyers, average revenue per lawyer (RPL) increased, by 6.1 percent to $507,650 from $478,350. That was more than four times the 1.23 percent uptick in 2010.

Profits per equity partner (PPP) rose at a comparable 5.7 percent clip, to $624,500 from $590,600, due to the decline in partner numbers. In 2011, the increase was only 3.87 percent.

Nonequity partnerships, on the other hand, enjoyed a 14 percent growth, to 186 from 163. That was double the 7.24 percent increase of 2011 and even bested the 12.6 percent of 2010.

NEPs have become popular as firms wrestle to add more partners to serve as billing machines to satisfy corporate clients' preferences, without having to make them full profit sharers.

The 2012 nonequity-lawyer spurt led to an explosion in the metric called "compensation all partners," which puts equity and nonequity partners' pay packages in the same pool for purposes of firm-to-firm comparisons. CAP skyrocketed by 28 percent to $512,000 from $400,000 in 2011.

Lerner David Still on Top

Repeating in the top spot (21) in gross revenues was Lerner, David, Littenberg, Krumholz & Mentlik of Westfield, with $42.4 million in gross revenue. That represented a 10 percent improvement over $38.4 million in 2011. The firm did it by adding six new lawyers and by boosting RPL to $565,000 from $557,000.

Bressler, Amery & Ross of Florham Park took the second spot (22), with a 4 percent growth in revenue while keeping its lawyer numbers tight.

That allowed Bressler to overtake Teaneck's DeCotiis, FitzPatrick & Cole, which fell to third (23) due to a 9 percent drop in revenue to $35 million from $38.2 million.

Reed Smith's New Jersey office was boosted to position 24 from 27 thanks to a 5.5 percent jump to $34.5 million from $32.7 million last year.

Flaster/Greenberg of Cherry Hill, which last year had jumped to 23 from 32, went down two notches to 25, with a revenue decline to $34 million from $37.9 million in 2011.

In terms of revenue per lawyer — usually the best indicator of a firm's performance — the hands-down winners were New Jersey branches of major out-of-state firms: Proskauer Rose in Newark, with $985,000; Reed Smith in Princeton, with $690,000; Duane Morris in Cherry Hill and Newark, with $685,000; and K&L Gates in Newark, with $615,000.

The best local-firm RPL numbers were at Lerner David, $565,000; Flaster/Greenberg, $540,000; DeCotiis FitzPatrick, $515,000; and Brach Eichler in Roseland, $507,000.

The DeCotiis firm brought in the highest net profits, $16.5 million, followed by K&L Gates, $16.2 million; Flaster/Greenberg, $15 million; Lerner David, $14.8 million; and Bressler Amery, $14 million.

But in terms of profits per partner, the out-of-state branches again led the pack, some posting seven-digit figures: Proskauer Rose, $1,850,000; Reed Smith, $1,083,000; K&L Gates, $900,000; and Duane Morris, $875,000.

As with last year's survey, the Second 20 remained a remarkably stable group with very few changes in identity. One notable newcomer was Scarinci Hollenbeck of Lyndhurst, which came in at position 37 with $22 million in revenues.

Bucking the National Trend

New Jersey's Second 20 appeared to defy the norms displayed this year in the The American Lawyer's Second Hundred: the tier of firms just under the Am Law 100.

Those firms took in 3.2 percent more revenue in 2012 than the prior year, but they did it by hiring about the same percentage of new lawyers. They also increased equity partners by 1 percent and NEPs by 10.1 percent.

As a consquence, RPL was flat at 0.2 percent, CAP stalled at 0.3 percent and PPP rose only 2.4 percent.

New Jersey's Second 20, by keeping clamps down on new hiring and equity partner additions, did much better in these key metrics.

The New Jersey firms, unlike their Second Hundred colleagues, haven't seen the need to add more bodies until the client demand warrants it.

The Second 20 survey is certainly affected by the presence of the four out-of-state branch offices of large national firms. Those four firms accounted for $117.1 million in revenues and $39.1 million in profits, which were, respectively, 20.6 percent and 18.8 percent of the total.

However, those revenues and profits relate to those firms' New Jersey operations, where billing rates and profit margins may be lower and thus produce figures different from those firms' national numbers. As such, their statistics do not skew the survey so much as to detract from the broad picture.■

The 2013 New Jersey Top 40 (1-20)
The 2013 New Jersey Top 40 (21-40)