examining the city

Editor’s note: This is the second installment in a series examining law firms’ entry into new geographic markets.

Despite talk for years that the Philadelphia region’s legal market is oversaturated with firms, several out-of-state firms have entered the market over the past few years.

Meanwhile, western Pennsylvania has experienced a similar influx of outside firms, but often with very different expansion goals.

Lawyers and recruiters said the firms that have opened in western Pennsylvania have been almost exclusively drawn there by the oil and gas industry boom, but see potential to establish a major presence in the region. The firms that have entered southeastern Pennsylvania, however, have primarily targeted specific lawyers or merger partners with the aim of establishing a profitable niche foothold in an already heavily lawyered market.

Recruiter Frank D’Amore said many of the national firms that have opened in the Philadelphia region have done so in an effort to “fill a hole in their geographic footprints.”

The Philadelphia region, D’Amore said, is one of the top 10 legal markets, as well as one of the top 10 markets in terms of population and corporate headquarters, so firms often feel the need to have a presence in or near the city.

“A lot of times firms’ expansion efforts are driven by what their clients’ needs are,” D’Amore said. “They want to be able to say, ‘We have troops on the ground everywhere in the country.’ If they don’t have [a presence] in Philadelphia—a top 10 market—they have a hole.”

For example, when Atlanta-based litigation firm Freeman Mathis & Gary opened new Philadelphia and New Jersey offices earlier this month with four Spector Gadon & Rosen lawyers, managing partner Benton J. Mathis Jr. said doing so gave the firm “an important foothold in the Northeast” but added that geographic expansion was a secondary consideration to getting the Spector Gadon group’s practice.

Freeman Mathis is just one of several out-of-state firms to open in the Philadelphia region in recent years. That list also includes Detroit-based Clark Hill, Cleveland-based Baker & Hostetler, Kansas City, Mo.-based Shook, Hardy & Bacon, Los Angeles-based Lewis Brisbois Bisgaard & Smith, San Francisco-based Gordon & Rees, Cincinnati-based Dinsmore & Shohl and New Jersey-based Carroll McNulty & Kull.

But D’Amore said that while there are still plenty of growth opportunities in Philadelphia, very few firms, regardless of how large, come to the city aiming to dominate the legal market.

“If the bigger firms that already have 20 or 25 offices wanted to come in and dominate, they would have already done it,” D’Amore said. “The market’s pretty settled with respect to that. From the standpoint of really being on top, that’s still really the indigenous firms. But there’s still space here [for outside firms] to be profitable.”

D’Amore said firms looking to be successful in Philadelphia should and often do seek to get a foot in the door by hiring an established local lawyer or group of lawyers.

Hiring well-known lawyers helps out-of-town firms build their brand locally.

“The more you can build the brand, it sends a very important signal that the firm’s going to be here for awhile,” D’Amore said.

Conversely, according to recruiter Maura McAnney, the out-of-state firms that have come to Pittsburgh in recent years have been almost exclusively lured here by the rise of the oil and gas industry around the Marcellus and Utica shale plays, often seeing an opportunity to become a major player in the market.

Ten years ago, according to McAnney, the out-of-town firms that entered the Pittsburgh region did with goals similar to those of the firms that enter Philadelphia: They either felt they had a gap in their geographic coverage they needed to fill or they had clients in the region they wanted to be closer to.

But the past five to seven years since the Marcellus shale first started garnering significant attention have seen a number of Texas, West Virginia and Ohio firms come to western Pennsylvania in an attempt to establish themselves as heavy hitters in the oil and gas space, which is largely considered uncharted territory despite Pennsylvania’s long history of natural resource extraction, McAnney said.

Some of those firms have entered the market by acquiring local lawyers and firms, while others have moved lawyers from their existing offices to western Pennsylvania.

Regardless, McAnney said, most of those firms have thus far been limited to doing oil and gas title work.

According to McAnney, the firms that have been most successful in making inroads locally are the ones that have been able to diversify their practices.

Kristian E. White, who moved from Steptoe & Johnson’s Wheeling, W.Va., office in late 2010 to open an office in Southpointe, less than four months after the firm opened in Meadville, Pa., through a local acquisition, said his firm initially came to Pennsylvania to do title work, but only as a means of getting its foot in the door.

Now, White said, the firm is working toward establishing a full-service presence in the region.

“Here in western Pennsylvania, we want to be a major player and we want to service not only the oil and gas industry but all the industries our firm services” elsewhere, White said.

According to White, Steptoe & Johnson is currently planning to double its office space in Southpointe, a project that, once completed, will allow the firm to accommodate about 50 attorneys there.

White said that, in addition to oil and gas work, the firm has successfully grown its banking and employment practices in Pennsylvania, both through engaging new clients and doing work for existing clients.

Still, it hasn’t been easy, White conceded.

“You’re looked at as a newcomer,” White said, recalling a recent instance where someone told him that a firm has to be in Pittsburgh for at least 20 years to be truly considered a Pittsburgh firm. “In order for you to gain work, someone has to lose that work. It’s a challenge to get name recognition and trust with clients that have used their firms for years.”

But McAnney predicted there will soon be opportunities for outside firms to truly become dominant forces in western Pennsylvania, at least with regard to oil and gas work.

“What happens next is the new horizon,” McAnney said. “There are lots of firms doing title work and more and more firms doing advanced energy work. Will those out-of-town firms take it to the next level? Will the door be open for these out-of-town firms to do what comes after title work?”

What comes after title work in the oil and gas space, according to White, is likely to be litigation stemming from contested leases and well-site injuries, as well as transactional work as companies begin to divest their interests in Pennsylvania and new companies come in to acquire those interests.

But while the firms that have entered western Pennsylvania recently may have more ambitious growth plans than those that have opened in southeastern Pennsylvania, that’s not necessarily true in all cases.

Baker & Hostetler, for example, opened a Philadelphia office in January through a merger with intellectual property firm Woodcock Washburn, bringing aboard about 65 lawyers in the process.

Former Woodcock Washburn policy committee member and current partner in charge of Baker & Hostetler’s Philadelphia office, Joseph Lucci, said the firm does want to eventually expand the office beyond IP work, into areas such as litigation, corporate, tax and employment law.

“Our desire is to grow and diversify the office,” Lucci said, but added that it will only do so if it can find the right attorneys to do it.

Meanwhile, even firms that initially open in Philadelphia with little intention of growing can change course if they’re successful in the region.

When Dinsmore & Shohl opened an office in the Philadelphia suburb of Wayne, Pa., with five lawyers from Pittsburgh-based Burns White’s Philadelphia-area and New Jersey offices, its managing partner said he didn’t anticipate that the office would “‘grow dramatically’” beyond that group.

But fast-forward nearly two-and-a-half years and Richard A. O’Halloran, the managing partner of Dinsmore & Shohl’s Philadelphia location, said the firm now wants to expand in the region, having been spurred on by its success thus far.

“Maybe early on the thought was, ‘We’ll do this and we’ll see how it goes and Philadelphia might not be part of our core strategies,’ but with the way things have been going [the firm] wants to grow the office,” O’Halloran said.

Zack Needles can be contacted at 215-557-2493 or zneedles@alm.com. Follow him on Twitter @ZNeedlesTLI.