Influx of Outside Law Firms Shakes Up S.D. Legal Community

It was a legal panzer strike. An act of headhunting derring-do that would make a cannibal lick his chops. A raid the vice squad could use for training purposes.

Late in February, five of San Diego’s finest lawyers--two from Gray Carey Ames & Frye, the city’s biggest law firm, and three from Luce Forward Hamilton & Scripps, its second-largest--marched one by one into their managing partners’ offices and announced that they were moving their shingles elsewhere.

The Los Angeles law firm of Sheppard Mullin Richter & Hampton proceeded to open its doors for business in San Diego on March 1--guaranteed instant credibility and a solid client base by a hiring coup that “sent shock waves” through San Diego’s legal community, in the words of more than one attorney.

In one bold strike, Sheppard Mullin stripped away any remaining doubt among San Diego lawyers that, in the legal business, the city is among the hottest expansion markets around.

For a decade, firms from L.A. and beyond had been setting up shop here. But this time, with promises of greater earnings and more exciting legal challenges, the out-of-town firms were prepared--and able--to induce the top San Diego firms’ top lawyers to set aside their loyalties and jump ship.

Not all are ready to admit it, but the invasion of the out-of-town law firms has many in the old-line San Diego legal establishment good and nervous.

“It raises eyebrows among the local bar because you wonder if your firm is next,” said Craig Higgs, a partner in Higgs Fletcher & Mack, a respected, mid-sized San Diego firm founded in 1939.

“It would have been unheard-of a few years ago for Gray Carey to actively seek to hire a Higgs Fletcher partner, and it probably still is,” he said. “With things happening like Sheppard Mullin, I don’t know if that will all change.”

Change is the primary commodity out-of-town law firms have imported into a San Diego legal community that, like the city it represented in court, had earned a reputation for gentility and clubbiness--abhoring open demonstrations of competitiveness and shrugging off marketing and business generation as somehow beneath the dignity of lawyers.

With the descent upon San Diego of at least 13 out-of-town firms in the last decade, there are few major law offices here that have not grown more aggressive in the pursuit and retention of an ever-more-sophisticated clientele. For business clients, there might be higher fees to pay than they had been accustomed to. But the rivalry for customers is viewed as having produced an overall improvement in the service they receive as well.

“The large firms had a lock on a very good city,” said Michael Alpert, partner-in-charge of the decade-old San Diego office of Gibson Dunn & Crutcher, a 470-lawyer international firm with headquarters in Los Angeles. “The other firms’ coming in has awakened them.”

Charles Hellerich, managing partner of 113-year-old Luce Forward, acknowledged last week that his 99-lawyer firm may have fallen victim to “the sleeping giant syndrome,” even as it was tripling its size between 1972 and 1986.

But the new, high-powered competition--both by its mere presence and its success in signing up local lawyers and clients--has slapped the giant in the face and prompted a “revitalization” of the firm, Hellerich said last week.

“Certainly it has caused us to maybe focus on and stress more our ability to provide a full service to the local client in the local market,” he said.

At Luce Forward and other large firms, lawyers say there is less imperiousness and a new emphasis on service. There also are marketing consultants, glossy brochures, public relations coordinators, client relations directors, free seminars on legal issues and more parties in stadium skyboxes.

“There is no doubt that the advent of these firms coming from out of town has induced us to move a little more aggressively,” said white-haired Paul Engstrand, a senior partner in the 40-lawyer Jennings Engstrand and Henrikson firm in Mission Valley.

Engstrand’s firm has felt the invaders’ sting directly: Weissburg And Aronson, a Los Angeles law firm specializing in health-care matters, hired away a Jennings Engstrand partner when it opened a San Diego office last fall.

But Engstrand has stayed alert to competitive trends, and he believes he has a business strategy that will allow his firm to survive in the evolving marketplace.

The firm recently won a listing in the Bond Buyer’s Directory as one of only four San Diego law offices qualified to handle bond issues. Jennings Engstrand also is trying to carve out a niche in representing emerging biotechnology companies. The firm hired a marketing director last year and printed its first publicity materials in the spring.

Still, Engstrand, bending and unbending a paper clip as he discussed the competition, sighed as he thought back to a less anxious time. “We’re running hard to stand still,” he said.

Who is it that has made life so perplexing for San Diego’s lawyers? And what are they doing here? The roster of transplanted law firms includes some of the industry’s best-known names:

- From New York in 1980 came Rogers & Wells, former Secretary of State William P. Rogers’ firm, which retains its prominence despite a former partner’s central role in the J. David & Co. scandal. Mitchell Lathrop left the Los Angeles firm of Macdonald Halsted & Laybourne, whose San Diego office he had opened in the mid-1970s, to establish Rogers & Wells in San Diego.

“We saw a market opportunity with the growth of the community,” Lathrop said in explaining Rogers & Wells’ move to San Diego. “And it seemed like a very good opportunity, given that the firm already was in L.A.”

- Finley Kumble Wagner Heine Underberg Manley & Casey, a fast-growing firm with origins in New York, entered the San Diego market in 1983 by merging with a newly formed San Diego partnership whose members included former U.S. Atty. James Lorenz.

“San Diego in a way doesn’t like outside law firms just coming in,” said managing partner Lawrence Sherman. “San Diego likes to deal with San Diegans.”

- A maritime industry client was so desirous that his Los Angeles law firm, Lillick McHose & Charles, establish a beachhead in San Diego that he found the firm space to lease for an office and hired the first secretary in 1976. Now Lillick, with more than 20 lawyers, occupies some of the poshest law offices in the city, a colonial-style suite in a downtown bank tower that recently was expanded to meet the firm’s growing needs.

Like other Los Angeles firms, Lillick, a business and banking specialist, wanted a presence in each of the state’s major financial centers, said managing partner Daniel Minteer. With the growing sophistication of San Diego business, moreover, the firm recognized that Gray Carey and Luce Forward could no longer dominate corporate law in the area as they had in the past, he said.

“It was unrealistic to expect two firms to be the key firms in the community,” Minteer said.

- Other firms have swarmed into San Diego as well, including Latham & Watkins, one of Los Angeles’ largest; Knobbe Martens Olson Bear, an Orange County patent law specialist; Fulwider Patton Rieber Lee & Utecht of Los Angeles; Kinkle Rodiger & Spriggs, also of L.A., and Littler Mendelson Fastiff & Tichy of San Francisco.

Their moves to San Diego are part of a larger phenomenon. Law firms, historically the most local of businesses, have branched into statewide, national and international entities in the last decade, just as their clients’ businesses have grown to serve larger markets.

Increasingly, big firms faced conflicts of interest in their original headquarters cities and new competition from other cities’ firms. At the same time, loosened restrictions on lawyers’ marketing practices destined the bar’s cozy cooperation for the scrap heap.

“Firms are chasing market,” said Michael Weaver, one of the partners who left Luce Forward last winter to join Sheppard Mullin’s San Diego team.

For the most part, the chase has remained friendly; the growth in San Diego’s economy has been brisk enough that the hunting dogs have not had to fight to the death for the same prey.

“No one’s panicking,” Higgs said, “because it’s an expanding pie.”

Gray Carey--as the city’s biggest firm among the most vulnerable to raids of its desirable lawyers and clients--takes the official stance that the out-of-town firms are welcome additions to the legal scene.

Josiah Neeper, managing partner of the 130-lawyer firm, refuses to call the newcomers “plunderers” when they hire partners away from the 59-year-old Gray Carey firm. “They have as much right to be here as anyone,” he says.

He acknowledged that a firm cannot help but lose clients when partners leave. In the Sheppard Mullin raid, after all, Gray Carey lost the current and former chairmen of its real estate department, and Luce Forward lost the chairmen of its labor law and litigation sections.

But Neeper and Hellerich say their firms try to make such departures amicable. In fact, the lawyers who joined Sheppard Mullin from both Gray Carey and Luce Forward say they left on friendly terms.

So why do they go? For broader horizons, the chance to make more money and the prospect of having a larger voice in setting the course of their professional lives, the lawyers say.

“It looked to me like an opportunity to be in on the ground floor of a new office, an opportunity for having some part in shaping the direction of the firm,” said Christopher Neils, one of the Gray Carey real estate experts who jumped to Sheppard Mullin.

“We’re all having a lot of fun,” he said. “It’s a small group, so you can make decisions quickly and move cohesively.”

James K. Sterrett II left Gray Carey in 1983 to practice banking law with Lillick McHose because he realized he would never be part of the biggest banking deals if he stayed with a firm identified with a city--San Diego--not considered a banking capital.

Now, as he closes a leveraged buyout, his California client can enjoy the convenience and prestige of having a firm with both California and New York offices--an advantage Gray Carey, with offices in San Diego, La Jolla and El Centro, cannot offer.

“From a marketing standpoint, it’s easier for us to sell our services, though it’s the same exact services as when I was at Gray Carey,” Sterrett said.

In San Diego’s new legal world, it seems, glitz and glamour count more and more.

“The old saw was, ‘If you do good work, you’ll get clients,’ ” Higgs said. “It’s seen by firms now, increasingly, that that is not enough.”