Boutique Law : Lawyers Leave Large Firms to Specialize
Mid-career lawyers are changing jobs more frequently these days, and often the new position is at the helm of their own firm.
By the dozens, law partners and senior associates are leaving large, prestigious law firms and creating specialty or “boutique” firms.
The reasons are many: for more operational control, to avoid inequitable distribution of income, to select colleagues of their choice and to escape the increasing overtime expected more frequently by large firms.
The smaller firms bring some of the fun and collegiality back into practicing law, their founders say. That, for many, is considered worth the trade-off of diminished income because of lower initial billing rates.
To compete with the big, established firms, these start-ups usually offer expertise in one specialized aspect of the law and, most often, lower hourly rates.
Of course, not every lawyer who leaves a firm starts his own. Many join other large firms. And with a 72% job dissatisfaction rate among lawyers in the state, according to California Law magazine, many are leaving the field altogether.
But in Orange County, more lawyers are going into business for themselves than in any other part of California, said Katrina Dewey, a reporter for the Daily Journal, a Los Angeles-based newspaper that covers the legal profession in California.
“Orange County has been the hotbed,” Dewey said. “I’m not sure why that is, except that Orange County has a lot of entrepreneurs as a business base, and maybe it’s more accommodating to lawyers who want to be entrepreneurs too.”
Steven Brill, publisher and editor-in-chief of American Lawyer magazine, said Orange County’s experience with lawyers spinning off from larger firms is mirrored throughout the country. The last two years have been especially active, he said.
“Law firms are better run now, they have computers that show the profits and losses from each department,” he said. “Lawyers can look at those figures and say: ‘My God, we’re making this much and we’re only paid this much.’ ”
At least nine boutique firms have spun off from large Orange County firms in the past 18 months and they report luring away a number of top clients.
James L. Payne and Daniel F. Fears, for example, left partnerships in the employment law department of the Costa Mesa office of Paul, Hastings, Janofsky & Walker. They formed the interestingly named Payne & Fears with two other lawyers from their old firm, and attracted Disneyland, Mattel, Metropolitan Life Insurance Co., Rockwell International Corp. and the city of Santa Ana, among other clients.
Like other spinoff practices, the pair left one of the most profitable practice groups within their former firm because of frustration with what they considered an undue burden to support both the firm’s upper and lower strata--administrative partners and untrained law school recruits.
The more profitable departments of a full-service firm--employment, intellectual property, environment, litigation, bankruptcy--are also often compensating for departments slowed by the economy, such as real estate, taxes, and mergers and acquisitions. The very departments that are slow now were some of the busiest during the late 1980s.
As one lawyer put it, too many of his colleagues in large firms are living off of OPC--Other People’s Clients.
Payne & Fears, now in Irvine, charges between $150 and $225 per lawyer hour, Payne said, versus a $195 to $300 scale at Paul, Hastings. “At the same time, we’re increasing our productivity by using experienced lawyers instead of trainees,” Payne added.
Oliver Green, a spokesman for Paul, Hastings, said Payne & Fears are celebrating too soon. The clients who “left” for the new firm were in the middle of cases handled by those lawyers, Green said, and stayed with them for the sake of continuity in a particular case.
“I’m sure the next piece of employment work they do, they will do it here,” Green said of the clients Payne & Fears claim as theirs. “We were sorry to see (Payne and Fears) go; they’re nice people and good lawyers. But as far as our firm is concerned, it’s not a matter of any great significance.”
If Green’s words sound a bit personal, it is because such departures often bring feelings of forfeited loyalty. Twenty years ago, when lawyers joined a firm, they would usually assume they would grow old there and retire. Lawyers were judged by their skills as an attorney, not by their profitability. The law was a profession, a calling, more than it was a business.
“In the old days, you found people staying at a firm out of loyalty, but the profession has gotten more mercenary,” said Thomas R. Malcolm, a past president of the Orange County Bar Assn. and partner in charge of the Irvine office of Jones, Day, Reavis & Pogue.
However, it is true, as Green says, that having one Disneyland case follow a departing lawyer is not necessarily financially troubling for a large, full-service firm. Even if the boutique wrested case after case within a given specialty from the former employer, the larger firm may retain the client’s business in other areas.
“You could point to 20 successful boutiques and that would not mean curtains for an O’Melveny & Myers or a Gibson, Dunn,” said American Lawyer’s Brill.
Another reason that the number of spinoffs is growing, Brill said, is that corporate legal departments are becoming more sophisticated in an effort to save money. They are identifying individual lawyers working for the outside law firms their corporations contract with who work well and efficiently, whether those lawyers are in large, prestigious firms or in little-known boutiques.
Some corporate lawyers call for competitive bidding from outside firms; many have begun interviewing lawyers and asking them how they would handle a case before they are hired.
“Firms like ours are able to exist, grow and prosper because clients are willing to shop services more than in the past,” said Ernest C. Brown, who left Newport Beach-based Stradling, Yocca, Carlson & Rauth in August, 1989, to form a two-man practice specializing in commercial real estate development. It has grown from two lawyers to 20, handling cases from pipeline disputes in Saudi Arabia to expansion arrangements for John Wayne Airport.
Pasadena-based Franscell, Strickland, Roberts & Lawrence in April took clients such as the sheriff’s departments of Los Angeles, Orange and San Bernardino counties when the partners left Los Angeles-based Cotkin, Collins & Franscell (now Cotkin & Collins).
The Franscell, Strickland departure in April is a reverse case of lawyers who leave to seek a more profitable practice. The original firm was hoping to phase out its representation of cities and counties in favor of more profitable business clients, Tracy Strickland said.
He left and took 16 lawyers and more than 30 support staffers with him to keep the public entity practice intact. It is the kind of work they like doing, Strickland said, and partners such as George J. Franscell had spent a lifetime building a reputation as the “cop’s best friend.” Most of their work is defending police officers against allegations of brutality.
Franscell recently defended a former Compton police officer who was charged with manslaughter after shooting two unarmed Samoan brothers 19 times when he went to investigate a domestic dispute.
The lawyers who formed the new practice took pay cuts ranging between $5,000 and $60,000, Strickland said, adding: “None of us wanted to leave.”
The move to jettison all but the most profitable clients at Cotkin, Collins & Franscell might not have taken place in a more robust economy. And several other large firms are showing signs of financial pressure:
* Los Angeles-based Latham & Watkins laid off 43 associates last fall--five from its Costa Mesa office--and the firm asked new associates recruited from law schools to postpone their start dates.
Ernest Schmider, a Latham & Watkins spokesman and partner, said the firm’s clients have become less willing to have a lot of junior people working on their cases.
* Paul, Hastings paid its 1991 recruits as much as $30,000 to take jobs in the public sector instead of reporting to work--sort of a pre-employment severance.
* The Newport Beach office of Gibson, Dunn & Crutcher has cut its staff of 110 lawyers to about 85 in 18 months.
* The staff of lawyers at Los Angeles-based Allen, Matkins, Leck, Gamble & Mallory is down from 120 lawyers to 90.
The spinoffs tend to happen at the same time as staff reductions. Sometimes, the lawyers who have left were asked to leave--but former employers are reluctant to admit when that is the case for fear of lawsuits. Just as often, lawyers leave because they are frustrated by the tightened finances.
“The reason the big firms are breaking up is they have massive overhead and they are being forced to cut their rates because their clients are leaving them,” said David Grant, who left the Irvine office of Allen, Matkins 12 months ago to form Grant & Laubscher, a boutique firm that specializes in civil trial practice.
Layoffs have led to longer hours for those lawyers who remain at large firms. The average lawyer was billing between 1,500 and 1,600 hours a year in 1980, according to Merry Neitlich, a legal industry headhunter with JM Associates in Irvine. Today, that number has risen to well over 2,000 billable hours a year--or more than 60 work hours a week. Lawyers generally work more than an hour for every hour they bill.
“The rules have changed,” Neitlich said. “It used to be that if you put in big hours and made partner, you could kick back to 1,700 hours” a year.
“Some of the people who have left don’t want to work that hard anymore, they want to have a life. I could name for you dozens of attorneys who have no life.”
Debra M. Dietrich, one of four associates who left the Costa Mesa office of Latham & Watkins in June, said she now has her life back. She and three others from Latham formed Corey, Croudace, Dietrich & Dragun in Irvine. The firm specializes in real estate law--the part of real estate that is busy right now--representing lenders in foreclosures and renegotiating loans.
For associates, becoming a partner has become very difficult in this economy.
Dietrich said she was tired of competing for business with the person in the next office, and longed for a more collegial atmosphere: “Our leaving was more a lifestyle choice than anything. To us, the big firm had become too much like a business. We wanted to be able to control the business decisions and practice law the way people think it’s going to be when they’re in law school. You work with people you know well, who you can turn to with questions.”
Doing Their Own Thing Legally
California added nearly 6,500 practicing attorneys to the bar in the first six months of this year. More and more attorneys are leaving large law firms and spinning off into smaller specialty practices.
More Attorneys
The state now has 18% more practicing attorneys than it did five years ago, but the growth rate was more dramatic in Orange County, where 26% more attorneys work than in 1987.
California 1992*: 111,167 Orange County 1992*: 9,154 * As of July 1
Smaller is Better
Nearly 11% of all U.S. law firms are located in California. The state is No. 1 both in numbers of firms and in practicing attorneys. According to the most recent survey, more than half of the law firms in the state have three or fewer attorneys.
California U.S. Firm size Firms % Firms % Two 1,847 40.3% 17,501 41.0% Three 786 17.1 8,028 18.8 Four 427 9.3 4,460 10.5 Five to 10 843 18.4 8,237 19.3 11 to 20 336 7.3 2,583 6.1 21 to 50 205 4.5 1,201 2.8 51 or more 143 3.1 639 1.5
Who Has More Attorneys (Number of attorneys per county): Los Angeles: 38,588 San Francisco: 12,962 Orange: 9,154 San Diego: 9,046 Sacramento: 5,181 Santa Clara: 5,109 Sources: American Bar Foundation, State Bar of California
Researched by DALLAS M. JACKSON / Los Angeles Times
