Seventeen of L.A.’s biggest law firms reported that their profits rose last year, up from 12 in 2009 and four in 2008 – in a strong sign that the field is on its way to recovery.
And in a further indication that firms are bouncing back from the recession, nearly a dozen reported better profits than they did in 2007, according to the Business Journal’s annual law firms ranking.
The strong financial results coming in from firms in Los Angeles and elsewhere around the country have surprised some in the industry. Peter Zeughauser, a Newport Beach–based legal consultant, said it appears law firms have turned the corner.
“I was expecting a good year, but not this strong,” he said. “I think it’s over. It certainly will be in 2011, if not already.”
Still, the pace of recovery has been uneven, favoring firms with strong litigation departments.
Quinn Emanuel Urquhart & Sullivan LLP and Gibson Dunn & Crutcher LLP, which have two of Los Angeles’ most successful litigation departments, enjoyed record years in both revenue and profits per partner.
Last year, profits per partner at Quinn Emanuel, which focuses exclusively on business litigation, rose 16 percent to an astronomical $3.6 million, while overall revenue rose nearly a third to $551 million. In 2007, Quinn Emanuel became the first, and still only, L.A. firm to hit $3 million in profits per partner.
Gibson Dunn cracked $1 billion in revenue and $2 million in profits per partner for the first time last year, with partner profits rising 21 percent to $2.3 million.
Among other large firms, Latham & Watkins LLP, which sustained a 21 percent drop in profits per partner after the financial crisis in 2008, reported single-digit increases in profits per partner and revenue. O’Melveny & Myers LLP, which remained the largest firm on the list with 295 attorneys in Los Angeles County, reported increased profits but a slide in revenue.
Only three firms, Sheppard Mullin Richter & Hampton LLP, Munger Tolles & Olson LLP and Loeb & Loeb LLP, reported drops in profits per partner, each in the single digits. In all, 30 of L.A.’s 50 biggest law firms on the Business Journal list did not report profits and 26 did not report revenues.
Quinn Emanuel and Gibson Dunn are examples of strong litigation departments that had record years.
At Quinn Emanuel, name partner Bill Urquhart listed three main factors for the firm’s big year: a burgeoning intellectual property practice, steady work handling cases against financial institutions and continued success with high-upside contingency cases.
The firm’s IP practice accounted for 40 percent of revenue last year. It’s currently defending cell phone makers HTC Corp. and Motorola Corp., which have been sued by Apple Inc. and Microsoft Corp., respectively, over smart phone technology. Despite the strong year, Urquhart warned of challenges.
“I don’t think we’ve seen the last of it,” he said. “I think it’ll take another couple years before the legal markets are truly stabilized.”
Ken Doran, chairman of Gibson Dunn, had similar sentiments. “We’re not completely out of the woods,” he said. “While the substantial signs of strengthening last year and this year so far are encouraging, we have to be mindful that overall economic conditions remain challenging.”
Still, the numbers are heartening. Of the 14 firms on the Business Journal’s list that reported profits in both 2010 and 2007, 11 had higher profits last year. Eleven of 18 firms also had higher revenue last year than they did in 2007.
Doran said Gibson Dunn’s performance can be partly attributed to high demand for the firm’s litigation services, including its environmental, anti-trust, class action and white collar groups.
“The fact that we are very strong in litigation has certainly helped us weather the downturn,” he said.
The firm continues to represent Dole Food Co. and Chevron Corp. in high-profile tort cases that had origins in foreign countries. Building on that reputation, it started a transnational litigation and foreign judgments practice group last year.
Transactional activity was also the busiest at the firm since the downturn, though still not back to pre-recession numbers, Doran added.
Other firms also are benefiting from a combination of high demand for litigation services and a partial return of transactional work.
Rick Cohen, president of downtown L.A.-based Buchalter Nemer, said his firm is finding a mix of cyclical and countercyclical work. Revenue at Buchalter jumped 11 percent to an all-time high of $114 million, and profits per partner jumped 17 percent to $617,000.
Cohen said that Buchalter’s countercyclical business litigation and insolvency work continued to remain strong during the downturn, as expected. But some real estate and finance work is starting to come back. Thirty-five partners had books of business over $1 million last year, the most the firm has ever had, which Cohen said indicated more of a firm-wide recovery.
“This is definitely a transitional period,” he said.
One major L.A. firm, Irell & Manella LLP, did not disclose profits to the Business Journal. Last year, it reported its 2009 profits per partner to be $2.5 million to American Lawyer magazine.
