The old-line Los Angeles law firm of Tuttle & Taylor, which just last year had received the Constitutional Rights Foundation's "Firm of the Year" Award, has closed its doors a victim of increasing competition and rising tension among its partners.

The firm's sudden demise reflects growing pressure on similar small and mid-sized general practice law firms. The industry is quickly evolving into a two-tier landscape populated by boutique firms with a particular specialty practice and global general practice giants.

"For an old-line established firm like Tuttle & Taylor that thought of itself as a full-service firm, the challenge is to adapt to being a boutique firm with a focus on a relatively small number of practice areas where it excels," said Beck. "A relatively small firm like Tuttle & Taylor can be successful, but its partners must all be on the same page."

Clearly, that was not the case at Tuttle & Taylor. In recent years, differences developed among the partners about how the firm could best adapt its practice to rapidly changing business conditions and increasing competition from global giants.

"(Tensions grew) between one group to whom it was most important to maintain our culture as a 'lifestyle' firm emphasizing collegiality, relatively low billable hours overall, and flexibility to work part time," Beck explained, "and another group that wanted to be more businesslike and profitable."

Tuttle & Taylor's closure on Nov. 30 stands in sharp contrast to the rapid growth and profitability of some of the nation's largest law firms, like New York-based Skadden, Arps, Slate, Meagher & Flom, which grossed more than $1 billion last year, and Baker & McKenzie, which employs over 2,700 attorneys worldwide.

In a bid to compete, major firms are joining forces, as evidenced by last week's merger of San Francisco's 126-year-old Pillsbury Madison & Sutro and New York's Winthrop Stimson Putnam & Roberts, the nation's first East Coast-West Coast merger and the largest head-to-head merger of U.S.-based firms.

The new firm, which will open for business on Jan. 2 under the name Pillsbury Winthrop, will have over 850 attorneys and is expected to gross more than $400 million in revenue next year, according to John Pritchard, vice chairman of the new firm.

"Our clients are consolidating and globalizing, and our competition is consolidating and globalizing, and we believe that to remain competitive we have to do the same thing," Pritchard said. "Large as we are, we risk being marginalized as this process of consolidation and globalization among law firms continues."

According to the National Law Journal's survey of the nation's 250 largest law firms, the number of lawyers working at giant firms (500 attorneys or more) grew 14 percent last year. Two Silicon Valley firms on the list achieved an astounding internal (non-merger) growth of more than 40 percent.

But that type of large-scale growth must be carefully planned by a firm's partners. Skadden's growth, for example, was set in motion more than two decades ago when its partners strategically agreed to embark on a diversification program and launch new offices in key hub cities around the country and, later, the globe. Despite Skadden's dramatic expansion, it never merged with other firms. Instead, it typically cherry-picked top attorneys from smaller firms, and then built a new practice group around that partner.

As major firms in New York, Los Angeles and Silicon Valley grow ever larger, they have more resources to recruit new attorneys and hire away top attorneys from smaller firms. This year's frenzied salary wars accelerated that trend.

The bidding wars began last December when a Silicon Valley law firm, tired of losing its attorneys to stock option-rich, dot-com startups, raised associate salaries by 40 percent with first-year associates receiving a base annual salary of $120,000 plus a guaranteed bonus of $25,000. Within weeks, nearly every major firm in the Bay Area matched the raises, and the trend quickly spread to firms in Los Angeles and New York, where first-year associate salaries have jumped well over the $100,000 mark.

Los Angeles-based Gibson, Dunn & Crutcher, for example, now pays its first-year associates $125,000. And first-year attorneys in the Los Angeles offices of Paul, Hastings, Janofsky & Walker and Jones, Day will also earn up to $125,000 this year.

Some East Coast firms have raised salaries even higher.

Combine these financial challenges with the recent flurry of trans-Atlantic mergers and acquisitions, which is creating a top tier of giant international law firms, and it's easy to see why smaller firms like Tuttle & Taylor are finding it difficult to compete.

As for the 40 Tuttle & Taylor attorneys, virtually all of them have joined other Los Angeles law firms.

"Twelve of us, including name partner Bob Taylor, have joined the downtown Los Angeles office of Luce, Forward, Hamilton & Scripps," Beck said. "Seven of us joined a small six-attorney firm in Santa Monica (Shapiro, Borenstein & Dupont)."

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