A surge in overseas business, coupled with ongoing internal restructurings, has contributed to record revenues and profits at Los Angeles law firms, according to a Business Journal survey.


The result is that profits-per-partner, which has become a benchmark of firm performance in recent years, could eclipse $1 million at six firms in 2004. In 2000, not one L.A. firm reached that level.


With local profits-per-partner at a record $1.9 million last year, the most profitable Los Angeles law firm surveyed was Quinn Emanuel Urquhart Oliver & Hedges LLP, a boutique intellectual property practice. It unseated the larger Gibson Dunn & Crutcher LLP as the most profitable firm in town.


Big ticket litigation raised profits at Quinn Emanuel, which did not disclose its financial information in 2003, by an estimated 30 percent over the year earlier.


"It's been a pretty amazing year for us," said Bill Urquhart, a partner at Quinn Emanuel. "It's the beauty of the single practice firm. If you can tell the world and back it up with results and statistics that you're the best at what you do in a single area, then companies are more likely to hire you."


At Gibson Dunn, which had been the most profitable Los Angeles firm for the past few years, 2004 ended with profits-per-partner hitting $1.5 million.


Nationwide, revenue growth among law firms was only slightly higher than last year, but the most profitable firms reached between $1.7 million and $3 million per partner.


Rising revenues and profits came as law firms, now almost all organized as professional corporations or limited liability partnerships, have taken a more corporate approach to their practices. Many of the larger firms have hired professional management to oversee day-to-day operations, a function once the purview of a lone partner.


Also impacting the numbers is how equity stakes are apportioned. Gibson, for example, has only equity partners, or those with a stake in the firm. Many of the nation's largest firms, including several in Los Angeles, have been shifting partners away from ownership in order to become more profitable.


Kenneth Klee, a professor at UCLA School of Law, said there had been a sea change in both the nature and rewards of the practice in the last 30 years.


"I truly can remember senior partners taking drinks in the office at 5 in the afternoon and nobody expected them to be as productive as they were when they were younger," he said. "And now, you have a situation where if that happens they are told they're no longer partner."


The explosion of lawyers in California there are now three times as many admitted to practice here than there were in 1974 was bound to change the way firms operated, he said.


"When I went into it, it wasn't a business, it was a profession," Klee said. "Now, it's a business. And I think that's a big difference."


Rising tide


Urquhart attributed Quinn Emanuel's stellar performance to its role in a number of high-profile suits last year, including the bankruptcy of Italian food company Parmalat USA and the defense of ING Groep N.V. and Genentech in other litigation.


But Quinn Emanuel's financial performance, when compared to the city's largest firms, can be misleading. "When you look at numbers that huge, you have to take a look at the nature of the cases," said Edward Poll, president of LawBiz Management Co. "Some of the IP work is contingency-based, and if they represent Google or Amazon and hit it big, that has a huge impact, and does not happen every year."


Most firms cited a strong resurgence in mergers and acquisitions, intellectual property and litigation as reasons for continued growth last year. Much of the pick-up occurred in Europe and Asia, where several firms recently opened offices.


Paul Hastings Janofsky & Walker LLP, which opened offices in Brussels and Paris last year, benefited from increased private equity deals, according to Seth Zachary, its chairman.


The firm also picked up considerable high-profile litigation assignments in the U.S., such as Wal-Mart Stores Inc.'s defense in a sexual discrimination class action suit and representing Shanghai-based SMIC, or Semiconductor Manufacturing International Corp., in intellectual property suits.


"It was a record year in every sense," he said. "The financial marks of successful firms continue to be raised. Obviously, $1 million is a number that catches people's attention, but there are many firms at that now."


Gibson Dunn, which also represents Wal-Mart in the class action case, saw its European offices pick up significantly last year, said Ken Doran, its managing partner. The firm's revenues slowed to a 7.4 increase, however, far behind the 17 percent increase at its nearest reported local competitor, No. 1 Latham & Watkins LLP. Latham had profits-per-partner of $1.4 million on revenues of $1.2 billion, the highest figure of any Los Angeles firm.


Who shares


Cost-cutting also became more significant last year as firms become increasingly adept at meeting the bottom line. "Law firms are running themselves much, much better," said Blane Prescott, director and partner at Hildebrandt International, a legal consulting firm. "It should be harder and harder to become an owner, and that's what law firms are doing."


Most firms do not disclose whether their partners hold an equity stake in the firm. But Paul Hastings and O'Melveny & Myers LLP have begun paying salaries, rather than profits, to a small percentage of their partners. Several mid-sized firms have made changes to their bottom line, as well.


Sheppard Mullin Richter & Hampton LLP, for example, does not disclose whether its partners hold an equity stake, but the 440-attorney firm, which promoted three of its associates to partner last year, saw its profits rise 16.1 percent in 2004 after suffering the prior year from overhead costs related to the opening of its Washington office.


"Last year we had a good revenue year, but profits didn't grow because it was an investment year for us," said Guy Halgren, chairman of its executive committee. "Many of the investments we made over the last few years are paying more dividends now."


Irell & Manella LLP's profits-per-partner jumped to more than $1.5 million in 2004, a 31.6 percent increase over the year earlier. And Manatt Phelps & Phillips LLP, which let go 15 attorneys from its Washington office during 2003, rebounded last year with an 18.8 percent increase in profits per partner to $920,000.

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