Quinn Emanuel Urquhart Oliver & Hedges LLP has become the first law firm in L.A.’s history to have profits that exceed $2 million per partner.
Quinn Emanuel last year saw a whopping 24 percent increase in its partners’ profits from the previous year, to $2.4 million per partner.
Profits per partner, a standard way to measure law firm profitability, is the average pay an equity partner can expect to get. The profits are reported to the Business Journal as part of its annual list that ranks local law firms.
Quinn Emanuel was also No. 1 in profits per partner the previous year, although it landed just shy of the $2 million mark.
Much of Quinn Emanuel’s boost came from the other side of the country.
“Part of it is that our New York office has grown a lot, so we have more lawyers billing time,” said name partner Bill Urquhart.
“You have some of the most famous and prestigious firms in the world headquartered in New York, but their focus is somewhat different from ours,” said fellow name partner John Quinn.
Other New York lawyers, Quinn said, are generally less comfortable trying cases.
“They write great briefs and argue them well in court, but if they can’t get rid of a case before trial, they tend to settle,” he said. “We tend to attract people who don’t want to settle, so you get a double benefit from that: you get the benefit of being able to try and win a case but, you have the benefit of better settlements because they know you’ll take the case to trial.”
It was a strong year overall for L.A.-based law firms, five of which posted profits per partner above $1.5 million, compared to four a year ago.
Trailing Quinn were Latham & Watkins LLP with $1.86 million, Gibson Dunn & Crutcher LLP at $1.75 million, O’Melveny & Myers LLP with $1.63 million and Paul Hastings Janofsky & Walker LLP at $1.61 million.
The million-dollar club is also expanding. While seven of L.A.’s largest law firms posted profits-per-partner above $1 million in 2005, 14 were above that mark in 2006. It’s also important to note that some firms hold their profitability information until the summer, so the number is likely to go higher.
Law firm partners who are not yet equity partners generally can expect to be paid less than the profits-per-partner statistic. Most firms promote associates to partners after five to seven years, but it often takes several years more before the partners make contributions to the firm that are significant enough (usually at least $5 million in annual billings each) before they may be selected as equity partners. Top equity partners at these firms make much more than the average salary reported; new equity partners typically make less.
In terms of overall firm revenues, DLA Piper US LLP, one of the world’s largest firms, led the way with $1.8 billion in 2006, up 20 percent from $1.5 billion. However, DLA is new to L.A. and has only 73 lawyers here.
Among the law firms with a bigger presence, Latham was big with $1.6 billion, up 15 percent from $1.4 billion in 2005. It has 301 lawyers in Los Angeles. Quinn posted $298 million, up 54 percent from $131 million a year ago.
Quinn Emanuel wasn’t the only firm to benefit from a strong New York market. Paul Hastings’ profits per partner rose 21 percent from $1.33 million to $1.61 million last year, largely because of its New York practice. Revenues overall grew 22 percent, to $813 million from $667 million.
“It had a lot to do with capital markets, underwriting representation, overall M & A; and our private equity practice, which was strong in New York,” said Chairman Seth Zachary. “New York had a big year in securities litigation and the real estate practice, but this year every office in California was up double digits as well.”
He added that the London and China practices also boosted the firm’s bottom line.
John Clair, managing partner of Latham’s Los Angeles office, maintained that there were no leading factors to his firm’s double-digit increase in revenues and profits-per-partner.
“It was a very productive year that extended across all of our practice areas,” he said.
Contingency plans
The trip to the top has been a spectacular ride for Quinn Emanuel.
Founded in 1986, the firm built a reputation for trial work and litigation expertise. With the 2001 opening of its New York office, however, the firm left behind the boutique status it developed through its L.A., San Francisco and Silicon Valley offices. Back then, it had 115 lawyers; now it has 301.
Urquhart said another factor in the firm’s explosive growth over the past few years has been its willingness to do contingency work. The resulting hefty judgments and settlements have made a significant impact to the bottom line.
Contingency work is still controversial among big firms, which usually bill top dollar on an hourly basis and don’t bother rolling the dice on a case that can drag on for years and result in no pay if the case is a loser.
But Urquhart said it was too painful to sit on the sidelines.
“We’d watch some of these plaintiffs’ lawyers we thought we were better than have these huge recoveries,” he said, “and we decided, if they can do it, we can do it.”
Urquhart said his firm’s experienced trial lawyers do a good job of recognizing winnable cases, which has resulted in a high rate of success. He said it also helps to have a deep bench so it won’t hurt much to have a star attorney on one contingency case for a year or more.
Urquhart admitted his firm would be hard-pressed to maintain its rapid growth rate.
“I think the growth in head count will slow down on a percentage basis simply because a lot of our growth has been to fill needs that we perceived,” he said. “Most of those needs have been filled, so we’ll always look at opportunities, but not as aggressively as we did in the past.”
