L.A. Steady While S.F. Legal Market Tanks

San Francisco's legal market has been taking some big hits in the last five-plus years: Thelen and Heller Ehrman are dissolving. Brobeck, Phleger & Harrison went under in 2003. McCutchen, Doyle, Brown & Enersen; Crosby, Heafy, Roach & May and Hancock, Rothert & Bunshoft all merged into other firms.

But hey, times are tough all over right? Surely big firms in Southern California have been similarly rocked, right? Um, well, no actually.

We looked at California's 40 largest law firms by revenue in 2002 (see list below). All of the 15 biggest L.A. firms by revenue in 2002 remain standing.

From national powerhouses Latham, Gibson, O'Melveny and Paul Hastings, to California-only stalwarts like Irell & Manella and Munger, Tolles to specialty firms like Allen Matkins and Loeb & Loeb — they're all still here. Even Buchalter Nemer, which seems to have endured some tough times recently, is still kicking.

By contrast, six of San Francisco's biggest 16 are toast, and two of the seven Silicon Valley-based firms — Skjerven Morrill and Gray Cary — are gone.

We asked a couple of consultants knowledgeable about the California legal market why the L.A. firms have proven so much more resilient. Neither had a definitive answer, but pointed to several factors.

Foremost is that the L.A. firms have had more success building national practices. "They got to New York earlier and D.C. as well," said Ron Beard, a former chairman of Gibson, Dunn & Crutcher now with the Zeughauser Group. He was speaking specifically of the "big four," but he pointed out that Irell and Munger Tolles have built national client bases even while keeping their offices in California. Berkshire Hathaway is one of Munger's biggest clients, "and that has nothing to do with L.A.," he said.

Richard Gary, former chairman of Thelen and now of Gary Advisors, said the Los Angeles firms traditionally have been more profitable, which he attributes in part to their historically strong litigation practices. "I do think for some reason the L.A. firms did a better job of establishing a national practice," he said. "Maybe at the end of the day it's because they were stronger to begin with."

Legal Pad will offer up one other possibile factor: Los Angeles and its law firms were hit especially hard by the 1990-91 recession — remember Latham's 1990 layoffs? — and were forced to take the necessary steps then to ensure financial survival. The Bay Area firms didn't face the same magnitude of challenge until the dot-com bust of 2000-2002.

There could be plenty of other reasons. Have you got a theory? If so please hit the comment button and tell us.

Related: 

• Thelen's Wind-Down Committee Named
  
• Former Thelen Chairman Discusses Firm's Collapse
• All Things Heller Ehrman

— Scott Graham

California's top 40 law firms by revenue, 2002:

1) Latham & Watkins
2) Gibson, Dunn & Crutcher
3-tie) Morrison & Foerster
3-tie) O'Melveny & Myers
5) Paul, Hastings, Janofsky & Walker
6) Brobeck, Phleger & Harrison -- dissolved in 2003
7) Pillsbury Winthrop
8) Wilson Sonsini Goodrich & Rosati
9) Orrick, Herrington & Sutcliffe
10) Cooley Godward
11) Heller Ehrman White & McAuliffe -- dissolved in 2008
12) Gray Cary Ware & Friedenrich -- merged with DLA Piper on Jan. 1, 2005
13) Thelen Reid & Priest -- merged with Brown Raysmann, voting on dissolution presently
14) Fenwick & West
15) Littler Mendelson
16) McCutchen, Doyle, Brown & Enersen -- merged with Bingham Dana on July 1, 2002
17) Sheppard, Mullin, Richter & Hampton
18) Irell & Manella
19) Manatt, Phelps & Phillips
20) Crosby, Heafey, Roach & May* -- merged with Reed Smith on Jan. 1, 2003
21) Munger, Tolles & Olson
22) Sedgwick, Detert, Moran & Arnold
23) Allen Matkins Leck Gamble & Mallory
24) Loeb & Loeb
25) Townsend and Townsend and Crew
26) Quinn Emanuel Urquhart Oliver & Hedges
27) Luce, Forward, Hamilton & Scripps
28) Jeffer, Mangels, Butler & Marmaro
29) Howard, Rice, Nemerovski, Canady, Falk & Rabkin
30) Knobbe, Martens, Olson & Bear
31) Gunderson Dettmer Stough Villeneuve Franklin & Hachigian
32) Lewis, D'Amato, Brisbois & Bisgaard
33) Skjerven Morrill MacPherson -- dissolved in 2003
34) Farella Braun & Martel
35) Buchalter, Nemer, Fields & Younger
36) Gordon & Rees
37) Mitchell, Silberberg & Knupp
38) Hanson, Bridgett, Marcus, Vlahos & Rudy
39) Blakely, Sokoloff, Taylor & Zafman
40) Hancock, Rothert & Bunshoft -- merged with Duane Morris on Jan. 1, 2006

* Based in Oakland. About as many lawyers in S.F. as Oakland at time of merger.

Comments

[BitterRenter]

Saying that SF law firms don't have a national presence is equivalent to saying that they are too closely tied to the Bay Area economy, which is primarily tech.

NY and LA firms have benefited from the real estate bubble since 2002, while tech hasn't recovered from the dot com bust.

I bet that in the coming few years, with consolidation in the banking and real estate sectors, the remaining SF firms will outperform.

[Biglaw Veteran]

I am a veteran of four of the firms on that list, including one of the dissolved firms. I can say that with the exception of MoFo and Pilsbury, the SF and Valley firms are, like the city, incredibly parochial, focused on their little parts of the world, with the average lawyer being somewhere between apathetic and hostile to anything foreign. In comparison, the big four LA firms, like MoFo, have aggressively expanded nationally and internationally. While all of the firms which expanded that way have had some reversals and setbacks, they nonetheless were focused on becoming sufficiently large and diversified that they could weather regional and even national setbacks.

The interesting exception is Wilson Sonsini, which is so dominant in the Valley that it does not seem to need significant diversification to remain big and healthy. Wilson's dominance of the biggest Northern California-based corporations is part of the reason that the other Northern California concentrated firms have such a precarious existence--Wilson has a right of first refusal on much of the best work available there.