© 2014 The Texas Lawbook.
By Mark Curriden – HOUSTON (July 7) – Steve Susman was first. Robin Gibbs was next. Then came Martin Beirne and David Beck, followed by Paul Yetter and the AZA guys.
For three decades now, litigation partners at large full service law firms have departed to start their own boutiques. The trend has picked up significant steam during the past few years, as more than a dozen new litigation boutiques have opened in Texas during the past several months.
Nowhere has the trend been more prevalent than Houston, where many of these lawyers who strike out on their own compare themselves to oil wildcatters.
“There has been a real and substantive change in the Houston legal marketplace that started three decades ago and it has gained significant steam during the past few years,” says David Beck, who left Fulbright & Jaworski 25 years ago to start Beck Redden, which is now one of Houston’s most prominent litigation boutiques.
Houston, according to law firm management experts, is the undisputed king of litigation boutiques.
“Houston has been the epicenter of the litigation boutique movement,” says Ward Bower, a law firm consultant at Altman Weil. “Lawyers in Houston, more than anywhere else, view themselves as entrepreneurs.”
Bower says the seeds of the trend were planted in 1980 when Steven Susman left Fulbright & Jaworski to start his own law firm. Susman Godfrey is now a national litigation powerhouse with 90 lawyers in five offices.
Three years later, Robin Gibbs left his big law firm to start Gibbs & Bruns, which now has more than 30 lawyers. Beck was next to jump and his firm has more than 50 lawyers. Martin Beirne started Beirne Maynard in 1987 and it has grown to 70 lawyers.
More than a half-dozen new litigation boutiques have opened so far in 2014. Existing boutiques have been luring experienced partners from full service law firms at an increasing rate.
“There has been a seismic shift in the way business law is being practiced in Texas,” says Adam Schiffer, a trial lawyer who split off from a large Houston firm to start his own shop in 2007.
The highest profile move this year came this past spring when Bob Schick, the co-head of litigation at V&E in Houston, announced that he and another long-time V&E partner, Morgan Copeland, had left the firm to start their own business litigation shop.
“We love V&E, but the time is right for us to strike out on our own and build our own practices,” says Schick. “The structure of large law firms presents significant hurdles that make it difficult to attract new clients.”
Schick says one of the biggest obstacles for large law firms, especially those that have strong transactional and M&A practices, is that they employ hundreds or even thousands of lawyers in dozens of different offices around the globe, and each lawyer represents dozens of clients.
“None of those existing clients want their lawyers or law firms involved in lawsuits against them or involved in cases that go against their business interests,” says Schiffer. “That means those firms are conflicted out.”
There is no better example of the client conflicts problems faced by large full service law firms than the Deepwater Horizon explosion. The accident spawned hundreds of high-dollar lawsuits that were cash bonanzas for lawyers, especially those with expertise in the energy industry.
BP, Anadarko, Transocean and Halliburton initially contacted their long-time outside law firms for advice and representation against civil lawsuits and regulatory investigations. Each client would end up paying their lawyers tens-of-millions of dollars.
But none of that money ended up in the bank accounts of the large Houston law firms.
Why?
The primary defendants in the oil spill and explosion – BP, Anadarko, Transocean and Halliburton – immediately pointed the finger of blame at each other.
Because the large Houston-based corporate law firms, such as Baker Botts and V&E, had represented most or all of the energy companies involved, they were immediately disqualified from representing any of the defendants.
As a result, the energy companies turned to litigation boutiques, including Beck Redden and Dallas-based Godwin Lewis, and non-Texas-based law firms, including Kirkland & Ellis and Sutherland Asbill.
“There was a time only a few years ago when large companies would never have hired a litigation boutique to handle bet-the-company lawsuits,” says Beck. “That is simply not so anymore. Many litigation boutiques now have the depth and expertise to handle even mega-litigation.”
Bower, the consultant at Altman Weil, says litigation boutiques are growing in number and in size for one simple reason: they have become more attractive to companies involved in business disputes.
“Boutiques face fewer problems with client conflicts, can be considerably more flexible on their hourly rates and they can be more creative with alternative fee arrangements with clients,” says Bower.
“Baker Botts and Vinson & Elkins will always have significant litigation practices, but their share of the litigation market has clearly decreased and it will continue to decrease as we see more and more of their senior partners leaving to start their own firms,” says Bower. “The power in larger corporate firms rests almost exclusively with transactional lawyers, because that’s where the profits are.”
Bower and others say money is another major factor.
Litigation boutiques boast hourly rates between $450 and $750 for their top partners. Large firm litigation partners, by contrast, are changing rates upwards of $850 an hour or more.
Large companies are willing to pay $900 and up for complex mergers and acquisitions, but not for litigation, according to Bower.
“The advantage to being small is that we are able to adjust quickly with market changes and we can control costs because we are so small,” says Todd Patterson, the founder of Patterson Sheridan, a Houston firm created in 1996 to handle only intellectual property disputes, especially those in the energy sector.
“Today, most businesses want fixed fees or predictability on the total cost that will be incurred in a case,” says Patterson. “Because of our flexibility, we are more able to work with clients on controlling costs than are the large corporate firms.”
Corporate general counsel agree.
“Sometimes I need the large law firms because the matter requires expertise in tax law or securities or multiple areas of legal specialty,” says National Oilwell Varco General Counsel Dwight Rettig.
“But sometimes, I just need the best trial lawyer in Harris County and I don’t want to pay for all the overhead that comes with having a large law firm with offices around the globe,” says Rettig.
Legal insiders give numerous reasons for the growth in litigation boutiques, but they also point to a fundamental shift in the thinking of corporate in-house counsel.
“A decade ago, companies stopped hiring law firms and started hiring individual lawyers to handle specific kinds of cases,” said Paul Yetter, who left Baker Botts in 1997 to start Yetter Coleman, which now has 30 lawyers and represents such high profile clients as American Airlines, CenterPoint Energy and Phillips 66.
General counsel agree, and add that many GCs are hiring boutiques because of the personal relationships they have developed at those firms or because of the unique styles of the trial lawyers at boutiques.
“We don’t hire law firms – we hire lawyers that we like, lawyers we respect and lawyers who do a good job for us,” says David Bernal, an assistant general counsel for litigation at Houston-based Apache Corp.
Bernal says he uses Ahmad, Zavitsansos, Anaipakos, Alavi & Mensing – or AZA for branding purposes – because the firm has handled more than 110 jury trials during the past 20 years, including six jury trials already this year. He says boutiques such as AZA represent clients in both plaintiff and defense matters, which gives them a broader perspective.
“And they are never afraid to take a case to trial, which sends a big message to our opposition that we will not back down,” Bernal says.
Joe Ahmad and John Zavitsanos left prominent Houston law firms in 1993 to start their own shop. They had no clients, no revenues and no savings. The only office space they could afford was a rickety old building that the landlord gave them for free in exchange for representing them in court.
Two decades later, AZA has 31 lawyers and $25 million in annual revenues.
“Just think of us as two Greeks and a sheik,” Zavitsanos tells jurors in introduction.
Bernal, Rettig and other corporate general counsel say litigation boutiques, including AZA, are usually less risk adverse and more eager to take disputes to trial.
“I find that many large law firms are willing to capitulate too quickly and pressure me to settle too soon,” says Lawrence Dreyfuss, the general counsel at Plains All American Pipeline. “I want the other side in a lawsuit to know that I’m serious about going to trial.”
Dreyfuss, who employs a handful of law firms for various transactional and regulatory matters, says he uses Vinson & Elkins litigation partner James Thompson for many matters, but that V&E, because it is so big and represents so many energy companies, frequently has conflicts and is unable to be involved in a lawsuit.
“The AZA lawyers are tenacious, have fewer problems with conflicts of interest and are very good trial lawyers,” Dreyfuss says.
Thompson, who heads V&E’s litigation/regulatory section, says his group comprised 40 percent of the firm’s lawyers a decade ago and the same percent now. He says the practice group has generated 42 percent of V&E’s revenues so far this year.
“The growth of litigation boutiques means that we have to be more nimble, more flexible and more sensitive to alternative fee arrangements,” Thompson says.
Thompson’s cross-town rival, David Sterling at Baker Botts, agrees.
“As a practical matter, we’ve seen an unmistakable increase in litigation boutiques during the past few years, especially in Houston,” says David Sterling, a partner in the Houston office of Baker Botts and head of the firm’s litigation practice.
“We are far less active in certain types of litigation, such as products liability or insurance defense, but far more focused on other areas, such as appellate law, intellectual property and complex energy and environmental litigation,” says Sterling.
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