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Legal Boom Brings Pain With Growth : Law Firms Multiply, Compete Intensely for Clients, Talent

June 21, 1987|MARY ANN GALANTE | Times Staff Writer

It started innocuously enough.

The prestigious Los Angeles law firm of Gibson, Dunn & Crutcher plunked just one of its lawyers into a trailer on the Irvine Co. ranch to do a little local business 23 years ago.

No big deal.

Then local business got better. Really better.

So much better that Gibson, Dunn now has 80 lawyers in Orange County and at least a dozen other major Los Angeles law firms have local outposts competing with home-grown firms and spinoffs of their own law firms.

Where once stood orchards and bean fields, there are lawyers and companies that need legal services. And the result has been an explosion of legal business in the county.

But that growth has not been without its costs: large-scale defections of attorneys from their firms, intense battles for clients and star lawyers, and an invasion of "carpetbagger" attorneys. The go-go law firm climate has also produced its share of firms that misread the economic picture and folded.

Classic Example

What happened at Gibson, Dunn is a classic example of those growing pains: 17 lawyers left the firm's posh (the trailer went years ago) Newport Center office eight weeks ago to form their own firm in Irvine. The move left Gibson, Dunn with 10,000 square feet of excess office space.

It was the sort of spinoff that has become typical as the Orange County law business has boomed along with the local economy.

Since 1972, the county's population has increased almost 50% to 2.2 million. County employment has grown at a rate of nearly 3% annually for the past five years, more than twice the national average. Today, the county has a $50-billion annual economy that would rank about 30th in the world, according to James Doti, dean of the school of business at Chapman College in Orange.

The number of law firms, meanwhile, has increased 67% to 670 from 400 since 1980. The number of lawyers has similarly jumped to about 7,500 from about 4,500 and is expected to continue growing by 500-plus a year for at least several more years. The Orange County Bar Assn., which 15 years ago met in a local Elks Lodge, today has 4,000 members who meet in their own 5,500-square-foot building--now being renovated and expanded.

To underscore the growing importance of the county's legal business, O'Melveny & Myers, another Los Angeles-based giant, this month moved Barton Beek, perhaps the blue-chip firm's top corporate securities lawyer, to its Newport Beach office. "We feel we need a stronger corporate presence" because "Orange County is a potentially powerful economic community," said Warren Christopher, O'Melveny's managing partner.

Large firms from other cities, including Dallas, Houston, Cleveland and Minneapolis, have also set up local outposts. Two San Francisco-based firms--Morrison & Foerster and Brobeck, Phleger & Harrison--plan to open branches in the county this summer.

Business Grows

One reason for all the legal activity is that local law firms have found their business growing along with the firms they represent. The increased client base draws in outside firms and encourages attorneys who already are here and working at a big firm to set up their own offices.

"A million-dollar deal used to be considered a sizable transaction. Now multimillion-dollar deals are pretty much the standard," said Stephen C. Drummy, a senior partner with Costa Mesa's Drummy, Garrett, King & Harrison. Carl Mitchell, an estate-planning expert at Costa Mesa's Paul, Hastings, Janofsky & Walker, said most estates he plans these days are valued at more than $1 million--about 30% to 40% higher than a decade ago.

That kind of business breeds competition--not only for lucrative clients but also for lawyers who can attract the work.

Last year, for example, the Newport Beach branch of Los Angeles' Latham & Watkins was able to entice Jeffrey Pero--a 15-year O'Melveny veteran--to jump ship and defect. Pero denies rumors that an annual draw of $600,000 was the bait. Instead, he said, Latham was better geared toward his speciality: securities work with emerging growth companies. Pero did admit, however, to receiving a sizable raise.

Raids by competitors are not the only danger. The human assets have a way of walking off on their own.

Among the rash of lawyer defections was the 17-lawyer split from Gibson, Dunn's Orange County office, led by partner Alan W. Pettis, a securities specialist who had managed the branch and is reputed to be one of the best business-getters in the county. He and four other partners formed Pettis, Tester, Kruse & Krinsky in Irvine.

Stunning Split

The split was stunning because it marked the first time in Gibson, Dunn's 97-year-history that a group of partners had defected from the 650-lawyer firm.

The lawyers walked away with a sizable amount of Gibson, Dunn's legal work, including such Orange County clients as Comprehensive Care Corp., the Santa Margarita Co. and the Geneva Companies.

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