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Massive Restructuring May Splinter Nation's 4th-Largest Law Firm

November 12, 1987|MYRNA OLIVER | Times Legal Affairs Writer

The country's fourth-largest law firm, New York-based Finley, Kumble, Wagner, Underberg, Manley, Myerson & Casey, is undergoing massive restructuring under a debt load rumored to be as high as $60 million, the firm's California representative on its five-member national executive committee confirmed Wednesday.

However, Alan U. Schwartz, partner in the 160-lawyer Beverly Hills office, indicated that the firm is making every effort to avoid outright dissolution.

"We shall continue to be a full-service national law firm providing top quality representation for our clients on a worldwide basis. Part of our present discussion on the executive committee is to ensure the continuation of such quality representation," Schwartz said through the firm's publicity spokesman, Gene Schwam, president of Hanson & Schwam.

Schwam said some lawyers probably will remain with the firm, while others will leave to form their own firms or join other existing firms. Eastern sources indicated that the 130 lawyers in Miami and other South Florida offices plan to break off to organize a new firm named for the leading Miami partners, Thomas Tew, John H. Schulte and James F. Jorden.

No such lump dissociation is expected for the California branch, which includes offices in Beverly Hills, downtown Los Angeles, Sacramento, San Diego and Orange County, that, according to Schwartz, have been a "major factor and profit center" for Finley Kumble during the past five years.

Finley Kumble is not only one of the largest law firms in the nation, but one of the newest and fastest growing, founded in 1968 and launching its California operation in 1978.

According to a Sept. 28 survey of the country's 250 top law firms, Finley Kumble had 684 attorneys in its 14 offices in the United States and one in London, including 245 partners and 439 associates.

Finley Kumble was listed second among the nation's top 100 law firms in terms of its gross revenue last fiscal year--$158 million--in a July-August survey by American Lawyer magazine.

The firm tumbled, however, in the AmLaw ratings to 30th place in revenue per lawyer--$285,000--and to 48th place in profit per partner--$265,000.

The firm skidded to 79th position in what legal journalism's gadfly Steven Brill calls the AmLaw profitability index. That "API" is a ratio derived by dividing the profit per partner by the revenue per lawyer. Finley Kumble's API was 0.92, compared to 2.44 for the top-ranked Skadden, Arps, Slate, Meagher & Flom.

Irked Traditional Firms

The relatively low profit for partners compared to the high salaries for star newcomers and the reported high revenue have led to dissension among partners and associates. In turn, the in-fighting led to partners in all offices "floating resumes" and talking of reorganization or dissolution.

"It is true that we on the national executive committee are actively engaged in discussing a more beneficial structure for our clients and the firm," Schwartz said through Schwam. "The recommendations of the national executive committee will be passed through to the partners as these determinants are made."

From its inception, the firm irked traditional lawyers by raiding firms around the country, luring away whole sections or taking over small firms to build its stable of attorneys highly respected for litigation, corporate securities, real estate, tax law and, in California, entertainment law.

Debt Problems

Earlier this year, the firm outbid several major competitors to hire two former U.S. senators, Paul Laxalt and Russell B. Long, at salaries reported to be $800,000 each.

"The firm grew very rapidly, creating strains, and they were unable to get their management together to deal with those strains," said John F. Walker Jr., a member of the executive committee of Los Angeles' third-largest firm, Latham & Watkins.

Walker said more traditional old-line firms, such as octogenarian Latham & Watkins, make few "lateral hires" of veteran attorneys from other firms. But when they do, he said, they spend a lot of time building a bond between the newcomer and other partners so that all the firm's lawyers will work together without jealousy or undermining each other's work.

"Sometimes you have to do that--pay big money to get someone who can be of benefit to you, and then carry him until he starts bringing in revenue," said Charles Patterson, managing partner of Los Angeles' sixth-largest firm, Lillick, McHose & Charles. "But you can't do that too often."

Major problems for Finley Kumble cited were the debt incurred for the rapid expansion, and its accounting system, in which all receivables were booked to a corporation specifically set up to receive them, creating a paper income without necessary revenue to back it up.

"From the outside, it appears that their problem was overexpansion," said Warren Christopher, head of the century-old O'Melveny & Myers, Los Angeles' second-largest firm. "The lesson is the obvious one that overexpansion is a real danger, along with a tendency to equate size with quality."

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