Obama Gives Boost to D.C. Law

Firms in the capital profit from regulatory push.

By SHARE

When President Obama came into office, he promised more oversight and a bigger role for government. For Washington lawyers, that means more billable hours. The uptick in government, regulatory, and public policy business has helped D.C. firms do better than their counterparts nationwide. Through late July, demand at D.C. firms, as measured by billable hours, grew 3.5 percent for the year, compared to 1.5 percent for the nation’s largest and moderate-size firms, according to the Hildebrandt Institute, which tracks the U.S. legal services sector. “The administration’s approach has been good for business,” says Mike McNamara, a partner who heads SNR Denton’s government practice. “One of the drivers of [Washington] law firm growth has been the regulatory state.”

The monumental healthcare and financial services reforms passed by Congress last year have begun producing extensive regulations that will keep D.C. legal eagles busy for years. Meanwhile, government contractors will likely lean on K Street attorneys as a result of this summer’s Budget Control Act, which cuts government purchasing, and recent patent reform legislation. And D.C. lobbyists are already involved in representing a range of clients hoping to sway members of the so-called super committee, created by Congress to come up with a plan to trim the deficit.

“Pharma, device companies, providers, insurers … all of those companies are affected by the Affordable Care Act and other regulatory and enforcement activities of the Obama administration,” says Warren Gorrell, co-CEO of Hogan Lovells. Four months after the healthcare reform bill was passed, Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act into law. Dodd-Frank is the biggest overhaul of the financial services sector since the Great Depression. Several agencies that monitor banks and markets are writing rules to implement the law, and affected companies have their D.C. attorneys at work to blunt the law’s impact, defend them, and provide counsel. “Anywhere you’ve seen recent legislation, companies need guidance,” says Mary K Young, a D.C.-based legal consultant with the Zeughauser Group, a management consulting firm.

Lobbying Congress and the executive branch on legislation and regulations is only part of the government and public policy work that Washington lawyers handle. Firms also advise, defend, represent, and strategize on behalf of clients at the intersection of government and business. Such work typically accounts for 15 to 40 percent of Washington law firms’ revenue, which can average more than $300 million a year.

“This administration has been more aggressive than the prior administration” at changing “the framework that businesses operate in,” says Bobby Burchfield, co-partner-in-charge of McDermott Will & Emery’s Washington office. And that framework is changing not just for the healthcare and financial services sectors, but also in energy, telecommunications, life sciences, defense, and other industries. “Government has become a far greater force in business planning,” McNamara says.

The feds also have become more aggressive in investigating companies, Washington lawyers say. The administration’s presence has been felt far and wide recently, from the Justice Department’s move to block AT&T’s merger with wireless company T-Mobile to federal investigations of healthcare, defense, builders, and companies in other sectors. Justice has dozens of grand juries looking at price-fixing.

“The Obama administration is bringing more cases, cases with higher penalties, and going after deals that have been closed,” says Raymond Jacobsen Jr., head of McDermott’s regulatory and governmental affairs business unit. The Federal Trade Commission “has become particularly aggressive,” he says, noting active cases in healthcare, building materials, pharmaceuticals, and telecommunications. “It is a good time to be an antitrust lawyer.”

Like most industries, the legal services sector suffered in the wake of the economic meltdown. Beginning in 2008’s last quarter, billable hours starting shrinking. “It was very real,” says Karl Racine, managing partner of D.C.-based Venable. “Venable saw a significant drop in demand.” Large law firms saw “two solid years of contracting demand,” says Mark Medice, senior director of the Hildebrandt Institute’s Peer Monitor service. “A 10 percent reduction in an industry that never had a history of declines is pretty significant.”

The result: unemployed attorneys, non-performing partners pushed out the door, recruitment efforts scaled back, and clients demanding more value from their legal help. A study released in January by Northwestern University Law School found that large law firms had cut 15,000 attorney and legal staff jobs nationwide since 2008. “The legal market was kind of a bubble in the 2006-2007 timeframe,” Burchfield says. “That bubble burst and we’re having to reassess. We did downsizing of attorney and staff. We’re 5 to 10 percent leaner than at the height of the market.”

Washington firms, however, were spared the worst. There was and remains a “steady flow of work,” Young says. In 2009, while the nation’s largest 200 law firms were laying off attorneys and saw revenues drop by 2.5 percent, D.C. firms fared better, according to an analysis Young did for U.S.News & World Report using data from ALM, a legal news and information provider. Large national firms with a substantial Washington presence increased their attorney head count by 3 percent in 2009 and saw gross revenue increase by 2 percent. Profits per equity partner, an important measure of profitability, were also higher among firms with a big presence in D.C., where a prime partner can bring in $1 million or so a year to the firm.

Regulatory and government-related practice, the lifeblood of many Washington firms, was the difference. Last year, corporate practices were down about 10 percent at the nation’s largest and moderate-size firms, while litigation, which typically is countercyclical, was off 4 percent. Regulatory work was down less than 1 percent.

It’s not that Washington is immune from market realities. Howrey, a large homegrown firm, closed. Its internal operation, not location, was key in its demise, legal analysts note. Meanwhile, the ever-increasing prominence of Washington politics and policy has affected the business of law in Washington. Mergers and the need to have a presence in the nation’s capital have brought new entrants.

Globalization in legal circles expanded last year in Washington when Sonnenschein Nath & Rosenthal combined with London-based Denton Wilde Sapte, birthing SNR Denton. “The eyes of the world focus on Washington,” notes McNamara. It is the “intersection of business, law, policy, politics, regulations, and strategy,” he adds, and what happens in Washington affects companies and countries around the world.

An even larger merger of D.C.-based Hogan & Hartson and U.K.-based Lovells produced a top global firm, Hogan Lovells. “Clearly, there are more and more multinationals that need help in D.C.,” says Gorrell. “We are focused on industries in which government plays a significant role.” These include financial services, healthcare, energy, privacy, and life sciences. About 500 of the firm’s 2,500 attorneys are in Washington. “The type of matters we handle for the clients have an effect on their business and revenue of their business.” While the regulatory practice accounts for 15 percent of Hogan Lovells revenue—compared to 30 percent for Hogan & Hartson—the overall pie is bigger for the firm, and having more clients worldwide means more opportunities to serve Washington-related interests.

This summer, West Coast-based Quinn Emanuel Urquhart & Sullivan entered Washington. “Over the past couple of years, the ITC [International Trade Commission] has become an increasingly important forum in patent infringement disputes,” says partner Jon Corey. “Patent litigation is coming back strong,” notes consultant Young.

It works the other way, too. When D.C.-based Venable opened an office in Los Angeles five years ago, it wanted “to capture clients that are organic to that area,” says Racine. Venable’s Washington office, which depends on regulatory and government work for 40 percent of its revenue, now helps Southern California-based entertainment and biotech clients with interests that involve federal regulation, investigations, tax issues, and legislation. “The client may be in Houston, but they want a Washington lawyer,” says Jacobsen. “They want the energy lawyer down the street from [the Department of Energy], they want the trade lawyer down the street from the U.S. Trade Representative.”


TAGS:
law