Midsize law firms pick up clients as companies turn from pricey giants

By Chris Herring, The Wall Street Journal

“Bigger is better” long has applied to hiring law firms. Generally, the larger the firm, the greater its prestige and the more likely it was to reel in corporate business.

But to cut costs during the recession, U.S. businesses increasingly are handing work to less expensive small and midsize firms, typically those with fewer than 200 attorneys. And while their larger counterparts are laying off lawyers, some smaller firms are hiring attorneys to keep up with new business.

The large firms — those with several hundred, or even a thousand, lawyers — are adjusting to compete with their smaller brethren, which have more flexibility in billing, thanks to lower fixed costs like payroll and rent.

A survey of 550 large companies by BTI Consulting Group found that 38% of the law firms they hired last year came from below the nation’s top 200 in terms of revenue, which generally means small and midsize firms. That was up from 25% in 2007.

Wayne Risoli says billings are up 8% at 100-lawyer Chamberlain Hrdlicka.

John Quinn, a founder of Quinn Emanuel Urquhart Oliver & Hedges, LLP, a 400-lawyer business-litigation firm based in Los Angeles, acknowledges there’s been something of a switch to small firms. But he says there are limits to what sorts of work corporations would pitch to previously untapped shops. “For the major cases, clients will still be looking for the most experienced firms, who have shown that they can handle this sort,” he says. “I don’t think that will change.”

Still, some work is going to smaller firms. Hit hard by slumping auto sales, AutoNation Inc., the largest car-dealership chain in the U.S., has had to rein in spending. So the Fort Lauderdale, Fla., company recently handed the legal work for its move across town to Angelo & Banta PA, a South Florida firm of just seven lawyers.

Jon Ferrando, AutoNation’s general counsel, says he typically would have hired a larger firm for such a matter. In this case, though, he sought a firm that knew the region well and charged less than a big firm.

AutoNation saved 20% to 25% on fees by retaining Angelo & Banta, Mr. Ferrando says. Angelo & Banta managing shareholder Tom Angelo says his firm charges $200-$495 an hour for work done by senior partners.

Georgia Pacific Corp., a paper and building-products manufacturer, in February gave a large piece of commercial litigation to Houston-based Chamberlain, Hrdlicka, White, Williams & Martin, which has about 100 lawyers. Atlanta-based Georgia Pacific might not have hired the firm before the recession, says General Counsel John Childs. “There are a number of factors that go into choosing which firm to give your work to, but it’s fair to say that economics have shot up to the top of that list.”

Chamberlain Hrdlicka bills $420 an hour on average for work done by senior partners, managing shareholder Wayne Risoli says. Georgia Pacific’s large firms typically bill between $700 and $800 an hour, says Mr. Childs.

Chamberlain Hrdlicka’s billings are up 8% from the same time last year, Mr. Risoli says, and because of the firm’s success he plans to hire another 10 lawyers or so within the year.

General counsel and consultants say that to keep valuable clients, big firms have been more receptive to charging flat fees, removing some uncertainty for clients who otherwise would be billed by the hour. And when large firms do charge hourly rates, they often are doing so at a discount.

SunGard Data Systems Inc., a software-service provider, still gives a fair amount of its legal work to two big Philadelphia firms: 1,400-lawyer Morgan, Lewis & Bockius LLP and 1,000-lawyer Blank Rome LLP. But each has offered alternative fee arrangements that aren’t strictly based on hourly rates, says SunGard General Counsel Victoria Silbey.

“We’ve been very proactive about partnering with our clients to make creative flexible agreements,” says Carl M. Buchholz, Blank Rome’s managing partner.

Morgan Lewis didn’t respond to requests for comment.

General counsel and law-firm consultants say large, prestigious firms certainly will regain work when the economy recovers and transactional work picks up. But people in the industry predict that small firms might hang on to straightforward legal work, for example, small contract disputes or simple labor and employment matters.