When the recession began two years ago and Wall Street deals that powered Big Law disappeared, law-firm leaders speculated some of the slack might be taken up by litigation departments as clients sued one another to gain an economic edge.

"When the gravy is thin, the knives become sharp" is how Russians describe tough times in an old proverb that could just as easily capture the cutthroat world of litigation.

Or at least, that is the way litigators hope it will play out.

At Dechert L.L.P., the city's second-largest law firm and one of the nation's most profitable, those early theories seem to be bearing out.

Revenue from the firm's sprawling litigation department is tracking even with last year, and there are signs, said Robert Heim, the department chairman, that clients were loosening their purse strings again to fund legal actions that, while not essential to survival, could benefit a company's bottom line.

"It has come back; I don't think it has come back to where it was before the economy kind of fell off the shelf," Heim said. "But they are starting more of the discretionary litigation. And of course, the government has stepped up enforcement. There is no discretion in defending against those matters."

Just how robust the litigation market turns out to be is a central question at Dechert, and not just because the legal market as a whole is down.

The firm has long prized its reputation as a tough-minded, trial-oriented law firm - it handled much of the defense for Merck & Co. Inc.'s winning crucial battles at the beginning of the Vioxx litigation that helped force a settlement.

Its lawyers seem to relish going to trial, a reputation that Dechert lawyers say they believe puts more pressure on the other side and forces settlements that are favorable to Dechert clients.

Moreover, fully 35 percent of the firm's 900 lawyers work in its litigation department. Revenue from the department totals hundreds of millions of dollars a year. Overall, the firm is reportedly one of the most profitable in the country, with equity partners earning an average of $2.15 million in 2008.

Among Philadelphia-headquartered firms, only Morgan Lewis & Bockius L.L.P., with 1,400 lawyers, is larger.

What Heim and his colleagues have noted in their own practice seems to be bearing out industrywide. In October, Fulbright & Jaworski L.L.P., a prominent litigation-focused firm with roots in Houston, released the results of a survey of 392 corporate legal departments in the United States and the United Kingdom in which respondents predicted a sharp uptick in litigation.

"Generally, litigation rises in an economic downturn as regulators tend to step up enforcement, laid-off workers head to court, and companies need to file more suits in order to collect money that is owed," said Stephen Dillard, head of Fulbright's global litigation practice.

Overall, the companies said they would spend more to sue competitors or defend themselves in lawsuits in 2010.

The results were important because corporate legal departments make decisions on where to spend a company's budget for outside legal services and whether to initiate a lawsuit.

Heim said that one area of litigation that already is proving strong is white-collar defense, as the government steps up its enforcement actions after the 2008 financial collapse. The firm's white-collar defense group includes a sprawling practice in New York headed by Andrew Levander, a former assistant U.S. attorney in Manhattan. He is representing New York philanthropist J. Ezra Merkin against allegations that he improperly funneled client investment money to Bernard L. Madoff.

New York State Attorney General Andrew Cuomo alleged in a lawsuit that Merkin falsely represented to clients that he was managing their money, when in fact he was simply turning it over to Madoff and collecting a fee as a middleman. The clients lost their money, of course, when the Madoff fund collapsed. Merkin has denied any wrongdoing.

Levander also represents former Merrill Lynch chief executive officer John Thain, who also has come under Cuomo's scrutiny.

Yet according to Heim, the firm's busiest litigators may be in London, where Dechert has a 100-lawyer office in the thick of litigation matters emerging from the financial meltdown overseas and other disputes. In one of the firm's more exotic representations, London partner Andrew Hearn is representing onetime Russian industrialist Michael Cherney in a sprawling lawsuit against Oleg Deripaska, a Kremlin insider and oligarch who allegedly owed Cherney billions in a mineral-company merger deal gone awry.

Deripaska's attorneys have been arguing for the last year that courts in Britain have no jurisdiction over the case.

But Britain's highest court last week upheld lower-court decisions that the trial must go forward in England because Cherney faced the risk of a politically motivated arrest or even assassination if he returned to Russia to pursue his claims.

The court cited as evidence Deripaska's senior-level Kremlin contacts, earlier instances in Russia of politically motivated prosecutions, and an assassination attempt against Cherney in Israel in 1995 that appears to have had its origins in Russia.

To manage Dechert's far-flung litigation empire - it also has a thriving practice in Paris - the firm has carved out specific practice areas covering white-collar defense, antitrust, and other areas. Each has its own administrative staff, and productivity is monitored weekly.

Thus, Heim and fellow department managers meet at least monthly to discuss a printout of chargeable hours from each practice area, indeed each lawyer.

If one lawyer is overwhelmed and another has down time, Heim can ask that the workload be shifted.

Founded in Philadelphia, the firm's center of gravity is in the Cira Centre in the University City area, and it regularly brings in young associates for training on trial techniques such as jury selection or "soft skills" such as client relations.

Trial techniques are honed in Philadelphia, Heim said, because the plaintiffs bar, the lawyers typically suing Dechert's corporate clients, are very skilled, and young lawyers can learn much by going up against them.

If the surveys suggesting that a litigation storm is brewing, and Heim's own read turn out to be correct, then those lawyers will surely have much to do in the coming months.

Contact staff writer Chris Mondics at 215-854-5957 or cmondics@phillynews.com.