Law Review: A Maryland firm finds opportunity in Philadelphia

When the law firm of Offit Kurman began toying with the idea of expansion seven years ago, it comprised only a handful of lawyers in a small office in suburban Baltimore.

The nation was well on its way to recovering from the recession of 2001-02, and the firm hatched an expansion plan that would take it south through the bustling, high-income suburbs north of Washington and on into northern Virginia.

Then, it set its sights on Philadelphia.

That was a counterintuitive strategy. Philadelphia, like other big East Coast cities, is filled with lawyers, and the regional economy is mature. Even during the best of economic times, growth would lag other regions. And when the firm decided to make a major move in 2009, picking up a big insurance practice group in Center City from the New York-based firm of Anderson Kill & Olick P.C., financial markets were nose-diving, layoffs were wracking law firms in Philadelphia and beyond, and work was drying up.

Yet three years later, the firm has doubled in size, with incremental growth in its Philadelphia office, and now has 89 lawyers overall and a support staff of about 90.

It has eight offices scattered between Center City and suburban Virginia. Though relatively modest in the world of Big Law, where megafirms routinely generate a billion or more a year in revenue, Offit Kurman has seen its revenue grow sevenfold since 2003, to slightly more than $35 million last year.

The firm says the trick is in its compensation and billing system. Lawyers are permitted to discount rates where needed. They also get to keep more of what they bill clients. The firm has an ironclad policy of allowing partners who generate work to keep 25 percent of billings, a so-called origination fee. They then get to keep 25 percent of hourly charges. Howard Kurman, chair of the firm's labor and employment practice, said lawyers who bring in business have wide latitude.

"If we are talking to a lawyer who said, `I can produce $2 million in billable hours playing golf five days a week,' we say, `Great,'?" Kurman said.

The formula mapped out by Offit Kurman has been used in varying degrees by other small firms seeking to carve out a spot in big legal markets like Philadelphia. The idea is to hire lawyers with large books of business, then give them rate flexibility for smaller clients who may have blanched at the cost of larger firms.

More than anything, it shows how outdated images of staid lawyers squirreled away with musty law books have become.

No doubt, lawyering is still the fundamental economic pillar of the profession. But as the story of Offit Kurman and other firms amply illustrate, the profession now, of necessity, has a substantial entrepreneurial element. Time was, a generation ago, that prominent firms practiced only in their regions. The most adventurous may have had an office in Washington, or like Dechert, one of Philadelphia's largest, an office in London. But now, firms large and small are constantly on the hunt for new markets. For the big players in Philadelphia, like Ballard Spahr or Blank Rome, that might mean opening an office in Los Angeles or some other place in the U.S. where clients need representation.

For firms that see themselves as international players, it may mean opening an office in Kazakhstan, which Dechert announced it had done on Thursday, the better to tap into energy-market deals.

For smaller firms outside the city, an expansion strategy might call for establishing a beachhead in Center City and marketing legal services at a lower price point. The point is that the legal market is far more dynamic than it was a generation ago. There are potentially big rewards, but also huge risks. A soured merger or a botched expansion into a new market can potentially wreck a firm.

Partners at Offit Kurman charge between $300 and $475 an hour, a price point that makes it an economical choice for businesses looking for high-end labor and employment representation, insurance recovery, transactional, tax, and estate-planning work, which are among the firm's core practice areas.

It was the firm's flexibility on rates, as well as its commitment to allow lawyers to keep more of what they generate, that appealed most to Michael Conley, office managing partner in Philadelphia. Conley and five other lawyers from Anderson Kill moved to Offit Kurman in 2009.

They had chafed under their firm's rate structure and unwillingness to provide flexibility to clients who were demanding discounts in an economic downturn. When a legal-placement firm called asking whether they would consider moving elsewhere, they decided the time was right. Conley said they interviewed with both large and mid-sized firms but were drawn to Offit Kurman, which was trying to grow its office in Philadelphia, because it permitted lawyers to keep more of what they billed clients. Other firms offered origination fees, too, but Conley said the math often was fuzzy.

"There was always a subjective element to it, and at the end of the day whoever was running the firm had the discretion of following the program or not," he said.

It turned out that moving to Offit Kurman was the best deal for Conley and his colleagues. And that goes a long way toward explaining why there is so much churn in the legal-employment market these days.

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