Coudert Growls at Orrick In Hiring of 11 Partners

On May 23, Coudert Brothers put eight former partners and the firm that poached them on notice that it is investigating breaches of obligation and misconduct.

The unbrotherly action was a swift strike back after the May 20 announcement by San Francisco–based Orrick, Herrington and Sutcliffe that it was acquiring 11 Coudert partners: eight from London and three from Moscow.

The raid effectively leveled Coudert’s offices in those cities-no small blow to the New York–based firm, which is known for its international work.

In letters obtained by The Observer and hand-delivered to the London-based partners, Coudert chairman Clyde E. Rankin III asserts that at the same time the Coudert partners were discussing an exit strategy with Orrick, “Coudert was engaged in discussions with Orrick … about a potential merger or combination of Coudert with Orrick.”

He continues: “We have reason to believe that … you may have breached your fiduciary obligations to the Firm and/or been complicit with Orrick in actionable wrongdoing.”

“It’s pretty cheeky for [Orrick chairman and chief executive Ralph Baxter Jr.] to be simultaneously talking with the chairman of Coudert Brothers about possible combinations involving the whole firm and talking one-on-one with the people in London without disclosing that that’s what he was doing,” said Barry Ostrager, the bulldog litigator and Simpson, Thacher and Bartlett partner representing Coudert.

Mr. Baxter was in meetings and unavailable by deadline, but Orrick spokesman Tim Larimer said Coudert had been informed of the talks that Orrick was having with some of Coudert’s partners.

“Orrick has always had a great deal of respect for Coudert Brothers, and we had been talking to individual partners in several locations, both in the U.S. and in Europe, for some time when Coudert approached us to discuss the mutual interests of the two firms.”

He continued: “Coudert was aware of our talks with individual partners when it approached us. We had two preliminary conversations, but before and during those discussions, we advised Coudert that we were continuing to talk with some of their partners about joining Orrick-and, as a result, both of us refrained from giving the other proprietary information. The discussion never developed further. We continued talking to the individual partners, who are joining Orrick as valuable additions to our increasing global reach.”

Rubbed Raw

Still, Coudert’s skin has been rubbed raw: No law firm likes to see its partners leave, let alone watch an entire office liquidate. (There are reportedly about 30 associates in Coudert’s London office and 15 in its Moscow office.)

This is only the latest in a string of high-profile defections from Coudert. Two loyal tax partners jumped to Winston and Strawn’s New York office about two weeks ago, and two additional European partners had left a few days before the big announcement, also to Orrick.

But like partners themselves, practice groups and even whole offices at the big firms are increasingly nomadic.

And when firms enter into merger discussions, they lay bare a smorgasbord of proprietary information, like the most profitable offices or practice areas-some of which they may wish they hadn’t revealed if the talks don’t work out.

“That’s something that’s on people’s minds these days; it’s something that’s ripe,” said law-firm consultant Peter Zeughauser, managing partner of the Zeughauser Group.

E-mails obtained by The Observer show that in one case, for example, Mr. Baxter made plans to meet with a London partner for breakfast at Claridge’s while the two firms were in discussions.

Monroe Freedman, a legal-ethics expert, said that troubled him.

“I don’t like it, because what they’re doing is undercutting their partners’ efforts at bringing about a merger,” he said of Orrick’s interviews with the Coudert partners. “That does trouble me. It’s one thing to do that after the talks have broken down, but if talks are going on, in effect to sabotage them, to say, ‘You don’t have to merge and take some of these people you don’t want or need; we’ll split off and go with you’-that kind of sabotaging of discussions that were going on, presumably in good faith, is a violation of their fiduciary duties.”

Mr. Freedman, a law professor at Hofstra University, added that Orrick’s alleged interference with the “advantageous business relations” of the Coudert firm (i.e., by having talks about taking on senior partners that would render a merger less valuable to them than it would have been if those partners were part of the whole Coudert package) might also be construed as a tort, or civil wrong, particularly if-and it’s a big if-Coudert could prove some maliciousness on Orrick’s part.

“It’s something that, if I was in Coudert’s position, I would be looking into,” Mr. Freedman said.

Another e-mail showed a London partner with Coudert preparing to give legal advice to a potential Orrick client over Coudert e-mail.

“Providing the benefit of his legal services to the client or potential client of another firm …. I think that’s a violation,” Mr. Freedman said.

Napoleon Complex

It was indeed three Coudert brothers who started the firm in 1853. Their father, Charles Coudert, had been a lieutenant of Napoleon Bonaparte, and fled to the U.S. after being sentenced to the guillotine for his role in a coup plot against the emperor.

But the firm didn’t sever its ties to France. In 1879, it was the first U.S. law firm to open a Paris office (Coudert Frères). After that, the firm continued to be an international pioneer. In 1979, it staked out an office in Beijing; in 1988, it founded its Moscow branch. Now, Coudert has 28 offices in 18 countries, including Indonesia and Australia.

In New York, Coudert has come to represent a kind of shabby cosmopolitanism. In 2003, the most recent year for which official figures are available, profits per partner, the most-watched barometer of a firm’s performance, were the lowest of any New York–based firm. (The American Lawyer officially puts them in the “international” category.) At $420,000, it hangs perilously close to the “threes”-a dangerous precipice in the world of New York firms.

“The firm is in a fragile place, and any visible departure now is particularly painful for the firm,” said Alisa Levin, a principal at the legal search firm Greene-Levin-Snyder. “I wish they had been as aggressive in pulling the firm together as they are now in trying to plug the hole.”

For this reason and others, the discussions with Orrick weren’t Coudert’s first attempt at a merger. In 2004, it reportedly made and then broke off plans to join with Squire, Sanders and Dempsey, a Cleveland-based firm with similar international strengths.

In the years since its founding in San Francisco in 1885, Orrick became known as a bond-underwriting shop, overseeing the issuance of the debt that would help to pay for the cost of building the Golden Gate Bridge. The firm started expanding domestically in the 1980’s, and that growth accelerated substantially under Mr. Baxter, a kind of swaggering visionary of sorts, who has led Orrick’s quick ascent up the food chain. In 2003, the firm’s profits per partner were reported at $945,000, and Mr. Larimer said that in 2004, they topped $1 million.

According to an American Lawyer profile, Mr. Baxter likes to inspire partners by talking about “BHAG’s” (“Big Hairy Audacious Goals”), a concept he adopted from the 1994 book Built to Last, written by Stanford business-school professors about successful companies. Orrick has caught people’s eyes recently with a slick, Oprah-esque branding campaign centered around an “O,” and by the firm’s decision to aggressively “brand” its building on Fifth Avenue, between 52nd and 53rd streets.

It’s not just B-school speak that defines Orrick, but its reputation for being an “expansionary U.S. Giant,” as the British magazine Legal Week described it. In 1998, Orrick was close to merging with the old-line New York–based firm Donovan, Leisure, Newton and Irvine. The Donovan partners approved the plans, which then were abandoned because of client conflicts, among other issues. Shortly thereafter, Orrick announced that Coudert’s entire litigation team was joining Orrick-leaving about 20 lawyers left to scramble for new jobs, and effectively dissolving the firm.

Orrick too has flirted repeatedly with other firms, entering into merger talks most recently with D.C.’s Swidler Berlin Shereff Friedman, which were eventually called off due to client conflicts.

According to Mr. Freedman, the ethics expert, “a willful violation of fiduciary duty can result in punitive damages.” And recently, there has been some precedent for these kinds of cases.

Last year, both Clifford Chance and Morgan Lewis paid multimillion-dollar settlements into the estate of the now-defunct San Francisco litigation boutique Brobeck, Phleger and Harrison. The bulk of the money goes to paying off creditors-both firms were considered to have profited from relationships that Brobeck lawyers took with them when they left the firm in its dying days. But in Clifford Chance’s case, the $5.5 million it paid was also used to settle complaints that the defection of former chairman Tower Snow Jr. and 16 other lawyers to Clifford Chance from Brobeck prompted the swift demise of the firm.

Orrick has been down a similar road before. When the firm subsumed the bulk of Donovan Leisure, a former partner sued, claiming that he was still entitled to his retirement payments from the partnership. His claim was upheld.

“Please be advised that Coudert intends to seek all available and appropriate remedies against Orrick and/or the departing partners if there has been any actionable wrongdoing,” wrote Mr. Ostrager in his letter to Mr. Baxter.

Coudert Growls at Orrick In Hiring of 11 Partners