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VOL. 37 | NO. 25 | Friday, June 21, 2013

Legal immigration

Growth in health care, real estate prompts more upmarket, out-of-town law firms to establish outposts in Middle Tennessee

By Jeannie Naujeck

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During the Great Recession, law firms pressed the pause button on hiring. But as the economy recovers, the market for attorneys is following suit.

Local law firms are in expansion mode and, as Nashville’s star rises nationally, outside law firms – and some lawyers who left for greener pastures – are looking to move into Music City.

“Nashville’s grown a lot and it’s now starting to get the attention of the upmarket firms,” says Larry Papel, who left Baker Donelson last April to open the Nashville branch of Nelson Mullins.

“The Nashville health care, technology and real estate communities generate far more sophisticated work than the work generated in similar-sized cities. That’s why you’re going to see more upmarket firms come into Nashville.

“Nelson Mullins was a little ahead, time-wise, of where the others are, but you can bet they’ll be here in years to come.”

Nelson Mullins, based in Columbia, S.C., now has eight partner-track lawyers and 95 contract lawyers in Nashville.

It joins Butler Snow as one of the regional law firms that have planted their flags in Nashville in the past year. More are likely to follow, as legal services expand to meet the needs of Middle Tennessee’s burgeoning health care, corporate and real estate businesses.

One big factor is the rise in corporate transactions and regulatory work related to health care, long Nashville’s signature industry with about 250 health care companies (15 of them publicly traded) based here, according to the Nashville Health Care Council.

Regulatory changes generate growing quantities of work for lawyers, and, as the Affordable Care Act is implemented nationwide, with major new provisions coming online this year, new regulations and downward pricing pressure on health care providers are leading hospitals to merge or form partnerships with each other and with physician practices to both to become more efficient and comply with new mandates.

All those transactions require legal help, and while many health care companies don’t need big-money market firms to handle routine work, they do need firms with extensive knowledge of the industry.

“With health care, if you’re not in Nashville there’s the thought, “Well, why aren’t you?” says Scott Carey, managing shareholder at the Nashville office of Baker Donelson Bearman Caldwell & Berkowitz, which has been adding staff, particularly public hospital attorneys, to its national health care practice.

“You have a lot of really good, sophisticated, busy lawyers here who do work outside of this market and are every bit as competitive as these upmarket firms. That’s not true in all downmarkets.

“You see a lot of regional firms that are establishing offices here and wanting to grow, and the lateral (labor) market is extremely competitive as a result of that.”

Coming home

Thanks to Nashville’s high profile and a strong supply of recent law school graduates, Nashville firms are having no trouble recruiting talented attorneys.

“I get a couple of resumes a week from top law firms in top money markets – a lot of really talented people who want to move to Nashville and practice law,” Carey says.

“They have some sort of roots here and are now looking to come back to the South. It’s people who five or 10 years ago went to a major-money market and want to come back. And now the younger lawyers, the students, rather than going someplace like that, they’re saying they want to start here.”

Recent hires by Nashville law firms shows a large number who received degrees in Tennessee or neighboring states, practiced in the Northeast and are returning to the South.

“That’s my bread and butter – people ready to come home, as mid-level or partner,” affirms Barbara Mayden of legal recruiting firm Young & Mayden. “You have to be a matchmaker.”

Nashville’s homegrown law firms are hot prospects for mergers with outside firms looking to establish roots in the Midsouth. Regional firm Frost Brown Todd did when it acquired Nashville-based MGLAW in May 2012.

“A firm coming to town would rather hire an established group than hire one or two,” Mayden says. “You’ve got good Nashville firms that are courted all the time. Bass (Berry & Sims) probably gets calls all the time. Sherrard & Roe, Neal & Harwell, H3GM … they’re approached all the time. There could be a day that approach works.”

‘Watch our growth’

That’s essentially what Butler Snow did in June 2012 when it hired 37 attorneys who left Miller & Martin en masse following the loss of a key client and a change of leadership.

Butler Snow, which already had a substantial pharmaceutical industry practice in Jackson and Memphis, instantly became one of Nashville’s 10 largest firms and moved into two floors of The Pinnacle Building last month.

Its new space is home to 47 attorneys and has offices for 75. Filling those offices would comfortably place the firm in the fourth- or fifth-largest slot.

“Watch our growth,” says Dan Elrod, a member of Butler Snow’s executive board and one of the 37 who left Miller & Martin. “There will be more announcements.”

Elrod says the firm will fill the seats by adding new associates, as well as luring top talent laterally through a compensation system that Elrod says removes the traditional focus on origination credit – a system by which an attorney who brings in a client continues to receive a portion of the fees generated by other attorneys.

Butler Snow will build on its strength in corporate pharmaceutical work, as well as health care, government relations, life sciences, intellectual property, labor and employment and commercial litigation.

The firm also will plant a flag in media and entertainment law with the relocation of Anita Modak-Truran, an expert in copyright counseling and litigation as well as drug and medical devices and product liability, from Jackson.

No fear of competition

While Nashville may be an especially hot market, growth among regional and mid-sized firms is on the rise nationally, according to the 2013 Am Law 200, an annual survey of law firms released May 31 by The American Lawyer.

Among the top 200 firms ranked by revenue, the most hiring growth was seen in the “second hundred” – generally, firms that booked between $100 million and $300 million in revenue. Among these firms, hiring grew 3 percent between 2011 and 2012. Among the top 100 firms, hiring grew less than 1 percent.

That spate of hiring also increased gross revenue for these firms – which fit the profile of firms that would be interested in Nashville. Local firms say they welcome the competition.

“Competition makes you step up your game. It’s not necessarily a bad thing,” says John Tishler, chairman of Waller Law, Nashville’s largest law firm with nearly 200 attorneys, including 16 new hires in Nashville in May.

“I believe there’s a lot of opportunity for firms that look like us.”

New entrants into the Nashville market might resemble Polsinelli, a Kansas City, Mo., based national firm that actually looks a lot like Baker Donelson and Nelson Mullins.

Baker Donelson ranks 111th in gross revenue and has 587 attorneys (77 in Nashville), and Nelson Mullins ranks 115th with 433 attorneys.

Polsinelli falls in between, ranked at 113th in gross revenue with 573 attorneys.

The firm is aggressively growing its health care practice by taking advantage of lower-priced markets around the South, West and Midwest.

No ‘mega firms’ soon

It’s less likely that the top 100 firms on the list – the big national and international players – will locate here. Nashville simply doesn’t command the rates needed to sustain revenue per lawyer, nor does it generate enough high-level specialty work to locate specialists, Mayden says.

“Will the work support mega firms? Not in the near future … there’s not the business to support that. As a general matter, the rates here don’t fit in with their rate structure. You’re not going to be charging what they do there,” she says.

One of those mega firms, Pillsbury Winthrop Shaw Pittman, which ranked 38th with $561 million in revenue last year, did locate its global operations center in the AT&T Building last June, employing 175. But the firm’s rates make it highly unlikely that attorneys here could draw the kind of profits – $920,000 per lawyer in 2012 – that the firm is accustomed to. Among the second tier of firms, revenue per lawyer tends to top out at about $700,000.

“Having a full-practice office where we are supporting clients locally, and even document review, isn’t on the table,” says Pillsbury CFO Sean Whelan. “There’s no discussion about it at all.”

He does expect Nashville and other low-cost cities to be successful in drawing other large firms’ back office and legal research operations, which bring jobs for lawyers and non-lawyers alike.

“I think you’ll see many more firms that are based in high priced markets trying to find a way to get more competitive on costs by doing those kinds of moves,” he says. “We’re on the front end of the trend.”

While there may never be enough jobs for everyone who wants to move to Nashville, legal work follows the money, and right now the money is on Nashville.

“Firms have always gotten to be the size they needed to be to handle their clients, in places where their clients needed them to be to handle their business,” says Allan Ramsaur, head of the Tennessee Bar Association, which saw 4 percent growth in membership last year.

Carey says his firm will add more staff this year, and he expects to see the same from competitors.

“There’s a lot of players with anywhere from five to 30 or 40 lawyers that are trying to get to where we are because they understand you really need to have critical mass in Nashville to be taken seriously,” Carey says.

“It’s a great market, and we’ve got room to grow.”

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