ON SEPT. 1, 1980, 35-year-old Kenneth Feinberg opened a Washington law office with three associates. Feinberg had never practiced law.
Gulping hard and relying on financing from his new partners at Kaye, Scholer, Fierman, Hayes & Handler -- the New York-based firm that surprised competitors by betting on the former chief of staff and special counsel to Sen. Edward Kennedy to build the D.C. outpost -- Feinberg rented an entire floor of prime space.
Nine months later Feinberg has 16 lawyers working for him, and he's now run out of space to grow beyond the three or four recruits (all court of appeals or Supreme Court clerks) whom he's expecting to add in September. In addition to the 35 or so matters the New York base has been able to steer south, Feinberg's office has attracted some 20 clients of its own, including the American Petroleum Institute, the oil industry trade association, which hired the firm to do a special project involving oil price and allocation regulations.
About four blocks from Feinberg's office, Jerome Kurtz isn't worrying about space. Until last fall Kurtz, a superb tax lawyer and former partner at Philadelphia-based Wolf, Block, Schorr and Solis-Cohen, was the commissioner of the Internal Revenue Service. Kurtz didn't return this winter to Wolf, Block because the New York firm of Paul, Weiss, Rifkand, Wharton & Garrison offered him a senior partnership with a $300,000-plus draw to join its new Washington office.
But Paul, Weiss failed in its attempt to recruit other top lawyers from the Carter administration for what they hoped would become a thriving multiservice Washington outpost. Thus, as of April 1, Kurtz could be found sitting alone in a 14,000-square-foot, five-story Embassy Row town house.
A few blocks from Paul, Weiss' desolate town house, in makeshift space covering three floors for which the reception area is next door to a dentist's office, the Washington outpost of New York's Skadden, Arps, Slate, Meagher & Flom seems to be bursting out into the hall. The office has 23 lawyers, up 130 percent from last year. The new lawyers aren't just run-of-the-mill recruits. Several comprise the most expensive, ambitious, chancy talent package ever purchased by an American law firm. The jewel of the package is Lynn Coleman.
In the fall of 1980, Coleman, the outgoing deputy secretary and general counsel of the Department of Energy, made a decision that would have been unheard of a decade ago in the good old relaxed days of lawyering.
Rather than simply resume the partnership that he'd left at the Washington office of Houston's Vinson & Elkins when he had entered government service, he'd see if he could parlay his new public service credentials and contacts into something better. His decision in November to let the world out that he was willing to look beyond Vinson & Elkins ignited an auction fever that would make Dave Winfield and George Steinbrenner blush.
According to Coleman, he had discussions with at least 25 firms. Partners at several firms Coleman talked with say the 42-year-old former deputy energy secretary was unusually blunt. He explained that Vinson & Elkins had offered to jump him 20 places up the partnership letterhead upon his return, which he said would mean a draw on the order of $400,000 a year. "But I think I can do considerably better than that," Coleman reportedly said, whereupon he asked each firm he was talking with what it would be prepared to offer him to set up an energy practice in Washington.
Ultimately Coleman signed with Skadden, Arps, which reportedly offered him a draw of close to $500,000. In addition, the firm guaranteed nearly $200,000 apiece for two of Coleman's Energy Department subordinates.
The thing that is clear about the law business in the capital is that while Washington has been a rapidly expanding legal center for the past decade, in recent months that expansion has become a stampede. The capital today presents for business lawyers something they have never known or had to cope with anywhere: a fiercely competitive marketplace full of opportunities and traps.
Scores of firms think there's gold in Washington that a branch office should be mining. Of the nation's 100 largest firms based outside Washington, 77 now have an outpost there, and at least 10 more plan to open one by the end of the year. About two-thirds of these branches have opened since 1978, and 25 have opened since January 1980.
The explosion of Washington branch offices dwarfs the considerable overall growth of lawyers and law firms in the United States during the past decade: While the number of law firms listed in all Martindale-Hubbell jumped approximately 55 percent between 1970 and 1981, the number of D.C. branch offices increased 146 percent. And Martindale's 1981 listings don't account for the approximately 40 branch offices that have opened since the fall of 1980.
The recent change in administrations does not at all account for the surge: These latest branch offices were all planned before the November election, and the 1980-81 growth far exceeds the moderate increase in Washington offices in 1976-1977, anyway.
"We came because we were watching several clients giving hundreds of thousands of dollars for FTC or other regulatory work to Washington firms that could have gone to us," says Steven Kumble of New York's Finley, Kumble, Wagner, Heine, Underberg & Casey, which established a Washington pressence in January by merging with the D.C. firm of Danzansky, Dickey, Tydings, Quint & Gordon. "Some clients think there's work that only a Washington firm can do," Kumble adds. "Sometimes they're right and sometimes they're wrong, but in this day and age, with the government involved in so many areas, any firm that wants to project itself as providing full service has to be down there."
The rush has swamped the Washington office-space market. John Shooshan, a broker at Washington's Oliver T. Carr real estate agency, estimates that about half the office space in the capital is now occupied by lawyers. The demand has pushed rents from $9 to $10 a square foot in 1977 to $30 to $35 in 1982. "And that's assuming," Shooshan adds, "that any space is available. The vacancy rate now is one-half of 1 percent. We have firms waiting on line . . .
"The days of the simple mail drop office are mostly over. Today I'm meeting an L.A. firm that wants to begin with 10 lawyers. I'm going to have to tell them they have to wait. Sidley & Austin [from Chicago] got so scared of the space problem that they rented an entire 140,000-square-foot building last year. They only need 40,000 to 60,000 feet, but they'll get richer than they do practicing law just by subleasing the rest."
"No, we'll need more of the space for ourselves soon," counters Sidley & Austin managing partner H. Blair White, who explains that the firm, which started in Washington with three lawyers in 1963 and now has 35, plans to have at least 40 by 1983.
The expanding federal government has, of course, played the central role in the Washington legal boom. Indeed, the growth between 1965 and 1980 in the number of pages of notices of new regulations, agency meetings, grant determinations and other federal bureaucratic business in the Federal Register -- 405 percent -- and the growth of the number of lawyers practicing in Washington during the same period -- about 300 percent -- are uncannily parallel, as is the growth (to take a more specific arena) of cases or matters handled between 1975 and 1980 by the Federal Energy Regulatory Commission and the Department of Energy's Office of Hearings and Appeals (from 21,700 to 79,900) compared with the growth of membership in the Washington-based Federal Energy Bar Association (about 500 to 1,400).
The risks and opportunities of Washington energy practice illustrate those complexities. Until the 1970s the Washington energy bar was essentially limited to lawyers who represented utilities or related businesses before the Federal Power Commission or the Atomic Energy Commission. Oil lawyers were dispersed throughout the country, most notably in Texas. Then the onslaught of public and governmental consciousness of an energy crisis, heightened by the 1973 Arab oil embargo, brought an avalanche of oil and gas price and allocation regulations. With those regulations came Washington branch offices of major Texas firms.
Quickly the energy regulatory structure expanded, with the number of oil price and allocation regulatory cases docketed by the Department of Energy jumping from 1,351 in 1974 to 9,532 in 1979 (the year the Iranian revolution caused the nation's most severe shortages). Many of these cases were big-dollar administrative matters -- litigations requiring major commitments of lawyer time on behalf of clients who could afford to pay top dollar. The client base was seemingly unlimited, encompassing not just major oil producers but thousands of small producers, jobbers, retail groups and others hoping to fend off enforcement actions or win allocation exemptions.
Thus, business boomed for lawyers such as Rush Moody Jr., who in 1976 was hired away from Vinson & Elkins by Robert Strauss of Dallas-based Akin, Gump, Strauss, Hauser & Feld. Since 1976, Akin, Gump's Washington outpost has grown from 18 lawyers to 90, largely on the strenght of Moody's energy practice.
But with the stroke of a pen in January, President Reagan eliminated that oil regulatory structure. Are Moody and company out of work? "Not at all," he says. "We're as busy as ever. First, we have all the enforcement actions that were pending. Assuming the new administration doesn't declare amnesty or settle them wholesale, we'll be working on them for two or three years."
Second, Moody notes that not even this apparently decisive regulatory pullback ends government involvement inoil marketing: "The decontrol of crude [oil]," he explains, "doesn't do away witht he necessity of clients to understand crude oil price regulations, since they must be able to cope with the windfall profits tax [passed in 1980]. If the Department of Energy is eliminated," Moody adds, "and the windfall profits tax is shifted to the IRS, we'll go practice at the IRS, because this is an area where traditional tax lawyers don't have the expertise. In the same way, if all the regulations governing international transactions in oil or gas get shifted to the State Department, we'll just go to the State Department to practice."
Beyond that, Moody and other Washington energy specialists are quick to note that crude oil regulations were only a minor part of energy practice. "All the pipeline regulations are still there," he explains. "And don't forget that natural gas regulations [for which cases docketed by the Federal Energy Regulatory Commission jumped from 20,238 in 1975 to 77,111 in 1980] are still there," he says. "And even if natural gas is deregulated, you'll still need energy lawyers for construction permits, for international deals, for a whole list of things that are related directly or indirectly to the government."
Thus, while Moody concedes that some of the 35 lawyers in Washington working for him in energy-related areas "will be shifting around when the crude regulation cases die down, we'll have no shortfall of work."
One of Moody's competitors agrees. Michael Butler, the Washington energy specialist for Houston-based Andrews, Kurth, Campbell & Jones, says that "Akin, Gump, more than us or other firms, has a specialty in DOE crude regulations, so they may have to readjust a bit. But they've build such a strong client base with that specialty that they'll still do well in other energy areas.
"The notion of an 'energy practice' is a sloppy concept," Butler continues. "There's no one on God's earth who's a complete energy lawyer. Because it means anything from nuclear regulatory stuff to pipelines to coal leasing to environmental permits to offshore drilling to synthetic fuels to gas. And that's just the government side. You also have financings of private packages and all the tax plays that you try to do. Firms like us or Akin, Gump that built client bases with one form of activity will easily shift to others.
"What you won't see," he concludes, "is new firms doing what we could do five years ago -- build a practice. Because most of the clients have been sorted out by now, and deregulation in some areas has cut the demand for new clients."
Harry McPherson, who was Lyndon Johnson's White House counsel and is now a senior partner at Washington's Vener, Liipfert, Bernhard and McPherson, feels the same way about one of his firm's specialties: transportation regulation. Deregulation of the airline industry and the coming deregulation of trucking, he says, have caused a decline in some of his firm's work, just as they have at places like Arnold & Porter and Covington & Burling, which have also always been active in transportation rate and route proceedings.
"However," he notes, "we see another area emerging with deregulation -- antitrust. Because when the federal regulatory umbrella is pulled away, a great many of the formerly regulated industries will be facing questions of anticompetitive behavior." Thus, McPherson says, his firm has recently recruited antitrust specialist Bernhardt Wruble, a partner at New York's Simpson Thatcher & Bartlett, "because we anticipate that we need somebody familiar with antitrust to advise us and our clients as the new day comes."
"Verner, Liipfert won't lose clients or much business with transportation deregulation," says one of McPherson's competitors, "because they're on the cutting edge. It's the smaller firms who just did rate proceedings or the new firms hoping to do them that will be hurt."
Similarly, Stephen Shulman, who has built a thriving employment discrimination defense practice in Washington for New York-based Cadwalader, Wickersham & Taft, says that a lessening of enforcement ardor under the Reagan administration at the Equal Employment Opportunity Commission "won't hurt our practice for two reasons. One, if the EEOC lets up, you'll see more suits by private parties. And two, we're not on the margin. We get the really tricky cases, and we still will."
One longer-term trend, however, would seem to cut against the optimism shared by Moody, McPherson and Shulman. Implicit in all of the scenarios is at least a partial shifting away from situations in which the government is a party in a matter to situations in which it is not a party, such as private energy-financing packages, private antitrust suits or private employment discrimination suits. Why, then, should the lawyers handling these matters be based in Washington?
Indeed, even in areas in which the government remains a party, might not the action shift back out of Washington as the matters become more routine? Veteran Washington lawyers point out that labor law started out as a Washington specialty but became a substantial practice area for firms throughout the country that labor law practice in Washington has not grown nearly as fast in recent years as the National Labor Relations Board's case docket.
On the contrary, Washington is likely to hold on to, and add to, its specialty business for five reasons:
There is a mystique about Washington. Clients seem to think that proximity to the seat of government breeds results more than it does.
With corporations increasingly growing in size and scope through mergers and expansions, their legal needs are less localized. Therefore, why shouldn't they pick one city as a national focus for certain types of legal work, and why not pick Washington, where the best lawyers handling nonroutine, government-related or quasi-government-related legal work are perceived to be concentrated?
Labor law is different. The disputes involved are usually highly localized, and the NLRB's investigations and hearings apparatus is exceptionally regionalized.
Unlike the days when labor law was shifting back to home-town firms, nearly two-thirds of the nation's 200 largest firms are now based or have branches in Washington; thus they have no incentive to shift the work back. If the work is going to be shifted anywhere in the 1980s, it will be shifted-in house.
Most important, although an easing of regulations may lessen the government's grip on certain business activity, the government's overwhelming presence is not about to subside. Indeed, in most areas, regulatory reform, even radical deregulation, is likely is create more work for lawyers. The Clean Air Act is due to expire in September 1981, and the Clean Water Act will expire in September 1982. Not even the most arden Reaganite has proposed that these two environmental laws not be renewed in some form. The jockeying to rewrite the statutes renewing them will create more lawyer-lobbying work; after that the need to explain and test what the new law means will generate more demand for counseling and litigation.
Similarly, according to Environmental Protection Agency general counsel Michele Corash, EPA's new Hazardous Waste Program "applies to 300,000 companies . . . Just to fill out the forms, they've got to talk to a lawyer," she explains. "They could talk to someone at home, but why not have someone who's got experience, who knows the ropes, handle it?"
In short, as Francis Musselman of New York's Milbank, Tweed, Hadley & McCloy, who moved to Washington last year to set up his firm's branch and expects to have 30 to 50 lawyers they by 1985, puts it, "Washington practice is here to stay. It's not different that the tax department that's down the hall from the corporate department. It's an essential part of any serious law firm."
Yet no market in a free enterprise system is unlimited. Robert Strauss, the Akin Gump senior partner and Democratic party leader, may smile exuberantly and say, "There's more than enough business to go around; everyone can succeed here." But after a moment's reflection he quickly adds, "That is, everyone can succeed as long as they do it right."