Top Guns

TEXAS LAWYER
NATHAN KOPPEL

March 30, 1998

Commercial trail mavericks like Randy McClanahan are blowing off big firm careers to aim for riskier targets: megaverdicts. Impeccably dressed, in his well-appointed offices high above downtown Houston, Randy J. McClanahan could pass for a statesman, a young Lloyd Bentsen perhaps, but you wouldn't take him for a gambler. And that was once true. "I'd get nervous betting a quarter on a golf match," he says, looking back to his days as a mid-level partner at Houston's Baker & Botts.

But in 1991, McClanahan bet a lot more than that. He wagered everything - his hefty partner's salary, his house, his family - to open a specialized trial firm, a so-called boutique, to represent plaintiffs in high-stakes commercial litigation.

"Basically, I walked over to the edge, looked down and jumped," he says. McClanahan landed on his feet. His firm has chalked up some big wins, as have others who have taken the same plunge. But with these defections of high-powered trial talent, the state's big defense firms now find themselves occasionally riding the bench - hired by corporations to litigate cases, or prepare them for trial, and then asked to step aside as the hired guns take the point in court.

It is no small comeuppance. Since the state's big defense firms handle much of the transactional work for A-list corporations, explains Houston's Robin C. Gibbs, a former Vinson & Elkins associate, historically they've had an "in" that brought them much of the best commercial trial work. With this toehold, they enjoyed a near-monopoly on the state's commercial trial talent, says Gibbs, who now heads the commercial trial boutique Gibbs & Bruns of Houston. But the big firms' grip on commercial trial attorneys always has been slightly precarious. In a sense, the two are almost constitutionally at odds.

"Trial attorneys are mavericks. They are not organization people who like being a cog in a big firm," says Dallas' Mike McKool Jr., who in 1991 left one of the the city's biggest firms, Johnson & Gibbs, which subsequently disbanded, to form the commercial trial boutique McKool Smith.

Such was the case with Houston's W. Mark Lanier, who parted company with Fulbright & Jaworski in 1989 and formed the trial boutique Lanier, Parker & Sullivan. Lanier prides himself on unorthodox trial tactics, which is not exactly endearing to big corporate firms. "Big firms train you to be a cookie cutter," he says.

If the psyches of trial lawyers can suffer at a big firm, so can their pocketbooks. At a big firm, trial lawyers often have to eschew representing plaintiffs in good commercial cases because they involve claims adverse to one of the firm's existing or former corporate clients.

"I spent too much time looking at conflicts, worrying about whether we had charged a $500 fee 10 years ago to do someone's tax return," says Houston's Thomas R. McDade, who was head of commercial litigation at Fulbright & Jaworski before leaving in 1991 to open his own trial shop, McDade, Fogler, Maines & Lohse, where conflicts are not a big problem. In January, for example, the firm earned a contingent fee on a $65.3 million judgment against a Houston hospital. At Fulbright, McDade says, he never could have taken the case because of conflicts.

Losing out on this sort of payday is one of the main reasons big-firm trial specialists flee, says B. Daryl Bristow, a former Baker & Botts partner and now head of the Houston commercial boutique Bristow Hackerman Wilson & Peterson, which generates about half of its revenue representing plaintiffs in contingent-fee matters. Houston's Stephen D. Susman, a former Fulbright & Jaworski partner, explains why contingent fees are such a siren song for big-firm trial attorneys. These attorneys often have sterling credentials, and it can gall them, he says, when a plaintiffs personal-injury lawyer, who doesn't have the pedigree, makes a lifetime of billables with one good contingent fee.

It was Susman, now considered the father of Texas' commercial trial boutiques, who first set out to even the score.

Susman Blazes Trail

In 1980, Susman formed a boutique - the now legendary Susman Godfrey - to see if he could practice a big-firm brand of sophisticated commercial litigation but make plaintiffs personal-injury-type money. To do that, he would have to take complex commercial cases on a contingent-fee basis - a dodgy proposition.

The paradigmatic high-stakes business case is a war of attrition. Typically, litigants would rather pay their attorneys to wage a pretrial scorched-earth battle, hoping the other side will buckle under a mountain of document requests and depositions than cut to the chase and face the possibility of a bad day in court. Big firms excel in these litigation scrums because they have the manpower to slug it out in pretrial limbo for years, and, since they bill by the hour, the incentive to do so.

To fight this sort of battle on a contingent-fee basis, which means fronting massive litigation expenses that may never be recouped, takes a special sort of mettle.

"What businessperson would say, 'I'm going to go borrow a million dollars and risk it on this job,' " says Randy McClanahan, adding that some lawyers have gone out of business because of one bad result. Susman Godfrey has not exactly gone out of business. The 44-lawyer trial boutique is one of the best trial firms in the country and one of the most profitable. In fiscal years 1995 and 1996, the firm averaged profits of $1.1 million per partner, almost twice that of any of Texas' big defense firms.

The firm has reached such heady heights largely due to its successful handling of commercial cases on a contingent-fee basis, such as its representation of Eljer Industries in a 1996 breach-of-contract case, which settled for $27 million, and the shareholders of Exdiam Corp. in a 1996 derivative suit, which settled for $23 million. And McClanahan & Clearman, with a docket consisting largely of contingent-fee commercial cases, hasn't done too poorly either. It has had a stake in some huge victories: a class action against workers' compensation insurance carriers that has netted approximately $200 million in settlements; and a breach of secrecy case in which the defendant paid $20 million.

So how do they do it? Out-manned, often footing their own bills, Susman Godfrey lawyers proved that boutiques can compete in commercial litigation wars of attrition by adopting a streamlined approach that eschews the "leave no stone unturned" big-firm methodology. Dallas' Michael P. Lynn, a former Akin, Gump, Strauss, Hauer & Feld associate and now head of the commercial boutique Lynn Stodghill Melsheimer & Tillotson, is a disciple of this approach. And so are scores of other premier trial attorneys who have gone the Susman way, leaving big firms to form elite boutiques that represent plaintiffs in complex commercial cases: Beck, Redden & Secrest; Bristow Hackerman; Gibbs & Bruns; and McDade, Fogler in Houston; and Figari & Davenport; McKool Smith; and Sayles & Lidji in Dallas.

Teaming Up

These shops have turned the commercial litigation balance of power on its head. In Houston, for example, the short list of the top "bet the company" trial attorneys is dominated by big-firm graduates - David J. Beck, Tom McDade and Steve Susman from Fulbright & Jaworski; Daryl Bristow and John M. O'Quinn from Baker & Botts; and Robin Gibbs from Vinson & Elkins - who now head their own firms. The state's big firms still have go-to trial lawyers. In Houston, for example, there are Frank G. Jones at Fulbright & Jaworski and Harry M. Reasoner and Paul E. Stallings at Vinson & Elkins, to name a few. But the firms have nonetheless been hit hard. Not only have they lost some of their stars, but they are finding it harder to train their understudies.

Added to this unsavory mix are fickle corporate clients. "Twenty to 25 years ago, big companies had relationships with law firms that went back through generations of general counsels, and they felt comfortable calling on big firms for all their matters," says Dallas' Mike McKool.

Those days are over. The prevailing ethos is summed up by James M. Shelger, general counsel and senior vice president of Houston-based Service Corp. International.

"We don't care if our litigators operate at a major global law firm, at a boutique, or out of a car," he says. "The emphasis is on finding capable, dedicated litigators."

In fact, corporations are now so selective that in some high-impact cases they are putting together litigation dream teams of superstars hand-picked from boutiques and big firms. A common approach is to pair the manpower and pretrial acumen of big firms with the courtroom expertise of boutique attorneys.

"What basically happens," Susman says, "is that a client comes to me and says, 'We have large firm "X" working on a case, but we just don't feel their No. 1 attorney is the right person to stand up in the courtroom. Would you be willing to get involved?' . . . I have had many cases where the second chairperson is . . . someone from a large firm." Large firms like these joint ventures, Susman says, because they can generate hourly fees with their pretrial labor and then pass off the responsibility of winning in court. And he likes it, he says, because he doesn't have to pull his own associates away from other matters, which can make them mad and irritate other partners, who might think Susman is hoarding associates.

But since he doesn't use associates in these joint ventures, and thus can't generate profits from billing their services, Susman says he needs a stake in the outcome to make it worth his while. He notes that Susman Godrey has teamed up with big firms in several matters, such as with Jones, Day, Reavis & Pogue in a 1995 antitrust case in Galveston and with Jenkens & Gilchrist in a pending intellectual property matter in Dallas.

Joint ventures are especially common in patent disputes, Susman says, because companies will spend what it takes to protect their intellectual property. And that can mean teaming an intellectual property section of a big firm, which has the technical know-how, with a crack trial attorney, who can speak plain English to a judge and jury. To an intellectual property attorney, a patent case is about whether a patent has been infringed, but to a trial attorney, it is a matter of corporate theft, says Houston's David Beck, explaining the perspective he brings to such cases. Beck notes that his boutique regularly teams with big firms on major suits.

Teaming usually begins early in a case. But occasionally, joint ventures can resemble the English solicitor/barrister model, with big firms cast as solicitors, working a case up until the eve of trial and then handing it off to boutique barristers.

Houston's Randy McClanahan says he loves playing the barrister role. "I like to take cases late in the game because if all the discovery has been done already, I'm not burdened by it."

And McClanahan notes he is being called upon later and later in the game. "There have been several cases where I have been called in as little as weeks before trial to go try a case and see if I can get a $10 million or $20 million result."

For big firms, these teaming arrangements would seem to pose a menacing question: Have they become marginalized in today's commercial litigation marketplace, sought after merely for their expertise in preparing cases?

Houston trial specialist William Fred Hagans, a former Bracewell & Patterson partner and now head of the commercial trial boutique Hagans & Bobb, offers this glum assessment: "Most of what big firms do is litigation and they can train litigators by the thousands. For those cases that need to be tried, that's why there are people like me or David Beck or Robin Gibbs."

Most of the boutique attorneys polled by Texas Lawyer, however, say they are not about to write big firms off. Susman offers a characteristic response. "Big firms will continue to get major lawsuits, and they will continue to have people to try those lawsuits."

Still, the days of trial attorneys taking the plunge to boutiques are probably here to stay. As long as there are lucrative paydays to be had, the future Susmans of the world will break their big-firm shackles and set off in pursuit of commercial litigation booty. And if Mark Lanier has his way, those paydays will become even more alluring. "File this in your records," he boasts. "Within the next five years I will top the Penzoil $11 billion verdict."

The Litigation Seals

If big firms are the Red Army of commercial litigation, Mike Lynn likens trial boutiques to Navy SEALS - small, but highly skilled and highly efficient.

"Large does not equal good. It's not true in restaurants, basketball teams or law firms."

Lynn, head of commercial litigation boutique Lynn Stodghill Melsheimer & Tillotson, is quick to credit Stephen D. Susman of Houston's Susman Godfrey with demonstrating that trial boutiques could do more with less by hiring the "very best people." And boutiques like Lynn Stodghill, which often must win to get paid, have a very particular notion about who's the "very best."

"If you are in a pick-up basketball game and you need to win to win a side bet on the outcome of the game," Lynn says, "you will pick people who will be able to win, not people who can . . . dribble the ball quickly."

To Lynn, the winners are trial lawyers, not litigators, those fast dribbling masters of the pretrial discovery period who can generate reams of paper but little in the way of results. "I don't care if an associate works a lot of hours. I want to know if he can work well with judges and juries."

To find these skilled associates, Lynn looks everywhere, including big firms.

"We seriously try to cherry-pick those persons who . . . have the best chance of becoming trial lawyers from the best firms in Dallas." Trial lawyers are a commodity at Lynn Stodghill not only because they can win in court, but because they are quick in getting the case moved. Firm partner Tom Melsheimer says that trial attorneys, unlike litigators, realize that a case must be reduced to a simple, compelling theme to interest a jury, so they don't get bogged down in irrelevant, pretrial minutiae.

This sort of efficiency is a matter of economic necessity to the Susman-brand of elite boutique that handles complex commercial cases on a contingent-fee basis. And the master of efficiency, according to Melsheimer, is none other than Susman.

"He can take a two-hour deposition of the most significant guy in a case," says Melsheimer. "A four-day deposition is an anathema to Susman."

The Next Generation

As big firms struggle to keep pace with boutiques in the increasingly competitive commercial litigation trial marketplace, they will look to their next generation of trial attorneys for support. And that could pose a problem.

Many of Texas' big defense firms historically carried a sizable docket of low-dollar insurance cases, such as fender-benders or slip-and-falls, which were excellent trial-training vehicles. The norm for this sort of case is to pick up a file on Monday and try it on Tuesday, since the amount at issue usually doesn't justify much pretrial posturing.

"When I started at Fulbright & Jaworski 30-plus years ago," says Houston's Tom McDade, "we went to court all the time trying five, six, seven thousand dollar cases."

James B. Sales, head of Fulbright & Jaworski's litigation department, also came of age at this time. "There were some weeks that I tried two cases to a jury verdict. . . . There wasn't a lot of discovery into circumstances."

Starting in the early to mid-1990s, though, increased competition for low-dollar insurance cases priced many big firms out of the market. Sales admits as much and says the future of big firms is with complex commercial cases. And that could spell trouble for big firms. "What I have found is that not having the stable of cases to cut your teeth on is depriving the big firms of experienced trial lawyers," McDade observes. "At big firms, there are increasingly litigation attorneys who know how to bate stamp and file a good motion for summary judgment and that is about it."

But big firms insist they haven't lost a step. "It is harder to get our young lawyers trial experience today than it was 10 years ago," concedes John H. Martin, head of litigation at Dallas' Thompson & Knight. But he says his firm is rising to the challenge by reducing its fees to retain a docket of low-dollar insurance cases, which are assigned to first- and second-year associates on a voluntary basis. Other firms are addressing the challenge by stepping up their training programs. "We have a more intensive training program. Years ago, we didn't have to do that," says Dallas' Ernest R. Higginbotham, head of Strasburger & Price's business litigation section.

Martin notes that litigation associates are required to attend a weeklong trial advocacy course before they can be considered for shareholder.

But Dallas boutique attorney Tom Melsheimer, who used to be with Akin, Gump, Straus, Hauer & Feld, is dubious about mock trial programs. "Do you want a fighter pilot who has tested more planes that he has flown in battle?"