The most heavily lawyered state in the US is a tough market to crack, but magic circle firms in particular are making inroads. Marialuisa Taddia reports.
New York City is where US president-elect Donald Trump began his career as a real estate developer in the mid-1970s, stamping his name in gold on many of the city’s prominent buildings and thereby playing a part in transforming the then near-bankrupt metropolis into a city for the rich.
With more than 175,000 attorneys, New York has the highest concentration of lawyers of any US state and leads in a domestic legal market estimated to be worth more than $430bn. Some of the biggest (and wealthiest) US outfits hail from Manhattan, among them Cravath, Swaine & Moore; Skadden; Davis Polk; and Sullivan & Cromwell. Firms based in the US’s biggest city set the market for US-qualified associate salaries, and New York law is increasingly used in cross-border deals.
But as Law Society head of strategic relationships Stephen Denyer says: ‘It is a tough market for any firm from any jurisdiction. It is heavily lawyered, so nobody can go to New York cold and have instant success. It rewards consistent effort over a long time.’
English firms have arguably had less success in the Big Apple (and the US generally) than US rivals in London, where in recent years they have been winning market share from their British counterparts.
Denyer, who spent nearly four decades at magic circle firm Allen & Overy (A&O) before joining the Law Society, argues that for non-domestic outfits New York is a tougher jurisdiction than London. ‘[London is] a more global centre. New York is in the world’s biggest economy, and so a higher percentage of the business done from New York is purely US, compared to London where a relatively low percentage of the business done here is purely English,’ he says.
There are signs that ‘consistent effort’ is beginning to pay off. Magic circle firms, including A&O, Clifford Chance and Linklaters, have been in New York for three decades or more, although it was not until the early 2000s that they began to step up a gear. Clifford Chance, for example, merged with Manhattan firm Rogers & Wells in 2000.
Although in New York they remain smaller than US rivals, magic circle firms have been bulking up with lateral hires, particularly over the past year. UK-based specialist outfits are also reaping benefits from their US strategies.
New York is one of the top three financial centres in the world (with Hong Kong and London), so there is an emphasis by firms on finance and capital markets.
Poaching from White & Case, Proskauer Rose and Milbank, Tweed, Hadley & McCloy, in September A&O added a five-partner banking and finance team in New York led by senior leveraged finance partner Scott Zemser.
US managing partner David Krischer says: ‘The leveraged finance group allows us to develop a profitable and market-leading practice in the US, and also to preserve and strengthen our position in the European- and Asian-leveraged finance markets.’
A&O is harnessing its capability on both sides of the Atlantic. ‘The US and European leveraged finance markets are no longer separate pools of liquidity but are increasingly used to finance transactions outside of their home markets,’ Krischer says. ‘Investors are increasingly looking across both markets, to raise finance and look for legal counsel who can credibly execute all of the different financing products, whether under English or New York law.’
A&O has added 13 new US partners in the past two years, bringing the total to 44, plus 121 associates. The new recruits also reflect expansion in other disciplines, including financial services litigation and regulatory, M&A, antitrust, real estate and sanctions. Krischer says: ‘The growth in these areas is due to a combination of strong market conditions, increased globalisation of work and the growing importance of US law globally.’
Out of New York, A&O recently advised Coca-Cola on its three-way $27bn merger with NYSE-listed Coca-Cola Enterprises and Germany’s Coca-Cola Erfrischungsgetränke to form Coca-Cola European Partners.
Linklaters has bolstered its New York practice with the high-profile hires of Baker & McKenzie’s white-collar practice group chair Doug Tween to lead the firm’s US cartel and government investigations practice, and Margot Schonholtz, who joined Linklaters’ restructuring and insolvency practice as a partner from Willkie Farr & Gallagher. Scott Bowie, who heads Linklaters’ global US practice, says: ‘As US law, in the context of increasingly complex regulation, is progressively shaping and governing cross-border transactions and disputes, building a strong and global US platform is integral to our strategy. As this demand increases, more of our clients are looking at US law capability when choosing legal counsel.’
New York is firmly on the radar of Clifford Chance. With 300 lawyers in the Americas, including 225 in New York, it is the biggest magic circle firm in the city. The region represents close to 15% of the firm’s revenues (£1.39bn for the year ended 30 April 2016), a proportion Clifford Chance aims to raise to 20% over the next five years, according to US regional manager Evan Cohen.
Since the start of 2016, the New York office has attracted a handful of partners from US firms and law enforcement agencies, including financial restructuring partner Doug Deutsch (from Chadbourne & Parke); real estate partner Eddie Frastai (Dentons); former chief counsel to the chair of the SEC Robert Rice (Ropes & Gray); and Dan Silver from the US Attorney’s Office for the Eastern District of New York. Despite the new hires, Cohen says the firm is ‘still small’ in the US compared with many of its peers.
He says more lateral hires will be made before the end of the year. ‘There is unrest and uncertainty among partners at many [mid-size] US firms as to what the future looks like, and they are looking at a firm like Clifford Chance, [which is] very strong financially, with a global reputation.’
Cohen contrasts the firm’s seniority-based lockstep system with the ‘eat-what-you-kill culture’ of many US firms that contributed to the notorious implosions of Dewey & LeBoeuf in 2012 and Bingham McCutchen in 2014. ‘We are well-hedged, diversified and have a great collegiate environment,’ he says.
Last year Clifford Chance extended its lockstep ladder (from 100 to 130 points) to attract target recruits: ‘Now we have the flexibility to offer a little more but it is still a lockstep ladder that applies globally.’
Project and asset finance, corporate and M&A, and litigation have been the firm’s strongest performers in New York over the past 18 months. ‘We have been really focusing on growing our [disciplines] where we have areas of strength,’ Cohen says, pointing to Clifford Chance’s cross-border capability.
Brazil’s Lava Jato corruption scandal which engulfed senior politicians and most major Brazilian construction and oil and gas companies, has brought in work not just for the firm’s São Paulo office, but also its New York-based financial restructuring and bankruptcy experts, who are advising Brazilian businesses with assets in the US that have been affected.
In corporate, notable recent mandates include advising Coca-Cola Companies and Mexico’s Coca-Cola FEMSA on their $580m joint acquisition of Unilever’s AdeS Alimentos de Soja; and the key shareholders of Anheuser-Busch InBev on the financing aspects of the Belgian brewer’s takeover of Britain’s SAB Miller plc, announced in November 2015. The firm’s US tax team, working with colleagues in London and Brussels, developed a structure that cleared the way for a deal valued at more than $100bn.
Lawyers in Clifford Chance’s New York office have also represented clients in multi-jurisdictional white collar cases, including acting for Autonomy founder Mike Lynch on Hewlett-Packard’s $5.1bn contested lawsuit against Autonomy’s founder; and for FIFA officials in the Department of Justice’s probe into alleged corruption.
As their London expansion shows, New York firms are increasingly global in their outlook, closing the gap on international reach that has been the hallmark of magic circle firms.
New York bar
The prospect of Brexit is increasing the lure of the New York bar for UK solicitors and students.
Aspiring US attorneys mostly work in the UK financial sector – either banking and finance teams at City firms or in-house legal departments of banks and financial institutions. Some are attracted by the greater importance US corporate firms accord litigation practices.
Law graduates this side of the Atlantic are also attracted to the New York bar because there is no training contract. The expansion of US firms in London is also driving some of that growth.
About 60% of people taking the New York bar exam are E&W-qualified solicitors or barristers seeking a dual qualification. The other 40% are paralegals who can’t break through the barrier to secure a training contract.
The exam is held over two consecutive days for six hours each day. Only 30% of all foreign-educated candidates passed February’s exam, according to the most recent statistics published by the New York State Board of Law Examiners.
Sarah Hutchinson (pictured), is managing director of London-based Barbri International, which prepares non-US law graduates and lawyers to sit the New York State Bar exam. She notes there was ‘a huge spike in interest’ after the EU referendum result: ‘People are trying to insure themselves against any concerns about London as a financial centre.’
She adds that the growing popularity of US law is also part of a generational shift: ‘There will be a continued rise in the number of law graduates who seek dual-qualification because they see themselves as global citizens and they want to work internationally.’
White & Case, which has more than 450 lawyers in the city, is representing China’s conglomerate Haier in its acquisition of GE’s appliance business; and Canada’s Fortis in its purchase of ITC Holdings, the US’s largest independent electric transmission company. The New York City-headquartered firm, which next year will move into new office space for the first time in 33 years to accommodate further growth, is also working on the out-of-court restructuring of Seadrill Ltd, an offshore oil and gas company.
‘New York has always been an intensely competitive market for law firms,’ says Jack Pace, executive partner of the firm’s New York office. ‘One way to really stand out from the pack is by being truly global.
‘M&A, and financial restructuring and bankruptcy practices are very strong,’ Pace says. ‘As cross-border activity becomes an increasingly [high] percentage of all M&A activity, and while the US is the most attractive environment for investment, the firm’s US and global strengths position us perfectly.’ White & Case ranked first by deal value for global M&A in the third quarter of 2016, advising on deals worth more than $420bn, according to Mergermarket.
Antitrust, international arbitration and bank finance are also performing well, Pace says, adding that there is ‘a heightened need for expertise in complex, cross-border matters’ as a result of ‘the ongoing globalisation of the economy and increasingly aggressive regulatory enforcement regimes.’
With 400 lawyers, including 111 partners, New York is the largest office of Los Angeles-based Latham & Watkins. Office managing partner Michèle Penzer says: ‘Our core strength in New York has always been the transactional side of the practice.’ Latham has advised on multi-billion-dollar deals, including Ares Capital on its $3.4bn acquisition of American Capital Ltd, announced in May. Latham’s global platform, with 19 offices outside the US, has helped it lure business to New York.
The contentious practice has also been expanding fast, particularly in antitrust, cybersecurity and data, and white-collar defence and investigations. Since the start of 2016 the firm’s New York office has hired a number of high-profile litigators, including Jonathan Lippman, who retired as chief judge of New York and chief judge of the New York Court of Appeals, the state’s highest court; and Serrin Turner, a former federal prosecutor and trial lawyer with experience of investigating complex cybercrime cases. A recent matter led out of the New York office is NML Capital Ltd v Republic of Argentina, in which the firm represented a group of global hedge funds in multijurisdictional litigation concerning sovereign bonds issued by the South American country.
New York is not just the financial heart of the US, it also acts as a conduit for innovation in the sector. ‘FinTech is a really hot new area of practice,’ Penzer says. The FinTech division, based in New York, brings together the firm’s expertise in technology transactions, financial regulation and emerging companies, harnessing Latham’s presence in the main venture capital markets in the US, including Silicon Valley and Southern California. Notable recent mandates include advising Credit Suisse on its joint venture with Silicon Valley company Palantir Technologies to create Signac, which identifies unauthorised trading in financial services by using big data analytic tools.
Another important feature of the New York market is tight focus. ‘It is a jurisdiction that rewards specialisation,’ Denyer says. ‘You are much more likely to succeed if you have a specific range of practices and target clients, rather than some other jurisdictions where maybe you can have a broader push.’
Clyde & Co opened its first US office in New York in 2006 and now has nearly 50 lawyers, out of a total 160 across the US. ‘We are an intensely insurance-focused group,’ says New York managing partner Michael Knoerzer. In New York, the UK-based firm has added five partners in the past two years to build capacity in corporate and regulatory insurance, and other specialised lines of insurance such as fine art and specie. ‘We are also building what we expect will become the leading insurer-driven asbestos defence practice in the US,’ Knoerzer says. The London-based firm also has offices in San Francisco, Miami, Los Angeles and New Jersey.
In New York, Clyde’s busiest practice areas include financial institutions and director and officer liability insurance cases; first-party cyber-risk insurance; corporate (Clyde recently acted for Bermuda’s Arch Capital on its $3.4bn acquisition of Britain’s AIG’s mortgage insurance business); and regulatory compliance, particularly Office of Foreign Assets Control and other sanctions work.
So how have New York-based lawyers responded to developments this side of the Atlantic, in particular the EU referendum vote? Sir Jon Cunliffe, the deputy Governor of the Bank of England, warned last month that New York was more likely than other European financial centres to be the beneficiary.
‘We are seeing an ever growing interest from insurers to deploy their capital in the relatively safe and relatively recovering US markets,’ Knoerzer says. The US economy expanded an annualised 1.4% in the three months to June 2016, the strongest expansion in three quarters, although this was well below expectations. The IMF forecasts that growth will slow to 1.6% this year, down from 2.6% in 2015.
In the post-Brexit environment, it helps to have outposts in both London and New York. ‘A lot of our clients are looking to the US, perhaps as a bastion of stability,’ Cohen says, adding that there was also interest from US clients in UK assets because of the weaker pound and that helped drive additional work into the US.
Might Brexit challenge the primacy of English law as the governing law for international commercial transactions in favour of New York law?
‘English law provides greater certainty,’ says Denyer. ‘We have got more consistent lines of judgment on the key issues around contract and enforceability. This is partly because we are a single jurisdiction, whereas the New York courts only go up to a certain level and then you go to the US Supreme Court, [which] is a very political institution. So you have a significantly greater risk if you opt for New York law that the law will turn out not as you thought it would when you started.’ There are other risks, including ‘quite extreme awards of damages’ and ‘a larger percentage of matters that get settled with a jury’, he adds.
Leaving the EU will have no impact on English commercial contract law, which has not been affected by EU regulation, Denyer argues. He adds: ‘Brexit is not an issue. It’s more around the appetite of financial institutions in particular to choose English law or New York law, because those that are providing the financing often can determine the governing law.
‘We still have a number of competitive advantages over New York law, but we mustn’t be complacent.’
New York sets the international bar for associate pay. In June, Manhattan-based Cravath, Swaine & Moore increased salaries for first-year associates (corresponding to newly qualified here) from $160,000 to $180,000. The new salary scale progresses to eighth-year associates who receive $315,000. The last increase was before the recession in 2007. Latham & Watkins, White & Case, Clifford Chance and A&O have matched the pay increase.
Indeed, while in the UK magic circle firms pay similar but not exactly the same salaries as rivals, in New York associate compensation at the top firms – foreign or domestic – is the same. Cohen says: ‘In New York the top firms all pay $180,000 and then it goes up every year on the exact same scale. Bonuses are also on a scale and everyone matches it.’ Associate bonuses start at $15,000, progressing to $100,000.
Most major firms are understood to apply the new rates to US-qualified associates in other main legal hubs in the country, and even internationally. Latham, for example, says it increased first year associate base compensation to $180,000 in the US, London and other international markets. At A&O the scale applies to London-based associates who are US-qualified and practise US law, while ‘all US lawyers around the world’ at Clifford Chance are paid according to dollar salary scale.
The pay rise comes amid one of the biggest challenges for New York firms, which is, as Cohen puts it: ‘Bringing in associates and keeping them long-term.’ The cost of living, including rents, has risen significantly in New York recently, and so has the debt burden for law school graduates, due in part to rising tuition fees and health insurance costs.
Marialuisa Taddia is a freelance journalist