Business & Practice

How Two Men Started a Law Firm After a Trip to Fire Island

April 21, 2016, 8:50 PM

Editor’s Note: This is the first of a two-part series on Dickstein Shapiro.

On the last page of his memoir, Sidney Dickstein, founding partner of the now defunct law firm Dickstein Shapiro, reserved space to vent about a pressing issue for law firms.

As Dickstein saw it, big firm lawyers were too focused on profitability, and he singled out one person for driving this trend.

“I am convinced that Steve Brill, the creator and publisher of The American Lawyer … has been the figure of greatest influence on the profession – an evil influence,” Dickstein wrote. Brill’s magazine and its reporting on law firms’ profits, had “led the profession into thinking that it’s all about money.”

Dickstein published his memoir in 2000, and passed away at age 89 in 2014, but his concerns sound prescient in light of his own firm’s dissolution in February. Looking back, the story of Dickstein Shapiro is one about a firm that experienced decades of accelerating growth, followed by rapid contraction.

Founded in the 1950s as a boutique labor firm, it didn’t embark on growth until the 1970s: Following the winds that swept the entire legal industry at that time, Dickstein Shapiro started building out more practice groups to meet clients demands for a full-service firm. That started a roughly four-decade growth spurt that hit its peak in 2010 when the firm emerged as a 400-plus lawyer powerhouse with offices on both coasts.

Just six years later, this winter, only around 100 or so lawyers remained at the firm — the other 75 percent were gone.

“There was this pot of gold they were hoping to get.” — Steven Weisburd, IP Partner

In part, the recession planted the seeds of the firm’s undoing: As demand for legal services slowed, the firm struggled to find sufficient revenue to support its growth. The firm was also burned when two major patent victories, that were handled on a contingency basis, were overturned.

“The total recovery for the firm would have been well over $100 million,” said Steven Weisburd, formerly an IP partner at Dickstein told Big Law Business earlier this year. “If the firm had won on appeal, the firm would have done very well, but the firm put a lot of attorney asset time into those cases. Indeed, a lot of people who might have thought of leaving may have stayed because there was this pot of gold they were hoping to get.”

Another factor was the well-oiled lateral market, which enabled partners to easily jump ship. Toward the end, firm leadership even helped some partners out the door, in a strategic shift to convert Dickstein Shapiro to a focused, specialized firm — which also helped make it a more attractive merger partner.

Instead of a merger, its Philadelphia-headquartered competitor Blank Rome acquired Dickstein Shapiro’s 106 lawyers in New York and Washington, D.C. in February.

Former Dickstein Chairman Jim Kelly discussed the firm’s demise with Big Law Business in February. In that interview, Kelly portrayed the acquisition by Blank Rome as a strategic move after it became clear that “sustained growth would be a challenge” for the firm. He said media portrayals cast the firm in an unfairly negative light.

“The perception bore little or no resemblance to what was happening at the firm, relative to our underlying business fundamentals and our performance,” said Kelly.

The comments echoed Dickstein’s criticism of Steve Brill and The American Lawyer 15 years earlier. (Brill would have none of it.) “If you’re a journalist, you believe in your core that more information is better,” Brill said, adding that law firms determine their own fate. “It depends on how lawyers react to the information... It’s the firm’s decision.”

Although Dickstein Shapiro has dissolved, it leaves behind ongoing real estate leases and unreturned partner capital contributions, the hangover from its go-go growth days.

“One consequence of the firm’s dissolution will be the almost certain loss of all firm capital for current and former partners alike,” a letter to former partners dated Feb. 11 stated.

Bruce MacEwen, an industry consultant, said the arms race in the lateral hiring market and the shifts in demand for legal services after the financial crisis created strong headwinds for many law firms, some of which persist even years later.

“We’re going to see a lot more of this,” said MacEwen. “Firms don’t have to do much wrong before some nervous partners will get rattled and if this spins out of control, far too often the firm finds itself in desperate straits.”

Below is a chronological account of the firm’s trajectory including pivotal events and colorful moments. The information is drawn from original reporting, as well excerpts from Bloomberg News, The New York Times, The Washington Post, Dickstein’s memoirAdventures in the Law:1947-2000 and blogs such as Above the Law and other sources.

The Beginnings

In the summer of 1953, Sidney Dickstein, 28, and David Shapiro, 25, were sitting on a beach on Fire Island when a swimmer approached. Somehow sensing the two men were lawyers, he explained he had just received a summons for indecent exposure.

Shapiro took the case for a $300 fee. It was Dickstein Shapiro’s first client.

In fact, the two men had retreated to the beach off the south shore of New York’s Long Island to discuss striking out together with a $2,500 loan from Shapiro’s father.

The men knew each other from growing up on Manhattan’s Upper West Side and became friends while attending the same bar review course. Both men were working at small firms, but counted a slate of New York City’s most powerful unions, such as theater workers and bakers, as clients.

From the start, Dickstein Shapiro was characterized by its willingness to take on high-risk cases, often on the plaintiff’s side, that thrust the firm into the national headlines.

In 1956, the firm moved its headquarters from New York City’s Empire State Building, to Washington, D.C. so it could take on all forty of the nation’s railroads on claims they were violating the Sherman Act. Neither Dickstein, nor Shapiro, had any previous antitrust experience, not even classes in law school. Litigating the case, Dickstein and Shapiro made a name for themselves in Washington.

The cases weren’t always high reward either.

When the founder of the American Nazi Party, George Lincoln Rockwell, who sometimes appeared in full Nazi uniform, found his right to distribute Nazi propaganda in downtown Washington, D.C. under attack, Shapiro stepped up. In 1960, he represented Rockwell pro bono making a First Amendment defense.

“As distasteful as I found the literature in this case, I find even more distasteful any attempt to prevent its distribution,” he said at the time .

[caption id="attachment_13059" align="alignnone” width="600"][Image “David Shapiro (Courtesy)” (src=https://bol.bna.com/wp-content/uploads/2016/04/David-Shapiro-in-house-e1461252529261.jpg)]David Shapiro (Courtesy)[/caption]

Shapiro achieved stardom, however, as a class-action pioneer.

In 1969, he negotiated a $120 million settlement with lawyers for Pfizer, Bristol-Myers and other large pharmaceutical on claims they had rigged the price of the broadly used antibiotic, tetracycline. The case also established the concept of “fluid class recovery” where if a plaintiff does not have record of purchase, the recovery goes to a cause consistent with case mission.

“Representing clients on a contingent fee basis was part of the firm’s DNA,” said former partner Ken Adams, of the firms’ antitrust victories in the 1960s and 1970s on behalf of consumers. (Notably, the Supreme Court put a stop to many of these types of cases in the 1977Illinois Brickdecision, which limited recovery to direct purchasers).

The payout from the tetracycline case and others provided the firm with the financial means to propel it from a 15-lawyer firm into a national law firm.

Check back at Big Law Business for Part II of Dickstein’s story.

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