Quinn Emanuel’s no-frills, high-end approach to law has re-written the rules on what US advisers can achieve in London after a startling run of growth. Legal Business asks how the iconoclastic disputes shop does it.
It’s the day after Quinn Emanuel Urquhart & Sullivan has moved into its new London office at Fleet Place and boxes bursting with paperwork still occupy the small reception hall. There is no fancy artwork on these walls, nor much in the way of hi-tech gadgets; everything is basic, minimal, functional. On entering the interview room, tap water is offered and greetings take place with London co-managing partner Richard East and former Allen & Overy (A&O) arbitration partner Stephen Jagusch – last year’s star UK signing – the latter dressed in jeans.
The only thing disturbing the image of informal, no-frills productivity is a huge television screen occupying one side of the room that Legal Business is ushered into. It’s incongruous enough that the pair look slightly uncomfortable, muttering that the epic flat-screen must have been left behind by previous tenants as if Quinn Emanuel needs to apologise for such largesse.
But make no mistake: this firm is not short of funds in its home market or its five-year old City arm. Quinn Emanuel’s London office turnover increased by 28% to £27.5m in 2012, while profits came in at £18.6m, a 68% profit margin. The figures follow 2011’s equally startling results when London revenues rocketed by 75.8% to hit £21.8m – against £12.4m in 2010 – with profit margins of 67.9%.
2011 was something of a one-off year. The firm was involved in two of the biggest cases of the year (Deripaska and Coroin), and overall was involved in five trials. Nevertheless, the firm’s profit margin has been consistent. Average profit per partner in the UK stood at just over £2.5m last year, making it one of the most profitable legal practices in London.
This performance is arguably without real precedent in the context of 15 years of American firms attempting to break into the City legal market. While many storied US advisers have come to the Square Mile touting ambitious growth plans, most have found the market far, far harder to crack than expected.
And even when US firms have materially increased their UK revenues, such performances have typically been achieved via heavy and expensive investment, meaning London offices have often failed to get near the profitability achieved in the US.
Of course, Quinn Emanuel’s London ambitions have been aided by the equally striking rise of its US parent on the global stage. As a pioneering disputes-focused firm, the Los Angeles-bred super boutique has, in not much more than a quarter of a century, stormed into the Global 100 on the back of surging growth, along the way achieving profitability supposedly the preserve of the most prestigious Wall Street advisers.
The 650-lawyer firm’s rise has already had a profound impact on the global legal market, challenging many assumptions about the place of litigation in the model of commercial law. The question on the minds of many rivals, on both sides of the Atlantic, is: how has the firm managed these achievements? How sustainable is such growth? And can it be copied?
Riding the wave
It would be wrong to say Quinn Emanuel didn’t carry a significant weight of expectation when in April 2008 it announced plans for a City launch. Despite having had little international profile only a few years previously, the firm’s rapid rise, unusual focus on litigation and sheer audacity had been creating something of a buzz among litigators for a while (see box, ‘When Eight Figures Won’t Do’, page 50).
Following a two-year search for the right partner, the firm found its man in Kirkland & Ellis restructuring litigator Richard East. Quinn Emanuel’s recruitment process was swift, surprising Weil, Gotshal & Manges, which was so convinced it had secured East’s services it had voted on his arrival. Sue Prevezer QC joined soon after from Bingham McCutchen and the pair co-managed the London practice, initially based in 16 Old Bailey.
Within the first month of opening, litigator Marc Becker, previously at Munger Tolles & Olson, transferred from the firm’s Californian base to join the UK office and has stayed there ever since. Three associates were hired soon after – Matthew Bunting, who made partner in 2011, Audrius Zakarauskas, who became partner in December 2012, and Lucy Pert, who is now of counsel.
Prevezer comments: ‘We opened at the right time and had the brand of Quinn Emanuel behind us. We had phenomenal support from the US and John Quinn [the firm’s high-profile founder and managing partner] spent a lot of time here. We were also trusted by the Magic Circle, US and other law firms for referrals from day one, which really assisted us and still does.’
The plan was to tailor the model used in the US to fit London’s unique litigation scene and establish a UK practice in its own right rather than to service US-driven work.
Quinn Emanuel had other quirks that were relevant to its initial success in Europe. Aside from a general focus on litigation, the firm has developed two primary specialisms: financial services disputes and intellectual property (IP) litigation, both areas that were going through a boom in Europe (though it has avoided a push in IP in the City).
Other aspects of its model were well suited to a City market that had previously proved inhospitable to most American invaders. For one, the firm’s reputation for using contingency fees gave it an edge. For years, the UK’s model of success fees – conditional fee agreements (CFAs) – had been confined to low value, high volume disputes such as personal injury work.
But by the time of Quinn Emanuel’s launch, a growing band of City litigators were beginning to experiment with CFAs in commercial litigation, typically partial CFAs that allowed for some cash flow with the possibility of a significant upside. As such, Quinn Emanuel’s much-touted experience and cultural affinity for alternative fees was a clear sell to an increasingly receptive audience.
The firm uses a wide range of alternative billing models, often combining some element of hourly billing, with fixed or capped billing and contingency fees that provide an uplift if the firm secures a result for the client. And unlike many rivals, Quinn Emanuel is also ready to provide such models when acting for defendants as well as claimants. Though some claims regarding the firm’s use of contingency fees are exaggerated – well over half of its work is undertaken on hourly-based billing – such deals do allow it to receive some very considerable ‘windfalls’.
Even more compelling at first was the firm’s willingness to pursue cases against major financial institutions and accounting groups. For years, the emergence in the City of large firms with broad-ranging finance practices meant it had become increasingly impossible to find a top-50 UK law firm that would risk missing out on lucrative mandates or referrals by taking a case against a major bank. While a handful of law firms had aimed to differentiate themselves by flagging their willingness to litigate against banks – notably Richards Butler (pre Reed Smith) – the inherent problems of taking on such work meant that no outfit had made a success of it.
In the US, Quinn Emanuel’s willingness to pursue cases against banks had proved a means of advertising its litigation-only model. But with a large plaintiff Bar and more firms willing to tackle the banks in the US, this stance was a useful selling point but no game-changer in its home turf. In contrast, launching in the City in 2008 just months before Lehman Brothers’ market-shaking collapse was to compellingly position Quinn Emanuel in a niche that was about to take off.
‘I remember knocking on the door of every law firm and asking for any bank cases they couldn’t represent. The aim was to be on the other side of every top banking litigation case,’ says East.
Taken collectively, these points of differentiation illustrate one obvious reason for the firm’s City success. The last 20 years have repeatedly demonstrated that law firms have more success entering ultra-competitive markets like Manhattan and London when they focus on a lucrative niche for which the firm has a commanding reputation. With a very clearly defined position, there was no firm better placed than Quinn Emanuel to make ground in the Square Mile.
Thanks to Prevezer’s and East’s healthy contacts, the firm also received a lot of referral work from prominent firms, including Clifford Chance, Linklaters, Ashurst and Kirkland, especially on finance-related work.
The firm quickly raised its profile by winning instructions on a run of high-profile cases, including the Re Sigma Finance Corporation – a ‘credit crunch’ case involving the collapse of a structured investment vehicle, which the firm won in the UK Supreme Court. Prevezer, as counsel alongside Brick Court’s Jonathan Sumption QC, also in 2009 secured a decision in the Court of Appeal favouring HSH Nordbank in its $275m claim against UBS.
‘We opened at the right time and had
the brand of Quinn Emanuel behind us.’
Sue Prevezer QC, Quinn Emanuel
Having attracted major cases while still keeping its costs and headcount low, the firm very quickly achieved significant profitability. Limited liability partnership accounts for its first full financial year in the UK show that it achieved a turnover of £7.6m in 2009, with profits of £5.7m, a 75% profit margin in London. The highest paid earner took home £1.48m.
In 2010, the firm also received a boost when East was instructed by creditors on the £1.75bn restructuring of telephone directory company European Directories, one of the most complex workouts in Europe that year. The same year Russian businessman Oleg Deripaska instructed Prevezer in what was to prove a mammoth dispute over holdings in Russian aluminium company Rusal (see box, ‘Three of the best’, page 49).
If initial headline work was a boon, Quinn Emanuel was also able to use its dispute focus and sky-high profits as a means of attracting senior litigators at major City firms who had grown increasingly dissatisfied with being dictated to by their counterparts in corporate and banking.
The firm moved to expand in May 2010, hiring commercial litigator Alex Gerbi from Olswang and finance litigator Robert Hickmott, who jumped ship from CMS Cameron McKenna the following month. At the start of 2011, Olswang’s litigation head Martin Davies joined fellow litigator Gerbi as Quinn Emanuel’s sixth London partner.
The London office grew to seven partners by March 2012, and recently expanded to ten partners and 27 lawyers, following the recruitment last spring of A&O partners Anthony Sinclair and Jagusch, part of a major push into arbitration.
Three of the best: major UK mandates for Quinn Emanuel
The European Directories restructuring
In 2010, Quinn Emanuel Urquhart & Sullivan co-managing partner Richard East represented the junior lenders in a £1.75bn complex restructuring hearing against the telephone directory company European Directories. The case involved security trustee Barclays Bank and senior lenders, including Lloyds Banking Group, The Royal Bank of Scotland and Allied Irish Bank.
Quinn Emanuel’s clients – HHY Luxembourg and AMP Capital Investors – had sought to challenge a restructuring plan put forward by the senior lenders that would have wiped out their interests. After winning the case at first instance in the High Court, the decision was overturned later on appeal. East says this case shows the determination of Quinn Emanuel’s litigation lawyers.
‘We took on a case and went against key players like Allen & Overy, Linklaters and Kirkland [& Ellis], which shows how serious we were about ramping up the type of cases we represented. In the end, we lost, but I think it showed our willingness and set us apart from the market,’ he says.
Oleg Deripaska v Michael Cherney
Sue Prevezer QC represented Russian entrepreneur and investor Oleg Deripaska in a High Court litigation against former business partner Michael Cherney, who alleged Deripaska withheld a 20% stake in the world’s largest aluminium company Rusal. After two and a half years of court proceedings, the dispute was settled in September, just days before going back to trial. The case – one of the largest claims to ever go through the High Court – was a major driver of Quinn Emanuel’s UK revenues in 2012.
Derek Quinlan v Patrick McKillen
East acted for the Irish real estate businessman Derek Quinlan who was being sued over a shareholder dispute concerning the ownership and control of Coroin Limited. Businessman Patrick McKillen sued Quinlan in a High Court action over the control of London-based hotels The Berkeley, The Connaught and Claridge’s. The firm secured victory for Quinlan when judgment was handed down in August 2012.
Without the burden of costs
As obvious as the appeal of big cases and high profits are in terms of building a practice, Quinn Emanuel’s success arguably owes as much to the singular position it has carved out in the global market.
One of the interesting aspects of the firm’s model is that it unusually combines elements of claimant and defendant firms. In essence, the firm is famed for tapping into the entrepreneurial drive of the classic US trial firm but often applying the model in the context of a corporate law firm.
‘We don’t have the burden of high costs that full-service firms have. We keep all our resources down to a minimum – essentially, we are a no-frills firm,’ says East. ‘We don’t want our clients to pay for lavish offices or fancy art, we just want to win cases.’
This approach means keeping infrastructure and costs as low as possible. There are no secretaries – paralegals being a cheaper option – the team is small, but charges Magic Circle rates, and heavily depends on contract lawyers and paralegals during big cases. Quinn Emanuel brought in 46 paralegals to work on the Deripaska litigation, around twice the size of its permanent team in London at the time.
Though comparable to the deployment of contract lawyers in big-ticket US litigation, this approach has been criticised by City rivals. ‘They bring in masses of contract lawyers when the going gets tough and send them packing once work is done,’ says one City litigator. ‘While this is great for the firm’s top line, it is not ideal for organic growth.’
In response, Prevezer says buying in temporary skills is a logical step where large cases require huge disclosure exercises or the need for multi-lingual lawyers; for example, the firm required Russian, Hebrew and Spanish speakers during the Deripaska litigation. Prevezer argues that there is a pool of high-quality paralegals for the firm to tap into.
Quinn Emanuel has no debt. The office is run on a strict cash-in cash-out basis, with yearly profits being paid out of the same year’s pot. ‘We are very good at collecting fee payments and both our collection and billable rates are high,’ says East.
The paralegal issue taps into a wider question rivals raise about how sustainable the firm’s success is. Some peers also argue that the office is over-reliant on a handful of major cases and that the firm has ridden a wave of finance-related disputes, which are set to subside.
There is probably something to this point, with the firm – which had initially projected even higher revenues in London for 2012 – seeing a number of major cases concluding last year, including the mammoth Deripaska dispute, leaving a substantial hole to fill.
One rival litigator at a City firm comments: ‘Quinn’s model is only going to carry the firm so far. It is a self-limiting approach. If the firm is not doing any other work for the client then it’s very much exposed to that one particular market. In the future, this will turn against the firm.’
Dechert litigation partner Antony Dutton takes a more positive view of the firm’s prospects. He comments: ‘What would have once been considered as a short life span seems to be quite a sustainable business cycle for the next decade. Whether it’s Quinn’s model, which is more particular, the market for contentious services is so strong today, that… the prospects are robust.’
It should also be remembered that the firm has moved to broaden its practice within the field of contentious work in recent years. John Quinn says: ‘Suing banks is a part of our practice and we fill a gap in the London market, but this has been overstated.’
East adds: ‘Bringing litigation to major banking institutions was only ever a short-to-medium plan to get up and running and make money and it was a great success. Show me any other US firm who made profit in its first year of operations. There are some US firms in London who never have. We agree the big US banking conflict work will run out eventually (or be priced down), but our long-term ambition is to be recognised as a leading disputes practice.’
This desire to stress the breadth of the practice does reflect both its expansion and the reality that the ‘will sue banks’ tag was always more a calling card than representative of its business. Aside from the aforementioned major work for Deripaska, the firm has frequently also advised banks, including in the UK handling instructions for Morgan Stanley. The firm was recently added to panels for investment bank UniCredit and ITV for litigation advice. Last year, Quinn Emanuel acted for UniCredit in a banking dispute worth around E80m against Barclays Capital in the Commercial Court.
East says he expects a continuing flow of finance and restructuring litigation work and growth in general commercial litigation from its corporate clients. He also expects work from Russian and Eastern Europe and a significant uptick in large-scale international arbitration.
The firm has also cultivated a solid position for restructuring work. But even more importantly, Quinn Emanuel has for the last two years been engaged in a firm-wide drive to build a serious international arbitration practice. Early evidence of that saw Quinn Emanuel launch in Russia in late 2011 with the hire of former Clifford Chance Moscow head Ivan Marisin and Vasily Kuznetsov. The firm has also made senior appointments in Washington DC and New York.
But arguably the most high-profile move was the announcement in May 2012 that A&O duo Jagusch and Sinclair were to join the firm. (Sinclair started in September, with Jagusch – A&O’s chair of international arbitration – joining in January). The firm estimates that nearly 40% of its UK work is now arbitration related.
Jagusch says the absence of conflicts, reduced management and the firm’s unrestrained entrepreneurialism is what attracted him to the role. ‘It’s very easy to get consumed by a large firm – to become just a cog in the machine. The intimate team at Quinn Emanuel was a major selling point,’ he says. ‘Decisions are made so quickly here. There is minimal fuss – it’s just straight business – even the process of hiring me was fast.’
With the firm launching in Paris in January after recruiting Shearman & Sterling arbitration specialist Philippe Pinsolle, the US firm has rapidly positioned itself in the key global arbitration hubs – belying the claim that it is a one-trick pony. The firm is also expected to launch a second branch in Asia this year, most likely in Singapore, which has emerged as Asia-Pacific’s leading arbitration hub.
The firm has, in addition, widened its international practice considerably since its London launch, building a well-regarded practice in Germany to support its patent litigation practice. The firm initially hit Europe’s largest economy with the launch in Mannheim in 2010 and in May 2012 announced plans to build a Hamburg practice after hiring Nadine Herrmann, the former head of A&O’s German IP group. Other international launches the firm has considered include Munich and Zurich, with Thomas Werlen, the former general counsel of pharma giant Novartis, who joined the firm last year, set to lead.
Jagusch comments: ‘We are building a premiere global international arbitration practice and expect further growth in Europe, Asia and the US. The sector focus is high-value, cutting-edge and bet-the-business disputes for which Quinn Emanuel is already the go-to firm in litigation.’
While Germany is a strong region for patent litigation, the firm has been keen to tap into the IP market in London for around two years now, but has struggled to find the right lawyers.
Another area that Quinn Emanuel is looking to develop its business in is contingency fees, with new rules set to come in this year under the Jackson review of civil litigation costs that will allow litigators for the first time to accept cases under damages-based agreements (DBAs).
While there is still much uncertainty regarding how the rules will work, many City litigators believe DBAs will dramatically increase the use of success fees in commercial litigation, allowing for a model closer to the US, where advisers can gain huge payouts by taking a cut of winnings.
Interest in DBAs has been fuelled by confirmation that the initially floated ceiling of 25% of damages has been raised to 50%, in theory providing huge incentives for litigators to cut such deals with clients. John Quinn comments: ‘I am very enthusiastic about the Jackson reforms. At least one-third of matters in the US has some contingent fee aspect. We have developed a lot of knowledge and experience in how these fees are structured and I look forward to using this in the UK.’
If Quinn Emanuel’s business model looks more stable on closer inspection than many rivals allow, a wider criticism is whether the firm has fostered a genuine partnership culture. One litigator at a City firm says he would reject an offer to join Quinn Emanuel because the firm lacks a partnership culture and needs to gain a balanced approach to business. Others maintain the firm is too aggressive, limiting its long-term relationships with many institutional clients. East responds: ‘Our clients want assertive lawyers and that is what we are. I am yet to meet a client who required a non-aggressive lawyer in litigation.’ The firm can also point to strong retention of partners both in the US and in its international offices as a sign of its ability to build a coherent business.
When eight figures won’t do: a very brief history of Quinn Emanuel
In many regards Quinn Emanuel Urquhart & Sullivan has done more to effectively upset the hierarchy in the US legal market since its launch in 1986 than any peer. In that time the Los Angeles-based firm has stormed into the US top 100 on the back of a singular style and blistering growth rates.
From the beginning, the firm rejected much of the received wisdom about the law firm model, being famed as much for its informal approach as its litigation focus. This self-consciously combative trial firm stuck out in many other regards under the watch of charismatic founder John Quinn, including making a point of cold calling potential clients. The firm was also known for its willingness to deploy aggressive contingency fee deals.
Though the firm was as comfortable defending corporates like IBM, Shell and General Motors as pursuing claimant work, it largely applied the lean, no frills model of the US plaintiff Bar to a larger canvas, quickly establishing itself among the leading trial firms in the US such as Boies, Schiller & Flexner; Paul, Weiss, Rifkind, Wharton & Garrison; and Jones Day.
This reputation was reinforced by a successful push into New York as the firm expanded beyond its West Coast heartland in the early 2000s ahead of its rapid international roll-out.
Overall the stance is well illustrated by a marketing pitch the firm used to run stating that Quinn Emanuel is the go-to firm ‘when an eight-figure verdict simply won’t do’. Neither has the approach softened with a recent submission from the firm to Legal Business distilling its litigation-only pitch to its core: ‘Quinn Emanuel does one thing and does it better than all the others’.
Financial results for the 2012 year underline the extent of its clout with revenues rising 18% to hit $853m. The firm has averaged annual revenue growth of nearly 20% over the last ten years. Profits per equity partner (PEP) came in at $4.4m, and the firm looks at the least set to retain its position as the second most profitable law firm in the Global 100. In short, the US market has seen nothing like it since the upstart Skadden, Arps, Slate, Meagher & Flom stormed into the Wall Street elite over 30 years ago.
The Quinn effect
That Quinn Emanuel attracts as much criticism as admiration reflects the extent that it has been representative of – and itself influenced – the global legal market in the US and UK. For one, its dramatic ascent has underlined the increase in the size and importance of the global litigation market, a trend that has major implications in the City.
‘Our clients want assertive lawyers and that is what we are.’
Richard East, Quinn Emanuel
At the time of the firm’s UK launch litigation had, in many City firms, become in danger of being relegated to a back-water with little firm-wide influence. For obvious reasons the banking crisis and economic slump hugely strengthened the importance of contentious work globally. But Quinn Emanuel’s UK launch and success contributed to repositioning litigation as a strategically crucial practice area. It also provided inspiration to the growing band of UK litigation boutiques like Enyo Law and Signature Litigation.
Such developments have happened at a time when the City disputes market itself has been fluid. Not only have Clifford Chance and Freshfields Bruckhaus Deringer mounted an effective challenge to the once undisputed position of Herbert Smith Freehills, but firms like Addleshaw Goddard and Stewarts Law have proved able to secure headline work.
The last five years have also seen US firms substantially increase their investment in UK litigation after an initial focus on transactional work. A host of firms such as White & Case, Dechert, Jones Day, Cleary Gottlieb Steen & Hamilton, Bingham McCutchen and Latham & Watkins look positioned to make dramatic inroads in the disputes market. Such players have the advantages of cultural affinity for litigation common to US firms, fewer conflicts than London rivals and a strong dollar to back recruitment.
Commercial litigator Craig Shuttleworth at Jones Day comments: ‘For big City firms, litigation is the tail while the banking and finance practices – and to a lesser extent corporate finance and M&A – are the centre of the universe. For firms like Jones Day and Quinn, its litigators are the beating heart of the firm, so the capacity to grow is immense.’
Mark Dawkins, partner at Bingham McCutchen’s securities and financial institutions litigation group, takes a similar line: ‘Historically, major firms have focused on winning relationships with big banks, but this conflicts them out of acting against those banks in litigation. Now, as more litigation boutiques hit the market, who are able and willing to sue the banks, the litigation landscape is changing and Quinn is a big part of this change.’
As to Quinn Emanuel itself, it will face its challenges. In London, 2013 will be a watershed year as the firm presses on without the handful of major disputes that super charged its growth so far. Globally, it is arguably getting near the limits of size it can accommodate without the kind of investment in governance and infrastructure that runs against its ethos. For related reasons, ultimately it will have to face succession issues far more pressing than for most top-tier law firms when charismatic founders like John Quinn eventually stand down.
What the firm doesn’t appear to suffer from, despite claims, is an overly narrow business at the mercy of the market. In an expanding global disputes scene, Quinn Emanuel has already clearly moved to broaden its business across the spectrum of disputes work and internationally. There looks to be plenty of the estimated $100bn global litigation market to power the firm for the foreseeable future.
Even as the firm’s London office gears up to compete with a widening band of US rivals and litigation boutiques, Quinn Emanuel has proved that a litigation boutique can be a credible – and even compelling – business model in the UK. In one of the most competitive legal markets in the world that’s quite an achievement and one that looks set to endure for years to come. LB
jaishree.kalia@legalease.co.uk