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Cloud darkens over Patton Boggs

Layoffs, merger talks and late paychecks have darkened the cloud hanging over the Washington lobbying powerhouse Patton Boggs.

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While the leaders of the firm, the longtime king of K Street, acknowledge that they are going through tough times, they deny that the firm is in financial straits.

"We have been through a hard time and we have more work to do, but we are doing fine," said Ed Newberry, Patton Boggs's managing partner.

Newberry said major legal work from prior years has ended for the firm, leading to a drop in revenue. "We have responded to it by adjusting the size and the expense base of the firm," he added.

Interviews by The Hill with current and former lawyers of the firm found anxiety about the future, with some fearing the worst if Patton's merger talks with Squire Sanders fall apart.

"I think people are seeing it through and trying to make it happen. But they [Patton Boggs] are terrified of the prospect of it [the merger] not happening," one former Patton Boggs attorney said. "It is very sad to me. I have a lot of friends there. It's a sad story."

The anxiety was heightened last month when distributions to some partners were briefly delayed.

John Nonna, managing partner of the firm's New York office, told The Hill that he didn't get his paycheck wired to his bank account as expected on Feb. 28, a Friday.

"Instead of getting the funds wired into my account, I got a check in hand on Monday. To me, it wasn't a big deal," Nonna said. "It makes us somewhat nervous, but our collections have improved a great deal since then."

Newberry confirmed the payments were late, saying it was "an administrative decision."

"Instead of wiring the money, we cut checks and handed them out. It's not a significant thing. I think your question is about cash flow. Our cash flow is fine," Newberry said.

On the same day that payments weren't sent out, partners at Patton Boggs said they took a vote of confidence in the firm, with 90 percent vowing to stay put.

Both past and present employees express a strong loyalty and a desire to see the firm weather the storm.

But allegiance to Patton has also become a legal necessity for some, according to one former lawyer.

"There are partners who want to leave but are compelled to stay because they could be blamed for causing a cascading effect of departures," the former Patton Boggs attorney said, "which would ultimately cause the firm to crumble or scuttle the proposed merger with Squire Sanders."

One headhunter told The Hill that many of the firm's attorneys are on the job market.

"Those lawyers who have other relationships with other lawyers around town have already reached out so that if the ship goes down, they're not left without a life raft," the headhunter said.

Patton has seen an exodus of partners over the past year, along with losing some of its star lobbyists. Jonathan Yarowsky left for Wilmer Cutler Pickering Hale and Dorr, while Darryl Nirenberg jumped to Steptoe & Johnson.

Patton's competitors are seizing on the firm's troubles to try and poach talent. Several partners at Patton Boggs told The Hill they are receiving daily calls with offers to make a move.

Nevertheless, the firm is attracting business, having signed more than 40 new lobbying clients since the beginning of 2013, and several partners told The Hill they are staying.

"This firm has a very valuable brand. It has a very bright future and I want to be part of it," said Peter Gould, managing partner of Patton Boggs's Denver office. "My clients are extremely supportive, and that's the bottom line for me."

Patton Boggs has for years ranked No. 1 for lobbying fees on K Street, ruling the influence landscape from its massive office in Washington's West End.

But the firm has taken a hit from the broader slump in the law and lobby business.

Its overall revenue was $278 million in 2013, a drop from its take of $313 million in 2012, according to a Patton Boggs spokesman.

Patton Boggs also has been enmeshed in litigation with Chevron, which alleged in court papers that the firm and others engaged in a "fraudulent scheme" related to Chevron's efforts to set aside a court judgment from Ecuador. Patton Boggs has strongly denied any wrongdoing.

The lobbying side of the business has also suffered. In 2012, the firm earned $46.2 million in lobbying fees, but that fell to $40.2 million last year.

Patton Boggs has adjusted to the lean times by cutting staff, shedding 65 people in March 2013 and closing its Newark, N.J., office last month.

While the firm had about 485 attorneys on its payroll at the end of 2012, that number had dropped to 435 by the close of 2013, according to the spokesman.

Amid the cutbacks, Patton Boggs has entered into negotiations to join Squire Sanders, a bigger outfit.

"They have been going quite well and they are at a fairly advanced stage," Newberry said of the talks. "It's important in the long-term to expand our platform and the only way to sufficiently expand our platform is a combination."

Merger talks with another major firm, Locke Lord, broke down late last year.

Patton has also tinkered with its compensation structure and hired restructuring advisory firm Zolfo Cooper to help right the ship, according to The Wall Street Journal.

Zolfo Cooper also worked with law giant Dewey & LeBoeuf, which declared bankruptcy last year. Newberry said emphatically that the firm is not going bankrupt.

"Absolutely not. That's ludicrous. These rumors are perhaps generated by disgruntled former partners or our competitors and are completely unfounded," Newberry said.

When a law firm enters into bankruptcy, both current and former partners can face "clawback" actions that seek repayment of earnings from between the time that the firm began to slide and its bankruptcy declaration. Many lawyers who left Dewey & LeBoeuf are facing such claims from the bankrupt firm's liquidation trust.

Nonna, who came to Patton Boggs from Dewey & LeBoeuf, said that there is more camaraderie among his current colleagues.

"At Dewey, once the partners found out about the financial problems, they ran for the hills. What I have sensed at Patton [is that] the core of the firm believes in the brand of the firm and are willing to tough it out. This is a different situation," Nonna said.

Along with the business slump, Patton Boggs is contending with Chevron's fraud allegations. The firm has sued Chevron; last May, the oil and gas behemoth filed a motion for court permission to pursue Patton for its work on the Ecuador matter.

"We are currently awaiting the court's ruling on our motion to bring claims against Patton Boggs and we look forward to pursuing those claims," said Morgan Crinklaw, a Chevron spokesman.

Patton Boggs said it would fight Chevron's move to take the firm to court.

"We oppose that on several different grounds. The court has no jurisdiction; Chevron waited too long; and the complaint has no merit," said Rick Talisman, the firm's general counsel.

In the meantime, Chevron's pursuit of Patton Boggs could hinder the firm's merger talks, according to one expert.

"They [Patton Boggs] may be charged with liability, and if you merged, the resulting firm would likely be burdened with the same obligations. They are kind of a 'Typhoid Mary' right now," given the prospect of Chevron's claims going forward, said Geoffrey Hazard, a Hastings College of the Law professor who specializes in legal ethics. Hazard has not been involved in the case.

Talisman of Patton Boggs said Chevron hasn't specified the amount of damages it would seek from the firm in order to frighten people.

"They have left it vague so people could imagine the damage that they could do to the firm. That said, I can't see a damage award that would cause material harm to the firm," he said.

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