Acquiring an Entertainment Practice Helps Downsized Firm

[Editor's Note: The economic downturn that began in 2008 has been called a "100-year flood" for the legal profession. Layoffs, downsizing and even disappearing firms became common as lawyers sought to survive. The entertainment bar looked for workable survival strategies, too, especially, for example, as the traditional business base of many music lawyers shrank along with the declining recording revenues of the digital era. This article focuses on a law firm that, with income shrinking, nevertheless increased its entertainment practice as a way to stabilize and grow.]

Five years ago, nearly 100 lawyers worked at Los Angeles-based Liner Grode Stein Yankelevitz Sunshine Regenstreif & Taylor (www.linerlaw.com), many of them specializing in big-ticket business litigation. Today, the firm's total headcount is nearly half that size. And its focus has shifted away from big cases toward contingent-fee and alternative-fee litigation.

Stuart Liner, the firm's co-founder and managing partner, says the change was part design, part economic. The downturn forced the firm to lay off a dozen lawyers, both partners and associates, and hold back on replacing departing ones. The firm went through a year-and-a-half of downsizing, beginning in late 2008 and ending in early 2010 with the layoffs. The result has been a renewed focus on hiring partners with large books of business, regardless of their practice area. One key addition was Stanton “Larry” Stein, who joined Liner Grode in 2009 and now heads the firm's entertainment and media litigation department, one of its busiest practices.

“Less is more,” Liner says of the firm's downsizing phase. “It has been very helpful for us to be smaller. It's given us much more flexibility and ability to be ' not to overuse the word ' agile. I have no desire in creating a large law firm.”

Alternative Fees

Founded in 1996, Liner Grode has a small office in San Francisco and handles both litigation and corporate work. Five years ago, much of its work involved big class actions filed against major corporations for losses to employee pension plans. But such big cases got harder to find in Southern California as the recession hit, Liner says. So he began to look outside the framework of litigation associated with high billable hours. “We started to realize we wanted to get much more aggressive in contingency-fee work, both in the business and entertainment fields.”

Today, nearly 20% of the firm's litigation involves some type of alternative fee arrangement, about double what it was before the recession, according to Liner. At its peak, the firm had four associates for every partner. Now, the ratio is nearly one-to-one. “When we had an enormous machine to fill, or feed, it became harder for us to be able to accomplish our goal, which is to have skin in the game with some upside,” Liner says. Although revenues last year fell to $39 million from more than $45 million the prior year, the firm's headcount is smaller and its profit margin continues to exceed 55% of those revenues. (Those figures excluded revenues from cases paid for with alternative- or contingent-fee arrangements, which Liner declined to talk about on the record.)

Building Ownership

The firm also plans to move by the end of the year to the former Creative Artists Agency Inc.'s building in Beverly Hills. The space is slightly smaller than the law firm's current location in West Los Angeles, but Liner Grode has purchased the building, rather than leased. “As part of our desire to continue to create controls on our cost structure, we thought owning a building is important,” Liner says. “It also provides another revenue stream we think will be financially lucrative.”

While much of the firm's recent growth has been in its entertainment finance and corporate group, Liner Grode's litigation practice makes up nearly 70% of its business, Liner says. The addition of Robert Kaufman and Scott Robinson in April added a family law practice. Kaufman has handled divorces for Reese Witherspoon, Jennifer Aniston and Michael Jackson.

Entertainment Growth

One of the most successful practice areas has been entertainment litigation, which about 15 lawyers practice exclusively, Stein says. Stein joined from the now-defunct Dreier Stein Kahan Browne Woods George, the West Coast affiliate of Dreier LLP, after federal prosecutors and the U.S. Securities and Exchange Commission charged firm founder Marc Dreier with masterminding a $10 million investment fraud. (Dreier pleaded guilty and is serving 20 years in federal prison.)

Liner Grode already had an entertainment litigation practice led by Joseph Taylor, who has talent clients such as Teri Hatcher. But the addition of Stein, who worked with Taylor earlier in his career, helped tremendously. “Larry joining the firm ' gave that department cachet,” says Michael Weinsten, who left Liner Grode earlier this year after nine years with the firm. Weinsten, an attorney for Paris Hilton, says he left for the opportunity to work for Marty Singer, name partner of Lavely & Singer, who is currently handling Charlie Sheen's case over his firing from Two and a Half Men. In October, Linder Grode lost another longtime partner, Miles Feldman, whose clients have included Will Smith. Feldman joined a Beverly Hills startup now called Raines Feldman. He did not return a call for comment. Stein called the impact of both departures “minimal.”

Stein is representing Tokyo Broadcasting System Inc. against American Broadcasting Cos. Inc. in one of a growing number of copyright infringement cases involving reality television shows. Stein previously represented the British producer of the ABC show Wife Swap in a copyright infringement suit against Fox Broadcasting Co. over the reality television show Trading Spouses. That case settled. The current case involves a reality show on ABC called Wipeout. “People don't realize a reality show isn't just someone with a video camera who takes pictures. They script a lot of it, and create situations that cause a certain kind of dialogue,” Stein says.

He also has brought profit-participation suits in recent months on behalf of Charmed creator Constance Burge and filmmaker Michael Moore over Fahrenheit 9/11. And he's
defending Summit Entertainment LLC in a breach-of-contract suit brought by producer Gavin Polone over the upcoming film Man on a Ledge.

Stein says many of his clients came to him from Joshua Grode, the head of the firm's corporate department. Grode was one of the lawyers behind Summit's initial round of major financing in 2007, says David Friedman, the executive vice president and general counsel of Summit, the producer of the Twilight series. “Because of Josh, we've been working with the firm in a number of transactional areas, and then started working with Joe Taylor, and then started working with Larry,” Friedman says.

Another practice that has come in handy: criminal defense. Ellyn Garofalo, who heads that group, successfully persuaded a jury in October to clear Dr. Sandeep Kapoor, Anna Nicole Smith's physician, of charges that he gave an addict excessive drugs. (Smith died in 2007 from an accidental overdose.) “It's not unusual that she would have [a client] who is in the entertainment area,” Stein says of Garofalo. “Obviously, there are occasions when her services are very helpful.”

[Editor's Note: The economic downturn that began in 2008 has been called a "100-year flood" for the legal profession. Layoffs, downsizing and even disappearing firms became common as lawyers sought to survive. The entertainment bar looked for workable survival strategies, too, especially, for example, as the traditional business base of many music lawyers shrank along with the declining recording revenues of the digital era. This article focuses on a law firm that, with income shrinking, nevertheless increased its entertainment practice as a way to stabilize and grow.]

Five years ago, nearly 100 lawyers worked at Los Angeles-based Liner Grode Stein Yankelevitz Sunshine Regenstreif & Taylor (www.linerlaw.com), many of them specializing in big-ticket business litigation. Today, the firm's total headcount is nearly half that size. And its focus has shifted away from big cases toward contingent-fee and alternative-fee litigation.

Stuart Liner, the firm's co-founder and managing partner, says the change was part design, part economic. The downturn forced the firm to lay off a dozen lawyers, both partners and associates, and hold back on replacing departing ones. The firm went through a year-and-a-half of downsizing, beginning in late 2008 and ending in early 2010 with the layoffs. The result has been a renewed focus on hiring partners with large books of business, regardless of their practice area. One key addition was Stanton “Larry” Stein, who joined Liner Grode in 2009 and now heads the firm's entertainment and media litigation department, one of its busiest practices.

“Less is more,” Liner says of the firm's downsizing phase. “It has been very helpful for us to be smaller. It's given us much more flexibility and ability to be ' not to overuse the word ' agile. I have no desire in creating a large law firm.”

Alternative Fees

Founded in 1996, Liner Grode has a small office in San Francisco and handles both litigation and corporate work. Five years ago, much of its work involved big class actions filed against major corporations for losses to employee pension plans. But such big cases got harder to find in Southern California as the recession hit, Liner says. So he began to look outside the framework of litigation associated with high billable hours. “We started to realize we wanted to get much more aggressive in contingency-fee work, both in the business and entertainment fields.”

Today, nearly 20% of the firm's litigation involves some type of alternative fee arrangement, about double what it was before the recession, according to Liner. At its peak, the firm had four associates for every partner. Now, the ratio is nearly one-to-one. “When we had an enormous machine to fill, or feed, it became harder for us to be able to accomplish our goal, which is to have skin in the game with some upside,” Liner says. Although revenues last year fell to $39 million from more than $45 million the prior year, the firm's headcount is smaller and its profit margin continues to exceed 55% of those revenues. (Those figures excluded revenues from cases paid for with alternative- or contingent-fee arrangements, which Liner declined to talk about on the record.)

Building Ownership

The firm also plans to move by the end of the year to the former Creative Artists Agency Inc.'s building in Beverly Hills. The space is slightly smaller than the law firm's current location in West Los Angeles, but Liner Grode has purchased the building, rather than leased. “As part of our desire to continue to create controls on our cost structure, we thought owning a building is important,” Liner says. “It also provides another revenue stream we think will be financially lucrative.”

While much of the firm's recent growth has been in its entertainment finance and corporate group, Liner Grode's litigation practice makes up nearly 70% of its business, Liner says. The addition of Robert Kaufman and Scott Robinson in April added a family law practice. Kaufman has handled divorces for Reese Witherspoon, Jennifer Aniston and Michael Jackson.

Entertainment Growth

One of the most successful practice areas has been entertainment litigation, which about 15 lawyers practice exclusively, Stein says. Stein joined from the now-defunct Dreier Stein Kahan Browne Woods George, the West Coast affiliate of Dreier LLP, after federal prosecutors and the U.S. Securities and Exchange Commission charged firm founder Marc Dreier with masterminding a $10 million investment fraud. (Dreier pleaded guilty and is serving 20 years in federal prison.)

Liner Grode already had an entertainment litigation practice led by Joseph Taylor, who has talent clients such as Teri Hatcher. But the addition of Stein, who worked with Taylor earlier in his career, helped tremendously. “Larry joining the firm ' gave that department cachet,” says Michael Weinsten, who left Liner Grode earlier this year after nine years with the firm. Weinsten, an attorney for Paris Hilton, says he left for the opportunity to work for Marty Singer, name partner of Lavely & Singer, who is currently handling Charlie Sheen's case over his firing from Two and a Half Men. In October, Linder Grode lost another longtime partner, Miles Feldman, whose clients have included Will Smith. Feldman joined a Beverly Hills startup now called Raines Feldman. He did not return a call for comment. Stein called the impact of both departures “minimal.”

Stein is representing Tokyo Broadcasting System Inc. against American Broadcasting Cos. Inc. in one of a growing number of copyright infringement cases involving reality television shows. Stein previously represented the British producer of the ABC show Wife Swap in a copyright infringement suit against Fox Broadcasting Co. over the reality television show Trading Spouses. That case settled. The current case involves a reality show on ABC called Wipeout. “People don't realize a reality show isn't just someone with a video camera who takes pictures. They script a lot of it, and create situations that cause a certain kind of dialogue,” Stein says.

He also has brought profit-participation suits in recent months on behalf of Charmed creator Constance Burge and filmmaker Michael Moore over Fahrenheit 9/11. And he's
defending Summit Entertainment LLC in a breach-of-contract suit brought by producer Gavin Polone over the upcoming film Man on a Ledge.

Stein says many of his clients came to him from Joshua Grode, the head of the firm's corporate department. Grode was one of the lawyers behind Summit's initial round of major financing in 2007, says David Friedman, the executive vice president and general counsel of Summit, the producer of the Twilight series. “Because of Josh, we've been working with the firm in a number of transactional areas, and then started working with Joe Taylor, and then started working with Larry,” Friedman says.

Another practice that has come in handy: criminal defense. Ellyn Garofalo, who heads that group, successfully persuaded a jury in October to clear Dr. Sandeep Kapoor, Anna Nicole Smith's physician, of charges that he gave an addict excessive drugs. (Smith died in 2007 from an accidental overdose.) “It's not unusual that she would have [a client] who is in the entertainment area,” Stein says of Garofalo. “Obviously, there are occasions when her services are very helpful.”