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Irell & Manella is abandoning most of its transactional practices in an effort to focus solely on high-value litigation work, in a move that's already led to the departure of three partners this week.

Michael Kaplan and Gregory Klein departed from the Los Angeles-based Am Law 200 law firm this week after learning that it wasn't going to support growing their mergers and acquisitions practice. They joined Simpson Thacher & Bartlett. A third lawyer, Harry Mittleman, is bringing his commercial litigation practice to Hueston Hennigan.

The departures leave Irell with 69 lawyers spread across two offices, as well as 14 partners emeritus who don't all practice full-time, a firm spokeswoman said. Irell's head count has been in steady decline since at least 2009, when it had 199 lawyers.

More departures are expected as the news of the firm's strategic shift sinks in, said a current Irell lawyer, predicting it would take at least a year for the firm to shift into "growth mode."

"This is a real tipping point, this is the direction we're going in," said the lawyer, speaking on condition of anonymity. "That's why people are not going to be here in the future."

The firm believes its fortunes lie with its litigation practice, pointing out in a statement that it won three nine-figure jury verdicts in the last three months.

"This strategy positions us to continue achieving outstanding results for our clients while supporting our team of top-flight attorneys," the firm said in a statement.

The firm's gross revenue has also taken hits as its head count drops. Irell generated $247 million in gross revenue in 2014, according to ALM figures, dropping to $172 million in 2018. An Irell lawyer acknowledged that the firm's revenue would see a further decrease due to this shift in strategy, but noted that the firm's revenue per lawyer—which ALM reported as $1.83 million in 2018—would increase.

Irell's shift in strategy was announced at a Monday meeting and detailed in an internal memo sent to all of its lawyers. The internal memo was leaked to Above The Law. An Irell spokeswoman confirmed its authenticity.

One Irell lawyer emphasized that none of its attorneys, even its transactional lawyers, are being forced out or given a hard deadline of when to leave. Nor is the firm's transactional work being abandoned altogether, with the Irell lawyer noting that transactional lawyers are needed to support some of the firm's litigation efforts.

But the strategy shift is meant to communicate to its current crop of lawyers and potential laterals that Irell is not interested in developing anything other than high-value, complex business and IP litigation, the lawyer said.

This source said the firm has been debating for more than a year over whether it should start branching into transactional work. The departures Irell has seen over the past year have been partners who "voted with their feet," the lawyer said.

"The stuff we're going to be focusing on is high-value litigation," the lawyer said, noting that Mittleman did a "wide mix of litigation work," and that the firm has already seen intellectual property litigators and appellate lawyers leave.

Irell at one point explored a possible merger with Milbank, an international law firm headquartered in New York. But the talks soured, according to a source familiar with the discussions, which were later reported by Business Insider. Four Irell lawyers, including its managing partner, joined Milbank in August.

An Irell lawyer said the firm explored "all options" before deciding to focus on high-value litigation: "We looked at everything in terms of coming up with this strategy," before adding that "different constituencies in the firm have different ideas."

The firm is emphasizing that it does not fault lawyers deciding to leave. A firm spokeswoman referred to a line within its internal email: "Although these departures are a natural and expected consequence of our focused growth strategy, these lawyers will always be a part of the Irell family. We are sorry to see them go, and we wish them the best with their future plans."

Irell is hoping to attract younger litigators in the future and build up the experience of its current cadre. An Irell lawyer indicated that the firm is aware that its leading rainmaker, Morgan Chu, turns 70 this year. This source pointed out that a number of the victories the firm celebrated in its internal email were achieved without Chu's input.

"We're looking for opportunities for the next-gen of litigators to get first-chair trial experience," the lawyer said.

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