For the second time in a decade, Irell & Manella is at a turning point. Defections have chipped away millions in revenue, and rainmaker Morgan Chu is once again shouldering the weight of the Los Angeles-based intellectual property boutique.

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It's a story the firm has told before. In the mid-2010s, Irell strove to rebuild its transactional practice, bringing on high-profile attorneys including Joshua Grode and Steven Marenberg. In response to questions in 2016 about the firm's apparent overreliance on Chu, executive committee member David Siegel pointed to David Gindler, who led the firm's life sciences litigation practice, and Craig Varnen, who is vice chair of the firm's litigation group. Grode, Marenberg, Gindler and Siegel are no longer with the firm.

They are among dozens of Irell lawyers who have sought greener pastures in recent years. In 2014, the firm boasted $247.5 million in gross revenue and a complement of 159 attorneys. Last year, those numbers had fallen 39% and 48%, respectively, to just $151.6 million in revenue and 82 attorneys.

And so the firm is pivoting yet again.

"The writing was on the wall," as one former Irell partner put it, when Jonathan Kagan, a member of Irell's executive committee and chair of its hiring committee, wrote in an internal memo in early February that the firm would now focus solely on high-end IP and commercial litigation, abandoning most of its transactional practices.

It wasn't an entirely deliberate pivot, as interviews with former partners, legal consultants and Kagan himself indicate. These sources describe a firm that has been struggling for years to define itself and trying to rebuild after a devastating spinoff that has led some partners to explore potential merger opportunities.

Kagan says Irell's new direction isn't the result of a "rash decision" that the firm arrived at overnight.

"For years we've been trying to evaluate what the options are for us," he says. "There is a difference between exploring options and making actual decisions."

He adds, "We've been gradually moving in this direction, then people figured out what we were doing."

Past Is Prologue

Irell's pivot was years in the making, with some sources pointing to the January 2015 spinoff of Hueston Hennigan as the beginning of the firm's identity crisis. Over a two-day period, about one-sixth of Irell—seven partners and 25 associates—left to form their own high-end, Southern California-based litigation boutique. The group included John Hueston, who had been a critical rainmaker at Irell, along with his roster of deep-pocketed clients, including T-Mobile, GlaxoSmithKline, Amgen, Allergen, CoreLogic and Waste Management.

Jonathan Kagan

The spinoff put Irell at a crossroads of sorts, with three paths emerging: It could have grown its transactional and commodity litigation practices, merged with another firm or retrenched. At the time, Siegel hinted to The American Lawyer that there was disagreement among the firm's partners about the right approach: "Some of us would prefer to focus now on growing but doing it in a careful way," he said. "Most of us—but not all of us—have that mindset."

Irell brought on entertainment litigators Robert Schwartz and Victor Jih in May 2015 in an effort to shore up its litigation offerings. Their hiring represented the first time in more than a decade that the firm had hired multiple lateral partners at once.

But Irell never strayed from its piecemeal approach to hiring. The firm never significantly increased its share of litigators who handled the type of bet-the-company IP work Chu was known for, nor did it reach the critical mass required to truly maximize a transactional practice, former lawyers say. Schwartz and Jih have since left Irell.

The firm also seemed to have mixed thoughts on the prospect of merging, with Siegel in 2016, saying there were "agitators" who were open to the idea. Sources indicate that, with Gindler at the helm, Irell held merger discussions with a number of firms, including Milbank.

It's unclear how far the talks went. A former Irell partner says a firm merger was never broadly discussed or voted on. Others have noted that Irell presents a number of challenges for potential suitors—for one, the firm's profitability, which its partners value much more than the firm's overall revenue, would be diluted if it merged with a larger, less profitable firm. The firm had profits per equity partner of $2.68 million last year, even after a 9.9% decline.

Kagan shuts down the idea entirely: "We are not interested in rapid expansion, which is something that would happen in a merger."

At a Crossroads

Meanwhile, Irell's numbers have dwindled as the departures have continued. The firm cycled through three managing partners in three years. Andrei Iancu left in 2017 to lead the U.S. Patent and Trademark Office. His successor, Ellisen Turner, held the managing partner post for a year before stepping down. Gindler took his place at the beginning of 2019. Once merger talks with Milbank apparently failed, Gindler joined that firm last August, taking three IP litigators with him.

Other firm leaders began making their exits. Jason Linder, head of Irell's global investigations and anti-corruption practice, and partner Glenn Vanzura joined Mayer Brown; Jeffrey Reisner, Irell's bankruptcy practice head, left for McDermott Will & Emery; Turner joined Kirkland & Ellis; appellate co-chair David Schwarz joined Sheppard Mullin.

Things appeared to come to a head when two Irell partners, Gregory Klein and Michael Kaplan, approached the firm seeking additional resources for their burgeoning private equity and corporate practice. Klein had been Kagan's summer associate.

"The firm was a crossroads," Kagan says. "Does Irell want to invest in those resources? Or does it make more sense for Mike and Greg to go to a place where those resources have already been invested."