Niche practices play big role in midsize strategy

Ashley Brandt likes craft beer. Plus, he is a lawyer. Therefore, Brandt provides legal representation to craft breweries. If only it were that simple.

Unfortunately for Brandt, the equation that led him to developing a craft beer legal practice felt more like calculus than simple arithmetic.

If starting a niche practice were that simple, Brandt — a self-described lover of cured meats — said he would represent pork producers.

"I wish it were that easy," said Brandt, an associate at Freeborn & Peters. "I'd represent toy companies, candy companies and cured meat companies if it were that easy."

Brandt developed his craft beer practice after a long analysis of the legal market and his law firm's existing clients. About two years ago, the firm found it represented a long list of food and beverage companies and decided to market a specialized knowledge of the industry.

While beer clients pour in — Brandt started with three about a year ago, represented six in late January and has three more on tap — the practice still only represents about 30 percent of his time. He spends the rest as a construction litigator, which is what the firm recruited him to do.

Brandt's side job representing small brewers mirrors a common approach midsize law firms take to growing their business. In addition to providing full-service legal representation for local or midsize companies, these firms seek to specialize in an industry and become a well-known legal brand in practices as diverse as working with craft breweries, representing whistle-blower plaintiffs or auditing legal fees.

While many midsize firms seek out niche practice areas, they often go about it very differently.

Some strategize. Others stumble into these practices. And still others flip one or two attorneys' expertise in an area into a thriving practice. However it gets done, lawyers and legal consultants said building new and niche practice groups is one of the best ways for a midsize firm to grow its book of business.

In Freeborn & Peters' case, the firm scoured its current work to find opportunities to represent growing industries. It then marketed a special set of skills — in Brandt's case, knowledge of alcohol regulations that stem from repealing Prohibition — to an industry it believed will boom.

By contrast, David Chizewer at Goldberg Kohn said he and Fred Cohen, a partner who is now deceased, stumbled into representing plaintiffs in whistle-blower cases.

What Chizewer and Cohen pitched to their partners as a brief pro bono engagement now consumes 70 percent of Chizewer's time.

Meckler Bulger Tilson Marick & Pearson blended opportunism with experience to build its legal audit practice group into a nationally recognized practice in the growing corner of work done to analyze legal fees.

Bruce Meckler's experience reviewing legal fees as a Cook County prosecutor — coupled with the firm's emphasis on representing insurance companies that face some of the biggest legal fees — provided a beneficial mix, he said.

However these firms do it, Kent Zimmermann, a law firm consultant at Zeughauser Group, said developing well-branded niche practices reflects their understanding of a motto that would serve any midsize firm well: Don't try to be all things to all clients.

"You've got to make hard choices about what you want to be known as the best for, and making choices is the important part," Zimmermann said.

"The path of least resistance in many firms is to let people go after any kind of business they want to go after and that's never been the best chance for success."

On their face, the food industry in Chicago and the technology industry in Silicon Valley appear to have little in common.

Ashley Brandt (left) represents craft brewers as part of a food and beverage practice that Brian Smith helped create at Freeborn & Peters. The practice is an example of how midsize firms build business in niche areas.

Photos by Lisa Predko.

But to Brian Smith, a partner at Freeborn & Peters, a law firm of about 120 lawyers, Chicago's food world is enticing because he said he believes it shares plenty with the central California tech scene.

A budding group of startups in Chicago's food and beverage world go through the same obstacles that face any new tech company in Silicon Valley, he said.

"It's the same thing. It's very entrepreneurial and people are trying to develop a brand," he said. "There's a lot of bootstrapping going on."

Even the investors in these young food companies share a similarity to the investors in the next Google — they both tend to maintain a background and a deep understanding of their respective industries, he said.

Where the similarities end, though, is where Smith sees both a challenge and an opportunity for his firm.

"If I were to go to Silicon Valley and ask a plumber what it means to have a convertible note, he would be able to tell me," Smith said. "Whereas here … that knowledge of finance really doesn't exist. It certainly doesn't exist with respect to entrepreneurial food and beverage (companies)."

A growing cluster of young companies creates a need for financing, real estate and legal work very similar to the venture capital ecosystem that exists in Silicon Valley, he said.

That infrastructure doesn't exist yet for Chicago's foodie entrepreneurs. Freeborn & Peters wants to develop it by representing young companies such as coffee maker Dark Matter and craft brewer Pipeworks Brewing.

Smith is not a "food lawyer." He is a corporate-transactional lawyer — more familiar with setting up deals than, say, helping a business navigate alcohol regulations.

So how did he come to know as much as he does about Chicago's startup food business? And what makes him think Freeborn & Peters can become the go-to legal brand for a Chicago burrito lover looking to start the next Chipotle?

The answers to those questions help tell the firm's strategy behind developing its niche practice.

Smith said the firm understands that trying to be all things to all possible clients doesn't make sense for an operation of its size. Knowing that, he said, two years ago the firm decided to dedicate its resources to specific industries where it represented a lot of clients.

When they analyzed their client roster, Smith said food and beverage companies jumped off the page.

"If you were to look within a stone's throw of our office, you would hit literally hundreds of food companies that are closely held, many of them family or multigeneration-owned and that (size) is really right in our wheelhouse," he said.

The firm built and marketed its expertise in the food industry through a number of new initiatives.

It added lawyers. Take Jason Klinowski, whom Smith said the firm brought on for his expertise in produce law, the Perishable Agricultural Commodities Act.

Those lawyers started blogs. Klinowski's "Fresh Facts Blog" competes with Brandt's blog called "Libation Law Blog." And Smith said the team's lawyers are more likely to attend food industry conferences than gatherings of lawyers.

So far, in a practice that Smith said lists less than 200 clients, the food group added 80 clients since it started its marketing push in March of last year.

"It has not quite doubled, but it's grown substantially," he said.

To boost that growth, Smith said the firm developed a third strategy to reel in startup food companies: Offering reduced or flat fees for the legal work required to grow a food startup.

If a young brewer needs to raise cash for more fermentors, for example, the firm may offer a reduced price to document an equity sale or venture capital agreement, Smith said. In effect, his team is making an investment in the business' future.

"They're not going to be tremendous profit centers (for the firm) right now," Smith said.

"Some are going to clearly be winners. Some will languish. And some won't last. But we're comfortable in making that investment with certain types of startup, entrepreneurial food companies because we want to be in this space."

Zimmermann, the law firm consultant, said he counsels law firms to follow growth plans similar to what happened at Freeborn & Peters' food industry practice.

"The most successful firms in the world, down to the most successful firms in a market, something they typically realize is they're not going to be the best at everything," he said.

"And let me tell you, I bang my head against the wall trying to get firms to realize that."

While Smith said Freeborn & Peters' food group came about through a "specific, targeted" process, a practice representing plaintiffs in False Claims Act cases surfaced at Goldberg Kohn in a much more opportunistic manner.

(From left to right) Scott Coffman, a brewer at Pipeworks Brewing Co., works with Beejay Oslon and Gerrit Lewis, the founders of the brewery that opened early last year. Pipeworks represents one of the growing number of breweries opening in Chicago that Freeborn & Peters' food and beverage practice targeted.

Photo by Lisa Predko.

"Certainly, when I joined this firm out of law school, I didn't expect to have a contingency fee practice on the plaintiff side," said Chizewer, who graduated from University of Chicago Law School in 1991 and worked ever since at Goldberg Kohn, an about 80-lawyer, traditionally defense-side law firm.

Of course, that's exactly what happened.

It all started in 2004 when Cohen took on a pro bono class-action lawsuit against the state of Illinois. The lawsuit alleged the state skimped on health services for children that federal Medicare laws mandated it provide, Chizewer said. Realizing how much work the case required, Cohen brought Chizewer onto the case because they knew each other from law school.

They eventually won that federal case, Memisovski et al. v. Patla, and, in addition to some sweeping Medicare reforms in Illinois, received front-page headlines.

That attention led to a phone call from Tyson Cleveland, the real instigator behind Chizewer's current law practice.

Cleveland filed a pro se False Claims Act lawsuit against his former employer, publicly traded health insurer Amerigroup. The lawsuit alleged the company committed fraud against the government.

The case alleged Amerigroup illegally picked and chose healthy Medicare patients as a way to save money. But the sweeping allegations in the case languished as Cleveland pursued it on his own, Chizewer said. He called Chizewer and Cohen to ask for help.

Chizewer did something after that call for the first time that today feels routine: He presented to his partners a summary of the case's merits and the chances he believed it could win in an attempt to use firm resources to pursue a contingency fee case. He said he compares the presentation to an investment banker's pitch to entice clients to buy a business.

"(The partners) obviously were nervous as well because we never had embarked on something this massive on a contingency basis," Chizewer said.

Eventually, the partners trusted Chizewer enough to sign on for what he proposed as a three-month investment of his and Cohen's time. The case lasted 2½ years, during which Chizewer spent almost all of his time on it.

"The trust was a one-time trust and a lot of it happened quite quickly," he said. "Had they gone into this with their eyes completely open … I don't know that they would have signed on for putting in $8 million worth of attorney time and $2 million worth of out-of-pocket expenses."

Chizewer and the firm won the case, earning the largest judgment ever in a False Claims Act case, $335 million. It settled on appeal for $225 million, of which Cleveland received roughly $56 million. The firm received a percentage of that in addition to all their fees paid for by the defendant.

"It was a tremendous return on the investment," Chizewer said.

"And even before we won, we were hoping that we would get a good enough result that would justify our continuing on in this practice area. Although, a lot would depend on the result."

The result allowed Chizewer to, in two years, grow his contingency fee, plaintiff-side practice from nonexistence into a practice that accounts for about 70 percent of his time and is complete with an oversight committee tracking his expenses.

Set within a bill-by-the-hour law firm, his contingency fee practice can create some problems, at least theoretically. But it also provides an advantage in his marketing and in his secondary practice as a commercial defense attorney.

The problems arise from the fact that his firm typically is not structured to allow its partners to work on a case for five years without making money in that time.

To deal with that, Chizewer said the firm created a contingency fee committee that he reports to with twice-yearly phone calls that he compares to investor updates. In addition, he tracks all sorts of data on each case that the firm's partners can check out any time — for instance, out-of-pocket expenses; attorneys' anticipated and actual time; and the reasonable benefits the case could yield.

Any time Chizewer wants to take on a case, he needs permission from the contingency fee committee, which requires a type of pitch he first delivered in the Amerigroup case.

"The way we pitch the cases is very conservatively, because I'm not trying to convince people," he said. "I don't view it as my job to try and convince people to invest. My job is to create the case, create the opportunity and lay it out as objectively as I can. … Because for my own psychological health, I don't want people to have inflated expectations."

Currently, Chizewer and his four-lawyer team remain in the second year of a ramping-up mode: Building up a log of cases that typically require two to five years to settle. Once his first group of cases concludes, he will better understand the level of success of the practice.

But one advantage, he said, became clear to him immediately when starting the practice — the size of his firm.

"We provide a good resource because a lot of (False Claims Act attorneys) are practicing at smaller firms," Chizewer said.

"And if they have cases where they think they are going to need to marshal a lot of resources … (because) they know they're going to be up against the largest law firms in the country who represent the largest companies in the U.S. who are the targets of these cases, we present an attractive partner."

While Freeborn & Peters and Goldberg Kohn try to build their relatively new practice groups into big-time moneymakers, a niche group Meckler Bulger Tilson Marick & Pearson started in 1996 now makes up about 15 to 20 percent of the entire firm's work in a given year, Meckler said.

The legal audit group investigates and litigates charges of fraudulent or excessive attorney fees and also provides cost-cutting counseling for in-house lawyers.

Meckler started the practice shortly after he left his position as a Cook County prosecutor. He handled some legal fee disputes while there and in 1996 he quickly got his first big case as a private attorney.

A fight over a $1 billion trust belonging to the Milwaukee-based Bradley family led to legal fees of roughly $15 million after the law firms involved budgeted for about $2 million.

The insurance company involved — an industry which Meckler's firm focused its practice around — asked him to look into it, he said.

After that case proved successful, he found himself working for Motorola Inc. and other clients. He quickly added another attorney, Mari Leigh, to the practice to help with the work.

"I always thought that I was going to go back to my commercial litigation practice," said Leigh, now the chairwoman of the practice group.

"But then it would be one case, another case and then to the point that if we didn't get (Partner Joe Studer in 2001), we were going to crush under it."

Leigh said she never envisioned the practice would grow from its humble roots — staffing lawyers and consultants in the basement of the then-Sears Tower for the Motorola case — to what is now a nationally recognized practice. It has handled roughly 400 cases and reviewed about $5 billion in legal fees.

For one thing, a market for lawyers doing this type work didn't even exist when they started the group, Meckler said. All the players involved at the time hired non-lawyer consultants.

"What we decided was the only way to properly ensure quality was to do it in-house with lawyers," Meckler said. "And it's been the right thing to do. And I think all of our partners in the firm have seen the growth of our practice and it's been important (to the firm)."

In recent years though, the legal fee review market became a popular place for law firms, adding a bit of competition for Meckler. He said about 15 to 20 law firms have entered the market in recent years.

To match the competition, Meckler's firm started a relatively new practice wing, one that provides analysis of outside counsel fees for in-house legal departments. A corporate push to save money makes the service enticing for general counsel, Meckler said.

He said he believes the recognition the firm has received for creating this service will help keep competitors at bay.

"To be honest, none of them I think are doing it the way we did, which is to have not just the lawyers who can analyze fees but actually have the technical capacity of the group to help us do the work," he said.

"They're using consultants and farming out the work. I don't think they're doing what we do, but they're certainly trying."

Craft beer doesn't excite Freeborn & Peters' Brandt the way cured meats do.

"I'm not joking about the cured meats thing. I'm actually interested in cured meats. My wife got me a hog-butchering class for my birthday," he said.

But in addition to lawyers not simply tailoring their work to their passion, Brandt said there may be another reason he represents brewers and not pork producers.

Ashley Brandt (above) and Brian Smith

Photos by Lisa Predko.

Craft breweries, like less-than-a-year-old Pipeworks Brewing, are just getting off the ground in a hip, young market. Pork producers, by and large, aren't trendy or growing.

Midsize firms, which typically represent smaller businesses, fit well with any young market full of fledgling businesses, Brandt said.

"There are attorneys involved in any new industry and the fact that this one — craft alcohol, craft beer — is in the middle of a renaissance accounts for the reason I'm here," he said.

Zimmermann, the law firm consultant, said plenty of examples exist where law firms developed a niche in a growing market and used that expertise to expand in size. He pointed to Fenwick & West, once a four-lawyer firm that represented Apple Inc. at its founding. While it still lists Apple as a client, Fenwick & West today says it has 300-plus attorneys.

Freeborn & Peters did not say the goal of its food practice is to become a significantly larger firm. But Zimmermann said despite the possible pitfalls of the approach — mostly stemming from the small amount of startups that hit it big — it is a trademark of successful firms.

"At the end of the day," Zimmermann said, "what choice they make in terms of what to focus on is less important than the fact that they are making choices to focus in general."