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Congress Cools, Agencies Heat Up for K Street

Divided government could well mean gridlock for Capitol Hill, but it also may bring a windfall for K Street law firms as the focus shifts from legislating to regulating.

Already a number of law firms are beefing up their regulatory staffs. They see potential new business in helping their clients deal with agencies that are implementing the health care and financial reform laws and stepping up activity in environment, energy and communications areas.

“This is going to be the lawyers’ employment act of 2011,” said Ivan Adler, a K Street headhunter at the McCormick Group. “The real action is going to be at the agencies, not at the Hill. And the law firms are the ones that employ those regulatory attorneys, and they’re really going to benefit from all of this.”

Rich Gold, a partner at the law and lobbying firm Holland & Knight, said he first noticed the move toward more regulatory business last spring after the passage of the health care law.

Gold said his firm has increased its public policy staff by about 10 percent since November, with most of the new hires in the regulatory arena. He also said that while the firm’s fourth-quarter lobbying revenue for 2010 is down compared with the same period in 2009, the overall revenue is up, with much of it attributable to regulatory work. Not all regulatory work is disclosed on lobbying disclosure reports filed with Congress.

“We’ve gone from the most aggressive legislative agenda since 1964 to a period of digesting what has happened,” he said. Gold added that for many corporate clients, the task of picking a lobbying firm is now falling to the general counsel rather than chief operating officer, which may benefit law firms that lobby. The general counsel, being a lawyer, is likely to be more partial to law firms, Gold suggested.

Patton Boggs, which generally ranks at or near the top in terms of lobbying revenue, has also been expanding its regulatory team. This month the law firm announced the addition of two members to its energy regulatory and enforcement practice: Cynthia Marlette, former general counsel of the Federal Energy Regulatory Commission, and G. Scott Binnings, formerly a member of the energy group at Latham & Watkins.

“We are certainly more focused on trying to get the best regulatory talent,” said Kevin O’Neill, the deputy chairman of Patton Boggs’ public policy department.

Last year Patton Boggs acquired the Breaux-Lott Leadership Group, which had been one of the faster-growing boutique lobbying shops. O’Neill said one reason for the purchase was that Breaux-Lott clients wanted lobbying services that went beyond legislation.

The decline in legislative action, particularly the recent push to eliminate earmarks, has hurt lobbying firms that built much of their practice around appropriations. One such example is Cassidy & Associates, which last year laid off almost 20 percent of its staff.

But executives with stand-alone lobbying shops dispute the premise that their business will suffer as the emphasis shifts to regulatory action. They argue they provide services related to public relations and policymaking that are valuable in influencing agency actions.

Tony Podesta, chairman of the Podesta Group, one of the largest stand-alone lobbying and public relations firms, said he agreed that much of the lobbying in the next few years will take place away from Capitol Hill and move to the regulatory agencies.

But Podesta said law firms may not have the advantage on regulatory lobbying, because they may not be comfortable organizing publicity campaigns to influence agency action. For example, he said, such lobbying might involve submitting editorials to local newspapers.

He also recalled a lobbying effort over a Department of Agriculture rule on the proper temperature for chickens in which his firm enlisted the help of famous chef Wolfgang Puck.

“It’s good to have smart regulatory strategists and not all regulatory strategists are lawyers,” he said.

Podesta added that his firm has been called in by law firms to help on regulatory issues. And as if to underscore that point, Podesta interrupted a phone call with a reporter because, he later said, he had to take a call from an official at a federal agency.

Stand-alone lobbying firms also have their share of lawyers. About half of the senior staff at the Podesta Group are lawyers.

A majority of the five-lobbyist staff at Thorn Run Partners are also lawyers, said Andy Rosenberg, who last year helped launch the bipartisan firm. Rosenberg also said there will still be plenty of advocacy work on Capitol Hill for shops such as his.

“If anybody thinks the role of Congress will disappear, they are wrong,” he said.

A number of new House Republican chairmen are already threatening to hold oversight hearings on agency rule-making, particularly on the new health and financial services laws. In addition, GOP lawmakers will investigate the Environmental Protection Agency’s efforts to regulate greenhouse gases and the Federal Communications Commission’s move to regulate the Internet.

The likelihood of budget cuts is also expected to spur lobbying by various municipalities and private contractors eager to protect their funding.

While regulatory experts are in high demand this Congress so are former lawmakers. The law firm Arent Fox recently hired two longtime veteran Senators: Bob Bennett (R-Utah) and Byron Dorgan (D-N.D.).

Craig Engle, a partner at Arent Fox, said the former Senators will be able to offer their clients advice on navigating the regulatory process as well as Capitol Hill.

“Law firms that have regulatory expertise will be best positioned to move the agenda and help their clients,” Engle said.

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