Baker and Botts, L.L.P.
Baker and Botts, L.L.P.
Founded : 1840 as Peter W. Gray
Employees : 1,300
Sales : $206 million (1998 est.)
NAIC : 54111 Offices of Lawyers
With branch offices in Dallas, Austin, New York, London, Moscow, Washington, D.C., and Baku, Azerbaijan, the Houston-based law firm Baker & Botts, L.L.P. ranks among the 50 largest law firms in the world, based on gross revenues and number of attorneys. It represents over half the Fortune 500 companies and many other clients, including charitable organizations, government agencies, estates, and individuals. Four generations of Bakers, including former U.S. Secretary of the Treasury and Secretary of State James A. Baker III, have been part of this firm that has played a key role in making Houston a modern city. From its historic representation of railroads, oil companies, utilities, and banks, the firm has diversified in the late 20th century to provide counsel to new kinds of companies, particularly those involving computers, telecommunications, biotechnology, and intellectual property issues. Baker & Botts’s ability to serve its clients’ overseas interests is strengthened by its affiliation with Lex Mundi, a global association of independent law firms.
Origins and Developments from 1840 to 1914
Baker & Botts began in 1840 when Peter W. Gray started practicing law. Assisting him was his father, William Fairfax Gray, who died just a year later. Peter Gray wrote the first Texas law codes after statehood in 1845. After he and “Colonel” Walter Browne Botts both served in the Confederacy during the Civil War, they formed a partnership that in 1872 was joined by Judge James Addison Baker. After Gray joined the Texas Supreme Court in 1875, the firm became Baker & Botts. Other partners over several decades added to the firm’s name, but in 1971 it returned to Baker & Botts as the permanent name.
For years most of the firm’s work centered on serving mostly local clients. However, the firm began to change when it started representing railroads owned by Texans after the Civil War. Once those railroads expanded and consolidated and were taken over by northern and eastern investors, the law firm expanded its perspectives and practice. In 1893 it became general counsel for Southern Pacific, as all railroads dealt with the regulations from the federal Interstate Commerce Act of 1887.
Authors Lipartito and Pratt described Baker & Botts from 1866 to 1914 as “an elite firm in a colonial economy,” meaning that the Texas economy, including railroads, oil, utilities, and other industries, were dominated by outside corporations that needed the help of local attorneys. Because of the hodgepodge of laws from state to state, well-connected local lawyers such as those at Baker & Botts played a key role in the expansion of large corporations in Texas.
During this time, Judge Baker’s son “Captain” James A. Baker began his long, prominent career with Baker & Botts. One of his and the firm’s most celebrated cases involved Houston’s William Marsh Rice, a prominent businessman who first used the services of Peter Gray in 1840. Rice wanted a Houston institution of higher education to inherit his money, which Captain Baker helped make a reality. First, he contested a will of Rice’s wife that funneled money to other causes. After Rice died suddenly in New York City in 1900, two men claimed his inheritance. Captain Baker traveled to New York City because of reports of foul play. It was soon discovered that Rice had been murdered and one of the murderers, a local attorney, had prepared a false will. That allowed Rice’s money to finally fund Houston’s Rice University.
Meanwhile, oil fever struck Texas, starting in 1901 with the major strike at Spindletop. Soon major firms established refineries on the Louisiana-Texas Gulf Coast and opened offices in Houston. Baker & Botts’s first major oil client was the Texas Company (Texaco), which paid the firm a retainer from 1914 through 1954. Although Texaco soon became a major national and international law firm, Baker & Botts’s role for several years was to help Texaco deal with Texas laws.
A Growing Regional Firm, 1915-29
In 1914 Captain Baker presided over opening the Houston ship channel to the Gulf of Mexico, which allowed the city to bypass Galveston as the major port in that area. The channel tied Houston to the rest of the nation and helped the law firm become a leading regional law firm. Baker & Botts became a major law firm in the oil industry, but it continued to specialize in Texas law.
Baker & Botts also played a role in consolidating local utility companies during this period. The best example was its representation of Electric Bond & Share Company (EBASCO), the Chicago-based holding company. In the 1920s the firm helped EBASCO finance its acquisition of local power companies that did not have the resources to respond to Houston’s growing need for electricity.
A National Practice, 1930-89
The Great Depression not only retarded the Texas regional economy; it also brought major new federal laws and regulations impacting many industries. For example, the Securities and Exchange Commission changed stock trading, and the Wagner Act increased the power of unions and changed labor laws. Lipartito and Pratt called it the “federalization” of corporate law. Responding to the New Deal legislation, Baker & Botts decided to move beyond Texas law and master the new federal legal requirements and thus become more of a national law firm akin to those on Wall Street.
In the 1930s Baker & Botts instituted an antinepotism rule to prevent family members from having undue influence in firm management. In its early decades several members of the Baker and Botts families ran the show, but becoming a national law firm required a more professional approach based simply on qualifications and experience.
After World War II, the booming Houston economy, led by the oil, natural gas, and chemical industries, brought the firm more nationally prominent clients. In the 1950s James A. Baker, Jr., began his career at Baker & Botts, following in his father’s and grandfather’s steps.
The firm increased from 47 to 132 attorneys between 1948 and 1968. Three years later it moved to new offices in One Shell Plaza, one of Houston’s first modern skyscrapers.
In the 1970s and 1980s the firm began to add new attorneys who were not WASP (white-Anglo-Saxon-Protestant) males, including Jews, women, and blacks.
Baker & Botts added new offices in the 1970s and 1980s, starting in Washington, D.C., in 1972, in Austin a few years later, then in Dallas in 1985. This growth reflected expansion of clients’ national and international business. It also resulted from growing competition within the legal profession, fueled by U.S. Supreme Court decisions that said professional restrictions on advertising violated the First Amendment and antitrust laws and also by the publishing of financial data about law firms in the new 1979 magazine the American Lawyer. In addition, the newspaper Texas Lawyer began in 1987 to cover the finances of Texas law firms.
Such law firms as Baker & Botts grew rapidly in the last part of the 20th century partially because of the litigation explosion started in the 1960s. In 1964 the California Supreme Court in Vandermark v. Ford Motor Company ruled that a car dealership was liable for failed brakes on a car it had sold, “regardless of the obligations it assumed by contract.” This and other cases led to what some have called the death of contracts and the rapid expansion of tort law and increased litigation. For example, Peter Huber in his well-documented 1988 book Liability wrote that, “The number of tort suits filed has increased steadily for over two decades. So has the probability that any given suit will conclude in an award. And the average size of awards has grown more rapidly still.”
In one of Baker & Botts’s major cases, close personal ties helped its client Pennzoil win over Texaco. Pennzoil had tried to acquire Getty Oil, but the deal fell through when Texaco purchased Getty. At that point Pennzoil sued Texaco for pressuring Getty to not complete its deal with Pennzoil. The jury decided that Texaco was guilty and should pay Pennzoil $10.5 billion. Texaco appealed and sought bankruptcy protection but finally in 1988 agreed to pay $3 billion in a cash settlement.
In 1988 Baker & Botts managing partner E. William Barnett said that Pennzoil v. Texaco had commanded his firm’s attention more than any other in its long history. Several books resulted from this controversy, including James Shannon’s Texaco and the $10 Billion Jury published by Prentice-Hall in 1988.
Challenges in the 1990s
In 1990 Baker & Botts’s Dallas office hired about a dozen patent attorneys from the Dallas firm of Baker, Glast & Middleton. That “really represented a first step,” said E. William Barnett in the May 21, 1990 Houston Business Journal. “The protection of intellectual property, technology, is more important than ever. That’s particularly true in our part of the country. ... The demand has grown enormously.”
On November 1, 1997 the New York City firm of Brumbaugh, Graves, Donohue & Raymond merged with and became part of the New York Baker & Botts office. That merger resulted in Baker & Botts having over 100 attorneys specializing in intellectual property (IP) issues, the most in “any general firm in the country,” according to Scott Partridge, the head of Baker & Botts’s intellectual property practice in Houston, in the December 12, 1997 Houston Business Journal.
The rapidly growing IP specialty included patent lawsuits, which accounted for about 75 percent of all IP suits, and trade secrets theft, which were difficult to prove in court. Sometimes the cure for IP violations, namely litigation, was worse than the original problem because of huge legal fees. For example, Houston’s Tanox Biosystems faced $500 million in attorney fees in one case. This excessive cost of litigation hurt not only companies but also consumers, for firms pass on their expenses to their customers.
Baker & Botts IP attorneys helped i2 Technologies become a public corporation in 1996. The Dallas-based software firm had a market capitalization of almost $1 billion. The law firm’s other high-tech clients included Electronic Data Systems Corporation, Dell Computer Corporation, Lucent Technologies, and Texas Instruments.
In 1998 Baker & Botts represented Tele-Communications, Inc. (TCI) in its $65 billion merger with AT&T. Its telecommunications clients also included GTE Corporation, Cablevision, and Primestar.
Based on its work around the Caspian Sea starting in 1992 representing Pennzoil, Azerbaijan International Operating Company, and Howard Energy International, and building on its long history in the oil industry, in 1998 Baker & Botts opened a branch office in Baku, Azerbaijan, under the supervision of the firm’s Moscow office. Due to increased interest in oil near the Caspian Sea, many oil companies needed extra legal counsel in gaining oil rights, setting up joint operations, building pipelines, and establishing oil tanker routes.
In 1999 Baker & Botts continued representing oil firms, such as Chevron Corporation, Conoco Inc., Exxon Corporation, Marathon Oil Company, Occidental Petroleum Corporation, and Shell Oil Company. In 1998 the law firm worked on 11 oil and gas mergers, acquisitions, or spinoffs that each were valued at more than $1 billion.
Clients in the chemical industry included Dow Chemical, Equistar Chemicals, Huntsman Petrochemical Corporation, and Lyondell Chemical Company. Columbia University and William Marsh Rice University were representative educational clients. Several banks and financial institutions received Baker & Botts’s legal counsel, including Bank of America, Chase Bank of Texas, Lehman Brothers, Merrill Lynch, Salomon Smith Barney, the Federal Deposit Insurance Corporation, and Donaldson, Lufkin & Jenrette Securities Corporation.
Other miscellaneous clients in the 1990s included United Parcel Service, the Houston Rockets, Prudential Insurance, the Republic of Yemen, Deloitte & Touche, Global Marine, Ford, New York Life Insurance, Mitsubishi, HealthSouth, Grupo Mexico, Andersen Consulting, and American Airlines.
Because many of these and other corporate clients were multinational corporations, Baker & Botts over the years forged working relationships with many overseas law firms, and then in the 1990s became the only Texas law firm to join Lex Mundi, a worldwide association of about 150 independent firms created in 1989.
Joining Lex Mundi or one of the other global law firm associations contrasted with two other strategies. Some law firms became linked internationally through ties with one of the large accounting firms. The third and less common approach was for a large law firm to start its own offices in many nations. With branch offices in 35 countries, Chicago’s Baker & McKenzie exemplified this third strategy.
In spite of major changes, Baker & Botts in the 1990s continued one firm tradition by having James A. Baker III affiliated with the firm. Most of his career had been spent with another law firm and then in the 1980s President Reagan chose him as secretary of state.
The Texas Lawyer ranked Baker & Botts, with 410 lawyers, as the state’s third largest law firm, based on its 1995 gross revenues of $171 million. Fullbright & Jaworski was the largest Texas law firm, with 615 lawyers and $227 million in gross revenues, while the 512-lawyer firm of Vinson & Elkins ranked number two, with $217 million in gross revenues. These three firms all were based in Houston, which along with Dallas firms dominated the state’s legal profession.
In 1995 about 2,250 lawyers practiced in Houston and also in Dallas. However, by 1998 Dallas firms employed 3,061 lawyers, compared to Houston’s 2,441 lawyers. Moreover, the Texas Lawyer 1998 survey showed that Dallas law firm revenues were increasing at almost twice the rate of those in Houston. Baker & Botts, of course, had a major office in both cities.
In November 1998 the American Lawyer, in its first survey of the world’s largest law firms, ranked Baker & Botts as number 50 based on the number of its lawyers. Only two percent of its 496 lawyers were based outside the United States. Thirty of those top 50 firms had less than ten percent of their lawyers working outside their home country. Based on its gross revenue of $206 million, Baker & Botts was ranked as number 44 in the world. With $80.8 million in 1998 net profits, the firm enjoyed a prosperity fueled by a generally good U.S. economy.
As the new century and millennium approached, Baker & Botts faced plenty of competition and challenges. Many corporations hired inhouse lawyers to avoid paying high fees to outside attorneys. Some lawyers left Baker & Botts for greener pastures with other firms or to start their own businesses. Other lawyers left the profession or worked part-time to avoid stress and long hours and to have more flexibility and time for their families. A self-help consumer movement was stimulated by the availability of knowledge on the Internet and standard legal forms found in inexpensive software packages. Independent paralegals tested the boundaries of what it meant to practice law. The profession itself came under intense criticism from academics, journalists, and the general public.
Although Baker & Botts had changed over the decades, it remained cognizant of its long history, as seen by the fact that it commissioned two professionals to write the firm’s history without any restrictions, except for client confidentiality. It also deposited its records in the Baker & Botts Historical Collection at Rice University’s Woodson Research Center. That willingness to learn from its heritage helped the firm prepare for the future.
“Baker & Botts to Establish Office in Azerbaijan,” Business Wire, May 28, 1998, p. 1.
Bundy, Stephen M., “Commentary on ‘Understanding Pennzoil v. Texaco’: Rational Bargaining and Agency Problems,” Virginia Law Review, March 1989, p. 343.
Cook, Lynn J., “Diverse Industries Heat up Houston’s IP Legal Market,” Houston Business Journal, December 12, 1997, p. 2B.
“The Global 50,” American Lawyer, November 1998, pp. 45-49.
Greer, Jim, “Baker & Botts Raids Dallas Law Firm,” Houston Business Journal, May 21, 1990, p. 1.
Huber, Peter W., Liability: The Legal Revolution and Its Consequences, New York: Basic Books, 1988.
Lipartito, Kenneth, “What Have Lawyers Done for American Business? The Case of Baker & Botts of Houston,” Business History Review, Autumn 1990, p. 489.
Lipartito, Kenneth, and Joseph Pratt, Baker & Botts in the Modern Development of Houston, Austin: University of Texas Press, 1991.
Naj, Amal Kumar, “Manufacturing Gets a New Craze from Software: Speed—Recent Applications Cut Supply-Line Guesswork and Expand Capacity,” Wall Street Journal, August 13, 1996, p. B4.
Palay, Thomas, “Baker and Botts in the Development of Modern Houston [book review],” Business History Review, Summer 1992, p. 389.
“Texas Is New Wild West for Law Firms,” Salt Lake Tribune, November 26, 1998, p. D2.
—David M. Waiden