This article originally appeared on IncisiveMedia's law.com website

SAN FRANCISCO-Two years ago, Heller Ehrman's Menlo Park, CA, office was filled with hope as workers put the finishing touches on a fancy remodel.

With news Monday that the collapsed law firm negotiated a settlement with WSJ Properties to get out of the expensive lease, the office is offering a new kind of hope--that Heller might avoid bankruptcy."That is a very good sign that they've settled with a landlord," says Frederick Holden Jr., a bankruptcy partner at Orrick, Herrington & Sutcliffe.

Holden should know. He was a partner at Brobeck, Phleger & Harrison, which collapsed during the dot-com bust and was forced into involuntary bankruptcy by jilted landlords in 2003.

The new tenant at 275 Middlefield Rd. is Chicago-based McDermott, Will & Emery, which revealed on Monday that it had signed a new 10-year lease.

Heller has relieved itself of leases on its tiny outposts in Anchorage, Alaska, and Madison, WI, but still has to deal with its biggest offices in New York and San Francisco.

"Bankruptcy is not inevitable, and we have been in the process of negotiating with all our landlords, and we were pleased that we were able to make an agreement with the landlord in Silicon Valley," says Jonathan Hayden, a member of Heller's dissolution committee.

Hayden, now a partner at Lovitt & Hannan, would not disclose the terms of the settlement, and WSJ Properties did not return a phone call seeking comment.

For McDermott, the move is a bold one. The firm, known for its IP practice, has lost a number of partners this year and is now moving its 60 lawyers into a space that has room for 100.

"This is a huge commitment to continuing our growth," says Anthony de Alcuaz, partner-in-charge of McDermott's Silicon Valley office, currently in Palo Alto, CA. "It's a huge vote of confidence from the firm, in this market."

McDermott is leasing 85,000 square feet of Heller's 120,000 square feet. De Alcuaz says the office is branching out from its traditional practice areas, and the new space will soon be filled by new lawyers in areas like patent prosecution and labor and employment.

"We're getting into practice areas that we haven't traditionally been in," he says, adding that the office will also beef up its corporate and tax practices. Over the past year, McDermott has lost a number of younger IP partners, most recently a group that went to White & Case. De Alcuaz contended that the office isn't hurting because of the losses.

"Generally, people don't leave here because they've found a better opportunity," de Alcuaz says.

McDermott, which will move in February, was represented by George Fox of real estate firm Studley, who said the lease was a good deal."Far below what market would be for plug-and-play space for a law firm," Fox says.

The space had been rumored to be going for an annual rate of about $63 per square foot, but Fox said that was too high, without elaborating.

Heller's Hayden says that although bankruptcy is "always an issue that looms in these situations," his firm is continuing to collect its receivables and pay off its secured debt and is hopeful that will continue.

"We aren't interested in going into bankruptcy, and so we're going to try to avoid that," he says.

Zusha Elinson can be reached at zusha.elinson@incisivemedia.com.

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McDermott Takes Heller's Silicon Valley Space

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