By Casey Sullivan

One of the biggest proposed U.S. law firm mergers of the year has been called off, the leaders of the two firms told Reuters on Monday.

The potential merger between the California-based Orrick Herrington & Sutcliffe and Pillsbury Winthrop Shaw Pittman in New York would have created one of the largest law firms in the country. It was first reported by Reuters on October 25.

Orrick Chairman Mitch Zuklie and Pillsbury Chairman James Rishwain said in a joint interview that a conflict of interest between clients in Orrick's public finance practice and Pillsbury's tax, environmental and real estate practices killed the merger.

"We are disappointed that we are not able to bring this over the goal line," said Zuklie.

The chairmen declined to identify specific clients, but Rishwain said Orrick represents government agencies that are sometimes on opposite sides of disputes with companies represented by Pillsbury.

According to Orrick's website, the firm has historically advised governments and underwriters on big publicly funded projects including the Golden Gate Bridge in San Francisco and Carnegie Hall in New York City.

Orrick's clients have also included Apple Inc, Microsoft Corp and PG&E Corp, while Pillsbury has represented Chevron Corp, BNY Mellon and Xerox, among others, according to sources with direct knowledge of the firms' clients.

Orrick, with about 1,000 lawyers, and Pillsbury, with more than 600 lawyers, were engaged in merger talks since July, the chairmen said. When Reuters reported the news in October, both sides expected a deal to come together within weeks, according to a source with knowledge of the discussions.

The new firm would have had a large presence in San Francisco and Silicon Valley. The deal aimed to elevate the firms' practice areas of energy and infrastructure, financial services and technology.

The new firm was to be named Orrick Pillsbury, according to the chairmen.

The merger talks between the two firms had been closely watched in the U.S. legal industry because of both firms' size and histories in Northern California. Both were founded in San Francisco in the 1860s.

Rishwain said that the two firms had tried to resolve the client conflicts over the past two months but declined to elaborate on the firms' approach. Both Orrick and Pillsbury had anticipated the problem from an early point in merger discussions, according to the chairmen.

"Ultimately we could not come up with a workable solution," said Rishwain.

Legal experts say that it is not uncommon for a proposed law firm merger to be derailed by client conflicts.

Typically, the conflicts are addressed by getting clients to consent to the merger in signed waivers or by laying off lawyers whose clients are conflicted, said legal consultant Kent Zimmermann.

In early 2011, clients' adverse interests played a role in the collapse of talks between the former Washington law firm Howrey and Chicago-based Winston & Strawn, according to a person with direct knowledge of the deal.

Howrey represented dairy farmers in a price-fixing case against Dean Foods and other milk processors, while Winston acted for an industry trade group on the defense side. Howrey subsequently filed for Chapter 11.

Rishwain and Zuklie said they were not planning on recruiting partners from each other following the merger talks, and expressed their respect for each others' firms. The firms have entered into a non-solicitation agreement under which they have agreed not to recruit from each other for one year, an Orrick spokeswoman said.

Under different leadership, Orrick has in the past poached lawyers from law firms with which it has had unsuccessful merger discussions.

In 1998, the firm recruited 40 lawyers from the 60-lawyer New York-based Donovan Leisure Newton & Irvine after engaging in protracted merger talks, according to news reports that appeared in legal trade publications and the New York Times. Donovan Leisure dissolved later that year in what commentators said was a result of the exodus to Orrick, it was reported.

In 2005, the firm recruited 11 partners of the now-defunct Coudert Brothers following discussions with the then-ailing New York-based law firm about a potential merger or combination, according to reports in the New York Observer and legal trade publications. Coudert voted to dissolve the same year, the reports said, and lost a number of additional partners to competitors.

The merger of Orrick and Pillsbury would have created the ninth-largest law firm in the United States by revenue, according to financial figures reported to the American Lawyer for 2012.

Follow us on Twitter: @ALB_Magazine.