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Friday, 25 July 2014

’Til death Dewey part

Dewey lawyers pay for being partners in name only

Lawyers at Dewey & LeBoeuf are paying for being partners in name only. Far from sharing the bankrupt U.S. firm’s ups and downs, they were often at each other’s throats. That’s bad form in business, even in the best of times. More collaboration may not have saved the once-venerable law shop. But it could have defused the harsh court battles to come.

Traditional law firms like the original Dewey Ballantine spread profits and losses among partners. But Dewey’s 2006 merger with LeBoeuf, Lamb, Greene & MacRae upended tradition. The biggest rainmakers - and the partners poached from rival firms - got confidential, multi-year guarantees upwards of $6 million annually. Home-grown grunts made about a tenth of that, depending on the firm’s fortunes. When the recession brought pay cuts and IOUs, resentment surged.

Dewey’s demise wasn’t inevitable, however. True partners might have come clean about their mistakes, stressed the dangers of a firm implosion and pledged to work through the problems. Instead, as Reuters reported, partners at an October 2011 meeting were met with more obfuscation and threats to non-producers that led to a fatal exodus.

The firm is now paying with a potentially acrimonious wind-up. New York prosecutors are investigating financial misconduct charges that partners raised against their own former chairman. The U.S. government is suing for $80 million in unfunded pension liabilities. And many Dewey attorneys may soon be immersed in litigation.

A U.S. district judge ruled last week, for instance, that the trustee for defunct New York law firm Coudert Brothers could claw back profits from cases that former partners brought with them to new firms. The ruling could well apply to Dewey. What’s more, the firm’s bankruptcy trustee might be in a position to claw back guaranteed draws paid to partners while the firm was insolvent. Other, arguably underpaid, partners could claim some of the proceeds, as is happening similarly in the Bernard Madoff case.

Dewey at least has a long tradition of bankruptcy law on which to draw. It handled successful cases like the reorganization of the Los Angeles Dodgers. Considering the challenges ahead, it will be lucky to do even half as well for itself.

Context News

U.S. law firm Dewey & LeBoeuf filed for bankruptcy on May 28, ending almost six months of high-profile struggles to keep the 1,300-lawyer global enterprise afloat. The Chapter 11 bankruptcy is the largest law-firm collapse in U.S. history. According to documents filed with the U.S. bankruptcy court in New York, the firm has about $255 million in accounts receivable and $13 million in cash and owes about $315 million to more than 5,000 creditors.

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