http://www.nytimes.com/2012/05/12/business/dewey-partners-and-retirees-face-huge-financial-losses.html
http://www.newyorklawjournal.com/PubArticleNY.jsp?id=1202553320934&slreturn=1
As Dewey Collapses, Partners and Retirees Face Big Financial Losses
By TARA SIEGEL BERNARD
Published: May 11, 2012
For the law partners at Dewey & LeBoeuf, losing their jobs may be the least of their worries.
Ángel Franco/The New York Times
David P. Bicks, a partner at LeBoeuf for nearly 40 years, leads a group of retirees fighting for pensions.
Related
They are likely to lose the money they were required to invest in the firm. They could lose their pensions. They may have to give back money they have already been paid. And even if creditors eventually agree to accept a small portion of what they are owed, the partners may owe taxes on the forgiven debt.
Many partners have found new jobs. Still, a new reality is sinking in: not only will they lose the sizable sums tied up in the firm, they may actually owe money. And that has resulted in difficult conversations with spouses, phone calls to advisers and even for-sale signs on front lawns.
“I tell them that the minute they leave my office or end our phone call, they should immediately contact a personal bankruptcy lawyer and take steps to protect themselves,” said Jerome Kowalski, a lawyer who is consulting with some Dewey partners and has been involved in the demise of previous law firms.
Dewey’s staff assistants and office administrators, as well as its retirees and retirees’ widows, will be caught in a collapse of the firm, too.
As Dewey Collapses, Partners and Retirees Face Big Financial Losses
By TARA SIEGEL BERNARD
Published: May 11, 2012
For the law partners at Dewey & LeBoeuf, losing their jobs may be the least of their worries.
Ángel Franco/The New York Times
David P. Bicks, a partner at LeBoeuf for nearly 40 years, leads a group of retirees fighting for pensions.
Related
They are likely to lose the money they were required to invest in the firm. They could lose their pensions. They may have to give back money they have already been paid. And even if creditors eventually agree to accept a small portion of what they are owed, the partners may owe taxes on the forgiven debt.
Many partners have found new jobs. Still, a new reality is sinking in: not only will they lose the sizable sums tied up in the firm, they may actually owe money. And that has resulted in difficult conversations with spouses, phone calls to advisers and even for-sale signs on front lawns.
“I tell them that the minute they leave my office or end our phone call, they should immediately contact a personal bankruptcy lawyer and take steps to protect themselves,” said Jerome Kowalski, a lawyer who is consulting with some Dewey partners and has been involved in the demise of previous law firms.
Dewey’s staff assistants and office administrators, as well as its retirees and retirees’ widows, will be caught in a collapse of the firm, too.
“I have to drastically cut down on my lifestyle, sell my home and lower my overhead in order to have my I.R.A. last me the rest of my life,” said Grace Hobelman, a widow in her middle 70s who owns a town house in the affluent Kalorama section of Washington.
She said she feared she would lose her annual pension, which was about half of what she received before the death of her husband, Carl, a partner who worked at LeBoeuf for more than 40 years.
A legal assistant who has worked at the firm for several years, who spoke on condition of anonymity because she still works at Dewey, said that employees who had 401(k)retirement plans — the firm matched their contributions up to 3 percent of their salary — could take those with them, but little else.
“There are staff members who have been with the firm for over 30 years and are being ushered out without a proper package — well, without a package at all,” she said.
Dewey & LeBoeuf would certainly not be the first law firm to fail in recent years. But it would be the largest — more than 2,000 employees worldwide at its height — with a stable of top lawyers in a range of fields. Dewey’s roots go back 100 years, while LeBoeuf’s date to 1929.
Their merger in 2007 helped sow the seeds of the firm’s current problems, with top partners guaranteed lofty payouts worth millions of dollars that the firm, in the end, could not afford.
Morton A. Pierce, a former vice chairman of the firm, underscored what was at stake for the top partners in his resignation letter last Friday. Mr. Pierce, one of the highest-paid partners, who had a contract paying him $8 million a year, informed Dewey that he wasowed $61 million, according to a person with direct knowledge of the matter.
At the same time, at least one group of retired partners from the legacy LeBoeuf firm has started to fight for their pensions. David P. Bicks, a partner at LeBoeuf for nearly 40 years who remains of counsel, meaning he is available for consultation, is acting as one of their representatives. He said the majority of their pensions were unfunded — meaning they were paid from revenue — and not backed by the federal Pension Benefit Guaranty Corporation. He said about 75 current and former partners were receiving payouts, and collected about $6 million in total last year.
“I have been fielding calls from these people and it is just tragic,” Mr. Bicks said. “These are people who built a great institution and who had nothing remotely to do with the events that have brought the firm to its knees. Their questions to me are always, ‘How could this have happened?’ ”
There are 1,788 participants in three Dewey & LeBoeuf pensions that are insured by the pension agency. Those pensions are 59 percent funded with unfunded liabilities of more than $8o million. On Thursday, the pension agency said that it would take over the plans to try to collect as much money as possible to fill that gap, and that many pensioners would be covered by its insurance, up to certain limits.
As for the current partners at the firm, which was structured as a limited liability partnership, they are generally not individually responsible for the firm’s obligations. But in the event of a bankruptcy (or perhaps even outside of a bankruptcy), they could face certain claims. They are also last in line to be repaid anything owed them, behind banks and creditors.
That means partners are unlikely to recover any money they were required to keep with the firm. (In recent years, partners had to keep 36 percent of their target compensation in the account, according to Mr. Bicks, although they sometimes borrowed the money to meet the requirement.) Normally, partners would take their funds with them when they left.
It is also likely that partners may only be able to take losses on their tax returns in small increments, said Noel P. Brock, a tax lawyer, assistant professor at West Virginia University and the former partnership tax practice leader at Grant Thornton. He said the partners might also be required to pay taxes on canceled debts of the firms, since that is generally treated as income.
And if the firm were found to be insolvent, say, at some point last year, the bankruptcy trustee or the firm’s creditors could make a claim that the partners were paid too much and try to recover the excess. Or creditors could try to collect profit made on cases that partners began at Dewey but took with them to a new employer — known as unfinished business, according to Allan B. Diamond, who served as the Chapter 11 trustee in thebankruptcy at Howrey L.L.P.
There is not much the partners can do to shield themselves now. “In my experience, most of the time partners will end up settling with either a bankruptcy trustee or a creditor’s committee,” said Tracy L. Klestadt, a bankruptcy lawyer who represented former law partners at Thelen L.L.P. and Heller Ehrman L.L.P. in the bankruptcies of those firms.
Annette W. Jarvis, a lawyer who is one of the co-heads of the finance and restructuring department at Dorsey & Whitney, represents about 45 of the 75 LeBoeuf retirees who stand to lose most of their pensions. She said a bankruptcy filing would at least lift the “cloak of secrecy.”
“It’s a real problem that we can’t get any information from the firm to let us know if things are being done appropriately,” she said.
Emily Bond, 79, has also had trouble getting answers. She retired in 1989 from legacy LeBoeuf, where she was the office administrator for nearly 30 years. Her annual pension is $63,000 but she said she might lose about two-thirds of that.
“The partners are, I think, guilty at least of selfishness for not paying the required funding,” said Mrs. Bond, of Winter Park, Fla. “I hope they feel ashamed.”
http://www.newyorklawjournal.com/PubArticleNY.jsp?id=1202553320934&slreturn=1
Ex-Dewey Staffers Feel 'Thrown Under Bus'
New York Law Journal
May 14, 2012
The loading dock at Dewey & LeBoeuf's offices at 1301 Avenue of the Americas was busy on Friday as most non-legal staff was laid off and a rash of new partners left the firm.
NYLJ/Rick Kopstein
NYLJ/Rick Kopstein
New York employees of beleaguered Dewey & LeBoeuf collected their belongings on May 11 and said goodbye to colleagues on their last day after the firm laid off scores of non-attorney personnel.
Some staffers described the mood in Dewey's offices as somber and like a "funeral." Others expressed anger at firm management, blaming them for orchestrating what is shaping up as the largest law firm failure in history.
"People have been thrown under the bus," a woman who described herself as a Dewey staff member said outside the firm's Avenue of the Americas offices but declined to be identified. "It's very sad." Lawyers and staff "are bursting into tears," she added.
Meanwhile, the firm's downward spiral continued with the announcement that Martin Bienenstock, a Dewey partner in the office of the chairman, was joining Proskauer Rose as a partner in the corporate restructuring and governance practice. Five partners said they would follow Bienenstock to Proskauer.
Two other members of the chairman's office, Richard Shutran and Jeffrey Kessler, also announced last week that they were leaving.
By late afternoon May 11, only one partner in the chairman's office had not announced his departure: L. Charles Landgraf, managing partner of the Washington, D.C., office and chair of its legislative and public policy practice.
See more Dewey news from The Am Law Daily.
Dewey sent employees a notice on May 4 that their jobs could be terminated. Last week, the firm confirmed to many associates and staff members that they were being laid off, employees said in interviews. May 11 would be the last day for many non-legal staff, while some associates were told their last day would be tomorrow.
The timing of the notice has prompted an employee lawsuit (See Complaint). The suit, filed on May 10, claims the firm failed to provide enough advance notice for the terminations, as required by federal and state Worker Adjustment and Restraining Notification Act (WARN) laws. The suit is seeking class certification.
At least 450 employees are members of the proposed class, which includes associates and staff in the firm's New York office, said Rene Roupinian, a partner at Outten & Golden who filed the action along with Jack Raisner. However, she said that most members of the class are non-legal staff.
Vittoria Conn, 55, the named plaintiff in the suit, said in an interview that the firm is not providing severance pay. Employees' last pay check will only include the final weeks of pay and unused vacation time, she said.
"We're landing completely without a cushion," said Conn, a document specialist who has worked at Dewey for more than 12 years. "As an employee, what I need now is what the law provides."
"I'm pay check to pay check, like so many other people," she said. "I get one more pay check, and then what? I won't make rent next month."
She said employees were put in a tough position of seeing news and blog reports, without any internal communication by the firm.
"For two to three months we've been wondering who do we listen to? Do we get our truth from blogs, from newspapers," she said. "Or do we get our truth from internal communications, which were all sunshiny and optimistic. You can't really make a decision on your future with conflicts like that. You don't really know."
Movers on May 11 take artwork from 1301 Avenue of the Americas, where Dewey's New York offices are located.
Maggie Soladay
Employees interviewed outside Dewey's offices on May 11 described similar financial straits to those Conn recounted. Three said they believe most people in the New York office have not found new jobs.
"I'm scared to death," said one, who worked in the firm's IT department and who would only provide her first name, Karen. "I don't know if I'm going to lose my home. I can't believe this is happening."
Another who declined to be identified said lawyers "have not been active" in bringing staff with them to new firms. But she said she had seen partners cry about the firm's deteriorating circumstances.
Employees described an office scene in which records were in boxes, furniture had been removed while fax machines and firm services, such as the cafeteria and mail room, were not functioning.
"It's disgusting. There are thousands of boxes. It's pandemonium," said the woman who declined to be identified of conditions at the firm's midtown offices, which take up several floors at 1301 Avenue of the Americas.
Not all employees were leaving. Staff members said a skeleton crew would remain to help clean up and collect supplies.
Conn's lawsuit, filed in the U.S. District Court for the Southern District of New York, seeks to recover at least 60 days of wages and benefits, under the federal law. The firm has not responded to requests for comment on the layoffs or the lawsuit. Conn v. Dewey & LeBoeuf, 12 cv 3732, has been assigned to Judge Laura Taylor Swain (See Profile).
Resolution of the lawsuit likely would turn on whether the circumstances of the layoffs trigger narrowly drawn exceptions to otherwise required notice. Among those circumstances might be the unexpected loss of a major contract or an unanticipated dramatic economic downturn.
"We feel strongly that the firm is liable and responsible for these wages and benefits," said Roupinian, who estimated that the collective total of wages and benefits owed would run into the millions of dollars.
By late May 11, the firm had not announced a dissolution vote or a bankruptcy filing, but Roupinian said wages and benefits are priority claims under the Bankruptcy Code.
"We do have a priority claim if the company files for bankruptcy," she said. "Among the unsecured creditors, the employees would be at the top of the list."
However, secured creditors, including lenders owed money by the firm, would come first.
and......
http://www.insidecounsel.com/2012/05/11/more-law-firms-may-end-up-like-dewey-forbes-says
More law firms may end up like Dewey, Forbes says
Large law firm model promotes free agency, stifles change
When it comes to Dewey & LeBoeuf, we’ve
been like gawkers driving slowly past a car crash, our morbid fascination at times overwhelming the tragedy of the long-established firm’s slow and painful demise. Today on Forbes, though, Axiom CEO Mark Harris warns that Dewey’s saga may not be an anomaly, and in fact, the traditional model of a large law firm sets itself up for similar failure.
been like gawkers driving slowly past a car crash, our morbid fascination at times overwhelming the tragedy of the long-established firm’s slow and painful demise. Today on Forbes, though, Axiom CEO Mark Harris warns that Dewey’s saga may not be an anomaly, and in fact, the traditional model of a large law firm sets itself up for similar failure.
While the rest of the business world changes, law firms stay the same. “The micro-economy of corporate lawyers has been preserved in the kind of pristine stillness usually associated with nuclear waste in an underground salt cavern,” Harris writes. For example, while nonlegal business costs have increased by 20 percent over the past 10 years, law firm prices have increased by 75 percent, and corporate clients are not happy. A 2010 survey showed a decrease in legal spending for the first time in years.
Maybe, Harris posits, the problem is in the pocketbooks. Lawyers work long and hard to achieve partner status at a firm, and the handsome compensation that goes hand-in-hand with that title. Of course, when law firms want to change up the traditional model using modern technology or different delivery methods, that change can be costly. If the firm decreases partners’ salaries to invest in the future, partners may start to defect to places where they can get the compensation they feel they deserve. And then, Harris says, we have another Dewey situation on our hands.
The actual Dewey situation, to no one’s surprise, continues to worsen. The third of its four-member leadership team is leaving to join Proskauer Rose LLP, and one of Dewey’s employees filed a lawsuit against it on Thursday, alleging that the firm did not give enough notice for its giant 450-employee layoff.
“In a new era of unabashed free agency, the move to abandon firm loyalty and make haste for the highest bidder will be rationally irresistible,” Harris writes.
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