http://www.reuters.com/article/2012/05/02/dewey-idUSL1E8G2OT920120502
http://abovethelaw.com/2012/05/dewey-know-whats-going-to-happen-next-lawyers-and-staff-face-uncertain-future/2/
http://thebellyofthebeast.wordpress.com/2012/05/02/dewey-when-partners-arent-really-partners/
May 2 (Reuters) - Five more partners have left Dewey & LeBoeuf, the struggling U.S. law firm coping with partner defections, high debt and a criminal investigation of its former chairman.
The latest defections include Ira White, co-chair of Dewey's private equity practice. Jones Day announced on Wednesday it hired White for its New York office. Separately, at least four other partners left Dewey's London office for outfits including Vinson & Elkins and KPMG.
Angelo Kakolyris, a spokesman for Dewey, declined comment. White did not respond to a request for comment.
Dewey has lost more than 90 of its 300 partners since the beginning of the year. The latest departures came two days after Dewey & LeBoeuf distributed a memo to partners in which they were "encouraged" to find new jobs.
Ed Morrison, a bankruptcy professor at Columbia Law School, likened the memo to "putting employees on life boats."
"You don't put people on life boats unless you think the ship is sinking," Morrison said.
Dewey continues to struggle with debt. A bank group led by JPMorgan Chase & Co granted Dewey a two-week extension on Monday on a deadline to avoid defaulting on roughly $75 million in loans.
In London, Dewey leaders are considering putting the British office into an insolvency proceeding under British law, a person close to the discussions said. The discussions were described as preliminary.
Amid these talks, Dewey removed the names of four partners in London from its website between Tuesday and Wednesday.
Those included Nabil Khodadad, who co-headed Dewey's project financeand infrastructure practice. Khodadad confirmed on Wednesday that he had joined Vinson & Elkins. Khodadad, who declined further comment, was joined by Andrew Neiland, a "local," or non-equity, partner in Dewey's London office.
Another London lawyer, Julio Castro, became the third Dewey tax partner to join accounting firm KPMG. Castro left Dewey on April 27, according to Dewey spokesman Duncan Miller.
Dewey also removed corporate partner Stephen Walters from its website. Miller said he could not confirm the departure. Walters did not respond to requests for comment.
and....
http://abovethelaw.com/2012/05/dewey-know-whats-going-to-happen-next-lawyers-and-staff-face-uncertain-future/2/
“Our catering service requires a credit card; client matter numbers no longer accepted. Seamless food ordering requires a credit card or a corporate card.”
Here’s an email (click to enlarge). Note that it’s a cellphone pic of an email. If you have a memo or other document you want to share with us confidentially, you can take a photo of it with your personal cellphone, then send it to us by email (subject line: “Dewey and LeBoeuf”).
“It’s not clear that we still have health insurance.”
Again, here’s an email, in image form:
And Nicholas Jelf’s email doesn’t even tell the whole story. Multiple Dewey sources advise us that, if you call Empire and ask about Dewey’s policy, you’ll be told, “The coverage was terminated on April 1st.”
I’m sorry, but this is unacceptable. It’s one thing for Dewey lawyers to lose out on FedEx delivery and black cars, or Seamless food delivery; those are luxuries. It’s another thing entirely for Dewey employees to be in limbo about their health insurance, which is a necessity. This should not be happening.
The latest rumor we’re hearing is a big one: the New York office could close its doors very soon. A Dewey staffer texted us: “Just heard the NY office may shut down this Friday.”
That sounds like crazy talk, right? And, of course, it’s not backed up by anything concrete.
But if you had told me in January that Dewey might dissolve this year, I would have dismissed that as crazy talk too. We didn’t start getting serious rumblings about Dewey’s troubles until February, and we didn’t do our first story on them until February 27 (partly because we found them hard to believe and waited until we had multiple sources). And we started covering this well before most other news outlets.
Now, a little over two months later, Dewey is at death’s door. And thousands of lawyers and staffers, along with their families, are wondering what will happen next.
As always, if you have information to share, you can email us or text us (646-820-8477 / 646-820-TIPS). Because firm management has been less than transparent during this whole painful process, it’s important for D&L folks to keep each other informed of what they’re hearing. We are happy to serve as a clearinghouse for information — but we need your help in order to do so. Thanks.
UPDATE (7:05 PM): We’re already receiving valuable feedback from Dewey sources about this story (and we will update this post as we receive more info). One staffer at the firm said that this post is generally consistent with his knowledge of what’s going on at the firm, except for the dire prediction of a Friday closing: “Most partners are saying we have at least a couple of weeks.”
UPDATE (5/2/2012, 10:40 AM): Some additional information on various issues:
1. Health insurance. A Dewey source tells us that, according to Empire, the policy “was suspended for non-payment.” It will be reinstated once Dewey electronically submits payment, which Dewey claims it will do (seeWSJ and NYT). A different tipster asks: “Is Dewey going to reimburse attorneys and staff for the deductions from paychecks that Dewey took for medical insurance for the time that Dewey failed to pay medical insurance? Will Dewey’s fix for medical insurance be retroactive so people were covered at all times?”
2. Copy and mailroom services. From a source at the 1301 Avenue of the Americas building in New York: “Just got into work this morning. They kicked out our whole document services team and no more mailroom. Also they kicked out our printer service guy. Mail room, copy services, and our resident printer tech are gone from D&L.”
We understand that these services were provided by contractors from William Lea (which provides these services to several Biglaw firms). It’s not clear whether the Williams Lea people were “kicked out,” to use our tipster’s language, or whether they left, perhaps because of payment issues.
3. Treatment of associates. Multiple sources tell us that associates are being told to focus on their client work, even though the partners are directing their energies elsewhere (e.g., toward job searches). Some view this as unfair.
“You may want to point out the mixed messages the ‘Office of the Chairman’ sends out,” a tipster still at Dewey told us. “Partners — abandon ship. Associates — keep billing hours and keep your noses to the grindstone despite the fact that we have stopped paying bills on all your legal resources…and health insurance.”
Said a second source, who left Dewey earlier this year: “Many partners are still making the associates work Biglaw hours. When the hell are they supposed to look for jobs? It’s so insulting the way they are treating associates. Let them have some time to find other employment, like they — the partners — are doing. Your coverage is much appreciated and needed.”
UPDATE (5/2/2012, 11:20 AM): More reports on the health insurance issue, plus concern about pensions:
1. Health insurance. “Medical coverage issue resolved,” said a source. “Restored later today. No gap in coverage.”
A second tipster told us: “[Nicholas] Jelf just emailed us and said insurance will be paid for April/May and will be resolved by end of day. All claims incurred during lapse in coverage will be honored according to Empire once policy is reinstated.”
2. Pension benefits. A former Dewey staffer asked us, “Is my pension protected?” ERISA lawyers, we welcome your insights. On the issue of partner pensions, the Wall Street Journal reports:
[A]t risk are any pension-benefit payments to retired partners that come out of the firm’s current profits, instead of from a dedicated fund. If a firm folds, there is no money to pay such benefits, though many law firms offer 401(k) and other supplemental plans. Retired partners and their survivors are concerned about their pension benefits, which for some represent a substantial portion of their income, said David Bicks, a 79-year-old retired partner and pension recipient, who joined LeBoeuf decades before the merger.
UPDATE (5/2/2012, 11:30 AM): Here is an excerpt from Nicholas Jelf’s email about health insurance:
and....
To: US PersonnelThis is to confirm that we have resolved yesterday’s issue with Empire BlueCross Blue Shield. Coverage under the firm’s medical insurance plan will be restored later today. However, if, in the meantime, you speak with BlueCross Blue Shield regarding insurance issues, you may be advised that your coverage ended on April 1. When coverage is fully restored, BlueCross Blue Shield’s records will confirm coverage through April and May. There will be no gap in coverage. I will update you further when the process is complete.If you have any questions regarding benefits, please contact a member of the Benefits team at extension [xxxx] or by email at [xxxx].Regards
Nicholas
UPDATE (5/2/2012, 12:45 PM):1. Severance for previously laid-off employees. People have been focusing on finding jobs for current Dewey employees. See, e.g., former D&L partner John Altorelli’s commendable effort (discussed here, memo here). But what about all the people who lost their jobs in the layoffs earlier this year, which claimed 5 to 6 percent of Dewey headcount?One of them wrote to us: “I’m a laid off D&L attorney, still looking for a job. No one talks abut the loss of our severance if the firm goes under. Supposedly the firm is helping those still employed find jobs but not those they cut loose this year. We need them to survive more than anyone.”2. Pension benefits. A pension lawyer — one of our ERISA hotties, in fact — wrote us as follows:You asked what would happen to the D&L pension plan. I expect if it is a regular defined benefit plan, then DL will terminate it using a “distress termination” and the PBGC will take over the plan. Once the PBGC takes over the plan, benefits are guaranteed but only up to certain limits. The participants in the plan will end up with some retirement benefit, but, depending on the underfunding, not up to the level of benefit that they were originally promised. You can read more about distress terminations on the PBGC website.
I should add that if the partners participate in a nonqualified plan, their benefits under that plan have no level of guarantee and are subject to the claims of the firm’s creditors – in other words, they are not likely to see anything.
UPDATE (5/2/2012, 2:00 PM): From the WSJ Law Blog:On Wednesday, a memorandum was circulated instructing lawyers how to deal with their pro-bono clients should they leave the firm.“If and when you leave the firm, the best option is to continue advising your pro bono client, provided that you have malpractice insurance from either your new firm or as a volunteer lawyer through the public interest organization that referred the matter,” reads the three-paragraph memo, circulated by Scot Fishman, the firm’s pro-bono director.
http://thebellyofthebeast.wordpress.com/2012/05/02/dewey-when-partners-arent-really-partners/
DEWEY: WHEN PARTNERS AREN’T REALLY PARTNERS
Lost in the haze of battle over Dewey & LeBoeuf’s struggle is a remark that former chairman Steven H. Davis made in his March 22Fortune magazine interview. That was Dewey’s first public relations initiative after it began squandering money on a crisis management/public relations expert. But it offered this kernel of inadvertent insight:
“One fundamental change in the way the firm has operated since the merger is that they moved away from the traditional lockstep compensation approach — where partners are basically paid in terms of tenure — and toward a star system in which the top moneymakers can out-earn their colleagues by a ratio of up to 10-to-1. Davis says the extremes shouldn’t define the system, though, and that the more ‘normal’ band is about 6-to-1. Still, it must chafe to be the guy who’s earning the ’1′ and knows it. Hard to see oneself as a ‘partner’ of the ’6s,’ let alone the ’10s.’”
In The Wall Street Journal story that the Manhattan district attorney had opened an investigation into Davis, this sentence offered a poignant flashback to his March 22 interview:
“While some junior partners made as little as $300,000 a year, other partners were pulling down $6 million or $7 million, according to former and current partners.”
That’s a twenty-to-one spread within a so-called partnership. And some of the biggest winners had multi-year guaranteed compensation deals.
There’s an asterisk. According to The American Lawyer‘s definitions, Dewey & LeBoeuf has equity and non-equity partners. Everyone knows that with respect to the internal power dynamics of two-tier firms, management pays no attention to non-equity partners. But the real kicker is that most equity partners don’t have much influence with senior leaders, either.
The growing non-equity partner bubble
Start with the non-equity partners. In January 2000, predecessor firm Dewey Ballantine had 118 equity partners and 21 non-equity partners. At the time, its eventual merger partner, LeBoeuf Lamb, had a similar ratio: 187 equity partners and 33 non-equity partners. Between them, they had 305 equity partners and 54 non-equity partners.
As of January 1, 2012, Dewey & LeBoeuf had 190 equity partners (one-third fewer than the separate firms’ combined total in 2000) and 114 non-equity partners (twice as many as in 2000).
Many firms have adopted and expanded two-tier partnership structures. That has many unfortunate consequences for the firms that create a permanent sub-class of such individuals. But non-equity partners are profit centers and most big law leaders say that ever-increasing profits are necessary to attract and retain top talent.
The equity partner income gap
That leads to a second point. Whether it’s Davis’s earlier “10-to-1″ spread, the more recently reported “20-to-1,” or something in between, the income gap within equity partnerships has exploded throughout big law. That’s destabilizing.
The gap results from and reinforces a failing a business model. In the relentless pursuit of high-profile lateral hires, law firms bid up the price. Many laterals never justify their outsized compensation packages; some become serial laterals moving from firm to firm.
Even when the subsequent economic contributions of hot prospects seem to validate their worth on paper, aggressive lateral hiring erodes partnership values. The prevailing business model has no metric for collegiality, a shared sense of purpose, or the willingness to weather tough times. How badly frayed have partnership bonds become when, as at Dewey, some partners ask a district attorney to prosecute the firm’s most recent chairman? That’s the definition of bottoming-out.
It’s easy to identify the ways that Dewey’s problems were unique, such as guaranteeing partner compensation and issuing bonds. Leaders of other firms could benefit from a different exercise: assessing how their own institutions are similar to what Dewey & LeBoeuf became after their 2007 merger. Growing partnership inequality is pervasive and its implications are profound.
Legal consultant Peter Zeughauser told The Wall Street Journal, “It’s not your mother’s legal industry anymore. It’s a tougher business.” Implicit in that observation lies a deeper truth: partnerships aren’t really partnerships anymore.
They’re businesses, only worse. Those at the top of most big law firms function with far greater independence than corporate CEOs who must answer to a board of directors and shareholders. In many big firms, a growing internal wealth gap reinforces the hubris of senior leaders who answer to no one — except each other. With Dewey’s disintegration, we’re seeing where that can lead.
and..Health Insurance for Dewey & LeBoeuf Lawyers, Staff Suspended for ‘Nonpayment’
BY STEVE EDER AND ASHBY JONES
Health-insurance benefits for attorneys and staff members at beleaguered New York law firm Dewey LeBoeuf LLP have been suspended for “nonpayment,” according to junior lawyers at the firm.
Two junior attorneys each learned Tuesday that their benefits had been revoked after calling their insurer, Empire BlueCross BlueShield. Both were told by the insurer’s representatives that their benefits had been suspended retroactively to April 1, due to missed payments by the firm.
“It’s unbelievable,” said one associate. “It’s …
and.....
http://www.law.com/jsp/law/international/LawArticleIntl.jsp?id=1202550928575&hubType=Top%20Story&Dewey_London_Partners_Hold_Talks_Over_WindDown_of_UK_Arm&slreturn=1
Dewey London Partners Hold Talks Over Wind-Down of U.K. Arm
Legal Week
May 2, 2012
Dewey & LeBoeuf's City arm has started discussing options for an orderly wind-down of the firm's London limited liability partnership (LLP).
The move, which would also affect Dewey's Paris office as it is part of the firm's U.K. LLP, was discussed at a meeting Monday attended by 13 of the office's remaining partners.
The partners voted unanimously on the appointment of a "crisis management committee" comprising London managing partner Peter Sharp, finance partner Bruce Johnston, U.S. tax head Judith Harger and restructuring partners Mark Fennessy and Hazel Miller.
Partners within the firm told Legal Week they have started talking with insolvency practitioners about options for the U.K. LLP, including appointing administrators. In the meantime partners will continue servicing clients on existing matters while considering their future options.
At the end of March, Dewey had around 112 lawyers in London, including 35 partners, as well as 87 support staff.
One partner commented: "The partners agreed that instead of deferring to the U.S., we have to act as a U.K. partnership and wind down the office in an orderly fashion."
Another added: "Our creditors overlap with those in the U.S. and a large chunk of our receivables are pledged to the U.S. banks. We have no choice but to seize control of the situation and instigate an orderly wind-down of the office."
Any decision to be file for administration in the U.K. could be made independently of what is happening in the U.S. One London partner though said U.S. management could ask all partners to vote on a prepackaged bankruptcy as early as next week.
The partner also stated that there was a possibility the firm's creditors could petition the courts to place Dewey into Chapter 11, allowing its debts to be reorganized. If this were to happen there would not be a partner vote.
News of the London plans come after Dewey & LeBoeuf's firm wide management on Monday issued a memo telling remaining partners that they were under no obligation to stick with the firm in its current state.
The message was intended to let partners know that fiduciary duties do not restrict them from considering or pursuing career alternatives. The memo stated that all partners, including executive committee and office of the chairman members, are encouraged to seek out alternative opportunities.
It continues: "In connection with such discussions, we ask that you advise any firms you consider that it may be beneficial to [Dewey & LeBoeuf's] creditors for you to continue collecting outstanding receivables and unbilled inventory from clients whose matters move with you to new firms."
As previously reported, Dewey had been in talks with Greenberg Traurig over some form of combination or mass lateral hire, but both firms confirmed on Sunday that those discussions are over.
Other firms, including Patton Boggs and SNR Denton, have also reportedly had discussions with Dewey.
The memo capped a four-day stretch that has seen at least 11 more partners leave the embattled firm, taking departures since the start of the year to at least 83. It has also emerged that the Manhattan district attorney's office is investigating possible wrongdoing by former Chairman Steven Davis and that the firm has launched its own internal probe of Davis.
and....
http://g7finance.com/g7finance-news/us-business-news/dealbook-once-an-ambitious-law-firm-reduced-to-grim-dispatches/
DealBook: Once an Ambitious Law Firm, Reduced to Grim Dispatches
A few dozen students from some of the nation’s top law schools received a distressing e-mail last Friday from Dewey & LeBoeuf. The law firm’s 2012 summer internship program, which would have paid the students more than $3,000 a week, was being canceled.
On Monday, about 50 former Dewey partners opened their in-boxes to find a poignant note. A fellow former partner said he was starting an assistance fund for Dewey staff and junior lawyers who might find themselves unemployed.
The same day, Dewey’s remaining partners received a grim dispatch from the firm’s leadership. Given Dewey’s state, management encouraged them to look for new jobs.
These are dark days for Dewey & LeBoeuf, the New York law firm on the brink of collapse amid a partner exodus. Forged by a 2007 merger, it had set its sights on quickly becoming a global powerhouse in corporate law, employing more than 1,300 lawyers in 26 offices across the globe at its peak. Now the firm is teetering under the weight of too much debt and outsize pay guarantees made to its star lawyers.
Lawyers and staff, unable to focus on their client matters, milled about Dewey’s office “shellshocked” on Tuesday, according to an employee. At one point, there was confusion over whether the firm’s health care provider? had suspended medical coverage, leading the firm to send an officewide e-mail blaming an “administrative issue” for the apparent suspension and explaining that coverage would soon be fully restored.
“Law firms aren’t very joyful places even when things are going well,” said the Dewey employee, who spoke on the condition of anonymity. “How would I describe the atmosphere now? The first word that comes to mind is funereal.”
Dewey’s woes reflect in large part the challenges faced by other big law firms throughout the country that are trying to grow in a slow economy populated by cost-conscious companies. While it may not be as extreme as in the case of Dewey, a widening divide in pay between senior lawyers and the junior ones who are responsible for much of the work is creating tensions at some firms. For many in the legal industry, Dewey’s turmoil is a sobering lesson on unchecked ambitions.
Tuesday brought more setbacks for Dewey, whose roots go back to 1909. The firm’s partners in London are exploring a possible wind-down of the firm’s British arm, according to a person with direct knowledge of the situation. Dewey’s British operation, which also encompasses its Paris office and is a separate legal entity from the United States partnership, has more than 200 lawyers and support staff.
At least four partners in the United States walked out the door on Tuesday. Stuart M. Saft, the global head of the real estate practice, decamped to the law firm Holland & Knight.
Mr. Saft, whose clients include the developers Harry Macklowe and the Lower Manhattan Development Corporation, said on Tuesday that he was deeply saddened by Dewey’s woes, but had no choice but to leave given the firm’s uncertain fate. He said 43 firms had recruited him since problems surfaced in March.
“I postponed leaving the firm as long as I possibly could because I felt that leaving would only further destabilize the situation,” said Mr. Saft, who said that all of his clients were moving with him to his new firm.
Nearly 90 of the firm’s 300 partners have departed since January. Also on Tuesday, a pair of private equity partners, Ilan S. Nissan and Christian C. Nugent, left for Goodwin Procter. Lyle Roberts, a securities litigator in Washington, joined Cooley.
The steep, persistent decline in its partnership rolls has jeopardized the firm. Like Mr. Saft, many departing partners are taking their clients with them. And the firm has breached covenants in lending agreements with its banks, which require a law firm to maintain a minimum number of partners.
Yet even as it lost talent over the last several months, Dewey continued to handle prominent assignments. Its lawyers represented the Los Angeles Dodgers in the baseball team’s bankruptcy and eventual sale. A team of merger and acquisition lawyers in Silicon Valley recently advised the computer company Dell on two takeovers. And the firm is defending the gene sequencing firm Illumina from a hostile bid by the drug giantRoche.
Dewey’s leadership is working around the clock to save the firm. Martin Bienenstock, the head of its restructuring practice, said this week that the firm had no plans to file for bankruptcy.
In recent weeks, Mr. Bienenstock, joined by three other partners in Dewey’s “office of the chairman,” have been trying to structure a complex transaction in which they would file a prearranged bankruptcy and strike a merger deal with another law firm. Such a deal could help Dewey’s partners avoid a painful dissolution and protect them from claims by the firm’s creditors.
One possible asset that has been largely overlooked as Dewey seeks out a merger partner is the firm’s prime real estate in Midtown Manhattan, according to people with knowledge of the firm’s finances.
Dewey operates out of 10 floors at 1301 Avenue of the Americas, a luxury office building, with a below-market, long-term lease that could be valuable to a potential acquirer or for a sublease. The elegant, wood-paneled offices were used for scenes in the George Clooney legal thriller “Michael Clayton.”
Standing on the sidelines as Dewey tries to save itself is Steven H. Davis, the firm’s former chairman, who was ousted from his leadership posts last weekend. The Manhattan district attorney’s office is investigating whether Mr. Davis committed any crimes in his management of the firm.
Barry A. Bohrer, a lawyer for Mr. Davis, says his client is confident that the investigation will conclude that he did nothing wrong. “Every action of Mr. Davis as chair of the firm was taken in good faith and in the best interests of the firm,” Mr. Bohrer said.
But legal industry experts are questioning whether Mr. Davis’s aggressive growth strategy was in the best interests of the firm. Mr. Davis extended dozens of lucrative long-term contracts to Dewey’s lawyers to keep the existing partners happy and poach star lawyers from other firms. While large corporate law firms have increasingly used guarantees to attract talent, the scope and scale of Dewey’s pay packages was an outlier.
Several Dewey partners had pay packages worth more than $5 million a year. These so-called rainmakers include Morton A. Pierce, a mergers and acquisitions deal maker; Michael L. Fitzgerald, a corporate lawyer specializing in Latin America; and Berge Setrakian, a partner with a large international practice. All three have remained at the firm.
Last fall, after it became evident that the firm’s profits would disappoint, Mr. Davis disclosed that about 100 lawyers had guarantees of some kind, putting the firm in financial straits. Salaries were slashed for several partners who had multimillion-dollar annual pay packages, including Henry C. Bunsow, a patent litigator in San Francisco, and Alan Salpeter, a Chicago trial lawyer. Neither has left Dewey.
Multimillion-dollar payouts were never a concern for the roughly 1,000 employees who make up Dewey’s support staff. John J. Altorelli, a former Dewey partner now at DLA Piper, e-mailed his former partners on Monday to start an assistance fund if they find themselves out of a job. He said he was making an initial donation of $10,000 and urged others to chip in.
“I hope you are all doing well under the circumstances,” Mr. Altorelli wrote.
The turmoil at Dewey & LeBoeuf also underscores the risks in law firm mergers. Dewey was the product of a boom-era combination between the New York firms Dewey Ballantine and LeBoeuf, Lamb, Greene & MacRae in 2007. At the time, Dewey was having some financial difficulties, but Mr. Davis pushed the idea of the merger, arguing that law firms needed to get bigger to compete in a global economy. Mr. Davis was also said to be enamored with the Dewey name and its “white shoe” aura.
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