March 17, 2012 11:29 AM
Bleeding Continues at Dewey as 12 Partners Bolt for Willkie
Posted by Julie Triedman
Update, 3/17/2012,12:45 p.m EDT. Willkie Farr & Gallagher's official announcement of the group's arrival has been inserted at the tenth paragraph.
The departures include, in New York, Michael Groll, cochair of the insurance sector group; John Schwolsky, cochair of the corporate finance practice group; and Alexander Dye, chair of the firm's U.S. M&A practice. The others leaving are Robert Rachofsky, Scott Avitabile, Donald Henderson, Jr., Arthur Lynch, and Allison Tam in New York; Joseph Ferraro and Nicholas Bugler in London; and Christopher Petito in Washington, D.C.
"We have been anticipating [the departure of the group] for several weeks now," says Dewey's communications director, Angelo Kakolyris.
The departures come two weeks after the firm told The American Lawyer that it expected a dozen more partners to leave by the end of April. The firm confirmed Saturday that the group headed to Willkie encompasses the anticipated losses.
The defectors informed Dewey's executive committee of their plans Friday, and firm chair Steven Davis subsequently notified the firm's partnership of the defections in an e-mailed memo. In the memo, a copy of which was obtained by The American Lawyer, Davis said he regretted the group's decision to leave. "I recognize the emotional impact that these departures will have on our partnership and colleagues," wrote Davis.
Davis noted that, based on revenue generated by the team over the last two years, "we would have expected the team to generate about $47 million in 2012 (excluding the Ambac Chapter 11 representation, which is nearing completion)." The group left about $34 million in receivables on work done while at Dewey but which has not yet been collected.
At the same time, he wrote, the firm calculated that in the end the departures would actually cost the firm about $22 million after accounting for compensation and other expenses. All told, according to Davis, the Willkie-bound partners were due to be paid a combined $15 million, and the compensation owed to the associates and staff affiliated with the group would have amounted to $6 million. The firm "will immediately take further steps to reduce our associated operating expenses, and we therefore project that the impact on net income will not be material," Davis wrote.
Friday's losses come amid a steady drumbeat of negative media coverage for Dewey. The New York Times and The Wall Street Journal both reported this week (here and here) that the firm is coping with the fallout from deferring millions of dollars in compensation to long-standing partners—including some of the firm's top earners—in order to pay guaranteed compensation to newly recruited laterals. According to The American Lawyer's most recent lateral report, Dewey brought on some 30 new partners last year.
As we recently reported, Dewey's gross revenue was up slightly last year, to $935 million from $909.9 million in 2010, while profits per equity partner were up 1 percent. At the same time the firm recently announced that it would be aggressively cutting costs in 2012 and plans to trim 5 percent of its lawyer head count and 6 percent of its nonlawyer staff.
On Saturday, Willkie Farr's cochairman Thomas Cerabino said in a statement that the firm has worked closely with the team on transactions over the years. "They are among the most elite practitioners in their field and will add greatly to our capabilities in their areas of expertise." Dye said in the statement that his team "is very excited by the opportunity to join Willkie" and that the move will have synergies with Willkie's private equity, M&A, and asset management practice groups.
Three former partners say the departures, particularly Schwolsky's, will be a serious hit on firm morale. "The internal perception is that they are the heart of the firm," one former partner says bluntly. Schwolsky, Groll, and Dye represented the old LeBoeuf, Lamb, Greene & McCrae insurance transactional practice, a pillar of that firm, which merged with Dewey & Ballantine five years ago to create Dewey & LeBoeuf. Another former partner said the group had been demanding a greater say in management decision making in the past two weeks, before changing course and jumping ship.
Because of their value to the firm, according to two former partners, Schwolsky, Dye, and Groll were given compensation guarantees in 2007, at the time of the merger. One former partner says members of the group did not receive all of their promised 2011 compensation.
Schwolsky's regular clients include several of Dewey's large stable of insurance providers, including Metlife, Inc.; The Allstate Corporation; The Guardian Life Insurance Company of America; and several others. Last May he advised his longtime client Allstate on its $1 billion acquisition of auto insurer Esurance, alongside Dye. In April, Schwolsky advised Aegon on its plans to sell Transamerica Reinsurance to Scor for $1.4 billion.
Groll, meanwhile, is a regular adviser on large and complex securities offerings tailored to the insurance industry. He advised Ambac Financial Group on financing alternatives prior to its bankruptcy filing in November 2010. For his part Dye has likewise taken a leadership role on some of the insurance industry's largest mergers and acquisitions. In March 2010 The Am Law Daily featured Dye as a "Dealmaker of the Week" for lead advising on MetLife's $15.5 billion acquisition of AIG's Alico unit. His recent work includes the Allstate/Esurance deal and representing the Guggenheim Partners board last October in the company's $400 million acquisition of EquiTrust Life Insurance from FBL Financial Group.Make a comment