April 20, 2012 8:30 PM
Amid Bankruptcy Reports, Dewey Says It’s Eyeing All Options; Greenberg Confirms Possible Interest
Posted by Brian Baxter
Correction, 4/23/12, 4:35 p.m. EDT: The original version of this story incorrectly stated which banks Dewey & LeBoeuf is renegotiating a $100 million line of credit. Those banks are JPMorgan Chase, Citi Private Bank, Bank of America, and HSBC. The ninth and twenty-eighth paragraphs below have been revised to include the correct information. We regret the error.
Greenberg Traurig confirmed Friday that it has had preliminary discussions about hiring an unspecified number of lawyers from Dewey & LeBoeuf, which is reportedly considering a prepackaged bankruptcy plan in order to keep intact the bulk of the 1,000-lawyer, New York-based firm as it copes with a deteriorating financial situation and mass partner exodus.
Multiple news reports late Thursday and early Friday had Dewey evaluating the merits of a prepackaged bankruptcy plan, which would see the firm agree to pay creditors while also pushing forward with a possible merger with an as-yet-unnamed firm.
Greenberg, one of the firms cited as potentially pursuing a tie-up with Dewey, acknowledged its interest in the firm's attorneys in a statement provided to The Am Law Daily late Friday.
“[W]e have had preliminary discussions relating to lawyers at Dewey & LeBoeuf but we have made no commitments, have not reached agreements, and have had no involvement in the firm’s financial situation or relationships,” said a Greenberg spokeswoman, noting that her firm has never been involved a merger.
Greenberg has grown rapidly from its roots as a three-lawyer shop founded in Miami in 1967 to a 1,700-lawyer, 300-partner behemoth in 29 U.S. cities, but has just six overseas outposts and could benefit by adding the international network Dewey is struggling to hold on to.
Dewey, whose profit and revenue figures for 2010 and 2011 were revised by The American Lawyer earlier this month, issued a statement of its own Friday in which it confirmed that it is indeed weighing all possible options for ensuring its survival.
"Like any good managers, Dewey's management has a responsibility to consider numerous options," the firm said in its statement. "And in fact, we are considering various paths, including continuing to operate as an independent global law firm and a strategic combination with another leading law firm, the latter of which could take many forms. Nothing, however, at this point, is definitive."
Two bankruptcy and restructuring lawyers—Albert Togut, managing and name partner of New York boutique Togut, Segal & Segal and Latham & Watkins partner Peter Gilhuly—have been identified as potential advisers to Dewey and its creditors as the firm considers what course to follow.
Gilhuly, a key figure in the dissolution and eventual bankruptcy of Howrey last year and Thelen in late 2009, told The Am Law Daily earlier this week that he was not involved in Dewey's restructuring efforts. On Friday, Bloomberg reported that Gilhuly said he had "a role" related to the Dewey drama, but not for either the firm or its lender banks. (Dewey is currently renegotiating a $100 million line of credit with its lead lenders JPMorgan Chase, Citi Private Bank, and Bank of America.)
Gilhuly declined to comment when contacted Friday by The Am Law Daily about whether he is representing Dewey bondholders—most of them insurance companies—owed $150 million in connection with the firm's 2010 deft offering.
Togut, who has worked on several high-profile bankruptcy cases with Dewey business solutions and governance practice chair Martin Bienenstock, did not respond to a request for comment. Bienenstock, who joined Dewey in November 2007 from Weil, Gotshal & Manges, is reportedly working with Los Angeles office managing partner and bankruptcy veteran Bruce Bennett in assessing the firm's restructuring.
Bennett, another high-profile lateral who joined Dewey with nine lawyers from former L.A. boutique Hennigan Bennett & Dorman last year, did not respond to a request for comment. Bennett denied to Bloomberg that Dewey had retained Togut or any other outside bankruptcy lawyer. (A Dewey spokesman declined to comment beyond the statement provided to The Am Law Daily and other publications.)
The Am Law Daily spoke Friday with several former Dewey partners, bankruptcy experts, and law firm leaders about how a Dewey bankruptcy might unfold, as well as what happens when confidence in a major firm like Dewey, which has lost nearly 70 partners so far this year, is undermined.
Two former Dewey partners in contact with current partners at the firm say that about 50 top earners—including many of the so-called rainmakers hired in recent years—have chosen to stick with Dewey in part out of concern that if they leave and the firm does file for bankruptcy, they could be targeted in clawback suits filed by creditors.
Meanwhile, say the two former partners, the partners running Dewey—a five-member "office of the chairman" composed of Bienenstock, global litigation chair Jeffrey Kessler, legislative and public policy chair L. Charles Landgraf, corporate chair Richard Shutran, and former firm chairman Steven Davis—are trying to determine how much the firm can collect as it seeks to overcome the loss of nearly a quarter of the roughly 300 partners it had at the end of 2011.
Dewey has claimed that its revenue and billings are up through the first three-and-a-half months of this fiscal year—income that could help repay the firm's lender banks as it draws down on credit lines to make distributions to partners and to pay employees.
One question facing those trying to save the firm is whether they can convince lenders that, because of their client relationships, Dewey partners would be better than the banks at chasing accounts receivable (essentially unpaid legal bills) and uncollected inventory (time spent on matters but not yet billed). Another is whether Dewey can convince those banks and other creditors that it has a viable future as a professional services firm.
Professional services outfits, especially law firms, do not have a stellar track record in bankruptcy court. One bankruptcy practice leader at an Am Law 100 firm ried to help another law firm navigate bankruptcy proceedings predicts Dewey will hit a dead end in Chapter 11.
"It might be easier to get Lehman Brothers out of bankruptcy than turn around a law firm," says this bankruptcy lawyer, who has nearly 40 years of experience in the field. "It's incredible how fragile law firms are. Unlike a company, the principal assets walk out the door every night."
Even if Dewey's rainmakers and other top lawyers stick together, most clients won't be nearly as loyal and are likely to consider options when they need outside counsel, this bankruptcy lawyer says, noting the tremendous competition among Am Law 100 firms for new clients.
"Clients don't want their lawyers distracted, and bankruptcy is inherently distracting," says the restructuring veteran. "And then there are the continuity and reputational issues. There are just too many options for good lawyers elsewhere, and if you're a general counsel, with a board of directors looking over your back, and shareholders looking over their backs, are you really going to hire a bankrupt law firm?"
Dewey's current situation has been compared in the legal and business press to the collapse of another large New York–based firm, Finley, Kumble, Wagner, Underberg, Manley, Myerson & Casey. (Click here for a famous feature story from the early days of The American Lawyer on Finley Kumble's demise.)
Once the fourth-largest firm in the country, Finley Kumble died 25 years ago. While the circumstances surrounding its demise—salary wars, heavy debt, an ultimately debilitating dependence on expansion through lateral hiring—are in some ways akin to what is swirling around Dewey now, it is hardly the only large firm to end in dissolution. Former Am Law 200 firms such as Brobeck, Phleger & Harrison, Coudert Brothers, Heller Ehrman, Howrey, and Thelen have all found their way to bankruptcy court in recent years for various reasons—and all wound up dissolving.
In fact, White & Case global financial restructuring and insolvency practice head Thomas Lauria told The Am Law Daily in an interview last year that almost all firms filing for bankruptcy end up liquidating. Lauria, who did not respond to a request for comment Friday—is familiar with one of the exceptions. He helped Kelley & Ferraro, one of the nation's largest asbestos litigation firms, successfully reorganize its operations without liquidating. The firm and sole living name partner James Ferraro, a close Lauria friend, emerged from Chapter 11 a year ago this week after reaching a confidential settlement with the widow of former cofounding partner Michael Kelley, according to our previous reports.
(With White & Case cited as a possible destination for several of the remaining Dewey partners, it's worth noting that if such moves do occur, they won't be the first. Bankruptcy partner Alan Gover joined White & Case in November 2006 from Dewey Ballantine, which merged with LeBoeuf, Lamb, Greene & MacRae in September 2007 to create Dewey & LeBoeuf. Gover's departure for White & Case was one of a series of lateral moves that came around the time Dewey Ballantine was engaged in what proved to be unsuccessful merger talks with Orrick, Herrington & Sutcliffe. The former chair of Dewey Ballantine's energy practice, Earle O'Donnell, now heads White & Case energy markets and regulatory practice.)
Should Dewey end up in bankruptcy, sources say it is likely to follow a path similar to the one taken by former Fort Lauderdale–based firm Ruden McClosky, which filed for Chapter 11 last November but averted liquidation and was sold a month later to local rival Greenspoon Marder.
Most of Ruden McClosky's former partners lost portions of their equity stakes in the firm, a prospect some ex-Dewey partners, whose ranks are growing daily, have begun to resign themselves to.
"One of the problems with [a bankruptcy deal] is that it insulates the very people who caused the downfall of the firm," says one ex-Dewey partner. "And it leaves us holding the bag."
In addition to Dewey's accounts with JPMorgan, Citi, and Bank of America, this ex-partner notes the existence of another account at Barclays—a bank Dewey used prior to moving some of its business to Citi—in which many former partners still have some of their capital.
Another former Dewey partner, noting the much-publicized guarantees given to certain rainmakers that have put the firm in such a bind, says not all remaining partners at the struggling firm should be tarred with that brush. This ex-partner cites Kessler in particular for praise.
"He's someone who came to the firm not for money, but to run his own group," this former Dewey partner says of Kessler, who joined Dewey Ballantine in 2003 from Weil. "I know he's been willing to forego money that he's due."
Individuals with other firms that have held merger talks with Dewey and its predecessor firms over the years speak of misgivings at the negotiating table at the time and relief that those deals didn't happen. "We had some people that looked at [Dewey Ballantine's] books first-hand and could tell there wasn't something quite right," says an Orrick source.
A source familiar with Bennett's move to Dewey says Hennigan Bennett & Dorman leaders met with their Dewey counterparts to discuss a possible merger, but that at least half the firm, mostly members of the litigation practice, was put off by what this source describes as Dewey's "culture." (Hennigan Dorman—the firm's name following Bennett's departure—joined McKool Smith in September.)
Bennett told The Am Law Daily last month after reaching an agreement on a record-breaking $2.15 billion bankruptcy sale of Major League Baseball's Los Angeles Dodgers that Dewey's financial difficulties had no impact on its ability to serve its clients.
Dewey has billed the Dodgers for nearly $10.2 million in fees and expenses for its work in the team's Chapter 11 case. Bennett and M&A partner Richard Climan—who joined the firm from Cooley in yet another high-profile lateral move in 2009—are billing the Dodgers more than $1,000 an hour for their services, according to bankruptcy court records.
For Dewey to survive in some form, collecting on big-ticket assignments like that will be critical.
Sara Randazzo contributed reporting.
Photo: Entrance to the Calyon Building, the New York headquarters for Dewey and predecessor Dewey Ballantine, Wikimedia CommonsMake a comment