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Heller's Partnership Briefed on Closure
The Recorder
September 25, 2008
Heller Ehrman inched closer to its likely dissolution Wednesday.
Management held a firmwide videoconference at 4:30 p.m. to update the partnership on the status of the firm's line of credit, opportunities for groups and offices, and "plans for an orderly transition (or wind down)," according to an e-mail announcing the meeting.
Also Wednesday, firm Chairman Matthew Larrabee sent out an e-mail, apparently to all attorneys and staff, apologizing for keeping discussions of the firm's fate under wraps, and promising clearer communication later in the week.
"I am profoundly sorry that I have not been in direct communication with you recently. We realize that there has been a lot of news coverage about our firm, and it is wrong to have that be your source of information," Larrabee wrote, later promising, "we are planning to hold meetings with everyone before the end of this week via videoconference and/or local, in-person discussions."
Shareholders reached after Wednesday's 90-minute meeting emphatically declined to comment.
The 118-year-old firm has hired an attorney to advise the firm on a dissolution, a current partner said earlier on Wednesday, and other firms continue to discuss hiring away groups and individuals. Staff hours also have been reduced for Heller-based employees of Williams Lea, which handles outsourced services for the firm, according to an e-mail obtained by The Recorder and a firm staff member.
The firm's line of credit, one of the points on the videoconference agenda, became an issue when 14 IP litigators announced on Sept. 14 that they intended to join Covington & Burling, a current partner said.
As a result of that group's announcement, Heller's management was required to notify the bank or banks supplying the firm with its line of credit. Should Heller's debt be called in, the firm's hope for an orderly dissolution would be frustrated, the partner said.
"If they're willing to wait and get repayment as we collect, that's not a problem," the current partner said. "But if they tell us tomorrow, 'We want our money,' that takes a not-insignificant portion of our existing cash and it's hard to operate without any cash."
Heller management told the partnership that dissolution was an option facing the firm last Wednesday after merger talks with Mayer Brown collapsed and the group of IP litigators announced their plans earlier in the week.
If the bank calls on the firm to pay its debt, partners may not receive their monthly draw for September, removing the incentive to collect outstanding bills from clients, the current partner said. However, if the bank agrees not to call on the firm to pay its debt, partners could press clients to pay bills, enabling the firm to pay its debts and allowing the partners to leave in an organized way in large groups, the partner said.
The outcome of discussions with the bank and with other firms had not been shared with the partnership before the 4:30 meeting, the current partner said.
With dissolution likely, long-term leases for at least some of Heller's 14 offices have become a liability, which is among the reasons management has been talking to other law firms, including three former merger partners, to pick up large chunks of Heller.
"If they can take a couple of offices, particularly larger offices and merge them into other firms and that merger takes over the lease, it would substantially reduce liabilities," the current partner said.
Heller's finances have long been conservatively run, current and former partners have said. At a shareholder meeting in August, the partnership was told that, at that time, the firm expected revenues this year would fall just short of those from 2007, a current partner said. One floor each in the firm's New York and San Francisco offices had been subleased, partners were told at the time, as a means of cost-cutting.
Law firms continued to aggressively pursue big chunks of Heller on Wednesday. Some leaders from out-of-town firms are now camped out in San Francisco hotels, arranging meetings with Heller partners, according to people familiar with the situation. In some cases, representatives from other firms were even negotiating with groups of Heller lawyers in Heller's own office buildings, others said.
The large group of emerging-company lawyers in Heller's Venture Law Group has been in talks with a number of suitors including Cooley Godward Kronish; Morrison & Foerster; Fenwick & West; Wilson Sonsini Goodrich & Rosati; and Morgan Lewis & Bockius, according to people familiar with those talks. Heller's securities litigation group, which includes well-known lawyers such as Norman Blears, is drawing a lot of interest, including from out-of-town firms Ropes & Gray and King & Spalding. Lawyers in the insurance recovery group, a stalwart for Heller that includes former Chairman Barry Levin, has also caught the eye of a number of firms, including Howrey and Proskauer Rose.
It appeared Wednesday that significant groups of Heller lawyers had yet to decide what firm they would join. And law firms too numerous to count also continued to talk to Heller partners across partner groups.
