Thelen's Partnership Council recommended on Tuesday that the firm's partnership vote to dissolve the firm, informing staff that a dissolution committee had been formed and the firm expected to close on Dec. 1.
In the first indication of where attorneys may land, it appears that about 60 lawyers could end up at Nixon Peabody -- which until recent weeks had been viewed as a potential merger partner for roughly 400-lawyer Thelen.
Management asked the partnership to vote for dissolution during a partner meeting that began at 10 a.m. PDT and lasted more than two hours. The vote will remain open for seven days, and as with Heller Ehrman's similar vote a month ago, dissolution is seen as the only option.
"I think people were expecting it, and I think they're sad, but people are very busy doing all the things they have to do," said a current partner who asked not to be identified.
"Was it a surprise today? No. Was it a surprise overall? Yes," a San Francisco associate said. "I mean, two years ago we were in a strong position."
The associate meeting in San Francisco took place at 1:30 p.m. and lasted about an hour. The bulk of the meeting was focused on issues related to moving forward, such as transition to new firms and handling client matters.
"What we don't want is for the practices to fall apart," said the associate, also asking to remain anonymous. "What I have seen so far of the people departing is that it has included both associates and staff."
While reports of top Thelen lawyers, including Chairman Stephen O'Neal, negotiating to move to new firms have surfaced lately, the biggest move currently in the works seems to involve about 60 partners and associates going to Nixon Peabody. The East Coast-based firm sent offer letters to the group, the vast majority of which is in San Francisco, according to a source close to Thelen. Among them is partner Jennifer Kuenster, co-chairwoman of commercial litigation and member of Thelen's partnership council. The group includes lawyers from the mass torts and labor and employment practices, the source said.
Kuenster declined to comment on Tuesday afternoon. "I don't think it's appropriate for you to be asking and for me to comment."
Immediately after the news was delivered to associates, a meeting was held for the firm's staff members. One staffer said it was a sad, if not surprising, situation.
"It's very disappointing, even though it was just a matter of time," said the legal secretary, asking not to be named. She will be at Thelen until the end of November, and said she doesn't know what's next for her. But even some partners don't know where they will end up, she added.
David Spielberg, who was at Thelen for 3 1/2 years until he joined Orrick, Herrington & Sutcliffe in August as part of a four-partner team led by Mark Weitzel, said, "It's an unfortunate event. It was a great law firm and I think it just got overtaken by events."
Thelen issued a press release on Tuesday afternoon saying there was no single reason for the collapse.
"The decision to dissolve the firm was precipitated by several economic factors, including recessionary pressures and numerous partner departures over the past year, both of which have negatively impacted firm revenues," the release said. "For the past several months, Thelen management has aggressively sought a full firm merger. Unfortunately, the most promising merger opportunity was derailed by conflicts, and all other full firm merger discussions terminated last week."
The release says the firm is seeking to pay its employees for 60 days, "although not necessarily required," but that so far its bank has only approved half that amount. According to the release, partner defections over the last year had triggered a lending covenant that puts the firm's bank in charge of expenditures.
A three-partner dissolution committee has been formed, it says.
One current partner said, "The handwriting's been on the wall," but added that it was frustrating to have such a recommendation made without much formal discussion beforehand.
A Thelen lawyer in the San Jose, Calif., office, however, said communication leading up to Tuesday's meeting had been good, and that the lawyers in his office were not surprised that the firm would be dissolving.
"We were prepared for the eventual outcome," said the attorney, who asked not to be identified. The office meeting, which started at 2 p.m. and went on for about an hour, was touching, he said.
"We felt I think as a group that there was full disclosure and a true commitment to help folks who don't have jobs lined up," the lawyer said. "Most of us who worked here felt that it was the right mix of quality of work and quality of life and a recognition of the balance of these two things.
"The undertone," he added, "is that it's a sad day when a firm like ours doesn't make it."
"None of us wanted to see it happen," Spielberg said. "We hope everybody lands on their feet."
The news was another blow to the San Francisco legal community, which only a month ago saw the demise of century-old Heller Ehrman.
"It's another sad day in the San Francisco legal community to lose the second firm this year," said Keith Wetmore, chairman of Morrison & Foerster.
When Wetmore was a younger lawyer, San Francisco was home to seven big regional firms, several of which had their eye on going national. Of the seven -- Pillsbury Winthrop Shaw Pittman; Thelen; MoFo; Heller; McCutchen, Doyle, Brown & Enersen; Brobeck, Phleger & Harrison; and Orrick -- only three are left.
"Regional firms are few and far between," Wetmore observes. "It turned into a dangerous strategy."
Richard Gary, a legal consultant who was the chairman of Thelen from 1992 to 2003, said he was sorry to see his former firm's demise.
"I feel very badly about it," he said. "No one's going to come out a winner."
Since merger discussions with Nixon Peabody ended several weeks ago, it had become clear that various groups from Thelen were talking to other firms about lateralling.
In recent days, that had been capped with word that rainmaking energy partner Ellen Bastier was on the cusp of joining Reed Smith and that the firm's chairman, O'Neal, had been talking to Howrey.
Two years ago, Thelen made the last in a series of mergers meant to vault it from regional powerhouse to the national level. The firm, formed in 1924, consummated a merger with New York's Brown Raysman Millstein Felder & Steiner, but the marriage has since been widely viewed as problematic. Name partners Peter Brown, Richard Raysman and Jeffrey Steiner -- and more than 100 other Thelen lawyers -- have left this year.
"As an outside observer, it appears that the firm entered into a merger with Brown Raysman that was ill-timed and ill-considered," Gary said. "Whether it made sense at some time I don't know; what's very clear is that the firm began to go off the rails after that merger was consummated."
In a worsening economy, Gary noted, fear will spread that more firms nationwide will face such dire straits.
"No partner in a San Francisco law firm will look at what happened to Heller and Thelen and not think, 'Will my firm be next?'" he said.