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Credit Woes, Failed Merger Bids Take Toll on Wolf BlockPartners voted on Monday to dissolve the iconic Philadelphia law firm
Wolf Block's partners voted on Monday to dissolve the law firm. There is no indication the firm is in dire financial straits, though it was said to be seeking extensions of its line of credit and had been looking for a merger partner for more than two years. A statement issued by the firm cited the recession, especially in its core real estate practice; the constriction of credit occasioned by the ongoing banking crisis; and the intended and anticipated departure of significant partners and practices.
The Legal Intelligencer2009-03-24 12:00:00 AM
Wolf Block, one of Philadelphia's most storied and, at one time, most powerful law firms, will soon cease to exist. The firm's end was self-administered during a partner vote Monday afternoon.
Wolf Block partners issued a statement Monday that they voted to commence an "orderly unwinding of the firm's business." The vote ended a flurry of speculation and rumors that had the legal community abuzz over the weekend.
The decision to close its doors was announced after the partners met at 1 p.m. Monday to discuss the fate of the firm.
"Wolf Block will remain in the practice of law for several months to protect the interests of its clients, employees and creditors," the firm said in a statement. "The decision to unwind was reached in view of a confluence of unfavorable factors: the economic recession, especially in the firm's core real estate practice; the constriction of credit occasioned by the ongoing banking crisis; and the intended and anticipated departure of significant partners and practices."
The partners determined the continued attempts to finance the firm's operations would create more harm than good for clients and employees, the statement said. Wolf Block hired consulting firm Hildebrandt and Leslie D. Corwin of Greenberg Traurig to work with firm leadership to relocate as many people as possible, while liquidating the firm's obligations.
"We are deeply saddened by the decision to unwind," firm Chairman Mark L. Alderman said in the statement. "But we intend to conduct ourselves during this difficult time with the pride, focus, humility and determination that have characterized Wolf Block lawyers for more than a century. This result is ironic given that many of our practices and offices continue to perform at a high level despite our difficulties."
Several sources have said members of the executive committee met Saturday to discuss a possible dissolution of the firm. The Monday meeting was set to hold a full partnership vote.
A decision to dissolve the firm would have required approval from at least 75 percent of the partnership, one source said.
There is no indication that the firm is in dire financial straits, though it saw some significant declines in several key financial indicators in 2008 and was said to be seeking extensions of its line of credit. Sources have said work and receivables are still there, and the firm isn't said to be considering any sort of bankruptcy filing in the immediate future -- a situation that has befallen a few other firms across the country in recent months.
Wolf Block saw its gross revenue fall 7.8 percent from $173 million in 2007 to $159.5 million in 2008. The firm's equity partner tier fell by 34.8 percent from 86 equity partners to 56 and, conversely, the non-equity tier rose by 36.6 percent from 71 non-equity partners to 97 in 2008. The overall headcount fell about 4.6 percent from 304 attorneys to 290 in 2008.
Revenue per lawyer (RPL) dropped by about 3.3 percent, falling from $568,000 in 2007 to $549,000 in 2008. The profits per equity partner (PPP) and average compensation for all partners took more significant hits. The PPP fell 18.5 percent from $502,000 to $409,000 and the average compensation for partners dropped by 19.7 percent from $400,000 to $321,000 in 2008.
Prior to the vote, sources said that if the partners were to vote to dissolve, Alderman had worked out a deal to join Cozen O'Connor, a former merger candidate for Wolf Block, and other attorneys may make the move with him.
One source familiar with the firm's financial situation said Wolf Block sought in late 2008 an extension of its line of credit with Wachovia. After some back and forth, it was eventually decided that the line of credit would have to be personally guaranteed by each partner. That didn't go over well and a number of partners announced they would leave before signing such a deal, the source said.
Ultimately, Wachovia -- now owned by Wells Fargo -- extended the line until March 31 without mandating that partners personally guarantee it. But by that time, the source said, a large number of attorneys, including all of the New York office, said they would be moving to Cozen O'Connor. Some put the number close to 100 attorneys, while others said it was still fluid and was probably lower.
Wachovia could only confirm that Wolf Block was a client.
Thomas A. "Tad" Decker, president of Cozen O'Connor, said the firm has a policy not to confirm or deny any discussions it has with laterals or merger partners.
"It's not a happy day when you see a firm with the reputation of Wolf Block going out of business, if that's true," Decker said.
Decker said his firm would certainly be interested in talking to "a number" of the attorneys there, as would many local firms.
NO LUCK WITH SUITORS
The disappearance of Wolf Block and its storied name was described by many in the community as a "sad" turn of events. The 300-attorney firm, once one of the largest and most prominent in the city, had been looking for a merger partner for more than two years.
It was unable to consummate an intra-city deal with Cozen O'Connor in early 2007 over difficulties in merging the partnership of Wolf Block with the professional corporation of Cozen O'Connor. The two firms also had different fiscal years, with Cozen O'Connor working off of a calendar year and Wolf Block ending its year Jan. 31.
Wolf Block began talks with Florida-based Akerman Senterfitt, another corporation, in early 2008, but those talks failed over what the firms said were conflicts between Wolf Block's health care practice and Akerman Senterfitt's insurance practice.
While Wolf Block had seen the departure of a few practice group leaders during the course of the merger attempts -- including litigation department head M. Norman Goldberger and six other partners who left in March 2008 for Hangley Aronchick Segal & Pudlin -- the firm hasn't seen any major defections since its failed mergers.
The Legal Intelligencer did report last week, however, that 10 of the firm's 11 attorneys in the Wilmington, Del., office were in talks to move to the Delaware office of Drinker Biddle & Reath. Drinker Biddle said only last week that "it wouldn't be appropriate to comment at this time."
And on Friday, Warren Fusfeld, head of Wolf Block's employee benefits practice, and partner Melissa Kurtzman started work at national labor and employment boutique Littler Mendelson.
Wolf Block laid off a combination of 15 attorneys and staff in December after having pushed back start dates for incoming associates from September 2008 to later that year. The firm cut associate salaries by 10 percent in February, saying it was instead increasing the bonus pool and moving toward a more merit-based compensation system.
A PHILADELPHIA INSTITUTION
Even as some of its local competitors surpassed Wolf Block in revenue and headcount, the firm maintained an iconic place in the city's history. Started in 1903 as Stern & Wolf, it was created as a firm that would hire Jewish attorneys when many other elite Philadelphia firms at the time would not. It rose to prominence in the ensuing decades and for years was one of the largest firms in town. After leadership changes in the mid-1980s and some large partner defections in the early to mid-1990s, many sources have said the firm was never quite the same.
Recruiter Michael Coleman of Coleman Nourian said Wolf Block has been a brand name in Philadelphia well beyond the legal community.
"No one ever feels good about a business dying and certainly one can feel particularly sad about a firm that had one of the most significant franchises of any type of business in this city," Coleman said. "When I started my firm in 1985, Wolf Block was in the very highest rung in all categories. While the firm today certainly has many lawyers whom I still consider to be in the highest rungs of their practice areas, I think it's fair to say that that is not a characterization of Wolf Block as a firm today."
In terms of the effect a Wolf Block dissolution could have on the legal job market, Coleman said it would put a lot of attorneys and staff into a growing pool of candidates vying for the few positions that are even out there.
Sayde Ladov, chancellor of the Philadelphia Bar Association, said the closing of Wolf Block marked a sad day for the city. She said the century-old firm has been an important part of Philadelphia's history and tradition.
"This is a difficult day for Philadelphia's lawyers, reminding us that no one is immune to current economic challenges," Ladov said. "Despite the loss of this venerable law firm, however, we remain confident that Philadelphia's legal community will weather this storm and emerge stronger as a result."