First-year associates laid off from dissolving firm Thacher Proffitt & Wood aren't just out of jobs -- they owe the firm money.
In an unusual move, the firm's dissolution committee and bank are pursuing the former associates for repayment of salary advances issued last year to cover their bar and startup expenses, even as the former associates scramble to find new jobs against a backdrop of law firm layoffs.
Omer "Jack" Williams, a former Thacher managing partner who left retirement to chair Thacher's seven-member dissolution committee, says associates knew the money was a loan when they took it. "In the exit interviews, we made it clear we anticipated they would pay their loans back," he says.
Former managing partner Paul Tvetenstrand, now a partner with Sonnenschein Nath & Rosenthal, says Citigroup -- which held the firm's debt -- made the decision to go after the money. "The bank has asked for those loans back. It's not the firm. The firm is in dissolution," he says. Williams says the committee wasn't explicitly ordered to pursue the associates for repayment by the bank, but "the situation is the bank is our secured creditor, for better or for worse. And our main obligation as the dissolution committee is to collect all receivables."
Williams says the committee hasn't taken any legal action to collect the loan balances and hasn't discussed what it will do if associates don't pay. Other members of the dissolution committee include former Thacher partners Jonathan Forstot, John Kim, Robert McCarthy, Douglas McClintock and Donald Simone, all now at Sonnenschein.
Large law firms typically give either loans or stipends to help incoming first-year associates who must spend months studying for the bar before starting work. At most firms, including Thacher, the loans are treated as a salary advance. Associates may pay it back out of their paychecks after starting work. Williams and other partners say they don't recall the amount of the loans offered associates, but the National Association for Law Placement says Thacher offered $10,000 to be used for bar exam registration costs and bar review course fees. Williams says most of the first-year class accepted the loans.
But in this case, Thacher, which had nearly 200 lawyers firmwide and nine in Washington, D.C., was forced into dissolution in December -- before the new associates had a chance to fully repay the loans out of their salaries.
The firm had 29 first-year associates in 2007, and the summer class that year -- which would have yielded the bulk of the 2008 first-year associates -- included 33 students. That places the amount the firm and Citigroup could hope to collect at roughly $300,000 to $350,000, depending on the loan balances that remained when the first-year associates were laid off. Thacher offered a 60-day severance package to laid-off attorneys and staff.
'PIN MONEY'
According to a former Thacher partner who attended dissolution committee meetings, the firm owes the bank roughly $32 million, and partners are liable for $8 million of that amount. Williams and McClintock declined to comment on those numbers.
The former partner says some partners at Thacher stopped sending out client bills in the months before the firm dissolved, leaving the bank and dissolution committee struggling to collect what the firm is owed. "If the bank is going after any short-term loans given to first-years, that's pin money and may be an expression of the bank's frustration," the former partner says. Williams disagrees and says, "We're just looking to collect on what was agreed upon as a loan."
Meanwhile, other firms that have recently laid off associates say they've chosen to forgive the balance on such loans. And firms that gave an outright stipend to associates who, in some cases, worked only a short period say they consider the money spent. Eric Bernthal, the D.C. office managing partner of Latham & Watkins, which last week laid off 190 associates firmwide, said via e-mail that the firm would not "under any circumstances" seek to get back the bar stipend it paid associates.
Jason Costa, a spokesman for DLA Piper, says the firm isn't requiring recently laid-off associates to pay back salary advances. Peter Benvenutti, a member of Heller Ehrman's dissolution committee and the authorized representative of the firm in its bankruptcy filing, says Heller gave loans, but won't pursue repayment. "It's a foolish thing to spend resources on going after people who probably don't have a lot of money to begin with," he says.
