All of Dickstein Shapiro’s capital fund is gone. The now-defunct law firm told equity partners—some who left as long as three years ago—on Friday that their millions of dollars evaporated alongside the partnership this week.

“One consequence of the firm’s dissolution will be the almost certain loss of all firm capital for current and former partners alike,” said a letter many former partners received Friday afternoon. The letter was dated Thursday, Feb. 11, and printed on Dickstein Shapiro letterhead.

The letter also said the firm attempted since summer of last year to merge with another firm—presumably Bryan Cave and others—and that it had no other choice than to vote to dissolve the partnership and lose the capital.

The loss of capital could amount to more than a million dollars each for some high-earning former Dickstein Shapiro partners. Whereas many firms require 30 percent to 40 percent of a partner’s anticipated earnings held in capital year to year, Dickstein Shapiro required as much as 80 percent, an otherwise unheard-of level among large law firms. Thus, a partner who made $1 million would have a capital contribution level of $800,000.

“It wasn’t even signed ‘Sincerely,’ ” said one former partner who received the letter on Friday. The partner further pointed out the letter’s delivery by FedEx—and that Dickstein Shapiro “used my money to send it to me.” The former partner did not disclose his name because the letter was marked as confidential. He read it to The National Law Journal. “I would have been happy to get it in the regular mail.”

Two other partners who left Dickstein Shapiro in recent years were certain they would not see a penny of what was left in capital accounts. Some partners who moved to Blank Rome this week may have access to some capital again in the form of a bonus pool, despite assurances otherwise, one of the former partners said.

Millions in capital

In recent months, several partners who left the firm insisted to The National Law Journal it would not fail. The firm was highly capitalized, debt-free and well-led, many said.

A former partner, when asked Friday how much money the firm lost for its partners, repeated that Dickstein Shapiro was “highly capitalized.”

That means the firm held onto more in capital of its partners’ earnings than many other law firms. The amounts ramped up over time, but former partners said the amounts were linked to how much partners expected to earn. Generally, the firm paid partners between $175,000 and $275,000 as guaranteed salary—with many equity partners at the lower end of the scale—throughout a year. The partners then earned additional distributions depending on firmwide profitability. The distributions in 2015 were as low as 20 percent of the previous year’s draws, according to one partner.

When a partner left the firm, the firm paid back capital in four installments over three years. The payments came in chunks of 25 percent each year, with the first coming 60 days after a partner’s departure from the firm. The other 75 percent of capital returned to each partners on the three anniversaries after that, according to five former partners.

In 2011, the firm told American Lawyer it had 58 equity partners. In 2014, the firm said it had 42 equity partners. Forty-two partners—both equity and nonequity—left throughout 2015 and this year. The difference in total partners since 2012: almost 90. The 49 remaining Dickstein Shapiro partners moved to Blank Rome yesterday.

“It’s millions of dollars,” one former partner said on Friday.

Consider what happens if 80 equity partners still had capital left in the firm, he added. “If there was an average of $300,000 in capital, that’s $24 million [lost]. It’s a big number.”

Wind-down representation

The firm said in the letter to partners Friday that Goodwin Procter general counsel John Aldock and of counsel John Townsend Rich will serve as its outside counsel.

Jim Carroll of Carroll Services LLC in Massachusetts is serving as chief liquidation officer.

Bradford Hildebrandt advised Alan Hoffman, Blank Rome’s chairman, and a team that included partnership and law firm dissolution expert Les Corwin in the negotiations. The talks began Christmas Eve, just after Dickstein’s merger talks with Bryan Cave fell apart.

From the beginning, the deal discussed was always a mass lateral acquisition, never a merger, according to one partner involved in the Blank Rome talks who spoke on condition of anonymity. In order to come to the deal, people who held key business at Dickstein Shapiro had to agree to move to Blank Rome, he said.

Solvent or not?

Whether the new Blank Rome partners will ever get any of their Dickstein capital back depends on the solvency of their former firm. According to one partner involved in negotiations, a wind-down committee, likely including three members, will determine Dickstein’s obligations and assets and determine if the dissolved entity is solvent.

“It’s either solvent or it’s not,” says Anthony Davis, an expert on partnership law and dissolutions at Hinshaw & Culbertson. “If it’s not solvent, no one gets any capital back, because it means that obligations to creditors are greater than the assets coming in.”

Going forward, a dissolution is likely to take years, according to several partners involved in previous law firm dissolutions.

Wolf Block dissolved in March 2009, and partners there are still awaiting any return of capital, said Corwin, a Blank Rome partner.

“That’s not atypical. Nobody gets anything back until all the creditors get their money back,” he said.

(Corwin, who joined Blank Rome in 2014 from Greenberg Traurig, declined to speak about the negotiations except to note that he “is just very excited to be at this firm, which is committed to growing.”)

As past firm failures, including Dewey & LeBoeuf and Howrey, have shown, Dickstein partners who borrowed to pay in capital will fare the worst in an insolvency situation.

“That capital is gone, but the debt remains,” Davis said. He noted that former partners of Finley, Kumble, Wagner, Heine, Underberg, Manley, Myerson & Casey, the large New York firm that imploded in 1987, were still paying back excess profit distributions and personal bank debt for as long as a decade.