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Brobeck, Phleger & Harrison and its bankers are in negotiations that could keep the former tech law powerhouse out of bankruptcy while resolving the firm’s massive debt. What they decide will determine how much — if any — severance the firm will pay its employees and may be key in determining if current and former partners will have to dip into their own savings to help pay off the firm’s obligations. The financial wrangling came as lawyers and staff scrambled to find new jobs and competitors salivated over potential new clients — such as Cisco Systems Inc. — in the aftermath of Brobeck’s sudden and unexpected collapse. The firm announced Thursday that it would dissolve. Brobeck faced a mountain of debt, and merger negotiations with Philadelphia’s Morgan, Lewis & Bockius had fallen apart. Key questions still remain about how the firm will proceed during its final days. It’s not clear if the hundreds of staffers at the firm will receive severance. Several employees interviewed Friday said they were supposed to receive a memo outlining details, but never did. Many said they were unsure if they would be paid Monday as they had expected and were not sure if health benefits were still being offered. “That issue [severance] is one of many that we’ll work on as we go forward on this transition,” said John Pachtner, the firm’s director of communications. “It’s fair to say all of the elements of our transition and wind-down are being worked out.” What is becoming more clear is the firm’s desire to avoid bankruptcy. A Brobeck spokeswoman said Friday the firm won’t be filing for protection — though several lawyers and staffers said that option was being discussed Thursday. Managers at competing firms that have significant debt obligations said they believed Brobeck would have a hard time convincing its bankers at Citibank that bankruptcy was a good idea. And a former Brobeck partner said he thought the firm had sufficient accounts receivable to cover its debt. The two routes for Brobeck are to file for Chapter 11 bankruptcy protection or to simply dissolve the partnership according to California partnership law and the terms of the partnership agreement. A bankruptcy filing has several advantages over a simple, out-of-court dissolution, said Michael Buckley, a Reed Smith Crosby Heafey bankruptcy partner. For one, bankruptcy generally caps real estate damages to one year’s rent. It’s also much more organized. “If the partnership decides to sort of manage the situation themselves, it has the difficulty of there being no central forum to take disputes to and manage them,” Buckley said. “With a far-flung organization like this with offices in lots of places, hundreds of employees, the desirability of a central forum to which people who have issues must come is highly desirable.” LIABLE OR NOT Bankruptcy or not, current and former partners may be liable for at least some of the firm’s remaining debt with its primary lender, Citibank. The debt racked up during the firm’s heyday apparently hit the $90 million mark, several sources familiar with the firm’s finances have said. “It’s unclear what the liability is, the extent of liability for individual partners,” including partners who’ve left the firm, said Mara Brazer, a Brobeck spokeswoman. Former partners who spoke on condition of anonymity confirmed that Citibank served notice of default on the firm’s debt two months ago. They said the bank took more steps to deal with the issue in the past few days, though they were not sure what. “They had a very difficult time with Citibank,” one of the former partners said. He also said the firm had been two months behind paying capital to departed partners, but wouldn’t tell them why payments were delayed: “They would not explain anything,” he said. “They have not been open.” Like several other partners contacted for this story, he said he did not know whether he was on the hook for a portion of Brobeck’s debt. “I have no idea if I have trailing liability,” he said. A few groups of partners will apparently dodge the financial bullet. Seven new partners promoted last month did not have to sign the loan papers drawn up two weeks ago when the firm restructured its debt, one new partner said. However, he said, they would not be getting paid for the month of January. And Steven Zager, formerly from the firm’s Austin office, said he and the other Texas lawyers at Brobeck were organized as a professional corporation — insulating them from issues of future liability. Brobeck restructured its debt with Citibank about 10 days ago. Under that arrangement, Brobeck partners forfeited the first quarter of their allocated pay to reduce the debt by $26 million. “The restructuring was an important battle,” Brazer said. “Other things caused the war to be lost. The severe drop in technology coupled with the soft economy is bedeviling many.” But the collapse of merger discussions with Morgan, Lewis on Wednesday was the final straw. Firm management “decided on Thursday that the most likely option was to dissolve,” Brazer said. Francis Milone, Morgan, Lewis’ chairman, said, “There was not one single issue that was a deal breaker. � We were discussing a variety of issues constantly for the past several weeks. We concluded Wednesday it wasn’t likely to get there. “The parties had worked out an arrangement to deal with the debt.” It was “complicated and creative,” Milone said. However, he would not give details about the arrangement. After the deal with Morgan, Lewis collapsed, top partners almost immediately decided to pull the plug on the firm. They held three meetings with partners, associates and staff Thursday afternoon. One partner said he went into the meeting expecting to hear an announcement that the merger had been finalized. “I was taken by surprise,” the partner said. “I just had a rosier picture walking into the meeting.” At Brobeck’s San Francisco headquarters, lawyers and staff Friday attempted to finish their work, but many admitted they were having a tough time concentrating. A paralegal wearing a T-shirt emblazoned with “Brobeck” with a slash through the middle darted into the building, and husbands and wives in Mercedes and BMWs queued outside One Market St. to pick up their spouses. Heather Nolan, a 27-year-old litigation associate, wheeled out a huge red bag filled with books and other belongings. As she loaded her white Land Rover, she said she was going to be working over the weekend on a summary judgment motion, and after that, she wasn’t sure what would happen. “I never thought this is what they would do,” Nolan said. “We thought there would be a merger. But I understand the decision. If we weren’t saddled with all the real estate debt, we would have been fine. But the problem was half human error and half was the market. And the human error was [the firm's former chairman] Tower Snow.” Snow, who led the firm as it bulked up during the dot-com boom, was on the receiving end of some of the more bitter comments from lawyers and staff Friday. Snow was ousted by partners from the firm last year and formed a new San Francisco outpost for London’s Clifford Chance. Snow, whose new office is in the same complex as Brobeck, could not be reached for comment Friday. FLOODING THE MARKET While employees streamed from Brobeck’s offices Friday, firms across the country were fielding resumes from lawyers and are expected to cherry-pick top talent from the firm’s remains. Already, Austin’s Zager is lending a helping hand to several of his cohorts. He confirmed Friday that 23 Brobeck lawyers — four partners and 19 associates — will join him at his new firm, Akin, Gump. “A huge number of [firm managers] are getting on planes from Chicago and New York to put together deals,” said Joe Macrae, of Palo Alto’s Mlegal Consulting Inc. Macrae said it is likely a number of significant-sized groups of Brobeck lawyers will end up at a mix of top local firms and out-of-towners seeking to build a presence in the Bay Area. Brobeck lawyers are also talking about opening their own shop together. “We would welcome the opportunity to talk to them. We’re trying to generate those contacts as we speak,” said Gilmore Diekmann Jr., a partner at Seyfarth Shaw’s San Francisco office who did not personally know any of the Brobeck employees. “Hopefully, we can get to them before the headhunters.” Indeed, headhunters already have been very busy fielding calls from law firms. “Every managing partner called me last night and said ‘send anyone over,’” said recruiter Avis Caravello. Recruiters also are in a frenzy trying to line up Brobeck lawyers as clients. Macrae and others said recruiters were wandering around Brobeck’s headquarters Friday trying to make contacts, and some were meeting with partners to help them figure out where to go. Among Brobeck’s hottest properties: corporate partners Warren Lazarow, who may be in negotiations with O’Melveny & Myers, Curtis Mo and John Larson; San Diego intellectual property litigator Douglas Olson; and mass tort litigators Stephen Snyder and Debra Pole. Morrison & Foerster already has snapped up corporate partners John de Groot and Steven Rowles in San Diego. And firms are lobbying hard for Brobeck’s intellectual property group in San Diego. Paul, Hastings, Janofsky & Walker is talking with the group, said Greg Nitzkowski, firmwide managing partner of the firm. M. Kirby Wilcox, the managing partner of Paul, Hastings’ San Francisco office, said his firm was interested in Brobeck partners from many of its practices. “For me, personally, the last 24 hours have been a series of almost non-stop communications,” Wilcox said. Chicago’s Altheimer & Gray, which opened up its San Francisco office in September, said it was working to bring in some Brobeck attorneys. According to Charles Campbell Jr., Altheimer has already been in discussions with a number of Brobeck partners for several months, as it seeks to expand its IP, corporate and litigation practices. Since the vote to dissolve, a number of Brobeck partners have also called Altheimer. “I’ve gotten a couple of calls myself from lawyers that I know at Brobeck. I know I’m not the only person at Altheimer who’s received those calls. I’ve also had several legal recruiters call me promising me that they had access to a list that would impress me,” said Campbell. Brobeck’s meltdown also has competing Silicon Valley firms smacking their lips over the prospect that Cisco and other big clients may be in the market for new counsel. Cisco has long been Brobeck’s biggest client, and a year ago, the firm said it had about 50 lawyers working on company matters at any given time. A corporate spokeswoman, however, suggested Cisco had already begun spreading its work around. “Cisco uses a wide variety of law firms and has redundancies in virtually every form of our legal support,” said Penny Bruce, a senior manager of corporate public relations. Brobeck lawyers started working the phones immediately after the dissolution announcement, calling clients to assure them their matters would not be overlooked or to secure a pledge to move with them to another firm. Wesley Fach Jr., the senior vice president and general counsel of SICOR Inc., was on the receiving end of one such call from partners Jessica Wolff and John Benassi. Fach said he told them he would likely follow them if there were no conflicts at their new firm. SICOR, an Irvine-based generic-drug maker, has about 30 active patent-related matters with Brobeck, including pending litigation, he said. “You hire the lawyers for more than the law firm,” he said. “As a general counsel, looking at our relationship, my feeling is that we’ll probably make a transition pretty easily.” Senior Writer Renee Deger, Staff Writer Alexei Oreskovic, Editorial Assistant Jason Dearen and American Lawyer Senior Writer Susan Beck contributed to this story. Recorder affiliate Legal Times contributed to this story.

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