Though Dewey & LeBoeuf leaders spent much of the week publicly denying that they are poised to shut down the struggling firm, Friday ended with the clearest signal yet that the end is in fact drawing near.
Dewey’s recently instated executive partner, Stephen Horvath, sent a notice to all U.S. personnel at close of East Coast business hours alerting them that “it is possible that adverse developments could ultimately result in the closure of the Firm,” according to a copy of the memo obtained by The Am Law Daily. The bulk of the letter includes disclaimers related to the Worker Adjustment and Retraining Notification Act, which requires companies to give 60 days’ public notice (and 90 days in New York) if a mass layoff is planned.
The firm’s lenders also appear to be readying themselves for Dewey’s demise. A review of New York Department of State records shows that JPMorgan Chase Bank filed a Uniform Commercial Code lien against the firm Wednesday in order to publicly protect its interests as a secured creditor in the event of a Dewey bankruptcy. JPMorgan is the lead lender in a four-bank syndicate that also includes Bank of America, Citi Private Bank, and HSBC; Dewey owes the banks a reported $75 million against a $100 million line of credit.
One bankruptcy expert speaking on the condition of anonymity said that the filing, a straightforward document that lists the name of the secured party and the collateral securing the money owed, is “a notice to the world that a security interest has being granted.” Without it, this source says, unsecured creditors could attempt to get in line ahead of JPMorgan and Dewey’s other bank lenders in the event of a bankruptcy.
While such UCC filings are considered routine, they can lead to complications if not handled correctly. That’s what happened in the case of now-defunct law firm Heller Ehrman, which contends in a lawsuit that its main lender, Bank of America, terminated its security interest a year before it came to the brink of collapse. Heller sued its former lawyers at Greenberg Traurig for malpractice for failing to notice the slipup, arguing that if they had filed for bankruptcy while BofA was an unsecured creditor, the law firm could have prevented the bank “from seizing tens of millions from the firm and forcing Heller to try to wind down in a chaotic, disorderly posture.”
JPMorgan, which declined to comment on the filing through a spokesman, appears to be working to avoid any such confusion over its status as a secured lender. The details of its Wednesday filing were not publicly available Friday, but in a similar UCC filing made in 2010, the bank described its collateral as, essentially, the firm’s receivables.
The bankruptcy expert says that, because JPMorgan already perfected its interests with the 2010 filing, he suspects the collateral listed may be different in the new filing.
Spokesmen for Dewey did not return several requests for comment Friday.
Meanwhile, the so-called WARN notice sent to employees Friday may not be enough to protect the company from liability, according to attorney Jack Raisner, who specializes in WARN Act work. Raisner, a partner at Outten & Golden, said via e-mail Friday that in his opinion, it would provide “weak insulation” for the firm if it terminates employees before the required 60- or 90-day window closes. “It arguably does not constitute conditional notice, nor preserve the exemptions that excuse shortened notice,” Raisner said.
In an introduction to the Friday memo, Horvath noted that the firm “continues to pursue various avenues” and acknowledged that Dewey “has unexpectedly experienced a period of extraordinary difficulties in the last few days.”
Those difficulties have included dozens of fresh partner departures, including the base of Dewey’s Moscow and Kazakhstan offices and three partners in London going to Morgan, Lewis & Bockius; M&A heavyweight and former co–vice-chair Morton Pierce and seven other corporate partners joining White & Case; and smaller groups splintering off to Pillsbury Winthrop Shaw Pittman, Goodwin Procter, and other firms.
So far, no dissolution vote appears to have been scheduled. The firm’s partnership agreement as of early 2010, a copy of which was obtained by The Am Law Daily, stipulates that a dissolution could occur following a decision by the executive committee that gets approved by a vote of the partners. The relevant section of the partnership agreement closes by saying, “In the event of a dissolution, the books of the Partnership shall be closed except to the extent necessary to wind up the Partnership. In dissolution as in all other matters, there shall be no value assigned to goodwill.”
The agreement also says that if dissolution does occur, liquidators would be named by the executive committee to wind up the partnership, and that debts and liabilities would be paid first, excluding any debts owed to former partners.
The whirlwind of activity has left many of those who remain with the firm sounding bewildered. One current partner, reached at his office Friday afternoon, says “no one is telling us anything” about how and when the firm may cease operations.
“Frankly,” this current partner says, “at this point, you probably know more about the firm than I do.”
Tom Huddleston Jr. and New York Law Journal reporter Christine Simmons contributed to this story.