After nearly five full months of taking blow after blow, apparently it was time to throw in the towel. Reeling New York law firm Dewey & LeBoeuf finally filed for Chapter 11 bankruptcy protection last night in Manhattan federal bankruptcy court.
In addition to the filing, Dewey also announced last night that it is seeking approval to liquidate its business after failing to find a merging partner. The firm said it would ask about 90 employees to remain on staff to assist in winding down the business. It has $315 million in liabilities, with $225 million of that owed to its banks. Former partners, landlords and even janitors are still owed money.
Dewey has assets of about $13 million in cash and about $255 million in accounts receivable and ongoing legal work, according to papers accompanying the filing, the Wall Street Journal reports. Funds should be available to unsecured creditors, the filing said.
“During the first quarter of 2012, the firm was confronted with liquidity constraints that led to the precipitous resignation of over 160 of the firm’s 300 partners by May 11,” the firm said.
At its height, the combined entities of Dewey Ballantine and LeBoeuf, Lamb, Greene & MacRae, which merged in 2007, had about 1,450 attorneys.
The financial trouble began before the merger, however, as LeBoeuf Lamb execs attracted top partners at other firms with massive pay packages that guaranteed millions over a number of years, current and former Dewey partners have said. At the time of the merger, the same practice was employed to retain the two firms’ talent. And the practice continued into this year, and even intensified, despite the mounting debt.
Given the huge sums owed to a small percentage of partners, the practice left little money for the rest of the firm’s lawyers, which led to the initial trickle of partner defections in early January that evolved into the all-out hemorrhage in April and May.
As of last week, only about 50 of the firm’s partners still remained. The firm already had let go its associates and much of its staff in the preceding weeks. According to the New York State Labor Department earlier this month, Dewey had terminated 433 of its 533 employees.
The Wall Street Journal had reported on May 18 that Dewey was preparing to file for bankruptcy despite many protestations by the firm leadership to the contrary. The Journal said that firm’s remaining partners and advisers were asked to be ready to file by the end of last week, although sources had added that the actual filing may not come until much later. Concurrent to the Journal’s report, Dewey also announced that it had engaged restructuring firm Zolfo Cooper to help it collect receivables and pay back lenders and creditors. Joff Mitchell, a senior managing director at Zolfo who currently is acting as Dewey’s chief restructuring officer, will spearhead the wind-down along with bankruptcy counsel Albert Togut, whom the firm brought on in April.
Despite the bankruptcy filing, experts still expect lawsuits to mount up against the soon-to-be-defunct firm from disgruntled former partners to other outside interests. In fact, they’ve already begun.
The Pension Benefit Guaranty Corp. (PBGC), which oversees U.S. private-sector pension plans and interjects to cover plans when employers cannot pay the promised benefits, sued Dewey earlier this month.
PBGC seeks to assume three of the firm’s pension plans, which it claims are underfunded by $80 million. The agency is worried that the sale of Dewey affiliates, which are partly responsible for funding the pensions, could make it more difficult for PBGC to recoup money to make up for the shortfall.
Dewey’s landlord, Property Group Partners, also has sued the firm for more than $927,000 in unpaid rent in Washington, D.C., and seeks possession of the firm’s 140,000-square-foot offices on New York Ave. Furthermore, the firm is potentially facing a class action lawsuit brought by a former employee as a result of its layoffs.
And for more from InsideCounsel on Dewey, read: