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After 118 years, San Francisco law firm Heller Ehrman put dissolution of the firm to a partnership vote last week. The votes were still being counted as Legal Times went to press, but dissolution appeared all but certain. In a firmwide “all hands” video conference last Thursday, Chairman Matthew Larrabee said the partnership had concluded that dissolution was unavoidable. Larrabee described the dissolution of the firm as a tragedy for the entire legal industry and, after about 10 minutes, turned the meeting over to partners in each of the firm’s offices for in-person question-and-answer sessions. All employees were told they’d be paid for 60 days, with a small group of staff to be retained after that. Attendees described the meetings as emotional, and by 1:30 p.m. Thursday, Heller employees were coming out of the firm’s San Francisco headquarters at 333 Bush St., some in tears, some hugging one another for support. They said they didn’t know what their next moves would be, or where they’d find work. Partner Jonathan Hayden called last Thursday an incredibly sad day. “As somebody who’s an owner here, my heart really goes out to everyone who works here,” said Hayden, who has been with the firm since 1981. “They’re the ones who made us successful.” During a New York office meeting following Larrabee’s talk, a partner there said the firm expects to collect at least 90 percent of an estimated $118 million in accounts receivable, and has about $6 million in cash. Including unbilled work, the firm stands to collect about $160 million, another partner said. The New York partner said in the meeting that the firm owes about $50 million. The firm has a 50-lawyer office in D.C. Kenneth Chernof, the managing partner of the D.C. office, did not return a call seeking comment. Management told partners in a Wednesday meeting that Heller’s banks seized control of accounts receivable, unbilled time, and expenses last week, a current partner said. The banks’ decision came after the departure of 14 IP litigators, announced on Sept. 14, triggered a clause in the contract governing the firm’s line of credit. The firm hopes to dissolve without declaring bankruptcy, that partner said. Firm management also told partners they would not receive their September draws, a partner at Wednesday’s meeting said. Firm officials declined to comment on the firm’s financial outlook last week. It was not yet clear last Thursday where various practice groups and offices might end up. Two legal recruiters said they had heard that Los Angeles office managing partner Nancy Cohen, a rainmaker in Heller’s insurance recovery practice, will move to Proskauer Rose. The New York firm has been in expansion mode in recent months, pushing into Chicago in the spring, when the 750-lawyer firm opened an office there with three partners from Mayer Brown who specialize in representing policy holders in insurance litigation. One legal consultant close to the situation but not representing any of the parties said that the insurance recovery group, which according to Heller’s Web site includes 40 lawyers, will make the move with Cohen. Attorneys in Heller’s Venture Law Group have been in talks with a number of suitors that include Cooley Godward Kronish; Morrison & Foerster; Fenwick & West; Wilson Sonsini Goodrich & Rosati; and Morgan, Lewis & Bockius, people close to those talks have said. A legal consultant said that the VLG group will go to Cooley, but “nobody has said they’ve signed an agreement.” At a partner meeting last week, Heller management said they expected to hear proposals over the weekend for large chunks of the firm. Topics to be discussed include individual pay and obligations they will take over. One-time merger candidates Baker & McKenzie and Winston & Strawn are said to be leading contenders to take on a sizable portion of Heller. EMOTIONAL ANNOUNCEMENT In San Francisco, Larrabee’s video presentation was followed by a session with San Francisco managing partner Barry Levin, who chaired the firm during its growth phase earlier this decade. Bill Henn, a secretary at Heller for 28 years, says the announcement of the firm’s demise didn’t come as a surprise, since rumors had swirled for weeks. Henn said that, after Larrabee’s presentation, Levin talked for 20 minutes and was apologetic and sad. “Barry said, ‘I thought I’d be up here announcing a merger rather than a dissolution,’” Henn says. Henn says staffers are hoping to be retained when larger groups of attorneys land at new firms, and he confirmed that staff were given 60 days’ notice, and so will continue working for at least those two months. “I’ll come in until there’s nothing to come in to.” A GREAT RUN The firm has long been a pillar of the San Francisco legal community, tracing its roots to 1890. The firm arranged financing for the construction of the Golden Gate Bridge and San Francisco-Oakland Bay Bridge and helped create the consortium that built the Hoover Dam. Key clients have included Sony, Microsoft, Apple, Yahoo, Philip Morris, McDonald’s, Wells Fargo, Bank of America and Levi Strauss, which the firm took public in 1971. Two pro bono cases brought the firm to the U.S. Supreme Court in 1972, where it won important victories. Parisi v. Davidson defined the rights of conscientious objectors during the Vietnam War, and Trafficante v. Metropolitan Life Insurance Co. expanded rights to sue over housing discrimination. In 2001, the firm represented Northrop Grumman Corp. in the $4.7 billion sale of TRW Automotive to The Blackstone Group, among the largest leveraged buyouts ever. In 1962, the firm consisted of 25 lawyers. Growth began in the 1970s with the opening of the Silicon Valley office and a short-lived Hong Kong outpost. Seattle and Los Angeles came in the 1980s, and the 1990s saw the firm taking its second stab at Hong Kong before going to Singapore, Washington, D.C., and New York. In 2003, the firm acquired the 60-lawyer Venture Law Group, and allowed VLG to maintain separate branding within the firm. In 2004, the firm opened in Beijing, adding London and Shanghai last year, leaving it with a total of 14 offices. Revenue grew as well, particularly in the firm’s final decade, rising from $169 million in 1998 to reach $507 million in 2006, the same year profits per partner jumped by 17 percent; head count went from 400 to 700; and new offices were added in New York, China and London. Often credited with the firm’s economic success in these times were Levin, who was the firm chairman from 1998 to 2004, and executive director Phyllis Gardner, who joined the firm in 1998 and retired last October. In 2007, trouble set in. Heller Ehrman was the only Cal Law 25 firm to see declines in revenue, revenue per lawyer, and profits per partner in 2007. Revenue slid 3 percent to $491 million, while PPP fell to just above $1 million. Earlier this year, Larrabee said the revenue declines were the result of eight or nine pieces of litigation wrapping up in the first quarter of the year. Both 2007 and 2008 were marked with a steady stream of partner departures. Last October the firm laid off 65 support staff. The firm has lost about 50 partners since January, including a group of 14 intellectual property litigators that recently left for Covington & Burling. As recently as 2004, Heller ranked second on The American Lawyer’s A-List, a ranking of firms based on a variety of factors, such as pro bono representation, associate satisfaction, and diversity ratings.
Niraj Chokshi, Zusha Elinson, and Petra Pasternak are reporters with The Recorder , an Incisive Media publication. Legal Times reporter Marisa McQuilken contributed to this story.

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