The pending dissolution of Heller Ehrman revives lessons learned from the rapid collapse five years ago of another San Francisco law firm, Brobeck, Phleger & Harrison, whose partners faced liabilities for the firm’s debt and lease obligations and numerous lawsuits.
Heller announced that it would dissolve as of Sept. 26.
In many respects, Heller’s past months have resembled Brobeck’s last days: More than 50 partners have left in recent months, and merger discussions have failed.
In anticipation of potential employee issues that ended up in court following Brobeck’s dissolution, an anonymous Heller staff person (and self-proclaimed former Brobeck employee) has launched a blog to avoid the same perils.
Firm Chairman Matthew Larrabee and firm spokesman Patrick Bustamante did not return calls for comments.
Now Heller’s remaining 550 lawyers, who are spread throughout 14 offices, must find a place to land.
“Groups are talking all over the place to everyone,” said Valerie Fontaine, principal at Los Angeles legal recruiting firm Seltzer Fontaine Beckwith. “Partners are being contacted directly by other firms,” she said, and “the vultures are not only circulating, they’re picking at it.”
But the challenges might just be beginning. One issue yet to be resolved is how much the firm and its partners owe its bank and landlords.
It’s unclear how much Heller owes on its line of credit, which firms typically use for cash flow purposes. Also uncertain is whether individual partners, most of whom are equity holders in the firm, are liable for those costs.
“The partners are sometimes liable and personally liable, and sometimes they’re not, based on the nature of the debt agreement negotiated with the lending institutions,” said David Gaulin, co-head of the law firm services practice at PricewaterhouseCoopers.
In terms of real estate, Heller has sizable offices in San Francisco, Seattle, New York, Washington and Menlo Park, Calif., in Silicon Valley. Heller “is probably a fairly decent-sized tenant in most of the buildings it’s in,” said Vince Coscino, a partner in the Irvine, Calif., office of Los Angeles-based Allen Matkins Leck Gamble Mallory & Natsis, who represented Equity Office Properties in the Brobeck bankruptcy. Heller could ask for more time or give back some floors in an attempt to meet its lease obligations, he said.
“The landlords are going to have to take a look on a case-by-case basis as to whether or not they’re willing to accept those concessions,” he said, noting that landlords in today’s struggling real estate climate could be less amenable.
One way to reduce individual partner liabilities for the firm’s real estate is to have groups of lawyers depart for firms that are willing to absorb the lease.
Partners already leaving
Earlier this month, a group of 14 intellectual property partners left for Washington’s Covington & Burling, which does not have offices in Silicon Valley or San Diego, where some of the departing lawyers were located.
A Covington & Burling spokeswoman did not return a call for comment on whether the firm intended to open offices in those areas.
Another issue is that partners of an insolvent firm can be liable for taking clients to other firms under a 1984 California decision, Jewel v. Boxer, 156 Cal. App. 3d 171, which said that fees received in cases that were active when attorneys left during a law firm dissolution must go toward the expenses of their former firm.
Brobeck’s bankruptcy trustee successfully asserted such claims against hundreds of former partners and two of the law firms they joined, Morgan, Lewis & Bockius and Clifford Chance.
Brobeck employees also sued for severance pay under California’s Worker Adjustment and Retraining Notification Act (WARN) Act. Larrabee reportedly assured employees last week that they would get paid under the WARN Act.
The new Heller blog has addressed WARN Act concerns and, in an item last week, cautioned Heller employees to make sure their direct deposit would show up on last week’s pay day.
“I’m not kidding,” the blog author wrote. “Does anyone remember that Friday at Brobeck in San Francisco when so many of us went down to the bank to cash our checks that the bank ran out of cash?”
Struggling Heller calls it quits
After more than a century, the firm will dissolve today, chairman Matt Larrabee told staff on Thursday in an emotional meeting.
Heller: Shades of Brobeck?
The Recorder‘s Legal Pad blog outlines the events that brought down a former San Francisco goliath.