As we approach the fourth anniversary of the bankruptcy and demise of Dewey & LeBoeuf, where I was a partner, I am reflecting on the lessons I learned from my experience. These lessons are not about the mistakes made prior to the firm’s collapse, but rather what happened afterwards. My experience has made me realize that the legal profession must change how it deals with a bankrupt law firm in order to better protect the firm’s clients.
First and foremost, a law firm is not just a business enterprise; it is a group of fiduciaries whose primary duty is to their clients to professionally handle the matters entrusted to them. Although protecting creditors is the focus of every bankruptcy, everyone must recognize the non-business nature of law firms, and creditors’ committees must be more concerned about the firm’s clients, especially if they expect the clients to pay the bills rendered by the insolvent law firm. The sooner the difference between a traditional operating business and a law firm is recognized, the better for everyone involved, especially the law firm’s creditors. If the creditors want to maximize the return from the bankrupt law firm’s estate, then the creditors should be equally concerned with the firm’s former clients’ ability to receive seamless service through a traumatic period for everyone concerned.
Law Firm ‘Products’
A law firm bankruptcy and liquidation cannot be treated the same as the bankruptcy of an operating business because the “products” law firms sell are not physical. Rather, law firms sell intellectual goods based on decades of trust. The role of attorneys as advocates, counselors and strategists has not changed in five centuries. Since then, many law firms have increased from a couple of lawyers to several thousand, and quill pens have given way to the computers. Throughout time, however, what each of us does every day has not changed, and this has to be taken into consideration as a law firm implodes. Accordingly, the bar association needs to establish a protocol that recognizes that our business is a service that needs to be treated differently than merely liquidating inventory and selling assets.
Moreover, partners cannot just run for the exits when a firm encounters financial difficulties. To properly represent clients during the firm collapse, partners must help their associates, paralegals, secretaries and support staff to remain calm so they may continue servicing clients. Partners also need to recognize that they have a duty to provide their clients with continuous service, which can only occur if the staff is not left to fend for themselves.
As soon as I recognized the inevitable demise of Dewey, I assured my associates, paralegals and secretaries that I would move us as a group, so they should focus on doing their jobs and servicing our clients while I found us a new home. In looking for a new firm, my mantra was, “If you want my book of business, you have to take the team that produced it.” As soon as a firm began to negotiate over the size of my team, I ended the discussions because my team was integral to building my book of business, and I knew that I needed them to continue to support our clients on the day we moved.
Furthermore, law firm creditors have to rethink how they handle the demise of a law firm, or they will continue to receive a fraction of what they are owed. As soon as a law firm files for bankruptcy protection, client files, lawyers email and documents should immediately be turned over to the departing partners’ new firm. In my case, the process was very difficult because we, the departing Dewey partners, could not request the files; forms had to be sent to clients and then routed back to Dewey’s bankruptcy counsel to review and process. Still, after that lengthy process, nothing happened because there were no funds available to obtain the files. Meanwhile, during this time, who was looking out for the client’s best interest?
I even offered to pay to have my computer files sent to me, and they never were. Without files, it is extraordinarily difficult to fulfill our duties to our clients, which is why this chaotic, inefficient process needs to be replaced by a streamlined system that prioritizes our obligations to our clients over our firm’s financial status. I know the creditors think there may be gold in old files, but there is not, and this attitude of holding on to any asset is self-defeating. Frankly, this attitude not only made the transition more difficult, but also antagonized clients toward the Dewey Estate at the a time when creditors and the bankruptcy trustee were attempting to collect money from those same clients, who were adversely affected by the creditors’ actions.
It is assumed that clients use the law firm bankruptcy as an excuse to obtain large discounts on their bills, but, in reality, the client’s argument for discounted service is frequently tied to the chaos that results from the law firm’s collapse. Accordingly, having systems in place to minimize the chaos facing clients would benefit the creditors by eliminating that claim. Once the client retains the new law firm, there is no reason why the instructions to move files have to come from clients rather than the departing partners, since it is we who have the greatest familiarity with what is in the warehouse. However, in a law firm collapse, the former partners are considered the enemy.
Not an Easy Road
There has been significant comment and criticism of partners fleeing failing law firms that implies we were somehow happy about the situation, that we enjoyed losing our capital, having to make payments to the Dewey Estate, and having to significantly change our lives and end existing relationships. The reality is that the partners who remained after the initial newspaper stories appeared did not want to abandon our firm. But once the news articles became a daily occurrence, we had no choice but to leave because our clients told us they could not risk sending work to a firm that might not exist in a few months.
Once we realized the magnitude of Dewey’s problems in late 2011 and early 2012, we carefully analyzed the firm’s financial condition and were prepared to invest our time and money in saving Dewey. But, a constant barrage of press, especially the news of a criminal investigation of senior management, led to telephone calls from our clients telling us it was time to go.
And when we went, our clients had a hard time reaching us, as we absurdly could not forward email, snail mail and telephone calls to the departing attorneys of the law firm. Our recorded outgoing voice mail messages seemed to be in nobody’s best interest, with messages advising callers that an attorney was no longer at the firm and routing callers—clients and other attorneys alike—to another attorney at Dewey. The old law firm’s operating systems should be left in place to assist clients and other attorneys in the transition.
Even better, what if the old law firm’s creditors earned a fee for assisting in the transition rather than impeding it? What if creditors of the bankrupt firm and the bankrupt firm’s counsel had not considered the former Dewey partners as the enemy, but instead had worked together to assist clients through the mess that the clients did not create? What if part of the first day’s motions in the bankruptcy proceeding authorized and made funds available to move client files, attorney files, snail mail and email to the partner’s new law firm and, for providing this service, the bankruptcy estate received a fee? This would also reduce client’s hostility to the old firm’s creditors and increase collections of receivables.
Personally, one of the most surprising parts of the whole experience was receiving so many telephone calls and emails from the first hint of trouble from lawyers with whom I had dealt weeks, years and decades earlier. They asked me three questions: “How are you?” “Are you all right?” and “Is there anything that I can do for you?” Everyone’s words kept me smiling during the several difficult months that ensued.
Perhaps the most interesting question I am asked is how I identified the right firm during the frenzied six weeks between my realization that Dewey was doomed and my departure. Not surprisingly, I was looking for a firm that was different from Dewey, and I found it almost immediately. I wanted a firm without debt and with a collegial spirit and with shared goals, mission and vision, rather than each partner having his or her own silo of business. I also wanted a firm with non-New York offices that did not bill using New York rates, so that we could better compete for price sensitive work and a firm without an obsession with its peer firms, a concept that makes sense only to law firm consultants who are selling advice based on it.
In the four years since joining Holland & Knight, both my practice and the firm have grown significantly. I attribute the growth of my practice to my leveraging the Dewey crisis to wisely move to Holland & Knight. Last month Steve Sonberg, Holland & Knight’s managing partner, asked if there was anything I needed to support my practice and, for probably the first time in my career, I was able to answer that there was not.