Dewey & LeBoeuf R.I.P.
May 29, 2012 3:03 AM   Subscribe

On Monday, the U.S.-based law firm Dewey & LeBoeuf LLP filed for dissolution. While Dewey is not the first law firm to declare bankruptcy, it is the largest and is likely to be the most contentious.

At issue is a $125 million bond issued on behalf of the firm which failed to disclose that nearly 100 partners had guaranteed annual salaries of as much as $5 million, a fact that was also unknown to many of the firm's partners until it was too late. Dewey's managing partner is now under criminal investigation by the U.S. District Attorney in Manhattan.
posted by hawkeye (49 comments total) 11 users marked this as a favorite
 
A story of greed, and why it is one of the seven deadly sins.
posted by caddis at 3:13 AM on May 29, 2012 [1 favorite]


I don't know what those guys' problem was. BigLaw may be unsustainable, but at least most of the firms pretend they're running a business.
posted by valkyryn at 3:14 AM on May 29, 2012


This is pretty par for the course in running a major business these days, too. I mean, not that they're all unethical, but it's hardly shocking.
posted by gracedissolved at 3:26 AM on May 29, 2012 [1 favorite]


Previously, they had to rename the company when founding partners Cheetham and Howe left to start their own practices after a disagreement with Dewey.
posted by radwolf76 at 3:37 AM on May 29, 2012 [52 favorites]


“We knew there were guarantees but I don’t think anyone imagined that it was 100,” a former Dewey partner, Stuart Saft, said in a television interview with Bloomberg Law on Thursday. “We thought it was 20 to 25. I was shocked when I learned how many there were.”

25 lawyers being guaranteed 5 million a year in one firm still seems a lot to me; is even that number sustainable? I also keep wondering whether anyone going to hesitate to hire these people at the higher end, given their seeming cluelessness about much of what was going on at their own firm. I am guessing not, seeing that many of them are jumping overboard to new forms like rats fleeing a sinking ship.
posted by lesbiassparrow at 4:10 AM on May 29, 2012


I also keep wondering whether anyone going to hesitate to hire these people at the higher end, given their seeming cluelessness about much of what was going on at their own firm.

Compartmentalizing your job is something that most of us do to a certain extent, and one of the (public) guiding principles of the law is confidentiality. It doesn't surprise me at all that big firms aren't very transparent.
posted by Etrigan at 4:17 AM on May 29, 2012


A good start.
posted by WPW at 4:49 AM on May 29, 2012 [1 favorite]


Maybe they can hire that smarmy bankruptcy lawyer who is all over TV in New York, wearing a cheap suit but talking like a thug from the South Shore and promising that "bankruptcy isn't the end, it's a new beginnIng."

/schadenfreude
posted by spitbull at 4:53 AM on May 29, 2012 [1 favorite]


Etrigan, it isn't just a lack of transparency - it's that lawyers, who presumably know the binding nature of contracts and the nature of a partnership, agreed to contracts and terms that they now claim they never investigated. The only justification they can offer is that they were blinded by greed.
posted by Joe in Australia at 4:55 AM on May 29, 2012 [1 favorite]


I don't particularly feel bad for the partners, all of whom have been earning nicely and some or many of whom bear responsibility for the firm going under. But I do feel bad for the junior lawyers and all the support staff who are going to be left in the lurch, scrambling around for a new job at a difficult moment.
posted by Forktine at 4:55 AM on May 29, 2012 [9 favorites]


It's a start.
posted by unSane at 4:58 AM on May 29, 2012 [1 favorite]


Businesses go bankrupt all the time. But law firms aren't run like normal businesses -- they aren't incorporated. Each of those partners is individually liable for all of the firm's debt. Not that I'm shedding any tears, but it's an interesting situation to read about.
posted by miyabo at 5:02 AM on May 29, 2012 [4 favorites]


Can't they ask Shia for a loan?
posted by kmz at 5:08 AM on May 29, 2012 [8 favorites]


The WSJ article says they owe about $300m. I don't know if all the 1000 lawyers mentioned were all partners, but if so, that's about $300,000 apiece. But as miyabo says, they're all jointly and severally responsible for the debt. So that's gonna get messy.
posted by unSane at 5:09 AM on May 29, 2012


OK, the other article says 300 partners. So more like a cool million each.
posted by unSane at 5:13 AM on May 29, 2012


The Reuters article on the Tribune website mentions that something like 200 of 300 partners have bailed since January. My superficial understanding of law firms leads me to believe that the remaining partners are left to sort this mess out, but I don't know that that's the case. (In other words, are do you retain some responsibility for the firm for some time after you leave?)
posted by hoyland at 5:14 AM on May 29, 2012


Dewey & LeBoeuf is a limited liability partnership. From my understanding this would mean the limited partners have liability only to the extent of their capital invested in the firm. General partners would have unlimited liability for the debts of the partnership.
posted by hugandpint at 5:29 AM on May 29, 2012 [4 favorites]


I'm sure Dewey himself will be fine. Any news on the partners Cheatem and Howe?
posted by DreamerFi at 5:34 AM on May 29, 2012 [2 favorites]


From the press release:

Those wishing to follow the Chapter 11 proceedings should visit this website, maintained by the firm's claims agent, Epiq Bankruptcy Solutions LLC.

Epiq Fail? Call Epiq Bankruptcy Solutions!
posted by eriko at 5:37 AM on May 29, 2012 [15 favorites]


Joe in Australia: "Etrigan, it isn't just a lack of transparency - it's that lawyers, who presumably know the binding nature of contracts and the nature of a partnership, agreed to contracts and terms that they now claim they never investigated. The only justification they can offer is that they were blinded by greed."

Greed or laziness. And laziness may even be too sharp a term for something people from all walks of life do as a matter of course.

You'd be surprised how many lawyers, just like regular folks, sign contracts without really reading them. I figure it's for the same reason that other people make that mistake - it seems like routine stuff, and is surely fine or someone else would have caught a problem, and slogging through is a tedious process with only a small chance of turning up either a treasure or a bomb. When your job is slogging through mountains of paperwork, the trivial-seeming stuff is going to get triaged to the bottom of the pile, and often neglected.
posted by Karmakaze at 5:45 AM on May 29, 2012


Can't they ask Shia for a loan?

Let's party.
posted by jquinby at 5:48 AM on May 29, 2012 [1 favorite]


Sounds to me like somebody is padding their resume for a run at the federal level republican leadership for the election after next.
posted by srboisvert at 5:51 AM on May 29, 2012 [1 favorite]


I don't particularly feel bad for the partners, all of whom have been earning nicely and some or many of whom bear responsibility for the firm going under. But I do feel bad for the junior lawyers and all the support staff who are going to be left in the lurch, scrambling around for a new job at a difficult moment.

Thankfully, they've seen this coming down the pike for years now, some of them ever since they were hired as associates. The people I know who were associates there have all managed to land safely elsewhere already. The legal industry has been waiting for this announcement for a long time now.

That said, the "common knowledge" aspect of this just goes to show that any partner there claiming ignorance is either lying or was keeping himself willfully ignorant. The partners don't get much sympathy from me.
posted by Navelgazer at 6:00 AM on May 29, 2012


This is going to be enormously enjoyable to watch.

However: how does one sever a partner obligation? Is it going to be a matter of the last to leave getting screwed? Or will there be endless endless endless fights over who knew what when, and who was a partner when a given corporate financial obligation was created?
posted by aramaic at 6:26 AM on May 29, 2012


Karmakaze: When your job is slogging through mountains of paperwork, the trivial-seeming stuff is going to get triaged to the bottom of the pile, and often neglected.

Isn't there an old saw about the cobbler's children never having shoes?
posted by Malor at 6:30 AM on May 29, 2012


Or will there be endless endless endless fights over who knew what when, and who was a partner when a given corporate financial obligation was created?

There's a LOT of money involved, and hundreds of lawyers. What the hell do you you think?
posted by Malor at 6:33 AM on May 29, 2012 [3 favorites]


Riiight, but that still doesn't really answer the question.

So, to reprise, how are LLP obligations severed?
posted by aramaic at 6:36 AM on May 29, 2012


Obligations incurred as a partner persist even after you stop being a partner, is my understanding.
posted by unSane at 6:38 AM on May 29, 2012


I call for a moratorium on Dewey, Cheatham, & Howe jokes. Be creative, the firm is called Dewey and LaBoeuf, fer chissakes. Go wild with meat recipes!
posted by spitbull at 6:45 AM on May 29, 2012 [4 favorites]


Thankfully, they've seen this coming down the pike for years now

I don't know whether that's true of the UK subsidiary. I don't understand the system at all and am too sensitive to ask the people involved about it directly, but some I know appear to have lost the substantial sum of money they put up to become partners (?) and had to abruptly take demeaning jobs elsewhere for much less money (perhaps as little as four or five times what I earn). Or so I gather.
posted by Segundus at 6:47 AM on May 29, 2012


Obligations incurred as a partner persist even after you stop being a partner, is my understanding.

Except in a Limited Liability Partnership, which is a strange beast of recent creation, a curious hybrid of partnership and corporation.
posted by Skeptic at 6:57 AM on May 29, 2012


Aramaic: Classic (unlimited liability) partnerships are ancient legal devices and in theory they are reconstituted every time a partner enters or leaves. Any obligation of the "old" partnership falls on the members belonging to the partnership at the time. Limited partnerships are creations of statute and the law varies by jurisdiction. My understanding is that they are more like corporations, and the corporation severs its relationship with a partner by repurchasing his or her share. A transaction like that would be scrutinised if the partnership entered bankruptcy, but otherwise it's quite normal. The partner's liability is limited to the value of his or her share buy-in, so it's not like a traditional partnership where you can go after the partner's own assets.

Fun fact: when limited partnerships were introduced there were many legal writers who were outraged that no partner had unlimited liability. It just didn't make sense! Why would anyone trade with a limited partnership and risk losing their money? At one point there was even a hybrid structure where at least one partner had unlimited liability and the rest were limited to the value of their contributions. As you would expect, the partner with unlimited liability was usually a figurehead without real assets.
posted by Joe in Australia at 7:01 AM on May 29, 2012 [2 favorites]


Be creative, the firm is called Dewey and LaBoeuf, fer chissakes. Go wild with meat recipes!


Long pig, even.
posted by Shepherd at 7:02 AM on May 29, 2012 [2 favorites]


A good start.

For each lawyer out of a job, there are also staff people (secretaries, clerks, IT people, etc.) who are also now unemployed, so gloat advisedly. Dewey claimed to have 1,100 staff workers, which strikes me as low for a firm with 1,000+ lawyers.
posted by Mid at 7:17 AM on May 29, 2012 [2 favorites]


I call for a moratorium on Dewey, Cheatham, & Howe jokes. Be creative, the firm is called Dewey and LaBoeuf, fer chissakes. Go wild with meat recipes!

So, you consider that this should be filed under 641.5, rather than 345?
posted by Skeptic at 7:22 AM on May 29, 2012 [1 favorite]


Collectively, [the lawyers with multi-year contracts guaranteeing them millions per year] were due tens of millions of dollars in backpay.

So a huge portion of the $300 million that is owed is just supposed to go to the firm's own big ticket lawyers. Sounds like the firm could have been saved by a come to Jesus talk with those lawyers five years ago. What a mess!
posted by onlyconnect at 7:24 AM on May 29, 2012


Can't they ask Shia for a loan?
Let's Party
With an Actual Cannibal!?
So, to reprise, how are LLP obligations severed?
I always just assumed it was like being a shareholder. If the company goes bankrupt, well, you just stop getting dividend checks and that's that.


The thing that seems odd to me, in terms of giving a lawfirm a huge loan like this: what assets do they even have? They don't have any IP, they don't have any hard assets, and if things go bad their employees and clients disappear. It would seem like their ability to pay back their loans is entirely dependant on their continuing to exist as a company with a solid reputation which would be instantly destroyed were they to go bankrupt.

Or maybe I'm missing something, and wallstreet banks wouldn't have a problem hiring a bankrupt lawfirm to handle their paperwork. Seems really unlikely to me.


I kind of wondered what kind of work they actually did for that kind of money, and I guessed they did a lot of stuff for wallstreet, and that appears to be the case, according to Wikipedia:
In September 2009, Dewey & LeBoeuf advised on two major M&A transactions. The firm played a leading role on Walt Disney's $4 billion cash and stock acquisition of Marvel Entertainment, a deal that gives Disney the rights to more than 5,000 Marvel characters, including Iron Man and the Incredible Hulk. A team of Dewey & LeBoeuf lawyers also advised eBay in the company's agreement to sell a 65 percent stake of its Skype communications unit to a group of private investors, led by the Silicon Valley private equity firm Silver Lake Partners, in a deal valuing the business at $2.75 billion. The firm has also represented billionaire Dallas Mavericks owner Mark Cuban against the Securities and Exchange Commission's accusations of insider trading.
Kind of fascinating. People talk about the bi-modal distribution in lawyer salaries, there are ton of people with law degrees who make less then the median US income, a lot less. Then a big cluster of people who make just about $120k-$140k.

It seems like a lot of those highly paying jobs were Structural. There were X biglaw firms, they of course paid $Y and people hired them because they were trusted brands. But with the disappearance of one of those firms, it seems entirely possible that those high-paid legal jobs could just disappear forever if the other high-paid law firms are tapped out, new entrants might get some of the work, but there's no reason to think they'll start paying those huge salaries.

In fact, I wonder if some of the reason they went bankrupt was firms hiring law firms that paid median US wages, instead of twice as much. In terms of drawing up fairly routine contracts for mergers and whatnot, it seems like the quality of work wouldn't differ to greatly.
posted by delmoi at 7:25 AM on May 29, 2012 [2 favorites]


Also, dont forget in this that only the equity partners had ownership. there were probably a lot more non-equity partners who only had Limited voting rights and higher salaries.
posted by slkinsey at 7:26 AM on May 29, 2012


It sounds like perhaps if their decimal system worked better they'd have realized they owed so much earlier, eh? Therein lies the beef, I suppose.
posted by schyler523 at 7:34 AM on May 29, 2012


Go wild with meat recipes!

This used to be better back before Dewey & LeBoeuf was formed by the merger of Dewey Ballantine and a firm called LeBoeuf, Lamb, Greene & MacRae, which is a full meal if you're willing to eat a Scotsman.
posted by Partial Law at 7:44 AM on May 29, 2012 [22 favorites]


Delmoi - a few points:

1. At most firms, equity partners are required to put cash into the firm with a hefty capital contribution. We're talking hundreds of thousands per equity partner, if not higher. Equity partners lose that money if the firm tanks. Banks making loans to the firm can have various types of ratios and metrics regarding the partner capitalization to try to protect themselves.

2. Most firms are carrying huge amounts of AR at any given time - clients tend to pay slow, and many clients don't really "settle up" on their bills until the end of the year. We're talking millions or tens of millions for large firms. That AR is collateralized to the banks, so, even if the firm tanks, theoretically, the banks can go after the AR. In practice, it is supposedly pretty hard to collect AR once the firm is gone.
posted by Mid at 7:52 AM on May 29, 2012


So a huge portion of the $300 million that is owed is just supposed to go to the firm's own big ticket lawyers.

Not a huge portion, no. According to the Times, $225 million is owed to banks, though the partners and the landlord are also creditors.
posted by The Bellman at 8:03 AM on May 29, 2012


Reading more, it's nice to know the partners nearly all seem to have gotten other jobs. Naturally, the same is not being said for those further down the food chain.
posted by lesbiassparrow at 8:37 AM on May 29, 2012


Some of my other favorite BigLaw firm names include Goodwin Proctor, which of course roughly 100% of people simply refer to as "Goody Proctor," and Morrison Foerster, which has spent considerable time and effort into branding themselves as "Mofo."

"But what if I need the Dickensian aspect?!" you ask? Well, you're in luck with Cadwalader, Wickersham and Taft.

And for the supervillains out there, why not have your freedom secured by three of the four Horsemen of the Apocalypse themselves, at Axinn, Veltrop and Harkrider.
posted by Navelgazer at 8:53 AM on May 29, 2012 [5 favorites]


I call for a moratorium on Dewey, Cheatham, & Howe jokes. Be creative, the firm is called Dewey and LaBoeuf, fer chissakes. Go wild with meat recipes!

Give up. DC&H has evolved from a joke into a paradigm.
posted by mule98J at 9:37 AM on May 29, 2012


All I can say is that to me Dewey LaBoeuf sounds like the name of a New Orleans jazz musician.
posted by benito.strauss at 9:37 AM on May 29, 2012


Dewey LaBoeuf sounds like a pretentious menu item.
posted by dejah420 at 9:42 AM on May 29, 2012


I like to use Orly, Yarly & Wai in fake-letterhead for memo assignments, etc.
posted by snuffleupagus at 9:50 AM on May 29, 2012 [9 favorites]


In 2010 one of the UK's big law firms, Halliwells, went into administration, and is now about to be liquidated. It turned out that, as an incentive to get the firm to move to fancy new offices in Manchester the partners were given a 'reverse premium' of £24 million by the landlord, £20.4 million of of which a handful of the equity partners divided amongst themselves instead of investing it in the business - and kept it secret from the other partners. It went into administration £18 million in the red. What a coincidence!
posted by essexjan at 3:55 PM on May 29, 2012


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