Dewey & LeBoeuf Said to Encourage Partners to Leave - NYTimes.com

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Robert Caplin/BloombergNewsSteven Davis, ex-chairmanof Dewey.

APRIL 30, 2012, 9:41 PM

Dewey & LeBoeuf Said to Encourage Partners to Leave

ByPETER LATTMAN

7:39 a.m. | Updated

Dewey & LeBoeuf, the New York law firm crippled by financial

mismanagement, an exodus of partners and a criminal investigation of its former chairman,

encouraged its partners on Monday evening to look for another job, according to an internal

memo.

The firms leadership has been scrambling in recent days to stave off failure by merging withanother law firm and persuading its lenders not to push it into liquidation. All partners, said

the memo, which was reviewed by The New York Times, are encouraged to seek out alternative

opportunities.

The memo represents the latest chapter in a tumultuous period for Dewey, which has come

apart after disappointing profits forced its leadership to slash partners compensation. An

accelerating wave of partner defections since January more than 85 of its 300 partners have

left, including at least 11 on Monday has imperiled the firm.

Last week the firm announced that the Manhattan district attorney had begun a criminal

investigation into allegations of wrongdoing by Steven H. Davis, the firms former chairman,

who was stripped from his leadership posts this past weekend.

If Dewey were to file for bankruptcy, it would most likely lead to the firms dissolution, industry

experts say. Unlike an operating company with physical assets that can reorganize in a

bankruptcy, Dewey a private partnership whose only real assets are lawyers will be left with

nothing to restructure once its lawyers walk out the door.

There are no plans to file bankruptcy, Martin Bienenstock, the head of Deweys restructuringpractice and a member of the office of the chairman, said late Monday. And anyone who says

differently doesnt know what theyre talking about.

Before the recent departures, Dewey employed about 2,000 people roughly 1,000 lawyers in

25 offices across the globe and the other half support staff including legal secretaries, mailroom

clerks and paralegals.


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Dewey was formed through the 2007 merger of Dewey Ballantine and LeBoeuf, Lamb, Greene &

MacRae. The two firms created a 1,300-lawyer behemoth with about 25 offices across the world

and revenues of about $1 billion, making it the largest law firm merger in history.

Driving the deal was Mr. Davis, a Yale-educated energy-industry lawyer who had spent his

entire career at LeBoeuf and had ascended to its chairmanship. A genial and low-key leader, Mr.

Davis had a vision to create a firm with the size and international footprint to compete in anincreasingly competitive marketplace.

You have to be bigger, Mr. Davis said in an interview at the time.

They called the new partnership Dewey & LeBoeuf, honoring a commitment that Dewey

Ballantine had made to the estate of Thomas E. Dewey, the former New York governor who once

ran the firm. When Mr. Dewey died in 1971, his will said that the firm could no longer use his

name. The firm struck a deal with the estate to continue to use Dewey, so long as it always

appeared first.

When the combination was struck, the partners had a saying that LeBoeuf married up, and

Dewey married rich. The century-old Dewey, a storied firm with a strong mergers-and-

acquisition practice, was hurting financially after numerous partners left after a failed 2006

merger with Orrick, Herrington & Sutcliffe. LeBoeuf, on the other hand, was financially sound,

churning out lucrative work in its leading practices representing utilities and insurers.

Despite the old-school name, Dewey jettisoned traditional notions of a law firm partnership.

Instead, Mr. Davis promoted a star system where top-producing partners had guaranteed

contracts paying them millions of dollars a year. Some partners, the so-called rainmakers who

brought in the business, made more than 10 times Deweys lowest-ranking ones, the service

partners who earned a salary of about $300,000 drafting legal briefs and proofreading merger

agreements.

The timing of the merger, struck in August 2007, could not have been worse. Just as the firms

were combining, the credit markets seized up. A year later, Lehman Brothers collapsed, setting

off the global financial crisis and a precipitous decline in the demand for legal services. Dewey,

like other large law firms, struggled through the deep recession.

Yet in 2010, anticipating a business recovery, Mr. Davis began a hiring spree, snaring partnersfrom other firms by luring them with huge multiyear contracts. Last year alone, Dewey brought

on 37 lateral partners. On just one day in January 2011, the firm brought on seven partners from

three firms. Each was accompanied by a guaranteed pay package and a glowing press release.

The problem was that Dewey could not afford to pay its existing partners, let alone these new

ones.


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Cash was already running low; partners were already owed tens of millions of dollars in back

pay. The firm had fallen so behind on collecting unpaid legal bills that management sent out an

e-mail offering partners free iPads and iPhones if their clients paid them on time.

Last October, as it became clear that Dewey was not going to meet its lofty projections for 2011,

Mr. Davis held a partners meeting to discuss the firms finances. He dropped a bombshell: The

firm had extended guarantees to nearly 100 of its lawyers, creating compensation commitmentsthat it could not possibly meet. Partners with large contracts who were already owed millions of

dollars would be asked to take additional pay cuts.

By March, Deweys partners were already in revolt when they crammed into a conference room

for another meeting. Jeffrey L. Kessler, a top sports-industry lawyer who represents the

National Football League players union, took the microphone and delivered, according to

people present, the law firm equivalent of a locker room pep talk.

Theres a crisis of confidence here but the only thing that can sink the ship is us, Mr. Kessler

said. Instability is creating a problem but give us six months and people will be happy.

Yet the partners had already lost confidence in managements ability to save the firm. Groups of

partners continued to jump ship, and the steep decline in its partnership ranks caused Dewey to

breach covenants on its loans.

A dissolution of Dewey would be expected to result in ugly legal battles over money between

creditors, bondholders and the partners owed back pay. In a bankruptcy proceeding, Deweys

partners could also be on the hook for millions of dollars in so-called clawback claims brought

by creditors seeking to recover money.

Mr. Davis has hired Barry A. Bohrer, a criminal defense lawyer at Morvillo, Abramowitz, Grand,

Iason, Anello & Bohrer, to represent him. On Sunday, Mr. Davis e-mailed his partners,

defending his tenure as the firms chairman.

A dispassionate and disinterested review of the facts will confirm that I have not engaged in

any misconduct, Mr. Davis wrote. I did my best to navigate the firm through challenging and

turbulent times, and I deeply regret our current situation.

This post has been revised to reflect the following correction:

Correction: May 1, 2012

Because of an editing error, an earlier version of this article misplaced the first full reference

to Steven H. Davis, Dewey & LeBoeuf's former chairman. An earlier version also erroneously

cited one partner as among those who had presented evidence of possible financial

improprieties by the firm's former chairman to the Manhattan district attorney's office. The


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partner, Seth C. Farber, was not among them.

Dewey & LeBoeuf Said to Encourage Partners to Leave - NYTimes.com

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