Anatomy of a Dissolution

Dewey & LeBoeuf: gone but not forgotten.

We recently learned that Justice Antonin Scalia is not a fan of women cursing. What would he make of partners at a leading law firm cursing?

And not just garden-variety cursing, but rather colorful deployment of highly profane language. As Hamilton Nolan of Gawker puts it, “The biggest law firm collapse in history began with ‘f**kwad’ emails.”

Which former Dewey & LeBoeuf partner referred to various former partners as “pathetic,” “little prick,” and “f**kwad”? Let’s take a look at James Stewart’s New Yorker magazine article on what caused Dewey’s demise….

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As we noted in Morning Docket, many former partners of Dewey & LeBoeuf are less than pleased with the proposed settlement between the D&L bankruptcy estate and ex-partners of the firm. Preliminary reactions “rang[e] from skepticism to anger,” according to Am Law Daily.

In the words of Mark Zauderer, counsel to almost 60 former Dewey partners, “I’m not seeing overwhelming enthusiasm for the proposal.” A former D&L partner was even more blunt: “I think this is destined to fail. Let the trustee [of a Chapter 7 liquidation] go for it.”

But not everyone holds such negative views. One ex-partner — who claims that he’s being asked to pay more than he thought he owed, and that he’ll have to postpone his retirement by several years due to Dewey’s downfall — told Thomson Reuters that he will vote for the deal anyway. “My view is there’s nothing less desirable than having this drag out for years,” he said. “I’m willing to pay a lot of money to have this go away.”

Dewey have other issues besides how to deal with former partners? Most certainly. There are pressing problems regarding the disposition of client files, as well as issues regarding retirement benefits for former Dewey & LeBoeuf employees….

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(And bad news for D&L 401(k) participants.)

Debtor in possession -- of a sign? Dewey still seems to have signage outside 1301 Avenue of the Americas. (Photo taken on Tuesday by yours truly.)

Ever since the once high-flying Dewey & LeBeouf filed for bankruptcy in late May, observers have been wondering about what type of financial arrangement the firm might work out with its former partners. Last month, we discussed the outlines of a possible settlement between D&L and its ex-partners, in which former partners would pay a certain amount of money into the Dewey bankruptcy estate in exchange for being released from future claims by Dewey’s estate, the firm’s creditors, and fellow ex-partners.

Would such a plan fly? We noted that the broad outlines sounded reasonable enough, but that much would turn on the specific contours of the proposal — especially the amounts that the partners would be asked to pay, and the methodology for determining those sums.

In the wake of a meeting held yesterday afternoon here in New York at a hotel in midtown Manhattan, we now have some additional information on that front….

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The law firm of Dewey & LeBoeuf now finds itself in Chapter 11, but the story of Dewey has not yet reached its end. We’ll now turn the pages in the Bankruptcy Reporter.

Yesterday Judge Martin Glenn of the U.S. Bankruptcy Court allowed Dewey to use cash collateral to fund its wind-down operations, even though this collateral should really be seen as belonging to the firm’s secured creditors. Judge Glenn initially denied this request, at least when it was coupled with giving the secured creditors a lien on recoveries from future litigation. In deciding to let Dewey tap into the cash, Judge Glenn did not decide what the lenders might get in exchange for letting the firm use their money. That will be decided later, at a June 13 hearing.

With things quieting down on the Dewey news front, let’s turn to analysis. Here are some insights into what brought Dewey down and what other firms can learn from its fall, from a former managing partner who now works as a consultant to the legal industry….

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Elie here. In news that should shock no one, Dewey & LeBoeuf has canceled its 2012 summer program. Honestly, if you were a 2L who was planning on going to Dewey this summer and you are just now figuring out that it’s not going to happen, you should probably spend more time reading Above the Law and less time sniffing glue. (Pro tip: sniffing glue + reading ATL = total awesomeness.)

We’ve also got some additional information about a possible criminal probe into the Dewey situation by Manhattan District Attorney Cyrus Vance. (We briefly considered the headlines “Dewey Have Any Lube for this Probe?” or “Dewey Know Any Good Criminal Defense Lawyers?”)

Let’s get into it. I’ll turn the floor over to Lat….

UPDATE (5:25 PM): Additional info, appended after the jump.

UPDATE (4/30/2012): We’ve added some material to the memo about the cancellation of the summer program that was initially missing when we first published this post.

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(And additional info about a possible criminal probe.)”

For some reason, something must end before we learn our lessons. That is precisely the reason that Sophia Petrillo from The Golden Girls attended her own funeral. She wanted to hear how much people appreciated her while she was still alive, correctly realizing that eulogies are much more valuable at a “funeral” where the individual is still alive to hear the nice things said about her.

This is also why every tech blogger and new source is discussing what we can learn from the retirement of Steve Jobs. My favorite “eulogy” is from a Wall Street Journal blog, The Juggle, recalling a commencement address Jobs gave at Stanford in 2005 about never settling. While I am pretty sure I did not listen to his advice, it is nevertheless sound. He said:

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Heller Ehrman announced its dissolution in September of 2008. The firm was required to give employees 60 days paid notice under the WARN act, but they couldn’t even get that right. Many associates and staff had their pay terminated before their 60 days were up. And many more employees were not compensated for their unused vacation time and other expenses.

These people have had to wait in a long line to get their piece of the steaming Heller carcass.

But the wait is almost over, though the payout will be underwhelming. Take heed, Howrey folks. We could be looking at your future….

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