Dewey Have Anyone Left To Turn Out the Lights?(Plus an actual lawsuit, a possible lawsuit, and a partner's theory of blame.)
What is one prominent Dewey partner's theory for what caused the firm's collapse?
Prominent real estate partner Stuart Saft, who recently left Dewey for Holland & Knight, sat down for a television interview with Lee Pacchia of Bloomberg Law. We’ve embedded the clip below.
As you can see, Saft is engaging and surprisingly candid — Lee Pacchia asks some tough questions, and Saft, to his credit, fields most of them. Here are a few highlights I pulled out (paraphrased; watch the video for exact wording):
1. The real estate department at Dewey sat on its own floor and wasn’t involved in much of the palace intrigue in chaos of recent weeks. The real estate lawyers were busy working on their deals.
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2. Saft was contacted by over 40 different law firms interested in his practice. He went to Holland & Knight with six associates, three paralegals, and two secretaries, the group that worked on his matters. Two other partners, a counsel, and two associates were invited to Holland & Knight but decided to go elsewhere. Two other associates who didn’t fit neatly into either group are still looking for positions (with help from Saft).
3. At the partners’ meeting in October 2011, the partners learned that over 100 of them had guarantee deals, which came as a surprise to many of them. According to Saft, many partners thought that only 20 to 25 partners had guarantees.
4. The number of partners with guarantees came as news to Saft even though he was the chair of a department — a reflection of how law firms have become businesses, making it impossible for every partner, including partners in supervisory or managerial roles, to know everything that is going on.
5. In terms of what did the firm in, here’s a summary of Saft’s theory, from the ABA Journal:
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[Saft] blames legal recruiters, excessive guaranteed compensation deals and angry fellow partners for the law firm’s impending downfall in a video interview posted Thursday….
“The story started with blogs,” he said, then became a “bonanza” for legal recruiters who worked over the past year to bring down the firm. They used confidential information from some partner clients to promote claims of law firm instability and earn commissions by placing them at other law firms, Saft said.
“It does not take a great deal to destablize a firm,” he said, describing it as “people in a box.”
To be more precise, if you watch the video you’ll see that Saft blames recruiters for taking the Dewey story from blogs over to the mainstream press, such as the New York Times and the Wall Street Journal, and from there it became “a media sensation.” This led to the defections and to the unraveling of Dewey’s efforts to restructure its deals with partners through long-term deferred compensation arrangements. Then came the final blow: the possible criminal investigation by the Manhattan District Attorney’s Office, initiated by certain partners “out of anger and rancor and an attempt to stop a merger that would have provided a safe landing” for many of the firm’s lawyers and staff.
I’m admittedly biased, but to me this sounds a like blaming the messenger. It wasn’t “the blogs,” the recruiters, or the mainstream media that caused Dewey to make all of the exceedingly poor management decisions — see, e.g., here (ATL) and here (Bruce MacEwen) — that brought it to this point.
UPDATE (11:00 AM): As for Saft’s argument that the blogs and the media ruined the restructuring effort, let’s be honest: restructuring the partner guarantee deals by arranging to pay them back over the long term was something of a “Hail Mary” pass. Dewey was already struggling under what has been conservatively estimated at $440 million in debt, much of it owed to parties outside the firm — banks, bondholders, and vendors. Trying to reform the guarantee deals was like trying to unravel a Ponzi scheme: everything would have had to fall into place perfectly in order for it to have worked. It might have succeeded in the pre-recession world in which law firms were minting money, but that wasn’t the world confronted by Dewey in 2012. There was too little cash and too little margin for error to pull off such a feat.
Saft closed by voicing his suspicion that other firms have the potential to turn into Deweys: “I don’t think that this is the end of it. The law firm paradigm that was built up between the late eighties and the Lehman crash doesn’t necessarily work.”
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Is Stuart Saft right? Is Dewey just the proverbial canary in the coal mine for Biglaw? We shall see. If you have information or tips about Dewey or the Dewey of the future, please reach out to us.
For your viewing pleasure, here’s the Bloomberg Law interview of Saft:
Dewey Bankruptcy Head Exits For Proskauer [WSJ Law Blog]
Dewey & LeBoeuf Worker Suit Says Firings to Come Tomorrow [Bloomberg]
Lawsuit: Dewey Lays off 450 Employees [WSJ Law Blog]
Dewey Hit with WARN Suit as Partner Departures Suggest Merger Didn’t Take [Am Law Daily (reg. req.)]
A Dewey Bond Offering Made No Mention of Partner Guarantees [DealBook / New York Times]
Dewey Ex-Partner: Headhunters and Media Tanked the Firm [Bloomberg Law via YouTube]
Ex-Partner Blames Legal Recruiters, Excessive Pay Guarantees, Angry Colleagues for Dewey’s Downfall [ABA Journal]
Orrick Expands Moscow Office with Two Corporate Partners [Orrick (press release)]
Bracewell & Giuliani Adds Five Partners from Dewey & LeBoeuf [Bracewell & Giuliani (press release)]
Earlier: Dewey Have Underfunded Pension Plans? Feds Say Yes, Stepping In To Pay the Shortfall
Gone Dewey Gone: ATL Readers Dish the Blame
