NEW YORK, May 29 (Reuters Breakingviews) - Lawyers at Dewey
& LeBoeuf are paying for being partners in name only. Far from
sharing the bankrupt U.S. firm's ups and downs, they were often
at each other's throats. That's bad form in business, even in
the best of times. More collaboration may not have saved the
once-venerable law shop. But it could have defused the harsh
court battles to come.
Traditional law firms like the original Dewey Ballantine
spread profits and losses among partners. But Dewey's 2006
merger with LeBoeuf, Lamb, Greene & MacRae upended tradition.
The biggest rainmakers - and the partners poached from rival
firms - got confidential, multi-year guarantees upwards of $6
million annually. Home-grown grunts made about a tenth of that,
depending on the firm's fortunes. When the recession brought pay
cuts and IOUs, resentment surged.
Dewey's demise wasn't inevitable, however. True partners
might have come clean about their mistakes, stressed the dangers
of a firm implosion and pledged to work through the problems.
Instead, as Reuters reported, partners at an October 2011
meeting were met with more obfuscation and threats to
non-producers that led to a fatal exodus.
The firm is now paying with a potentially acrimonious
wind-up. New York prosecutors are investigating financial
misconduct charges that partners raised against their own former
chairman. The U.S. government is suing for $80 million in
unfunded pension liabilities. And many Dewey attorneys may soon
be immersed in litigation.
A U.S. district judge ruled last week, for instance, that
the trustee for defunct New York law firm Coudert Brothers could
claw back profits from cases that former partners brought with
them to new firms. The ruling could well apply to Dewey. What's
more, the firm's bankruptcy trustee might be in a position to
claw back guaranteed draws paid to partners while the firm was
insolvent. Other, arguably underpaid, partners could claim some
of the proceeds, as is happening similarly in the Bernard Madoff
Dewey at least has a long tradition of bankruptcy law on
which to draw. It handled successful cases like the
reorganization of the Los Angeles Dodgers. Considering the
challenges ahead, it will be lucky to do even half as well for
- U.S. law firm Dewey & LeBoeuf filed for bankruptcy on May
28, ending almost six months of high-profile struggles to keep
the 1,300-lawyer global enterprise afloat. The Chapter 11
bankruptcy is the largest law-firm collapse in U.S. history.
According to documents filed with the U.S. bankruptcy court in
New York, the firm has about $255 million in accounts receivable
and $13 million in cash and owes about $315 million to more than
(Reporting by Reynolds Holding, a Reuters Breakingviews
columnist. The opinions expressed are his own.)
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