NEW YORK, April 25 (Reuters Breakingviews) - A Florida law
firm could teach venerable New York shop Dewey & LeBoeuf how to
stay afloat. Ruden McClosky saved lawyers' jobs and business by
pulling off an unprecedented bankruptcy and merger. Dewey might
try the same, assuming partner and client defections don't swamp
it first. But the maneuver is tricky, and Ruden's experience
provides useful lessons.
That's true even though the firms could not be more
different in some ways. At Ruden's peak, it had a mere 200
lawyers and a dozen offices specializing in Florida real estate.
Dewey boasts more than 1,000 lawyers, 26 offices and $780
million in revenue from a global practice.
A year ago, though, the Fort Lauderdale-based Ruden was in
much the same boat as Dewey today. Partners were fleeing,
offices were closing, revenue was plummeting and, after a
leadership shake-up, a merger seemed in the offing. But Ruden's
soaring liabilities and dimming prospects scared off potential
partners. So it decided to try something that a law firm had
never done before: a prepackaged bankruptcy followed by a sale
to another firm.
Ruden needed to find a willing buyer and then persuade
lenders, partners and other creditors to settle their claims in
advance of filing bankruptcy. But as a law firm, it also had to
satisfy bar officials in multiple states that, among other
things, moving files to another firm wouldn't violate client
confidences. Finally, a bankruptcy court needed to approve the
settlement and sale of the firm, stripped of its liabilities.
Success meant Ruden would speed through bankruptcy, stave
off potential creditors and keep its lawyers and clients, though
under another firm's name. The alternative would have been the
implosion of the firm and years of costly wrangling. As it turns
out, midsize Florida firm Greenspoon Marder bought Ruden in
December for $7.8 million in cash and debt. Creditors got paid,
and about 130 jobs were saved.
Dewey's problems may be more complicated. As one big-law wag
puts it, Ruden was playing checkers, while this is chess. But
for any firm in trouble, a study of Ruden's singular game could
help avoid checkmate.
- Teetering U.S. law firm Dewey & LeBoeuf owes about $75
million to JPMorgan Chase, Bank of America and other lenders
under a $100 million revolving credit line and has until the end
of April to negotiate an extension of the facility, Reuters
reported on April 24.
- New York-based Dewey has lost about 70 of more than 300
partners since Jan. 1. It has retained bankruptcy counsel and is
in preliminary talks to merge with rival firm Greenberg Traurig,
according to Reuters.
- In December, Florida-based Ruden McClosky became the first
U.S. law firm to use a prepackaged bankruptcy to sell itself to
another firm. Howrey, Heller Ehrman, Brobeck Phleger & Harrison
and other large U.S. firms have liquidated in recent years after
filing for bankruptcy.
(Reporting by Reynolds Holding, a Reuters Breakingviews
columnist. The opinions expressed are his own.)
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