Posted May 29, 2012 09:45 pm CDT
Once upon a time, law partners routinely stayed together for their entire professional careers.
But in today’s world partnership is a label rather than a bond, contributing to the unequal compensation, resentment and rapid exit of Dewey & LeBoeuf’s top lawyers as trouble loomed, writes Reynolds Holding in a Reuters Breakingviews column.
Now, after the law firm’s Chapter 11 bankruptcy filing Monday, that lack of cohesion amongst former colleagues likely will exacerbate the inevitable battles as creditors and others fight to apportion dwindling assets that aren’t expected to cover over $300 million in liabilities.
A federal district court ruling last week in Manhattan held that the new law firms to which former partners of Coudert Brothers went with their clients after it imploded could be held liable for profit clawbacks, and a similar approach may well be taken by the court in Dewey’s bankruptcy case.
Where law firms ordinarily owe only the banks that have directly extended credit to them, an unusual $125 million bond offering by Dewey in 2010 will create novel legal issues in this bankruptcy case, Allan Diamond of Diamond McCarthy told the New York Law Journal (reg. req.). He said he expects to represent some parties in the Dewey case.
The firm, which had revenue of about $782 million last year, also owes about $75 million to bank creditors.
Meanwhile, another “major wrinkle” in Dewey’s bankruptcy is an ongoing Manhattan district attorney’s investigation into the firm’s former chairman, Steven Davis, based on claims of misconduct by some of his former partners. He has denied doing anything wrong.
The legal landscape, under these circumstances, is bound to be complex, Diamond predicts:
“The interplay of criminal investigations, potential grand jury proceedings and any ultimate criminal prosecutions has the potential effect of delaying civil proceedings, changing the dynamics of witness testimonies, including rights against self-incrimination, cooperation between simultaneous bankruptcy, civil and criminal proceedings, and a myriad of other issues that otherwise would not be present in bankruptcy and civil proceedings alone.”
Reuters: “Will Thelen and Coudert save Dewey’s poachers?”
Wall Street Journal (opinion): “Winston and Crandall: The Law Firm Business Model Is Dying “