Dewey & LeBoeuf LLP, as it faces a possible bankruptcy after losing more than 80 lawyers, is near an agreement with banks about extending its line of credit, a person familiar with the talks said.
The extension, giving the New York law firm more time to keep operating and collecting bills from clients, would be for a couple of weeks, much less than the 120 days envisaged this past weekend before Dewey’s talks with Greenberg Traurig LLP about a partial combination ended, said the person, who declined to be named because the talks were private.
An accord between Dewey and lenders, including JPMorgan Chase & Co. (JPM) and Citigroup Inc., wasn’t yet signed, the person said.
Dewey has drawn about $75 million of a $100 million credit line from banks, the person said. The firm said April 29 in an internal memorandum that New York prosecutors were probing possible wrongdoing at the firm. The memo said that Steven Davis, formerly sole chairman, was ousted from a five-person chairman’s office and the executive committee.
Davis hired criminal defense attorney Barry Bohrer, a partner at Morvillo, Abramowitz, Grand, Iason, Anello & Bohrer, as he faces allegations of misconduct.
“Every action of Mr. Davis as chair of the firm was taken in good faith and in the best interests of the firm,” Bohrer said in an e-mail confirming his retention. “He is confident that fair-minded professionals will conclude that he engaged in no misconduct.”
The turmoil at Dewey has upended the firm’s plans to find a merger partner and sent prices of its bonds reeling. The privately placed debt, issued in 2010 to refinance older bank loans and once valued at 100 cents on the dollar, were seen to trade April 27 in the 60s, said Kevin Starke, an analyst at CRT Capital Group LLC.
“If the firm reorganizes, the loan and the notes could be money good, but if it liquidates, it will come down to the valuation of accounts receivable,” he said, referring to Dewey’s bills to clients for legal services. CRT, which trades distressed debt, didn’t handle the sale of Dewey bonds by an investor last week, he said.
No single firm currently appears willing to buy all of what is left of Dewey, according to a person familiar with the situation. Dewey now is talking with several firms that might take parts of its specialized practice groups, as part of a bankruptcy plan devised with lenders’ consent, said the person, who declined to be named because the talks are private.
Patton Boggs LLP, based in Washington, is among the firms conferring with Dewey, said the person. Under Dewey’s plan, different firms might pay to acquire receivables generated by lawyers they took on, he said. The law firm does have something to sell -- groups of strong practices, he said.
Dewey’s most profitable practices include bankruptcy, corporate law, litigation and public policy, the firm has said.
The plan remains uncertain because firms considering taking some of Dewey’s lawyers might do better to pick up the pieces after a bankruptcy filing, the person said.
Patton Boggs wouldn’t say if it will take on some of Dewey’s lawyers.
“From time to time we have conversations with other firms in connection with our interest in making strategic acquisitions to strengthen our practice,” said Patton Boggs Managing Partner Edward Newberry. “We have only the highest regard for the lawyers at Dewey & LeBoeuf. They have a legacy of being among the very best in the areas in which they practice.”
Dewey management sent another memo to all the firm’s partners yesterday informing them they are free to explore other job opportunities, said a person familiar with the contents of the document. The firm is carrying on business as usual and at the same time trying to find employment for legal and non-legal staff, according to the person who saw the memo and who declined to be identified because the information is private.
At least 11 lawyers announced departures from Dewey yesterday including Marshall Stoddard, the U.S. head of Dewey’s bank and institutional finance practice group, and Charles Moore, an energy partner in Houston, who both left for Philadelphia-based Morgan Lewis & Bockius LLP along with two counsel lawyers and an associate.
Gibson Dunn & Crutcher LLP hired disputes partner Peter Gray for the firm’s Dubai office, and Clifford Chance LLP hired Howard Adler, co-chair of Dewey’s compensation and benefits practice and Gary Boss, a partner who specializes in mergers and acquisitions and insurance. Dewey partner Gary Apfel, co-chair of the consumer financial services group, also announced his departure yesterday to Philadelphia-based Pepper Hamilton LLP to lead that firm’s California expansion.
Manhattan District Attorney Cyrus Vance Jr.’s investigation is in a preliminary stage, said the person, who declined to be identified because the matter isn’t public.
Prosecutors, tipped by disenchanted Dewey partners, are investigating possible wrongdoing at the firm, the person said.
Vance seeks to ensure documents and other evidence is preserved ahead of any bankruptcy, merger or dissolution, the person said.
Partners have been leaving Dewey, the No. 3 law firm adviser to banks handling merger deals, amid complaints about pay and a plan to restructure the firm. It has drawn about $75 million of a $100 million credit line from banks including JPMorgan Chase & Co. and Citigroup Inc. (C), according to a person familiar with the firm’s finances. The banks extended an initial April 16 deadline to come up with a plan, according to another person who is familiar with a merger proposal that Dewey presented to other law firms.
Erin Duggan, a spokeswoman for Vance, declined to comment. Angelo Kakolyris, a spokesman for Dewey, declined to comment yesterday on the probe, a possible bank extension and Davis’s hiring of a criminal defense attorney.
In a copy of an internal memorandum obtained by Bloomberg News and dated April 27, the law firm said it’s aware of an investigation by Vance into one Dewey attorney involved in the firm’s management. The firm said in the memo that it has begun an internal probe and plans to cooperate with Vance’s office. Harvey Kurzweil and Seth Farber, as counsel to the firm, were asked to conduct the internal investigation, the memo stated.
In March, as defections mounted, Dewey restructured its chairman’s office to include the heads of four practice groups in addition to Davis. The group includes Martin Bienenstock, who runs the firm’s restructuring group; Rich Shutran, head of the corporate department; Jeffrey Kessler, head of litigation; and Charles Landgraf, who runs the Washington office and the legislative and public-policy group.
The firm said last week that it was considering “various paths including continuing to operate as an independent global law firm and a strategic combination with another leading law firm.”
A possible partner was Greenberg Traurig, which has ended its discussions with Dewey.
“Dewey is a firm we hold in high regard, with many fine lawyers, though we never considered a merger,” said Greenberg’s CEO, Richard A. Rosenbaum, in a statement sent yesterday by Jill Perry, a spokeswoman for the firm.
Dewey partners, who were getting less pay than expected as profit fell, learned at a partnership meeting in Manhattan that the firm had struck special deals with some partners who would have to be paid before others, according to a person familiar with those events.
Davis said at the meeting that the special deals requiring Dewey to defer pay for most partners involved fewer than 100 lawyers, the person said. Pay at the firm ranged from about $300,000 for junior partners to as much as $5 million to $6 million for a handful of top lawyers, the person said.
Dewey’s executive director, Stephen DiCarmine, had a deal putting his salary and bonus at $2 million a year, said the person, who wasn’t authorized to comment on these matters and didn’t want to be named.
In addition to the bank deadline, the firm has $125 million in bonds sold to insurance companies in 2010 to refinance previous bank loans.
The bonds, placed by New York-based JPMorgan, come due from next year to 2020, Dewey said at the time. The firm’s revenue last year was $782 million, compared with about $760 million in 2010, according to the American Lawyer, a trade magazine that tracks law firm results. The publication lowered its numbers for Dewey last month after getting what it called “newly obtained information.”
Rich Shutran, head of the corporate department at Dewey and a member of the chairman’s office, told Bloomberg in March that the firm earned about $250 million last year. American Lawyer’s revision of its report on Dewey’s 2011 results came after that.
A team led by partners Bienenstock and Bruce Bennett was weighing a so-called pre-packaged bankruptcy, one of the people familiar with the firm said. A bankruptcy plan approved in advance by creditors could lead to a merger with another U.S. firm, said the person, who didn’t want to be identified because they weren’t authorized to discuss the plans.
The team also explored what might happen if the firm shut down, the person said. Closing Dewey would make it much more difficult for members of the firm’s limited liability partnership and creditors to get any money back, the person said.
Bienenstock, whose restructuring team represented Los Angeles Dodgers LLC in its sale to a group including former professional basketball player Magic Johnson, didn’t respond to calls and e-mails seeking comment on plans for Dewey.
Dewey ranked third among legal advisers to investment banks advising companies on mergers this year, according to data compiled by Bloomberg. The firm placed 28th in American Lawyer’s ranking of the largest 100 law firms, with 190 partners and 2011 revenue of $782 million.
Most large law firms that fail don’t come out of bankruptcy, said Chip Bowles, a bankruptcy lawyer with Bingham Greenebaum Doll LLP in Louisville, Kentucky. Instead, they liquidate, he said, citing New York-based Finley Kumble, which went bankrupt in 1988. The firm had almost 200 partners, according to the American Lawyer.
Dewey might struggle to find a merger partner because many rivals prefer to select only the partners they want, Bowles said. The serial defections suffered by Dewey were “a form of cherry picking with groups of partners leaving,” he said.
While a pre-packaged bankruptcy “in theory could work,” Dewey’s challenge would be to keep control of the firm’s assets, which are mainly its partners, Bowles said. “The money is in the books of business of the productive partners.”
Dewey’s defections began in March with the departure of a group of 12 insurance and regulatory lawyers for Willkie Farr & Gallagher LLP. The firm has since lost lawyers to DLA Piper LLP, Reed Smith LLP, Patton Boggs, Hunton & Williams LLP and Pillsbury Winthrop Shaw Pittman LLP.
In Dewey’s international network, the 42-lawyer Moscow outpost was recently assessing its options after approaches from firms including King & Spalding LLP, said a person familiar with the negotiations. The Russian office focuses on energy and corporate law.
In April, Dechert LLP took a five-partner corporate and securities team from Dewey’s Dubai office to open in the city.
Dewey’s Rome office head, Stefano Speroni, has said the Italian business wasn’t negotiating with anyone to leave.
Revenue for the first two months of this year rose 28 percent from a year earlier, and so-called billable value increased 13 percent, according to a letter to the partners obtained by Bloomberg News in March. Revenue for the 12 months through Feb. 29 grew 6 percent with an increase in billable value of 9.7 percent, according to the letter.