Dewey would further seek the permission to liquidate its business. The swift rise and swifter fall of Dewey & LeBoeuf would remain a lesson in law firm mergers and consequences, and marks the biggest collapse of a law firm in the history of the United States.
The consequences would be many, and the fate of many hangs on the proceedings that would follow. The recent judgment in the Coudert Brothers’ estate case has found that partners leaving a law firm in distress cannot carry forward the part of pending and future revenue in matters that belonged to their former law firms. While the Dewey collapse is largely attributable to a mix of economic crises, wrong financial decisions, lack of stakeholder involvement, lack of transparency and others, there can be no doubt that the collapse was brought about by partners leaving in droves from the distressed law firm.
These partners, termed as ‘rainmakers’ came in promising new business to Dewey and left promising new business to other firms. But how much of that ‘business’ does actually belong to them, and how much is open to ‘clawback’ following the Coudert Brothers’ judgment remains to be seen.
In essence, Dewey is a lesson in corporate greed and the mismatch between a business structure that is centuries old and founded on values like loyalty and group ownership, and the present value sets worshipped in law firms where ‘earning revenue’ is the final word on the worth of a lawyer. The ‘rainmakers’ can hardly be blamed for they were raised in a system which worshipped ‘earning money’ above all other attributes, and they could not be expected to remain where they could not ‘earn money.’ Since their world revolves around that central value – loyalty, fidelity, and sacrifice be damned. As long as the corporate law firm culture keeps on worshipping ‘rainmakers’ to the detriment of loyal lawyers who do not see themselves as mercenaries – phenomena like the collapse of Dewey would not cease.
In really efficient corporate businesses outside the law firm periphery – ‘rainmakers’ are valued as marketers and salespeople, but not more valued than those who run other verticals. This is why they survive while law firms like Dewey fail. They adopt only the corporate greed without understanding and adapting to real corporate principles and value systems.
Dewey mentioned in its filing for Chapter 11 that the decision to liquidate its business came after the law firm failed to strike a deal with a major firm. About 90 employees would be asked to continue on their jobs to assist the liquidation.
Dewey admitted in its filing that the compensation arrangements of the firm coupled with the recession led to a situation where cash income was insufficient to cover running expenses. The filing mentioned, “During the first quarter of 2012, the firm was confronted with liquidity constraints that led to the precipitous resignation of over 160 of the firm’s 300 partners by May 11.”
The liabilities of Dewey have been listed between $100 million to $500 million, and the firm has already terminated the jobs of 433 of its 533 employees in New York.
Following the petition, Dewey’s present assets were calculated to about $13 million in cash and accounts receivable of about $255 million.
The case is Dewey & LeBoeuf LLP, Case No. 12-12321, U.S. Bankruptcy Court, Southern District of New York (Manhattan).