Dewey & LeBoeuf Files Bankruptcy

New York-based law firm Dewey & LeBoeuf LLP filed for bankruptcy protection on Monday. The firm, which was formed with the merger of Dewey Ballantine LLP and LeBouef, Lamb, Green & McRae LLP in 2007, at one time had more than 1,300 attorneys and offices in 12 countries. The business will be liquidated according to the bankruptcy filing. Jonathan Mitchell, the firm's restructuring officer stated that Dewey & LeBoeuf “was formed at the onset of one of the worst economic downturns in U.S. history. These negative economic conditions, combined with the firm's rapid growth and partnership compensation arrangements, created a situation where the cash flow was insufficient to cover capital expenses and full compensation expectations.” At the end of April, it was revealed that the office of Manhattan District Attorney Cyrus Vance Jr. was investigating allegations of wrongdoing by former firm Chairman Steven Davis, who was subsequently ousted on April 29. The firm's financial problems were a result of mismanagement, a weak economy, and, finally, widespread partner departures. “The combination of outsized debt and widely spread pay guarantees divorced from performance put the firm in a situation with almost zero margin for error,” said Bruce MacEwen, a lawyer and law-firm consultant at Adam Smith Esq. LLC in New York. “Markets have a habit of punishing firms in that posture.” The bankruptcy is the largest ever by a U.S. law firm. Due to changes in the firm's compensation practices and increasingly unstable finances, Dewey & LeBoeuf had seen a steady stream of partners leaving the firm in 2012. According to Bloomberg, defections had reached 50 in early April and had risen to 120 by May. As these partners left the firm, they took substantial revenues with them. Consequently, Dewey's financial picture continued to deteriorate. Making matters worse was the fact that the firm had previously taken on substantial debt in order to rapidly grow its business and also had handcuffed itself with high levels of guaranteed compensation. Chip Bowles, a bankruptcy lawyer at Bingham Greenebaum Doll LLP told Bloomberg, “When a law firm fails, it's like a dam bursting. It starts with a trickle of partners leaving, and what's coming in isn't enough to cover expenses, and the trickle speeds up,” he said. Soon, “the leaders start leaving and it bursts and floods.”