Ambitious corporate law firm collapses
Dewey & LeBoeuf's sign at 1301 Avenue of the Americas. Dewey & LeBoeuf was the biggest law firm merger. Now it’s one of the largest legal bankruptcies. Wall Street-style pay and borrowing are to blame.
Kai Ryssdal: There was a bankruptcy filing in New York last night that's worth a mention. The law firm of Dewey & LeBoeuf is going out of business. It had as clients -- in better days -- some of the biggest of American companies. AT&T, Disney and eBay among them.
It's now among the biggest American law firms to fail. And the way Dewey Leboeuf went under could be a legal cautionary tale. Our New York bureau chief Heidi Moore reports.
Heidi Moore: Not that long ago, Dewey & LeBoeuf had 1,300 lawyers and a stellar reputation for advising companies on bankruptcy. Now it needs some of that $1,000-an-hour advice.
Dewey’s collapse has more than a passing resemblance to a certain bank failure.
William Henderson: It’s very akin to Lehman Brothers in terms of making wrong bets at the wrong time.
That’s William Henderson, a law professor at Indiana University. Like Lehman, Dewey took big financial risks: not buying mortgages, but acquiring people. It lured superstar lawyers by the dozen and guaranteed them millions of dollars in pay no matter how the economy fared or whether they brought in clients.
It does sound like a Wall Street bank, doesn’t it?
Henderson: The root of the legal profession’s troubles these days is that they do so much work with investment banks and want to become like them, at least in terms of remuneration.
Henderson says this system of hired guns has weakened the culture of law firms. Before the financial crisis, lots of law firms acted like Wall Street banks, competing on sky-high pay packages. As business dried up, they turned on their own, covering the newcomers’ pay by demoting existing partners.
Edwin Reeser: Rather than solve the problem, they just took out pens and paper and decided who got to be thrown overboard.
That’s Edwin Reeser, who advises law firms on management. Dewey borrowed millions of dollars to support these pay packages. Its distress was palpable by January. One Dewey lawyer says so many people were scrambling to find jobs over the past two months that no one paid attention to the emptying offices.
Henderson: Even if you’re selling your time at $750 or $1,000 an hour, you can still go bankrupt if people lose faith in the enterprise.
Nearly two-thirds of Dewey’s 300 partners already work at other law firms -- some of which are struggling with their own finances.
In New York, I’m Heidi Moore for Marketplace.