(Reuters) – The crippled law firm Dewey & Leboeuf LLP filed for Chapter 11 bankruptcy protection Monday night and will seek approval to liquidate its business after failing to find a merger partner, marking the biggest collapse of a law firm in U.S. history.
Once one of the largest law firms in the U.S., Dewey has been hit by the loss of the vast majority of its roughly 300 partners to other firms amid concerns about compensation and a heavy debt load.
Dewey had warned employees earlier this month of the possibility the firm may shut down, and a person familiar with the matter had told Reuters that the firm was considering a bankruptcy filing.
“Dewey’s failure is rocking the industry in the sense that most firms are saying to themselves, if Dewey could go down, could we?” Kent Zimmermann, a legal consultant at the Zeughauser Group, said in an email Monday night.
Dewey said in a filing it had decided to wind down its business following unsuccessful negotiations with other law firms to strike a deal. It said it would ask about 90 employees to remain on staff to assist in the liquidation, which it expects to be completed in the next few months.
Negative economic conditions, along with the firm’s partnership compensation arrangements, created a situation where its cash flow was insufficient to cover capital expenses and full compensation expectations, Dewey said.
“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 New-York based firm said.
Dewey listed liabilities in the range of $100 million to $500 million, according to the filing. It had already terminated 433 of its 533 New York employees earlier this month, according to the state’s labor department.
MONTHS OF TURBULENCE
The firm’s collapse is expected to be the subject of years of court proceedings, and a number of former partners have already retained lawyers to represent them.
Monday’s filing follows months of turbulence, as wave after wave of partner defections shattered the high-profile firm from within. In April, the Manhattan District Attorney’s office launched a criminal probe of former firm chairman Steven Davis. He has denied any wrongdoing.
The result of a 2007 merger between Dewey Ballantine and LeBoeuf, Lamb, Green & MacRae, Dewey & LeBoeuf had about 1,450 attorneys at its peak, according to The National Law Journal.
But the firm was eventually undone by a combination of the economic downturn, excessive compensation and governance problems, according to former partners and others in the industry. In particular, Dewey’s management promised millions in packages to about 100 partners, according to the court filing, leaving it strapped for cash when revenues fell during the recession.
Dewey has retained Joff Mitchell of Zolfo Cooper LLC as Chief Restructuring Officer and Albert Togut of Togut Segal & Segal LLP as bankruptcy counsel.
“The full extent of the partner compensation arrangements is subject of continuing investigation,” Mitchell said in the filing.
Dewey is one of a handful of major law firms to declare bankruptcy since the recession that began in 2007. They include Coudert Brothers, Heller Ehrman and Howrey.
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