How to handle Dewey (or similar firms) Forum

[jawsthegreat]

What kind of debt financing do law firms typically use? Do they have substantial assets to secure loans? In a bankruptcy would their creditors mostly be unsecured?

I'd be interested in seeing a list of what firms have/don't have debt. I know SullCrom and GDC have no firm debt, other than that I have no idea.

[Morgan12Oak]

What kind of debt financing do law firms typically use? Do they have substantial assets to secure loans? In a bankruptcy would their creditors mostly be unsecured?

I'd be interested in seeing a list of what firms have/don't have debt. I know SullCrom and GDC have no firm debt, other than that I have no idea.

Dewey's situation was EXTREMELY unusual. When Dewey issued some of their bonds in 2010 other law firms and the community was essentially like wtf. At first it looked novel, now it looks like a bad idea. Most firms do have revolving lines of credit though.

[sunynp]

What kind of debt financing do law firms typically use? Do they have substantial assets to secure loans? In a bankruptcy would their creditors mostly be unsecured?

I'd be interested in seeing a list of what firms have/don't have debt. I know SullCrom and GDC have no firm debt, other than that I have no idea.

Dewey's situation was EXTREMELY unusual. When Dewey issued some of their bonds in 2010 other law firms and the community was essentially like wtf. At first it looked novel, now it looks like a bad idea. Most firms do have revolving lines of credit though.

This article from 2010 explains the bond financing. http://www.bloomberg.com/news/2010-04-1 ... pital.html

Here is some more info on the bond financing from that great article on dishing the debt that was linked above: http://www.thelawyer.com/dishing-the-de ... 81.article

Around two years ago Dewey & LeBoeuf attempted to increase the credit lines as profit tumbled and debts rose.

“What ended up happening is they went to Citibank and Wells Fargo [one of the firm’s other lenders]. No one would give them any additional money,” says a source.

It all points to a firm addicted to borrowing. The reasons are clear. In 2008 the firm missed its budget by roughly 40 per cent. Late that year, with Christmas shopping well underway, junior partners were in for another heart-stopping communal announcement. This time the firm did it over the phone in a mass conference call. Because 2008 profit was 40 per cent off target, junior partners were not entitled to the full drawings they thought they were. Any junior partners who had taken drawings of more than £170,000, which is 60 per cent of their target compensation, would have to pay back the rest out of their following year’s distributions. If this did not happen, the firm said it would be in breach of covenants with its bankers.
Bond bombshell

In the meantime, the insurance practice was suffering and the M&A deal rate was dropping (see practices box, page 24). In an almost unprecedented move by a law firm, Dewey & LeBoeuf decided it had to turn to the capital markets for financial input. To refinance the bank debt the firm had in 2010, it raised $125m by ­issuing a bond that was bought by insurance companies with maturities of three to 10 years, according to ­reports at the time. The firm’s management was not open about the interest rate at the time, but said it was a better rate than the bank loans, and former partners have confirmed that it described the private placement internally in glowing terms.

Partners who were there in 2010 claim the bond was another bombshell: it was not until a memorandum was circulated just as the bond was about to be sold that partners knew anything about it. The apparent secrecy is understandable given how unusual the move was: Dewey & LeBoeuf joined a small group of law firms to have issued bonds that­includes Clifford Chance, Morrison & Foerster and legacy Dewey Ballantine. Clifford Chance scrapped its bond in 2005, roughly two years after issuing it, deciding to return to a traditional financing policy after partners in July 2003 had to forgo their quarterly profit distribution.

But there is a curious, if not entirely surprising, feature of the Dewey & LeBoeuf bond that appears to have caused waves in the market.

“There was an agreement that below a certain revenue they couldn’t pay partners until they’d paid bondholders,” reveals a figure with knowledge of the firm.

So when revenue dropped below the threshold, the firm could not pay its partners, meaning a number have been receiving half of their compensation since then. Some are thought to have had their pay limited to ­drawings, which are understood to be £170,000 annually for standard ­partners and more for those on fixed deals.

The exceptions to this - and this is the crux - are partners with whom the firm had agreed a guaranteed remuneration figure. It is understood that these partners - thought to number around 25 at the time - had the right to be paid even before bond-holders, although it is believed that some gave up part of their remuneration for the sake of the firm. But it has still been a source of tension.

Just as controversial was what the bond was supposed to do: fill the pension hole or finance expansion?

“What was the intention of the money in the first place? Was it expansion, or was it to pay off pensions debt? Was [Davis] right to be in expansionist mode at that time?” wonders one figure with ties to the firm.

The bond issue came amid a significant move to bring in star partners on fixed deals, which dates back to the first major hire in late 2007 - that of restructuring star Martin Bienenstock from Weil Gotshal & Manges. It is thought that the total number of partners brought in on guarantees is close to 100, with a large proportion of these joining in 2011.

The guarantees are central to what has happened at the firm, although some are keen to knock down this interpretation as Dewey spin - the ‘at least we tried to expand’ excuse. According to a source, at some points around 80 per cent of profit has been handed to 10 per cent of partners, with much of this 10 per cent made up of the ’guarantee partners’.

[dixiecupdrinking]

Interesting. It seems like if Dewey went into Chapter 7, its creditors would end up holding the bag. What assets does it (or any law firm) have to liquidate? Some computers? Just trying to get a handle on what the creditors' incentives are here. It sounds to me like they're more likely to get paid with Dewey as a going concern so wouldn't want to take advantage of the accelerated default provision, but it can't actually be that simple.

[sunynp]

Interesting. It seems like if Dewey went into Chapter 7, its creditors would end up holding the bag. What assets does it (or any law firm) have to liquidate? Some computers? Just trying to get a handle on what the creditors' incentives are here. It sounds to me like they're more likely to get paid with Dewey as a going concern so wouldn't want to take advantage of the accelerated default provision, but it can't actually be that simple.

Right now its assets are outstanding accounts receivable and good luck collecting those.( no one is going to rush to pay a firm on the verge of collapse and no one is going to pay a bill without a significant discount if they know the firms is desperate.) I don't think the office equipment is a drop in the bucket here.

I don't know what the bondholders will do, and it sounds like that bonds have some unusual covenants. But maybe if they can get rid of the unfunded pension liability Dewey brought in from the merger and renegotiate partnership agreements with the guaranteed partners, and restructure the bond debt, they might have a chance.

[Morgan12Oak]

If Dewey does go bankrupt, the clawback provisions can potentially come into play. Pretty much any money pay out to insiders (partners) over the past 2 years can become part of the Dewey estate so the pie available to the creditors becomes a whole lot more than computers.

[sunynp]

Im surprised that no one has commented directly on the deferral of the 2012 class. Nothing like being close to graduation and thinking your career is set, and then your biglaw firm starts imploding.

[Guchster]

This is SUPER NOOB question, but how does this affect the broader legal market in NYC?

Better/worse/not at all/marginally?

[sunynp]

This is SUPER NOOB question, but how does this affect the broader legal market in NYC?

Better/worse/not at all/marginally?

I don't think this affects the broader legal market except for some shifting of clients and some work involved with dealing with the bankruptcy/ restructuring for Dewey. The real question is whether Dewey's problems are truly unique to it - from the merger , debt , guaranteed partners...or not. Dewey's financial problems have been there for a long time. But it only became clear to the outside world when partners started leaving.

[sunynp]

If Dewey does go bankrupt, the clawback provisions can potentially come into play. Pretty much any money pay out to insiders (partners) over the past 2 years can become part of the Dewey estate so the pie available to the creditors becomes a whole lot more than computers.

What does this mean when a number of partners are owed deferred compensation? I saw an article somewhere that said the partners were owed tens of millions in deferred compensation. I think only the guaranteed partners were getting paid the full amount of their compensation.

[Morgan12Oak]

If Dewey does go bankrupt, the clawback provisions can potentially come into play. Pretty much any money pay out to insiders (partners) over the past 2 years can become part of the Dewey estate so the pie available to the creditors becomes a whole lot more than computers.

What does this mean when a number of partners are owed deferred compensation? I saw an article somewhere that said the partners were owed tens of millions in deferred compensation. I think only the guaranteed partners were getting paid the full amount of their compensation.

Not entirely sure. I don't think that having deferred compensation protects them outright since they still are considered insiders and have still received something. BUT, I think this protects them at least moreso than the guaranteed partners from a relative standpoing. BUT, I don't know how their guaranteed claims play into the clawback provisions. While they are an insider, does this make them become a contractual claimant also? The deferred compensation might not be contractual in nature but the guaranteed provisions might? But, if they are both a creditor and an equity holder is there equitable subordination? I don't see a basis for it since there isn't a ton of inequity unless you can say taking huge guarantees for an illiquid firm and knowing it is insolvent is inequity, but I don't think capitalization alone is ever a basis for equitable subordination.

EDIT: fyi someone taking corporations and/or bankruptcy, this seems like a great exam question

[Anonymous User]

This is SUPER NOOB question, but how does this affect the broader legal market in NYC?

Better/worse/not at all/marginally?

Super noob answer ---
I imagine those attorneys with desirable books will be gobbled up in what might have been openings in the lateral market. Younger associates without connections and, more importantly, clients look screwed. Firms already hire their "young" crop through OCI. With a narrower lateral market, due to the sudden flood of Dewey attorneys, the younger ones at Dewey might be pushed out and attorneys at other firms may find it harder to move between firms. Of course, if another firm takes a modified Dewey route of hiring a lateral from any firm that has a large enough client base, without a guaranteed contract, wouldn't they both be okay? I mean, a firm could risk a year or two on a lateral and if they didn't produce they would lay them off.
Also, perhaps a firm that takes on a bunch of Dewey partners makes it even tougher for senior associates to become a partner at said firm.

[dailygrind]

If Dewey does go bankrupt, the clawback provisions can potentially come into play. Pretty much any money pay out to insiders (partners) over the past 2 years can become part of the Dewey estate so the pie available to the creditors becomes a whole lot more than computers.

? are there special provisions? I thought insider preferences had 1 year reachback. + they'd have to prove the firm was insolvent at the time that the preference was made, which would, I suppose, depend a little bit on what test is being used for insolvency.

[Anonymous User]

I don't think there would be much of a case for any legal or equitable remedy here (even if Dewey objected), but in theory punitive damages and injunctions are available (in addition to compensatory damages).

This one still doesn't understand at-will employment. All of this is wrong; do not pass go; do not collect $200. And for the love of god, stop talking.

You clearly do not understand the concept of tortious interference, as it does not require an employment contract. The Dewey summers, moreover, did sign a contract committing themselves to the firm. But nice try!

[Anonymous User]

I don't think there would be much of a case for any legal or equitable remedy here (even if Dewey objected), but in theory punitive damages and injunctions are available (in addition to compensatory damages).

This one still doesn't understand at-will employment. All of this is wrong; do not pass go; do not collect $200. And for the love of god, stop talking.

You clearly do not understand the concept of tortious interference, as it does not require an employment contract. The Dewey summers, moreover, did sign a contract committing themselves to the firm. But nice try!

I highly doubt the summers signed a contract. I didn't for my firm and neither did anyone else I know. But nice try.

[LawIdiot86]

I don't think there would be much of a case for any legal or equitable remedy here (even if Dewey objected), but in theory punitive damages and injunctions are available (in addition to compensatory damages).

This one still doesn't understand at-will employment. All of this is wrong; do not pass go; do not collect $200. And for the love of god, stop talking.

You clearly do not understand the concept of tortious interference, as it does not require an employment contract. The Dewey summers, moreover, did sign a contract committing themselves to the firm. But nice try!

I highly doubt the summers signed a contract. I didn't for my firm and neither did anyone else I know. But nice try.

Outside of the government, I have never had an employment contract, even at other professional firms. I've usually had a document that specifically says "Your signature indicates that you understand you do not have an employment contract with X and that any offers of employment can only be extended by C-Suite Person, in writing."

[Anonymous User]

I don't think there would be much of a case for any legal or equitable remedy here (even if Dewey objected), but in theory punitive damages and injunctions are available (in addition to compensatory damages).

This one still doesn't understand at-will employment. All of this is wrong; do not pass go; do not collect $200. And for the love of god, stop talking.

You clearly do not understand the concept of tortious interference, as it does not require an employment contract. The Dewey summers, moreover, did sign a contract committing themselves to the firm. But nice try!

There there 1L. *pat pat*

You don't even understand tortious interference - fortunately you still have some time before finals (not much but I'd get on it!). But as a preliminary matter, it's a claim against a third party for interference with a contractual relationship or beneficial business relationship of two parties. Whose relationship did a SA interfere with? A partner and the law firm? Jesus you're dumb.

On another note, I did not sign a contract when I summered at Dewey. Nor has anyone I've ever known that summered at a big firm. At best, when you sign on full-time they, like every other firm, ask you to sign a form that says "You're being hired at will." Fortunately, we've already established that you don't understand at will employment. Jesus you're dumb.

Now I beg of you, once more, please stop talking. You make our brains hurt and worse yet, someone might actually listen to the babble coming out of your mouth.

[romothesavior]

I don't think there would be much of a case for any legal or equitable remedy here (even if Dewey objected), but in theory punitive damages and injunctions are available (in addition to compensatory damages).

This one still doesn't understand at-will employment. All of this is wrong; do not pass go; do not collect $200. And for the love of god, stop talking.

You clearly do not understand the concept of tortious interference, as it does not require an employment contract. The Dewey summers, moreover, did sign a contract committing themselves to the firm. But nice try!

Lol... just stop.

[Anonymous User]

I don't think there would be much of a case for any legal or equitable remedy here (even if Dewey objected), but in theory punitive damages and injunctions are available (in addition to compensatory damages).

This one still doesn't understand at-will employment. All of this is wrong; do not pass go; do not collect $200. And for the love of god, stop talking.

You clearly do not understand the concept of tortious interference, as it does not require an employment contract. The Dewey summers, moreover, did sign a contract committing themselves to the firm. But nice try!

There there 1L. *pat pat*

You don't even understand tortious interference - fortunately you still have some time before finals (not much but I'd get on it!). But as a preliminary matter, it's a claim against a third party for interference with a contractual relationship or beneficial business relationship of two parties. Whose relationship did a SA interfere with? A partner and the law firm? Jesus you're dumb.

On another note, I did not sign a contract when I summered at Dewey. Nor has anyone I've ever known that summered at a big firm. At best, when you sign on full-time they, like every other firm, ask you to sign a form that says "You're being hired at will." Fortunately, we've already established that you don't understand at will employment. Jesus you're dumb.

Now I beg of you, once more, please stop talking. You make our brains hurt and worse yet, someone might actually listen to the babble coming out of your mouth.

I was an incoming SA and signed a contract stating my intention to summer there. The tortious interference claim would be against a law firm who sought to interfere with that relationship, which I might add does not even require a contract. It would probably be convenient for your Employment Law exam if at-will employment precluded all tortious interference claims, but unfortunately that's just not the case. Sorry babe.

[romothesavior]

I was an incoming SA and signed a contract stating my intention to summer there. The tortious interference claim would be against a law firm who sought to interfere with that relationship, which I might add does not even require a contract. It would probably be convenient for your Employment Law exam if at-will employment precluded all tortious interference claims, but unfortunately that's just not the case. Sorry babe.

nope nope nope nope nope nope nope nope

This thread has actually been informative. This conversation is just stupid.

Dewey SAs, if you can jump ship at this point (unlikely but worth trying), do so. You or your new employer are not going to be slapped with a lawsuit from Dewey. Lulz.

[Anonymous User]

I was an incoming SA and signed a contract stating my intention to summer there. The tortious interference claim would be against a law firm who sought to interfere with that relationship, which I might add does not even require a contract. It would probably be convenient for your Employment Law exam if at-will employment precluded all tortious interference claims, but unfortunately that's just not the case. Sorry babe.

nope nope nope nope nope nope nope nope

This thread has actually been informative. This conversation is just stupid.

Dewey SAs, if you can jump ship at this point (unlikely but worth trying), do so. You or your new employer are not going to be slapped with a lawsuit from Dewey. Lulz.

This was never in doubt. Dewey explicitly authorized summers to look for other opportunities. Please refer to consistent previous posts.

[romothesavior]

Sounds good. I'll just go back and read all the posts ITT by "Anonymous User" and try to get a more accurate picture of what you are saying.

[NinerFan]

I was an incoming SA and signed a contract stating my intention to summer there. The tortious interference claim would be against a law firm who sought to interfere with that relationship, which I might add does not even require a contract. It would probably be convenient for your Employment Law exam if at-will employment precluded all tortious interference claims, but unfortunately that's just not the case. Sorry babe.

Ignoring the other stuff and focusing on what you signed... it was not a contract. I'm sure you signed something. We all signed offer letters. Those were not contracts and probably explicitly stated that they were not contracts, that your employment was at-will, that you could leave or they could cancel your SA position at any time without prior notice.

[Anonymous User]

I was an incoming SA and signed a contract stating my intention to summer there. The tortious interference claim would be against a law firm who sought to interfere with that relationship, which I might add does not even require a contract. It would probably be convenient for your Employment Law exam if at-will employment precluded all tortious interference claims, but unfortunately that's just not the case. Sorry babe.

Ignoring the other stuff and focusing on what you signed... it was not a contract. I'm sure you signed something. We all signed offer letters. Those were not contracts and probably explicitly stated that they were not contracts, that your employment was at-will, that you could leave or they could cancel your SA position at any time without prior notice.

Point taken...signed a document evincing a business relationship.

[romothesavior]

I was an incoming SA and signed a contract stating my intention to summer there. The tortious interference claim would be against a law firm who sought to interfere with that relationship, which I might add does not even require a contract. It would probably be convenient for your Employment Law exam if at-will employment precluded all tortious interference claims, but unfortunately that's just not the case. Sorry babe.

Ignoring the other stuff and focusing on what you signed... it was not a contract. I'm sure you signed something. We all signed offer letters. Those were not contracts and probably explicitly stated that they were not contracts, that your employment was at-will, that you could leave or they could cancel your SA position at any time without prior notice.

Point taken...signed a document evincing a business relationship.

My offer letter explicitly states that neither I or the firm has any obligation to continue to relationship. I'd be shocked if every SA offer letter in the country didn't have similar language. This is at-will employment, duder. They can't sue anyone else for you changing your mind.