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More Pain To Come?? -- Biggest Collapse of a Law Firm in U.S. History


JEast
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The second wave of the '08-'09 financial fallout may be approaching.  Noticed that the once largest law firm in the US just filed due to cash flow issues (i.e. too high compensation and too much debt).  If lawyers are starting to fall, maybe the next leg is coming.  Oh wait, I just said lawyers are getting laid off -- is this a bad turn of events?

 

http://www.reuters.com/article/2012/05/29/us-deweyandlebouef-bankruptcy-idUSBRE84S01R20120529

 

Cheers

JEast

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The second wave of the '08-'09 financial fallout may be approaching.  Noticed that the once largest law firm in the US just filed due to cash flow issues (i.e. too high compensation and too much debt).  If lawyers are starting to fall, maybe the next leg is coming.  Oh wait, I just said lawyers are getting laid off -- is this a bad turn of events?

 

http://www.reuters.com/article/2012/05/29/us-deweyandlebouef-bankruptcy-idUSBRE84S01R20120529

 

Cheers

JEast

 

Your post is misleading and inflammatory, although probably unintentionally.  Dewey was never the largest law firm, at least not in recent history.  They were ONE OF THE largest law firms in the country, but have had their issues for many years.  This isn't indicative of anything other than a poorly run business.  They gave guaranteed contracts at too high amounts to too many people.  Cash flow isn't what it was during the boom years.  The business was run the same way many other things are (governments, companies, etc.)  That is, there was an assumption that peak earning years would last forever and reality was quite different.

 

But this has nothing to do with a second wave of anything.  You imply that it's something new for lawyers to be laid off?  Not in the least.  There were huge waves of layoffs in the late 1980s/early 90s, again after the tech meltdown and once again after 2008.  Law firms have become just like any other business.  There is always an implication that it's unusual for law firms to lay people off, but that's just an image law firms like to portray.  They ALL lay people off now and have for at least 10-20 years.  It's just the better ones will do it under the rubric of performance based exits or old fashioned pressure and bad working environment.

 

I can't stress enough that this has nothing to do with anything other than a poorly run business.  It isn't representative of anything other than that.  Dewey isn't the first law firm to file, although it's pretty unusual.  Most law firms in deep trouble end up jettisoning a bunch of people and getting "rescued" by some other firm who really just wants a few rainmakers, but will take on some extra baggage.

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The second wave of the '08-'09 financial fallout may be approaching.  Noticed that the once largest law firm in the US just filed due to cash flow issues (i.e. too high compensation and too much debt).  If lawyers are starting to fall, maybe the next leg is coming.  Oh wait, I just said lawyers are getting laid off -- is this a bad turn of events?

 

http://www.reuters.com/article/2012/05/29/us-deweyandlebouef-bankruptcy-idUSBRE84S01R20120529

 

Cheers

JEast

 

Your post is misleading and inflammatory, although probably unintentionally.  Dewey was never the largest law firm, at least not in recent history.  They were ONE OF THE largest law firms in the country, but have had their issues for many years.  This isn't indicative of anything other than a poorly run business.  They gave guaranteed contracts at too high amounts to too many people.  Cash flow isn't what it was during the boom years.  The business was run the same way many other things are (governments, companies, etc.)  That is, there was an assumption that peak earning years would last forever and reality was quite different.

 

But this has nothing to do with a second wave of anything.  You imply that it's something new for lawyers to be laid off?  Not in the least.  There were huge waves of layoffs in the late 1980s/early 90s, again after the tech meltdown and once again after 2008.  Law firms have become just like any other business.  There is always an implication that it's unusual for law firms to lay people off, but that's just an image law firms like to portray.  They ALL lay people off now and have for at least 10-20 years.  It's just the better ones will do it under the rubric of performance based exits or old fashioned pressure and bad working environment.

 

I can't stress enough that this has nothing to do with anything other than a poorly run business.  It isn't representative of anything other than that.  Dewey isn't the first law firm to file, although it's pretty unusual.  Most law firms in deep trouble end up jettisoning a bunch of people and getting "rescued" by some other firm who really just wants a few rainmakers, but will take on some extra baggage.

 

Yeah, I would agree with that.  Dewey was poorly run, and like many firms just grew too big during the heyday.  Cheers!

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Dewey, like many firms, had aspirations of bigger and better things.  They got too big when they merged with LeBouef Lamb.  The practices really didn't mesh well.  Dewey was an old fashioned, white shoe NY corporate law firm and LeBouef was basically insurance based (insurance in the sense that they represented insurance companies, not that they were ambulance chasers, far from it).  LeBouef had a storied history in the insurance world. 

 

Dewey also had a storied history that was much more past than present.  They were a well respected firm who had seen better days back right around WWII and Thomas Dewey, after losing his presidential run, joined them, got top billing and was a huge rainmaker.  In fact, it was part of the firm's agreement with his estate that if his name was to be used at any time, it must always be first.  That put off some merger partners since of course order of names is the most important factor in any merger.

 

Haven't thought about this in years, but there was one great, probably apocryphal story about Dewey.  Back in the day when men wore hats, a man without a hat got on an elevator with Thomas Dewey.  Supposedly Dewey said "what does a man without a top hat do nowadays?"  The response, "he goes to the White House".

 

In any case, Dewey hasn't been a really great firm for many years.  In the press, of course it's a "top" firm.  But I would put it like this.  Dewey was a top firm like Jefferies is a top investment bank.  To most people Jefferies is the best of the best, but if you know what it is, then you know otherwise.  It's a fine place, sure, but not a "top" place.  In any case, Dewey going down is bad for Dewey and it's people (and its creditors and, perhaps, clients).  That's it.

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Maybe inflammatory, but just thought that a once considered very large law firm collapsed as you do not see such stuff make the headlines very often.  As for more pain to come, I was referring to the potential second down leg that some have predicted.  Anecdotal evidence?  Absolutely, but just peaked my interest.  And as Uccmal indicated, they are already suing each other which caused a chuckle.

 

 

Cheers

JEast

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Maybe inflammatory, but just thought that a once considered very large law firm collapsed as you do not see such stuff make the headlines very often.  As for more pain to come, I was referring to the potential second down leg that some have predicted.  Anecdotal evidence?  Absolutely, but just peaked my interest.  And as Uccmal indicated, they are already suing each other which caused a chuckle.

 

 

Cheers

JEast

 

No worries.  I understood what you were referring to about the second leg.  My point was that Dewey going under doesn't support that theory.  It has nothing to do with it one way or the other.  Of course one could say if business was still the way it was in 2006 then this wouldn't have happened and that is true, but that applies to basically all businesses.

 

The thing to always remember about law firms is that like investment banks the assets go down the elevator each night and leave the building (well, theoretically they leave).  Firms like Dewey were considered top tier but the truth was they were just hanging in there.  So how does a law firm hang in there?  They need to attract and retain top people, i.e. rainmakers.  How do they do that?  Money.  Sure, there is talk about culture and all that, but it comes down to money.  Lots of it.  Guaranteed money as these guys don't want to be subject to the vicissitudes of the law firm money wheel (money usually doesn't really come in until late in the year and often it's uncertain until the last few days of the year how the year will turn out).  Sometimes performance is lumpy.  So they want their cash guaranteed.  But there is only so much business to go around and Dewey is not first in line for many plum assignments.  They report big M&A numbers, but usually they were counsel to an advisor or something.

 

In any case, this doesn't really mean anything.  If Cravath, Sullivan & Cromwell, Cleary, Davis Polk or Wachtell went under, then that is a very bad sign.   

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