Too Big to Not Fail

“You have to be bigger,” Steven H. Davis said.

In 2007, after orchestrating the merger of New York law firms Dewey Ballantine and LeBoeuf, Lamb, Greene & MacRae, Davis and the new firm management predicted that the newly christened Dewey & LeBoeuf, with a combined 1,400 employees, would make $1 billion in annual revenue and lead the growing trend of globally sophisticated super-firms.

Bad timing. Davis, chairman of the merged firm, didn’t account for the U.S. economic collapse that would take down banking and insurance giants and devastate the business. By late 2011, it was apparent that Davis’ predictions were shaky. By early 2012, the firm began to collapse as top attorneys rushed to get new jobs and other employees found themselves among the nation’s unemployed during the worst recession in decades. In May of that year, Dewey & LeBoeuf filed for bankruptcy.

Today, emotions remain raw. Super Lawyers Magazine contacted more than 80 of the firm’s alumni. One responded, “It was an absolute nightmare and I don’t yet have enough distance to be ready to talk about it.” Two canceled appointments at the last minute. Eight agreed to talk. Here is the story of Dewey & LeBoeuf through their experiences.

Originally founded in 1909, Dewey Ballantine took its name when Thomas Dewey, the former New York governor who lost to Harry Truman in the 1948 presidential race, became a partner in the mid-’50s. LeBoeuf Lamb opened in 1929, thriving even after the Great Depression with huge corporate clients and becoming one of the country’s leading insurance practices, eventually taking on the name LeBoeuf, Lamb, Greene & MacRae. By the time of the merger, some attorneys at Dewey & LeBoeuf had been at their firms for decades; others arrived more recently, often having joined one of the two firms through a previous merger.

A. Paul Victor, partner in the antitrust practice group of the litigation department, now with Winston & Strawn: It was called Dewey Ballantine [in 2006], quite a famous firm, very solid reputation, very well-regarded and quality lawyers. The lawyers there were every bit as good as the lawyers I was used to working with for most of my career.

Steve Levitsky, of counsel, now with Duane Morris: I was at Shea & Gould, a fantastic and incredibly powerful law firm that unfortunately went out of business in 1994. The firm disbanded and I went with Mr. Gould to LeBoeuf Lamb in ‘94.

John Draghi, senior counsel, now in private practice: I was with a 35-lawyer firm, Huber Lawrence & Abell. Our practice principally represented electric, gas and water companies. The trend was to larger firms. We were heavily dependent on a larger client, and clients at that time were interested in us being with a larger firm. When Huber Lawrence & Abell dissolved, more than half of us went to LeBoeuf.

Bill Primps, antitrust litigator, now with Dorsey & Whitney: I was hired in October of 1974 out of law school to the old LeBoeuf Lamb firm, working in downtown New York, directly across the street from Dewey Ballantine. It had enormous strengths, many of them concentrated in the energy and insurance fields. A number of our lawyers went on to become federal judges.

Larry P. Schiffer, partner in the insurance practice group, now with Patton Boggs: We were at a firm called Werner & Kennedy, a well-known boutique, a litigation firm concentrating on the insurance industry. The year 2000 was approaching and we had to change our computer system. We were a small firm, between 15 and 20 lawyers, looking at between $500,000 and $750,000 to take out the system and put in a new one so it wouldn’t blow up. Associates’ salaries were going through the roof. Rent was going through the roof. It just seemed like a good time. We were told by a number of clients, “We’d give you more cases if you had a bigger platform.” We decided we’d listen to a few people who were calling. We liked what LeBoeuf had to say. We closed our firm and moved our practice to LeBoeuf on July 1, 1999. We hit the ground running. It was seamless. They knew us, we knew them.

PRIMPS: [LeBoeuf Lamb] continued to expand and we eventually moved to 125 W. 55th St. In the late 1990s, Steve Davis became co-chairman, and in the early 2000s, his co-chair, a partner by the name of Peter O’Flinn, stepped down, and Steve became sole chairman of the firm. Steve very, very strongly resisted any limitation on his term. Through what you might say were a lot of arm-twisting and heavy-handed tactics, he held onto his position.

LeBoeuf’s management, with Davis as a drivng force, pushed for the 2007 merger with Dewey, believing the new firm would join Greenberg Traurig and DLA Piper as one of the worldwide super-firms.

VICTOR: It appeared to have gone quite smoothly. There didn’t seem to be a lot of backbiting or rancor. The firm seemed to be integrating pretty nicely.

Donald B. Henderson Jr., partner, now with Willkie Farr & Gallagher: It did give us a much larger footprint around the world.

LEVITSKY: With very, very few exceptions, LeBoeuf Lamb functioned on different floors and Dewey Ballantine functioned on different floors.

John M. Nonna, insurance dispute and general commercial litigator, now with Patton Boggs: It became a more impersonal and less transparent atmosphere. On the other hand it was a good practice. The firm did a lot of good things—very strong commitment to diversity and pro bono work.

DRAGHI: Frankly, I found the practice a little more pleasant before the merger. LeBoeuf Lamb was a great firm—strong practice, good lawyers. When the merger came, it was clear to me the focus became doing what every firm wants to do—get big cases to justify big fees, get even more global than Dewey or LeBoeuf had been. After the merger, most of LeBoeuf moved into the Dewey offices, or into the building that Dewey was in. A number of us stayed in the old LeBoeuf offices. I had a very nice office. I still had a good secretary and that was OK.

SCHIFFER: It was a very rosy picture painted to us. Everything was great and going full blaze. Everything was going higher and attracting what those in the firm wanted to attract—larger and more sophisticated deals and clients.

LEVITSKY: [LeBoeuf Lamb] wasn’t big enough. It was number one in insurance and energy, but it wasn’t well-known on the Street. Steven Davis wanted to be a big corporation on Avenue of the Americas. He was drooling to get Dewey Ballantine. They had offices on Avenue of the Americas.

PRIMPS: There was a report that was produced by McKinsey that pointed to the advantages of the merger.

NONNA: Eventually the entire LeBoeuf firm, over a period of time, moved from the offices that LeBoeuf had on 55th Street to 1301 6th Ave. It put me a little closer to Grand Central Station. It was easier to get to the train.

Around the time of the 2008 economic crash, Dewey & LeBoeuf began to fall short of its predicted revenues, creating tension within the firm. Yet Davis continued to aggressively expand.

HENDERSON: We kept adding new partners and opening new offices.

PRIMPS: This whole phenomenon of offering guarantees to alleged superstars began to happen. They were hired on the basis of top production and given very, very healthy bonuses. And when they came, their numbers were far from their peak years, because we were going through the worst downturn people had seen since the Great Depression. So it was a recipe for disaster.

HENDERSON: It was not a good time to be going off in a new venture. The merger was expensive. The revenues of the firm were not as anticipated. That was a disappointment, but there wasn’t a lot of alarm.

VICTOR: The law business was doing some general restructuring. Law firms were adjusting economically and cutting people, partners as well as associates.

DRAGHI: Perhaps as senior counsel, I was less impacted, since I was on W-2 instead of getting a percent of the profits. I would hear rumblings of partners not getting their monthly draw. I had been hearing that for a while. I couldn’t substantiate it. Then you started to see more bad press. I didn’t know whether this was a little cash-flow problem or something deeper.

SCHIFFER: It was pretty clear there was a big problem when we didn’t meet targets and we weren’t going to get paid what we were told we were going to be paid. Certain people had their compensation altered in spite of projections and promises.

PRIMPS: I had some younger partners talk about opportunities to go elsewhere. People would come to me and say, “What should I do, Bill?” Starting in 2010, I was highly, highly encouraging that people should move on. The handwriting was really on the wall. You really started to look around who was going out to dinner at night, who was missing at key times during the day. You got the sense that certain practice groups were trying to place themselves at other firms.

VICTOR: It really wasn’t until 2012 that it became clear that this was a much more serious situation. Once the flow of partners started to leave, it was very difficult to try to reverse that, no matter what was put out there regarding the fundamental health of the firm. Then there was kind of a race to the doors.

Starting in January 2012, according to The New York Times, 85 of 300 partners left the firm, and in April 2012, an internal memo read: “All partners are encouraged to seek out alternative opportunities.” The firm filed for bankruptcy in May 2012.

NONNA: There were a series of partners’ meetings in 2012, and the message became more and more alarming about the problems the firm was facing.

PRIMPS: It was very stressful for everyone. You had fiduciary duties to your partners, but also—obviously—duties to your family and the preservation of your own practice and doing a decent job with your own clients. It put everybody in an intolerable position.

VICTOR: I stayed pretty long because the group that I was practicing with were hoping to stay together if possible. We didn’t want to create havoc for clients.

LEVITSKY: I believed that because of the excellence of our practices that nothing bad would ever happen, that it would all be fixed. So actually I didn’t start looking for a job until early May. I always believed the firm would downsize—instead of 1,400 lawyers, it would go down to maybe 700.

DRAGHI: One day my secretary walked in and said, “The copy machines don’t work anymore and they’re not delivering the mail.”

VICTOR: Oh, it became very, very clear. When you no longer have Xerox machines, when you no longer have access to Federal Express, etc., etc., you can no longer practice law.

LEVITSKY: You began to see moving companies come in. You’d walk down the hall and you’d see dollies with 50 to 100 to 200 boxes roll down the floor. It was very depressing. As time went by, there were fewer and fewer people on that floor. You’d walk down the floor of [the firm’s] huge Manhattan office building, you’d find maybe three, four people.

DRAGHI: The end sort of came quickly. When one very large group of lawyers walked out, all of a sudden it started to look like things were on a quick downhill. The slide was quicker than I thought, and the information was harder to get than I would have expected.

SCHIFFER: Unfortunately, some of us, including me, should have moved substantially sooner. You say to yourself, “It’s going to be fixed.” You assume your partners are telling you the truth, and I’m sure many of them believed that at the time.

LEVITSKY: It was devastating. To say that I was suffering from terror wouldn’t have been an exaggeration. It was made worse that I really couldn’t mention it to my family because I didn’t want them to have to go through the same. I was hoping I’d be able to find a job and I wouldn’t have to expose them to this stress.

SCHIFFER: You can’t lie to your spouse, you know? It’s quite unpleasant to have these discussions.

LEVITSKY: I didn’t start looking for a job until about two weeks before the firm closed. I really waited far longer than I should have.

NONNA: Frankly, when we left, we didn’t think Dewey & Leboeuf was going to go under. We thought it was going to survive. We just didn’t want to be there anymore. Our group left April 9, 2012, and the firm filed for bankruptcy in late May. I quickly realized I was never going to get my capital back.

LEVITSKY: It was apparently the largest law-firm failure in history.

Top attorneys landed in new firms. Support staff such as secretaries and paralegals had more trouble.

PRIMPS: The phone started to ring like crazy with headhunter calls coming in, and there were people I knew at firms where I didn’t need to go through headhunters. You use every conceivable contact with a time like that.

NONNA: It was sad. Especially secretaries and support staff—they had a much harder time finding a job. We’re talking about a time the legal profession was in a recession as well.

LEVITSKY: I keep in touch with about 1,200 people and they are all suffering.

Jeffrey L. Kessler, chair of litigation, now with Winston & Strawn: We have an extraordinarily busy practice, so we had major matters to service every day while we were also conducting this [job] search. So you can imagine that this particular period, including genuine sadness over the state of things at Dewey, combined to make for a very stressful situation.

VICTOR: We were fortunate. We had 15 law firms interested in us and ultimately we brought 70 lawyers, which included 22 partners. In addition, we brought 13 secretaries and four paralegals. We brought a total of over 80 or 85 people to this firm. It was probably the biggest group to move.

KESSLER: Happily, we had 15 or more firms who were very interested in our group. We probably had more serious discussions with seven, then cut it to four, then it finally came down to one. It was a constant process of weeding down.

HENDERSON: I ended up in a very good firm. I wish the entire insurance practice could’ve come here but there are certain limits to the amount of attorneys any one firm can absorb at one time.

VICTOR: [Winston & Strawn] happened to have a floor empty that was going to be refurbished. They stuck us in there and now the refurbishing is going to be done in steps. They sent us movers, boxed us up, packed us up, and the next thing you know, all your stuff is in new offices. I spent 35-plus years looking north over Central Park, past the Washington Bridge. Now I have this beautiful view of the Chrysler Building on my left, the Empire State on my right and the East River off on my left.

PRIMPS: I came over here [Dorsey & Whitney] with a couple of associates and it was just a very good fit. The senior counsel here, [Vice President] Walter Mondale, used to be ambassador to Japan. That’s a wonderful door opener. It’s wonderful to be out of a very, very negative situation.

NONNA: My daughter had worked at Patton Boggs as an associate for 10 months before she went to work for a senator on the Hill. She had a good experience there. I remembered that. They had the managing partner and several other partners come to New York [from Washington, D.C.] in a matter of two days. We were impressed by that.

DRAGHI: I decided I didn’t need another big firm. I rented space. I’m doing what I did before. It is just me. I’m working within the offices of another firm and if I need support I can get it. I’ve been delighted with the decision I made. I suppose I’m not going to do any more sales of nuclear power plants.

In late April 2013, as part of an insurance settlement, Davis agreed to pay $511,000 in settlement claims, an amount The Wall Street Journal described as “little or nothing.”

PRIMPS: If there’s a black hat, it really attaches to Steve Davis.

SCHIFFER: Anytime you think you’re going to get X, and you get substantially less than X, it affects you financially. I’m in debt because of these people. It’s as simple as that. Am I living in a box? No. Do I have my health? Yes. But has it affected my ability to retire at an appropriate age? Yes.

LEVITSKY: People now believe that due diligence wasn’t done. I think people who voted for this merger didn’t have full disclosure of the incredible liabilities that Dewey Ballantine carried. That’s one of those things that nobody investigated. They were going out of business when [LeBoeuf Lamb] acquired them and we went out of business afterward. That’s not a coincidence.

SCHIFFER: Obviously, we all know from the newspapers that certain people didn’t suffer because they had agreements that none of us knew about. They had guaranteed compensations. That was not a pleasant thing to hear about.

LEVITSKY: A lot of people whose lives were disrupted would like to at least know what part the 30 people on the executive committee played in these ridiculous decisions. People I talk to always ask that question: “How come they don’t account for what they’ve done?” People’s lives go on, but these questions remain.