Victor J. Blue/Bloomberg News

Dewey & LeBoeuf, the law firm crippled by financial miscues and partner defections, filed for bankruptcy on Monday night, punctuating the largest law firm collapse in United States history.

The filing, made in federal bankruptcy court in Manhattan, is the final chapter in a turbulent period for Dewey, which came apart after disappointing profits and prodigious debt forced it to slash partners’ salaries. The partners, already owed millions from previous years, grew concerned over the firm’s finances and their ability to get paid. A partner exodus destroyed the firm.

Dewey announced Monday that the firm planned to liquidate. It said it would ask about 90 employees to remain on staff to assist in the wind-down of its business. The firm has $315 million in liabilities, of which $225 million is owed to its banks, according to the court filings. Other creditors include the firm’s landlords and former partners owed money.

“This is a very sad day for the legal profession,” said Richard J. Holwell, a former federal judge in Manhattan now in private practice. “Dewey is a fabled firm with a lot of great lawyers and a demise of this magnitude is unprecedented.”

With historical roots stretching back a century, Dewey — the product of a 2007 merger between Dewey Ballantine and LeBoeuf, Lamb, Greene & MacRae — employed at its peak more than 2,500 people, including roughly 1,400 lawyers in 26 offices across the globe.

Dewey’s dissolution has generated a debate across the legal profession: Was its failure an isolated event or emblematic of bigger problems in the corporate-law industry?

Many observers say the root causes of Dewey’s fall are not unique. Several of the largest firms have adopted business strategies that Dewey embraced: unfettered growth, often through mergers; the aggressive poaching of lawyers from rivals by offering outsize pay packages; and a widening spread between the salaries of the firm’s top partners and its most junior ones.

These trends, they say, have destroyed the fabric of a law firm partnership, where a shared sense of purpose once created willingness to weather difficult times. Many large firms have discarded the traditional notions of partnership — loyalty, collegiality, a sense of equality — and instead transformed themselves into bottom-line, profit-maximizing businesses.

“Because the partnership lacks any shared cultural values or history, money becomes the core value holding the firm together,” said William Henderson, a law professor at Indiana University who studies law firms. “Money is weak glue.”

Some industry experts say that, in many ways, the turmoil at Dewey reminds them of Finley Kumble, a large, fast-growing New York firm that imploded in 1987. The causes of Finley Kumble’s failure — expanding too quickly, borrowing heavily, and paying dearly for prominent talent — mirror the reasons for Dewey’s woes.

“Finley Kumble was the canary in the coal mine that now seems forgotten,” said Steven J. Harper, a retired partner at Kirkland & Ellis and adjunct law professor at Northwestern University.

Dewey’s bankruptcy follows a handful of other big law firm collapses in recent years. In 2008, two large firms in San Francisco, Thelen and Heller Ehrman, imploded in part because of a business slowdown. Last year, Howrey, a Washington firm with more than 500 lawyers, disintegrated after financial difficulties.

“Some big law firm whose leaders think that disaster can never befall it will be next,” Mr. Harper said. “We’ll be talking about that firm next year.”

This year, everybody is talking about Dewey, whose origins date to 1909. Thomas E. Dewey, the former New York governor, came on board in 1955. LeBoeuf, Lamb, started in 1929, was best known for its representation of insurers and utilities. About a decade ago, LeBoeuf began expanding rapidly under the leadership of Steven H. Davis.

In 2007, Mr. Davis approached the leadership of Dewey Ballantine about a merger. The combination created one of New York’s largest firms with a powerful global business, but it was struck just as the booming economy started to turn. The 2008 financial crisis and subsequent recession crushed Dewey’s results. Adding to its woes was a heavy debt load.

Even as Dewey’s performance flagged, the firm doled out lavish multiyear, multimillion-dollar guarantees to its top partners and star recruits. The guarantees — there were about 100, with several over $5 million a year — created compensation obligations that the firm could not meet.

The firm had success in the legal arena despite its financial issues.

It represented the players’ unions in their court battles with the National Football League and National Basketball Association. The firm advised MetLife in its $12 billion acquisition of Travelers Life and Annuity. Dewey’s real estate group represented the Lower Manhattan Development Corporation in the World Trade Center redevelopment.

Dewey’s collapse has devastated its employees. Hundreds of junior lawyers and support staff are looking for work in a difficult market.

Robert Caplin

The partners are collectively expected to lose tens of millions of dollars they had tied up in the firm, and could face “clawback” suits from creditors seeking to recover money.

Law firms have seen a decline in demand for legal services since the financial crisis. Large corporate clients, also buffeted by the volatile global economic conditions, have become vigilant about reducing legal expenses. They frequently ask for discounts from their outside law firms, which charge, at the high end, more than $1,000 an hour for a top partner’s services.

Yet nearly all of Dewey’s partners — about three-quarters of its roughly 300 — have landed at other firms. Thirty-six, for example, have joined DLA Piper, the world’s largest firm by head count with more than 4,200 lawyers. DLA is the result of numerous mergers, acquisitions and joint ventures over the last dozen years. It has also been a leader in recruiting top producers away from other firms.

DLA Piper is the biggest of a handful of megafirms that, over the past decade, have transformed themselves from regional practices into global behemoths. These include Greenberg Traurig, a firm with 1,800 lawyers in 35 offices worldwide that was started in Miami. A decade ago, Greenberg had 17 locations and about 800 lawyers. Greenberg has picked up dozens of Dewey lawyers in recent weeks.

The managing partners of these firms are quick to differentiate themselves from Dewey. Frank Burch, the chairman of DLA, said that, unlike Dewey, the firm has not extended any multiyear salary guarantees to its partners, whose pay floats up and down with the performance of the firm. DLA also does not have any long-term debt, he said.

“We have conservatively managed our finances so that we can sustain and grow our business,” Mr. Burch said. “Our strategy is to have a presence in key practices and sectors across the globe where our clients need us to be. Growth isn’t the strategy; it’s a consequence of the strategy.”

Not every corporate law firm has embraced these prevailing “Big Law” trends. There remains an elite tier of firms — a group including Davis, Polk & Wardwell and Wachtell, Lipton, Rosen & Katz — that adheres to a so-called lock-step model of compensation, meaning partners are paid based on seniority, and within a narrow band. These firms also rarely recruit from other firms, but groom talent from within. This group also remains among the most profitable in the country.

“Cravath and others succeed in part because corporate clients are always going to want the opinion of the leading expert in the field and they will be willing to pay top dollar for it,” said Michael H. Trotter, a lawyer in Atlanta who has written two books about law firm economics. “They’re also culturally strong institutions with partners who are loyal to the firm.”

Other successful practices have remained decidedly small. The grandson of Thomas E. Dewey, for example, has his own firm, Dewey Pegno Kramarsky, a litigation boutique in Manhattan that he started in 1998. Thomas E.L. Dewey’s 14-lawyer shop, which represents large corporate clients like Credit Suisse and Time Warner, markets itself as a cost-effective alternative to large, expensive firms.

Mr. Dewey, 48, and his relatives no longer have any ties to the firm. Reached this month, he declined to comment on the disaster that befell the firm bearing his grandfather’s name.

“Sorry,” Mr. Dewey said. “I know you will understand.”



Dewey & LeBoeuf Chapter 11 Petition



Dewey & LeBoeuf Chapter 11 Affidavit