Law firm Dewey warns of possible closure

NEW YORK Sat May 5, 2012 9:55am EDT

People walk past a sign outside the law firm Dewey & LeBoeuf in New York City May 1, 2012. REUTERS/Lee Celano

People walk past a sign outside the law firm Dewey & LeBoeuf in New York City May 1, 2012.

Credit: Reuters/Lee Celano

NEW YORK (Reuters) - Law firm Dewey & LeBoeuf notified U.S. attorneys and staff on Friday that they could face mass layoffs, in the starkest sign yet that Dewey could be on the verge of collapse.

"Although we continue to pursue various avenues, it is possible that adverse developments could ultimately result in the closure of the firm, which would result in the termination of your employment," the firm said in a letter to employees that was obtained by Reuters.

Angelo Kakolyris, a spokesman for the firm, declined to comment.

The firm issued the notification under a federal law known as the WARN Act and similar state laws that require employers to notify workers of mass layoffs in advance. The federal WARN Act requires employers with 100-plus employees to give them 60 days' notice, while New York's WARN Act requires employers with 50 or more workers to give at least 90 days' notice.

Dewey & LeBoeuf, once one of the biggest law firms in the United States, has been struggling this year with growing debt, declining revenue and partner defections, which continued unabated on Friday.

Since January, the firm has lost at least 120 of its 300 partners amid a mounting debt crisis. It has tried and failed to find a merger partner.

Employees leaving Dewey's offices in midtown New York on Friday declined to talk to a reporter. Workers from a local moving company called Moishe's loaded about two dozen boxes labeled Dewey & LeBoeuf early on Friday evening before driving away.

A Facebook site set up to help Dewey attorneys and staff find jobs grew to 220 members on Friday afternoon.

Earlier on Friday, another source close to the situation said that Dewey & LeBoeuf had dismissed Executive Director Stephen DiCarmine within the last week. DiCarmine has retained a prominent criminal defense lawyer, the source said.

Last week, the firm informed its partners that the New York District Attorney launched an investigation into allegations of wrongdoing by former Chairman Steven Davis.

No allegations of wrongdoing have been brought against DiCarmine. The reasons for his termination couldn't be determined. Davis has denied any wrongdoing and DiCarmine did not return phone calls seeking comment.

DiCarmine has hired Edward Little, a former federal prosecutor in Manhattan, according to the source, who declined to be named due to the sensitivity of the matter. Little, a partner at law firm Hughes Hubbard & Reed, declined to comment on whether he had been hired in connection with the DA probe.

Defections from the firm decimated its overseas offices on Friday, with a wave of departures in Britain, Germany, Kazakhstan, UAE and Russia.

Dewey's options could include an out-of-court wind-down or a bankruptcy, whether voluntary or forced by its creditors, bankruptcy experts said.

Earlier this week, Dewey denied any plans to file for bankruptcy. Industry experts say a filing would be expensive and unlikely to salvage the firm, but could provide an efficient legal framework for Dewey to collect receivables from departed partners.

People who are owed money by Dewey have already begun seeking to sell their claims to third parties on a secondary market at a heavy discount, said Kevin Starke, a bankruptcy analyst with CRT Capital Group, a brokerage that specializes in distressed securities.

When businesses are insolvent or close to it, their stakeholders, fearing they will not be paid fully or on time, commonly sell their claims at a discount to institutional buyers in an effort to recover some money.

In Dewey's case, sellers will likely include trade vendors, suppliers and other service providers who may have receivables against the firm, Starke said.

"A market for receivables is shaping up around 10-to-15 cents on the dollar," he said.

(Additional reporting by Andrew Longstreth, Karen Freifeld and Caitlin Tremblay; Editing by Noeleen Walder, Eric Effron, Eddie Evans, Gary Hill)