By Nate Raymond
NEW YORK, May 15 (Reuters) - Dewey & LeBoeuf, the U.S. law firm teetering on the brink of closure, has been sued by the Pension Benefit Guaranty Corp, which is seeking a decree to terminate various Dewey retirement plans.
The case brought by the PBGC, a wholly owned U.S. government corporation, was filed in federal court in Manhattan on Monday.
Last week, the agency said it would seize control of three Dewey pension plans covering 1,776 current and future retirees that the PBGC said were underfunded by $80 million.
“The continuing loss of revenue-generating partners and Dewey’s debt load has culminated in the imminent demise of Dewey,” the PBGC said in its lawsuit.
The lawsuit sheds more light on the final days of Dewey & LeBoeuf, once one of the largest law firms in the United States. More than two-thirds of its 300 partners have departed to rival firms since January, following concerns about compensation and the firm’s large debt.
Dewey is liquidating and winding down outside of bankruptcy, according to the lawsuit. Many of the firm’s associates were told on May 10 that Tuesday would be their last day.
The PBGC’s move to take control of Dewey’s pensions followed a telephone call last week with the firm, the lawsuit said.
On the call, Dewey told the agency it planned to close “two or three transactions” between Friday and Monday involving the sale of its interests in affiliates, the lawsuit said. The PBGC estimated that these transactions would generate between $7.2 million and $9.7 million.
It was not immediately clear what deals the lawsuit was referring to and a spokesman for the agency declined to elaborate.
One transaction that did take place on Monday was Greenberg Traurig’s hiring of 50-plus lawyers from Dewey’s office in Warsaw, Poland. The deal was structured in cooperation with the PBGC.
Greenberg Traurig CEO Richard Rosenbaum did not respond to a request for comment.
Meanwhile, more Dewey partners continued to defect from the troubled firm.
Attorneys in Dewey’s Italian offices said on Tuesday they would spin off from their U.S. parent and establish a separate law firm, Grimaldi Studio Legale. The firm, which is hiring high-profile Italian mergers lawyer Vittorio Grimaldi, will have 130 lawyers in Milan, Rome and Brussels.
Separately, 11 private equity and real estate lawyers in New York said they will join Schulte Roth & Zabel. The group includes Sanford Morhouse, the former co-chairman of Dewey Ballantine, which merged with LeBoeuf, Lamb, Greene & MacRae in 2007.
While the firm continued to bleed partners, Dewey as recently as Friday had not appointed a dissolution committee or voted to dissolve the firm. According to the PBGC, Dewey is attempting to liquidate without court intervention.
If the firm takes this route, it would avoid the steep costs associated with a bankruptcy filing.
In other industries, companies often shoulder this cost because it is the only way to freeze tangible assets and keep creditors from descending on the company’s estate.
But for law firms, whose primary assets are people, a bankruptcy filing incurs costs without necessarily salvaging the corporate structure or the value of the firm’s assets.
However, it remains possible that Dewey could be forced into involuntary bankruptcy.
While rare, involuntary bankruptcies occur when creditors fear their collateral could lose value unless it is frozen by a court. Law firm Howrey last year attempted to liquidate out of court before creditors filed an involuntary bankruptcy petition. The firm later converted its case to a voluntary filing.
Dewey representatives did not respond to requests for comment on the firm’s plans.