Weil would join crowded field of defunct law firms

By David Thomas

Oct 30 (Reuters) - The fast-moving melt-down of Wall Street powerhouse Weil, Gotshal & Manges stunned even legal insiders who were tracking its fortunes closely. But it's just the latest in a string of notable law firms to fall apart in recent decades, as a mix of partner defections, debt or other factors have brought down once-stable firms.

Weil said this week it plans to wind down operations following a series of key partner departures that it could not stem, spelling the end of a 1,200 lawyer firm that generated more than $2 billion in revenue last year.

It would join at least seven other US law firms with at least 100 lawyers that have dissolved over the past 15 years, including the 2012 implosion of Dewey & LeBoeuf. With profits per equity partner of nearly $5.6 million last year, Weil was by all accounts financially healthy, and it would be the first top 25 firm by revenue since Dewey to collapse without securing a merger.

Some of the firms that dissolved in recent years have managed, as Weil intends, to wind-down their affairs outside of bankruptcy, while others ended up in court.

Either way, the process can go on for years. Howrey's bankruptcy case is still open after 15 years. Duane Morris' Leslie Corwin, who co-wrote a treatise on law firm partnerships, noted that he is still working on dissolving Philadelphia-based law firm Schnader Harrison Segal & Lewis, which closed its doors in 2023.

The dismantling of a law firm can be a wrenching process for the lawyers who worked there, as details such as partners' financial obligations and entitlements are hammered out, experts on the process said.

"It’s the equivalent of managing hundreds of divorces because people get really emotional," said Al Togut, who was lead counsel to Dewey when it filed for bankruptcy. "A lot of these folks could never imagine what’s happening now."

Weil in a statement said its management committee recommended an "orderly wind-down" to unfold in the coming months. During that time, "the firm will continue serving clients with the dedication and excellence that have defined it since its founding and will remain committed to supporting its ​colleagues," Weil said.

Here's a look at how some other recent law firm disintegrations played out.

STROOCK & STROOCK & LAVAN

New York-based Stroock voted to dissolve in October 2023 after a series of lawyer exits gutted its partnership and it failed to secure a merger with a larger firm. The firm began experiencing troubles in 2022 after nearly its entire restructuring group, which had generated 29% of the firm's revenue in 2021, decamped for Paul Hastings, a rival firm.

Stroock, which was founded in 1876, had merger discussions with other law firms such as Nixon Peabody and Pillsbury Winthrop Shaw Pittman prior to its dissolution.

Stroock had 222 lawyers and revenue of $250 million in 2022, according to The American Lawyer. The firm two years later announced a settlement with its major creditors, resolving its wind-down and asset distribution.

LECLAIRRYAN

Richmond, Virginia-based LeClairRyan voted to dissolve in August 2019 after a spate of partner exits and filed for bankruptcy a month later. The firm revealed in court papers that it had defaulted on a $15 million loan it had taken in 2017.

LeClairRyan in 2018 created a joint venture with alternative legal services provider UnitedLex, promising a new model for supporting law firm operations that could expand to other firms. The Chapter 7 trustee who is overseeing LeClairRyan's bankruptcy estate has alleged that the UnitedLex deal caused already-struggling LeClairRyan to plunge "further into insolvency."

Prior to the defections, LeClair had about 270 lawyers and $122 million in revenue in 2018. The firm's bankruptcy proceedings are still ongoing.

DEWEY & LEBOEUF

Dewey, which once had close to 1,400 lawyers, went bankrupt in May 2012, unable to pay for the lavish compensation packages it had promised to recruit star partners.

The Manhattan District Attorney began investigating the law firm's executives one month before it filed for bankruptcy, after a group of partners asked the prosecutor's office to examine "financial irregularities" at the firm.

The office brought charges against several Dewey executives in 2014, alleging that they used illegal accounting adjustments between 2008 and 2012 to conceal the firm's financial difficulties from investors in its bonds, including Bank of America Corp and HSBC Holdings Plc.

Seven lower-level employees pleaded guilty to criminal charges in connection with the investigation. The firm's former chairman struck a deal with prosecutors to resolve his case, while its former chief financial officer was convicted of defrauding the firm's investors but avoided prison time.

HOWREY

Proceedings related to the liquidation of Washington, DC-founded Howrey are still ongoing after the firm's partners voted to dissolve the firm in March 2011.

The firm, co-founded in 1956, had about 750 lawyers at its peak in 2008. One month after the firm's partners voted to wind down, a small group of creditors tried to force Howrey into bankruptcy against its will.

Howrey later asked a bankruptcy judge in San Francisco to convert the involuntary bankruptcy petition into a voluntary case. The firm revealed it owed $49 million to Citibank, as well as $12.7 million in rent to its landlords.