Continental Breakfast: How Dewey's Management Got One Thing Right

And then there were none.

Last week, the final remaining international outpost of the now-bankrupt Dewey & LeBoeuf found a new home. Five former Dewey lawyers in Riyadh, Saudi Arabia, joined Patton Boggs to establish the Washington, D.C.–based firm’s first foothold in the Kingdom.

Dewey’s foreign offices have gradually broken away from the firm over the past month, starting with the move of its 50-lawyer Warsaw base to Greenberg Traurig in May. Dewey teams in Moscow and Almaty were then snapped up by Morgan, Lewis & Bockius, while Baker & McKenzie became the latest firm to invest in Africa by acquiring Dewey’s Johannesburg office. (See here for an interactive chart tracking the movement of all Dewey partners and offices since January.)

The firm’s management has come under heavy fire for its role in steering what was one of the Am Law 100’s top-ranking businesses toward its eventual demise. Former partner Henry Bunsow, who now runs a San Francisco IP boutique with 10 other Dewey refugees, recently filed suit against embattled ex-chair Steven Davis and several other members of the firm’s executive team, accusing the defendants of committing fraud by lying about the state of the firm’s finances. (Jeffrey Kessler, a former member of Dewey’s office of the chairman named in Bunsow’s suit, called the claims “outrageous, false, and without any merit.”)

But with further details emerging about the deals behind these various international office moves, it seems that Dewey’s leaders may finally—though belatedly—have got something right.

Unlike a typical group lateral hire, in which the partners involved resign from their old firm and sign new contracts with the next, the Dewey transfers were structured almost as M&A deals in an attempt to generate cash returns for creditors, help the firm meet its pension obligations, and minimize disruption to clients.

In each case, the acquiring firm essentially bought the relevant office’s assets and accounts receivable—the fees owed by clients for work that had already completed. Each firm was also obliged, according to a partner involved in one of the transactions, to agree to take on the office’s liabilities—such as the lease agreement for its premises—and to reimburse any outstanding expenses. (In Moscow, for example, Morgan Lewis paid more than $1 million to Russian developer Capital Group—owned by oligarch Vladislav Doronin, who is dating supermodel Naomi Campbell—to cover the outstanding fit-out costs owed by Dewey for the team’s new office space.)

The negotiations were led by Dewey’s London-based executive partner Stephen Horvath III, who remains with the now-defunct firm as one of two partners—general counsel Janis Meyer is the other—overseeing its dissolution. Several former Dewey partners say Horvath did an excellent job in working with counterparts at each firm—such as Morgan Lewis’s managing partner for operations, Thomas Sharbaugh—to determine a fair and appropriate value for the transactions. (U.K. publication Legal Week reported last month that Horvath was in “advanced discussions” to follow the Warsaw office to Greenberg, having been part of the same group that joined a premerger Dewey Ballantine from Hunton & Williams in 2002. A Greenberg spokesperson told The Am Law Daily via e-mail: “While we respect Mr. Horvath, we have no agreement to hire him.”)

As with any M&A process, detailed due diligence was carried out by the buyers on each of the offices. According to a former Dewey equity partner involved in one of the moves, much of the discussion centered on the value of the accounts receivable and what level of discount, if any, should be applied. (The partner says a slight discount was applied, but that the books were generally seen as “solid.”) In Russia, Morgan Lewis went so far as to retain Big Four tax firm PricewaterhouseCoopers to conduct an audit and compliance check of the practice, “to make sure we hadn’t been paying bribes,” as one former Dewey Moscow partner puts it. (It seems ironic for lawyers to be the subject, rather than the instrument, of an FCPA analysis, but this is Russia after all.)

It proved a lucrative strategy: The sale of Dewey’s Warsaw, Moscow, and Almaty bases raised more than $10 million alone. (Given that in addition to secured debt obligations of at least $225 million, Dewey has a mounting Chapter 11 tab—its PR adviser is raking in up to $895 per hour and primary bankruptcy counsel Togut, Segal & Segal up to $935 per hour—and pension plans that are underfunded by an estimated $80 million, the estate will need all the money it can get.)