Heller Ponders Dissolution

Heller Ehrman appeared on the brink of dissolution Wednesday, with some partners already looking to move with what amounted to tacit approval from firm management.

In office meetings on Wednesday, partners were told that dissolution is one of several options facing the 119-year-old firm, a Heller partner said. As a result, management said it was understood that partners would begin talking to other firms, and several individuals and groups have already begun talks, sources said.

It was unclear what options besides dissolution remained, but the firm has not yet voted on a course of action. Given the announcements in Wednesday’s meetings, though, industry watchers say there are probably no significant alternatives left.

“If that is the truth, that’s the end of Heller Ehrman,” said Friedrich Blase, a consultant with Kerma Partners in New York. “These are good lawyers,” he added, “they’re going to find homes.” But the story may be more difficult for more-junior partners, associates and staff, given the state of the economy, recruiters said. 

Wednesday’s partner meetings came in the wake of two fateful revelations made earlier in the week: that merger talks with Chicago’s Mayer Brown, Heller’s second highly publicized suitor, had collapsed and that 14 intellectual property litigation partners were defecting to Washington, D.C.’s Covington & Burling. It isn’t clear what the dealbreaker was for the merger, but many suspect the departures. Including the batch on Monday, about 50 partners have left the firm this year.  (See some of the firm’s remaining stars below.)

Several current and former members of Heller’s management would not comment, and a firm spokesman said, “We continue to consider our strategic options.”

Wednesday’s meetings were held amid a blizzard of gossip in the market as groups within Heller coalesced to begin talks with other firms.

At least two partners have already found a new home in Jones Day’s San Francisco office. Brent Cohen, the head of Heller’s 30-lawyer real estate finance group, will join that firm, according to a person familiar with the deal. Cohen didn’t return a call. While it was unclear whether others from Cohen’s practice might join him, Martin Myers, a partner in Heller’s insurance recovery practice, is also headed to Jones Day.

Several groups, including the capital markets practice headed by Nora Gibson, have also initiated discussions with other firms, people familiar with the situation said. The Venture Law Group, the Silicon Valley corporate boutique, which merged into Heller in 2003, is also talking to other firms, and the group would like to stay together, said those familiar with the talks.

The group of IP litigation shareholders who are leaving the firm for Covington & Burling spans four offices. The San Francisco and Silicon Valley offices will each shed four partners while the San Diego and Washington, D.C., offices will each lose three.

The partners leaving from San Francisco are Robert Fram, Christine Saunders Haskett, Michael Markman and Michael Plimack. In Silicon Valley, Heller will lose Andrew Byrnes, Robert Haslam, Nitin Subhedar and Stanley Young. In San Diego, Alan Blankenheimer, Jo Dale Carothers and Laura Underwood-Muschamp will leave the firm. The partners leaving the Washington, D.C., office are Maureen Browne, Johnny Chiu and Sturgis Sobin.

Covington does not have offices in Silicon Valley or San Diego, and it is unclear whether they will open new offices or attempt to take Heller’s space. A Covington spokeswoman has not responded to repeated calls for comment this week.

Baker & McKenzie, Heller’s first major merger partner until talks fell apart in Augustover conflicts, is making a play for big chunks of the firm, according to one recruiter. A Baker spokeswoman did not return a call for comment on Wednesday.

Blase said he had not heard the Baker rumor but that it made sense.

“I wouldn’t be surprised if some of the original merger partners went back,” he said. “If you want a parallel to that, look at what Barclays did to Lehman,” he said. Barclays ended negotiations with Lehman Brothers, then returned to cherry-pick key assets after Lehman filed for bankruptcy earlier this week.

If dissolution is on the horizon, it was unclear Wednesday how soon circumstances might force a decision. Current and former partners have uniformly said that the conservatively managed firm is in good financial standing, but some former partners expressed concern Wednesday about the return of their capital contributions. The firm would also face decisions about what to do with the leases it holds for its 14 offices.

Heller was one of three firms on the Am Law 100 in 2007 to have seen a decrease in revenue, which Chairman Matthew Larrabee attributed to a series of big litigation cases wrapping up early that year. In 2004, Heller ranked second on The American Lawyer’s A-list, a ranking of firms based on a variety of factors, such as pro bono representation, associate satisfaction and diversity ratings.

The discussions that took place on Wednesday were kept mostly under wraps. Several associates said they had no knowledge of the meetings, and at least one client was equally in the dark.

Mary Doyle, senior vice president and general counsel at Palm Inc., said she was aware of the departures to Covington & Burling but had heard nothing of the firm’s plans as a whole. She said she was saddened by the difficulties that Heller — “one of the oldest and best-established firms in California and in the country” — is facing. “I’m not alone in hoping that they are able to survive these and regain their hard-earned reputation.”

Reporter Petra Pasternakcontributed to this story.