The firm, which closed up shop in August 2005, is awash in debt, has declared bankruptcy, and was recently hit by a pair of judgments totaling $2.8 million. Though the firm has paid off $23 million it owed to bank creditors Citigroup Inc. and JPMorgan Chase & Co., it still lists $18 million in liabilities.
Former partners still owe the firm $8 million for loans, advances on tax payments and overdistributions. Coudert faces malpractice claims in California and Connecticut. Five creditors — including the firm’s employee pension fund, tax authorities in Britain and Coudert’s former landlord in Paris — are owed more than $1 million apiece. And that’s just the beginning. Bankruptcy filings show that some partners continued to bill the firm for items like a foot massage, a golf caddy and private school tuition. Meanwhile, contract partners overseas complain that they weren’t paid, and a partner has stashed about $800,000 in Singapore bank accounts to ensure that the firm doesn’t get it.
Not since the epic crash of Brobeck, Phleger & Harrison in 2002 has a law firm flamed out as spectacularly as Coudert. The firm once had 28 offices across the globe and employed 600 lawyers, and though its financial performance had been fading for years, it was recognized as a pioneer in international law.
But its worldwide scope also helped to undermine the firm. Coudert faced — and still faces — a jumble of lease obligations from Sydney to Singapore to San Francisco. It has had difficulties accessing money in Frankfurt, Tokyo and Singapore. It was once common for Coudert partners to speak many languages. Now its creditors do.
All of this has bred resentment among former partners — particularly in the international offices. In Paris, for instance, ex-partners may be personally liable for a million-dollar lease because of the way the firm was structured in France. And in Australia, partners have petitioned the courts to file their own bankruptcy that would take precedence over the one in the United States.
Given the problems, the move into bankruptcy on Sept. 22 may have been a smart strategic choice. Chapter 11 will give Coudert a number of protections: Litigation judgments are typically stayed, damages from landlords are capped, and the court will push to collect bills still owed Coudert (anywhere from $4.35 million to $25 million, depending on whom you ask). But bankruptcy filings may also make for some uncomfortable questions for the committee charged with the firm’s wind-down. The firm is “subjecting itself to microscopic examination from its creditors,” says David Gill, a partner at bankruptcy boutique Danning, Gill, Diamond & Kollitz. Among the questions the firm may face: Why did some partners get draws and not others? Why weren’t former partners asked to repay loans? And why, if it was having trouble paying its pensioners, did it allow partners to put in for trivial expenses?
No bankruptcy is pretty. Finley Kumble in the 1980s and, more recently, Brobeck have yielded tales of bad behavior and angry partners. But when it closed up shop, Coudert seemed different: Departing partners expected an orderly wind-down, one in which creditors would quickly get paid, and partners might see a nickel or two of capital returned. Perhaps Coudert proves that there’s no easy way to bury a law firm.
Coudert had been losing partners little by little for years when, in May 2005, the entire London and Moscow offices defected to Orrick, Herrington & Sutcliffe. Coudert, which had only recently talked merger with Orrick, didn’t take the departures lightly. Then-chair Clyde Rankin III sent letters to departing partners questioning whether they’d been speaking to Orrick during the merger discussions: “We have reason to believe that during this period you may have breached your fiduciary obligations to the firm and/or been complicit with Orrick in actionable wrongdoing. We are investigating whether this is the case, including by reviewing your e-mail and other communications.”