What actually happens when law firms like Dewey LeBoeuf fail? What do the partners do and how does it affect them? The heavily indebted firm boes poorly for the partners, particularly those who took out loans to cover capital commitments to the firm. The Wall Street Journal took a look at the personal side of law firm failure.
Partners invest money into a law firm to help it operate and then take in a share of the profit. How much they invest depends on the firm: capital requirements might range from 20% to as much as 60% of what a partner expects to earn in a given year. A young partner could be on the hook for $100,000 to $200,000.
Laterals typically have to pay up front, even though their old firms haven’t returned their capital. So the new firms often offer loan programs that allow partners to borrow money at attractive rates while they wait.
The WSJ story looked at a Jones Day partner, Andrew Ness and the misfortunes he experienced.
“Over the course of his career, Mr. Ness, a partner who specializes in construction law in the Washington, D.C., office of Jones Day, has lost three equity stakes, the chunks of money often totaling hundreds-of-thousands of dollars that lawyers pay into a firm upon making partner.
“Early on, the small boutique firm where Mr. Ness was first made partner dissolved, taking his money with it. Later Mr. Ness joined Thelen LLP and then Howrey LLP, two now-defunct firms that entered bankruptcy in 2009 and 2011, respectively.
“I did not see a dime of capital returned and don’t expect to see a dime,” Mr. Ness said.
His experience bodes poorly for lawyers with money tied up at Dewey & LeBoeuf, which is heavily indebted and winding down its affairs after a rocky five-month run of partner exits.
The Dewey LeBoeuf wind-down has yet to play out but there is one thing certain and that is the difficulties that personalities will experience in what happens when law firms fail.