[This article fist appeared on on January 9, 2017]

Note from Bill Moyers:  I’m pleased to officially welcome Steven Harper to our site. Steven retired early from a successful career as a litigator to write – and write he has done, including two acclaimed books — The Lawyer Bubble — A Profession in Crisis and Crossing Hoffa – A Teamster’s Story (a Chicago Tribune “Best Book of the Year”). He’s currently working on another, from which I’ve read some riveting excerpts, about the recent downfall of a New York law firm once led by New York State Governor and two-time presidential candidate Thomas Dewey. 

Steven Harper blogs at his site The Belly of the Beast (, contributes regularly to the monthly magazine The American Lawyer, and is an adjunct professor at Northwestern University. When I read one of his short essays recently and some of his work on his current book project, I invited him to contribute a series of articles providing insights into current events. You can follow him here on our site and on Twitter at @StevenJHarper1. 


“Begin The Trump Resistance Plan Before It’s Too Late”

“Immediate necessity makes many things convenient, which if continued would grow into oppression…” 

— Thomas Paine, Common Sense (1776)

Ordinary citizens searching for the convenient satisfaction of immediate necessity are Donald Trump’s unwitting allies in an unseen war on democracy. It’s difficult to blame them. Most Americans are busy leading frenetic lives. In sound bites, they receive what passes for news; there’s no time to confirm its veracity. Politicians like Trump tell them what they want to hear; it pleases them. But quick solutions displace efforts to understand complicated challenges for which there are no easy answers.

Short-term convenience can produce long-run peril. Waiting for Trump’s America to reveal itself assures his victory and the republic’s loss. Perhaps more precisely, it could assure the loss of the republic. Successfully resisting the dangerous Donald Trump requires united action toward a common goal, thoughtful strategy, and flexible tactics.

The Goal

The objective of The Trump Resistance Plan (TRP) must transcend America’s politics and culture wars. Citizens of good will across the political spectrum will always disagree on matters of public concern. That’s healthy democracy.

The larger battle at hand pits democracy against an unknown fate. Throughout the world, populist nationalism is joining with authoritarian leaders to upend longstanding democracies. To repel this historic assault on our shores, the TRP proposes a goal that should find universal acceptance among Republicans, Democrats and independents.

For 230 years, two norms have anchored American democracy. One is that elections must be free of foreign interference. Another is that the presidency must be free of institutionalized corruption. Trump is undermining both. The TRP’s single goal is to preserve those norms.

The importance of the first is clear. America sought independence from the tyranny of remote rule. Foreign agents that subvert our most important democratic process – voting – are enemies. Any citizen giving aid or comfort commits treason. Trump’s belittling of U.S. intelligence conclusions that Russia hacked the election to help him win seems to qualify.

The second norm distinguishes the United States from countries where tyrants increase personal wealth and power at the expense of the people. That principle, too, has roots in the founding of our nation as a rebellion against a king and his corrupt government. Even the appearance that presidential acts are for sale is incompatible with democracy. Trump’s refusal to release his tax returns, liquidate his business holdings, and relinquish his finances to a truly independent blind trust violates that norm.

The Audience

No patriot can reasonably resist the TRP’s goal. After all, it’s not tit-for-tat politics designed to exact revenge for Republican recalcitrance during President Obama’s eight years, although some might prefer that myopic mission. Policy outcomes are important. But the current stakes are greater than the ebb and flow of typical political battles.

To succeed in eradicating two norms that underpin American democracy, Trump requires a compliant Republican Congress. Many GOP members opposed Donald Trump’s candidacy. They knew he lacked the experience and temperament to govern. Rationalizing that anything – even an erratic, irrational, and self-aggrandizing Trump – was better than Hillary Clinton, almost all of those detractors succumbed to his bullying and fell in line.

Now some of those same Republicans have learned that they were actually falling in line with Vladimir Putin. That alone should create a case of buyer’s remorse. But Trump can offer them a deal. They get his support for the hard-right policies that many Republicans have wanted for years. In return, all they have to give him is what he wants: fracturing the two central norms of American democracy. Perhaps some of them now realize that they are playing out a script for which only Putin, Trump and his minions know the ending.

Senator Majority Leader Mitch McConnell (R-KY) doesn’t care. He wants Trump’s deal. Sorting out conflicts of interest for members of what will become the wealthiest cabinet in modern history is a big job. The absence of a thorough Trump transition team vetting process makes it even bigger than usual. But McConnell is working with Team Trump to give the Office of Government Ethics – and the American people – the bum’s rush.

The Challenge

Putin’s stain on Trump’s election is permanent. Everything that he does as president comes with a taint. Everything. Likewise, his failure to eliminate his conflicts of interest means that every presidential act brings with it a presumption of corruption. Any member of Congress who supports legislation that he signs on any subject gets dragged deeper into his mud.

The two norms he seeks to destroy are threshold issues for the moral authority of his office. Whether his actions take the form of appointments, signing legislation, or issuing executive orders does not matter. All are fruit of a poisonous Trump election tree. Whether the subject is health care, tax reform, trade or anything else, the stench of election scandal and a presumption of corrupting financial conflicts of interest hang over everything he touches.

Surely a handful of Republican Senators can find sufficient strength to become profiles in courage. It takes only three heroes to flip his 52-48 margin in the Senate into a bulwark that protects liberty from his assault. Then he’d have to deal with those representing the majority of voters who wanted someone else in the Oval Office. That won’t eliminate his Putin election cloud or the taint of his presumed self-dealing, but it’s a start.

The Stakes

Shortly after the election, The New York Times’ editorial board wrote that it was “ready to support” Trump, “without denying the many disgraceful things he did and said to get elected, the promises he may or may not keep, the falsehoods he peddled that were either delusions or lies.”

Such compartmentalization is treacherous. Character is destiny. The country cannot allow Donald Trump’s character to determine its destiny. In his battle to obliterate the two norms without which democracy cannot exist, every conscientious citizen should force him and his minions to fight for every inch of ground.

No shot has been fired, but make no mistake: the war for America began on November 8.

Turn off your reality-TV shows, folks; this is real.


[NOTE: My recent post, “Cravath Gets It Right, Again,” was a BigLaw Pick of the Week.]


“Not all the evidence that you hear and see will be riveting,” said Steve Pilnyak last Tuesday as he opened the prosecution’s case against three former leaders of the now-defunct Dewey & LeBoeuf. The judge warned jurors that they will probably be there past Labor Day. The antagonists will present dueling views of what the New York Times called “arcane accounting treatments and year-end adjustments” three years before Dewey’s collapse. As you read between the yawns, watch to see if the trial leaves the most important questions about the final days of a storied firm unanswered.


The prosecution’s case requires victims. It settled on insurance companies who bought the firm’s bonds in 2010 and big banks that lent the firm money for years. We’ll see how that plays, but it’s difficult to imagine aggrieved parties that would generate less juror sympathy than insurers and Wall Street bankers. Then again, rich lawyers aren’t exactly the most desirable defendants, either.

The prosecution’s cooperating witnesses will take the stand to explain what it calls a “Master Plan” of accounting adjustments that are the centerpiece of the case. The battle of experts over those adjustments is more likely to induce sleep than courtroom fireworks.


If you think former firm chairman Steven Davis and his two co-defendants, Stephen DiCarmine and Joel Sanders, are the only villains in this saga, you’re allowing the trees to obscure a view of the forest. In that respect, the trial will fail at its most fundamental level if it doesn’t address a central question in the search for justice among Dewey’s ruins: Who actually received — and kept — the hundreds of millions of dollars that entered the firm’s coffers as a result of the allegedly fraudulent bond offering and bank loans?

As the firm collapsed in early 2012, it drew down tens of millions of dollars from bank credit lines while simultaneously distributing millions to Dewey partners. As I’ve reported previously, during the five months from January to May 2012 alone, a mere 25 Dewey partners received a combined $21 million. Are they all defendants in the Manhattan District Attorney’s criminal case? Nope. Will we learn the identity of those 25 partners, as well was the others who received all of that borrowed money? I hope so.

Shortly after those 2012 distributions, Wall Street Journal reporters asked former Dewey partner Martin Bienenstock whether the firm used those bank loans to fund partner distributions. Bienenstock replied, “Look, money is fungible.”

It sounds like his answer to the question was yes.

Unwitting Accomplices?

With respect to the proceeds from Dewey’s $150 million bond offering, the picture is murkier, thanks to protective cover from the bankruptcy court. When Judge Martin Glenn approved a Partner Contribution Plan, he capped each participating partner’s potential financial obligation to Dewey’s creditors at a level so low that unsecured creditors had a likely a recovery of only 15 cents for every dollar the firm owed them. That was a pretty good deal for Dewey’s partners.

But here’s the more important point. As it approved that deal, the court did not require the firm to reveal who among Dewey’s partners received the $150 million bond money. In calculating each partner’s required contribution to the PCP, only distributions after January 1, 2011 counted. The PCP excluded consideration of any amounts that partners received in 2010, including the bond money. That meant they could keep all of it.

In light of the bankruptcy code‘s two-year “look back” period, that seemed to be a peculiar outcome. Under the “look back” rule, a debtor’s asset transfers to others within two years of its bankruptcy filing are subject to special scrutiny that is supposed to protect against fraudulent transfers.

Dewey filed for bankruptcy on May 28, 2012. The “look back” period would have extended all the way to May 28, 2010 — thereby including distributions of the bond proceeds to partners. Which partners received that money and how much did they get? We don’t know.

Connecting Dots

As the firm’s death spiral became apparent, a four-man office of the chairman — one of whom was Bienenstock — took the leadership reins from Steven Davis in March 2012. A month later, it fired him. In an October 12, 2012 Wall Street Journal interview, Bienenstock described himself as part of a team that, even before the firm filed for bankruptcy, came up with the idea that became the PCP. He called it an “insurance policy” for partners.

Taking Bienenstock’s “money is fungible” and “insurance policy” comments together leads to an intriguing hypothetical. Suppose that a major management objective during the firm’s final months was to protect distributions that top partners had received from the 2010 bond offering. Suppose further that in early 2012 some of those partners also received distributions that the firm’s bank loans made possible. Finally, suppose that those partners used their bank loan-funded distributions to make their contributions to the PCP — the “insurance policy” that absolved them of Dewey’s obligations to creditors.

When the complete story of Dewey gets told, the end game could be its climax. It could reveal that a relatively few partners at the top of the firm won; far more partners, associates, staff, and creditors lost.

Or maybe I’m wrong and the only villains in this sad saga are the three defendants currently on trial. But I don’t think so.


Starting with the introduction, Harvard Law Professor Ashish Nanda’s case study on Bingham McCutchen depicts Jay Zimmerman as the architect of the firm’s evolution “from a ‘middle-of-the-road-downtown-pack’ Boston law firm in the early 1990s to a preeminent international law firm by 2010”:

“Zimmerman was elected chairman in 1994. Over the next 15 years, he shepherded the firm through 10 mergers, or ‘combinations’ in the Bingham lexicon, the establishment of 11 new offices, and a ten-fold increase in the firm’s revenues to $800 million… Given its impressive expansion, [journalist Jeffrey] Klineman said, ‘Bingham McCutchen has shown it could probably open an office on the moon.'” (p. 1)

Harvard published the study in September 2011.

Another Case Study

Ten months later, Nanda released another case study, “The Demise of Howrey” — a firm that was dying as he considered Bingham. Interestingly, several footnotes in the Howrey study refer to articles explaining how aggressive inorganic growth compromised that firm’s cohesiveness and hastened its collapse. (E.g., “Howrey’s Lessons” by me, ““Why Howrey Law Firm Could Not Hold It Together”, by the Washington Post’s Steven Pearlstein, and “The Fall of Howrey,” by the American Lawyer’s Julie Triedman) But Nanda’s 15-page narrative of Howrey barely mentions that topic.

Instead, he invites consideration of “the alternative paths Howrey, and managing partner Robert Ruyak, might have taken to avoid dissolution of the firm” after that growth had occurred. The abstract concludes with these suggested discussion points:

“What could Howrey have done differently as clients demanded contingency payment plans and deep discounts? Should Ruyak have been more transparent about the financial difficulties the firm faced? Should he have consulted with a group of senior partners instead of relying on the counsel of outside consultants? Is a litigation-focused firm at a disadvantage when it comes to leadership, as compared to a corporate practice? Participants will reflect on the leadership structure of Howrey while discussing issues related to crisis management.”

With all due respect, those inquiries don’t reach a key lesson of Howrey’s (and now Bingham’s) collapse. The following sentence in the study does, but it goes unexplored:

“Howrey continued to add laterals over the concerns of some partners that increased lateral expansion might detract from the firm’s strategic focus and weaken its cultural glue.” (p. 6)

The Metrics Trap

Nanda’s case studies report that at Howrey. as at Bingham, a few key metrics suggested short-term success: revenues soared, equity partner profits increased, and Am Law rankings went up. But beneath those superficially appealing trends was a long-term danger that such metrics didn’t capture: institutional instability. When Howrey’s projected average partner profits dipped to $850,000 in 2009, many ran for the exits and the death spiral accelerated.

Likewise, Bingham’s record high equity partner profits in 2012 of $1.7 million dropped by 13 percent — far less than Howrey’s 2009 decline of 35 percent — to $1.5 million in 2013. But a steady stream of partner departures led to destabilization and a speedy end.

Balancing the Presentation

According to the final sentence of the Bingham case study abstract, “The case allows participants to explore the positives and negatives of following a strategy of inorganic growth in professional service firms….”

The negatives now dwarf the positives. No one should fault Nanda for failing to predict Bingham’s collapse two years later. The most spectacular law firm failures have come as surprises, even to many insiders at such firms. But the Bingham study emphasizes how Zimmerman conquered the challenges of an aggressive growth strategy, with little consideration to whether the overall strategy itself was wise over the long run.

For example:

— The study notes that after Bingham’s 2002 merger with 300-attorney McCutchen Doyle, “Cultural differences…loomed over the combined organization….” But the study goes on to observe, “[T]hese issues did not slow the firm’s growth on the West Coast.” (p. 11) By 2006, “Bingham had achieved remarkable success and unprecedented growth.” (p. 14)

— The study reports that the firm’s American Lawyer associate satisfaction ranking improved from 107 in 2007 to 79 in 2008, which Bingham’s chief human resources officer attributed to “an appreciation for the leadership of the firm. People have confidence in Jay’s competence.” (p. 17). The study doesn’t mention that the firm’s associate satisfaction ranking dropped to 100 in 2009 and to 106 (out of 137) in 2010. (American Lawyer, Sept. 2010, p. 78)

— “Our management committee has people from all over,” the study quotes Zimmerman. “You don’t have to have been at Bingham Dana forever to lead at the firm.” (p. 15) But the study doesn’t consider how too many laterals parachuting into the top of a firm can produce a concentration of power and a problematic distribution of partner compensation. When Bingham began to unravel, the spread between its highest and lowest paid partners was 12:1.

— Bingham’s final acquisition — McKee Nelson — was the largest law firm combination of 2009. The study doesn’t discuss the destructive impact of accompanying multi-year compensation guarantees that put some McKee Nelson partners at the very top of the Bingham McCutchen pay scale. To be fair, Nanda probably didn’t know about the guarantees, but the omission reveals the limitations of his investigation. The guarantees came to light publicly when the American Lawyer spoke recently with former partners who said that “the size and scope of the McKee Nelson guarantees led to internal fissures…that caused at least some partners to leave the firm.”

No Regrets

Looking to the future, Zimmerman told the Harvard researchers, “[W]e’re competing with the best every day. We know we are among the best.” (p. 19)

I wonder if he would now offer the same self-assessment of his leadership that Robert Ruyak provided to the American Lawyer at the time of Howrey’s bankruptcy, namely, “I don’t have any regrets.” Nanda’s case study on Howrey’s demise concludes with “Ruyak’s Reflections.” The “no regrets” line could lead to interesting classroom discussions about accepting responsibility, but it doesn’t appear in the Howrey study. Ruyak’s explanations for the firm’s failure do.

One explanation that receives no serious attention in the case study is Ruyak’s observation that the partnership lacked patience and loyalty to the firm: “The longer-term Howrey people realized that our profitability jumped around a bit,” he said. “The people who were laterals, maybe, did not.” (p. 15)

Perhaps the potential for institutional instability that can accompany aggressive inorganic law firm growth receives greater emphasis in classroom discussions of Howrey and Bingham than it does in Nanda’s written materials. In that respect, both firms are case studies in management failure that is regrettably pervasive: a wrongheaded vision of success and a reliance on misguided metrics by which to measure it.


[NOTE: On Friday, April 11 at 9:00 am (PDT), I’ll be delivering the plenary address at the Annual NALP Education Conference in Seattle.

On Wednesday, April 16 at 5:00 pm (CDT), I’ll be discussing The Lawyer Bubble — A Profession in Crisis as part of the Chicago Bar Association Young Lawyers Section year-long focus on “The Future of the Legal Profession.”]

The trip from victim to perpetrator can be surprisingly short. Just ask some former Dewey & LeBoeuf employees who pled guilty for their roles in what the Manhattan District Attorney calls a massive financial fraud. Anyone as puzzled as I was by 29-year-old Zachary Warren’s perp walk last month will find recently unsealed guilty plea agreements in the case positively mind-boggling. In some ways, those agreements are also deeply disturbing, but not for the reasons you might think.

Warren, you may recall, was a 24-year-old former Dewey staffer when he allegedly had the misfortune of attending a New Year’s Eve day meeting in 2008 with two of his superiors. According to the grand jury indictment, they were among the “schemers” who developed a “Master Plan” of accounting fraud that persisted for years.

When Warren left Dewey in 2009 to attend law school, the firm was making hundreds of millions of dollars in profits, many individual partners enjoyed seven-figure paychecks, and no one foresaw the firm’s total collapse three years later. Nevertheless, last month Warren was indicted with three others who had held positions of responsibility right up to the firm’s ignominious end: former chairman Steven H. Davis, former executive director Stephen DiCarmine, and former chief financial officer Joel Sanders.

A fateful New Year’s Eve meeting

The indictment alleges that CFO Sanders was one of two people with Warren at their December 31 meeting. Now we’ve learned the identity of the other: Frank Canellas.

Canellas’ ascent in the firm had been meteoric. While finishing his bachelor’s degree at Pace University, he joined LeBoeuf, Lamb, Greene & MacRae in 2000 as a part-time accounting intern. Only seven years later, he became — at the tender age of 28 — director of finance for the newly formed Dewey & LeBoeuf. Thereafter, his compensation increased dramatically, rising to more than $600,000 annually by 2011.

In February 2014, Canellas copped a plea. He agreed to cooperate with prosecutors and plead guilty to a felony charge of grand larceny for his role in allegedly cooking Dewey’s books. In exchange, the DA will recommend a light sentence – only two-to-six years of jail time compared to the 15-year maximum penalty for the offense.

Using the boss to get underlings?

Presumably, one reason that the Manhattan DA squeezed Canellas was to help prove culpability at higher levels of the defunct firm, particularly CFO Sanders. But there is something more troubling here than the use of that standard prosecutorial tactic to get at the higher-ups. In his plea agreement statement, Canellas also implicates downstream employees who, he says, implemented the accounting adjustments that he and his bosses developed.

Ironically, in 2012, the people whom Canellas now fingers were among the hundreds of non-lawyers who suffered the most in the wake of Dewey & LeBoeuf’s spectacular implosion. When that was happening, observers properly regarded the firm’s low-level staffers generally as helpless victims. Now, for some of them, guilty pleas in exchange for recommendations of leniency give new meaning to the phrase “adding insult to injury.”

What’s the point?

Why go after the underlings at all? Does it really take a criminal prosecution coupled with the promise of a plea deal to assure the truthful testimony of pawns in a much larger game? With Canellas on the hook, wouldn’t a trial subpoena do the trick for those working under him?

The policy ramifications are even more profound. What message does the Manhattan DA send by flipping a cooperating superior to nail underlings for doing what the superior asked them to do? What does this approach mean for employees far down the food chain in a big law firm or any other organization? Even if you don’t have an accounting degree, should you now second-guess the bookkeeping directives that you receive from people who do? Then what? Complain to your local district attorney that you have concerns about your instructions? And why draw the line at accounting issues?

For any employee now worried about becoming the target of a subsequent criminal proceeding, other options make even less practical sense. As the economy crashed in 2008 and 2009, was it the low-level staffer’s duty to refuse a directive relating to the firm’s accounting procedures or any other issue that caused the staffer concern? To quit or get fired from a decent job and enter a collapsing labor market? To apply for work elsewhere, only to have a prospective new employer solicit a prior job reference and learn that the would-be hire is not a “team player”?

Losing sight of the mission

Unlike many senior partners at Dewey & LeBoeuf, the six relatively low-level staffers who did as Canellas directed (and have now pled guilty to resulting crimes) did not walk away with millions of dollars. Other than the jobs they held until the firm disintegrated, none benefitted financially from the alleged financial fraud.

The situation brings to mind a November 2012 court filing on behalf of Dewey’s former chairman, Steven H. Davis. Responding to the motion of the Dewey & LeBoeuf Official Committee of Unsecured Creditors for permission to sue Davis personally, Davis’s brief concluded: “While ‘greed’ is a theme of the Committee’s Motion, the litigation that eventually ensues will address the question of whose greed.” (Docket #654; emphasis in original)

The Manhattan DA’s investigative efforts could center on that question, too. So far, as indictments and plea deals get unsealed, the situation looks more like an unrestrained effort to secure notches on a conviction belt.

Perhaps it’s just too early to tell where the prosecution is headed. Then again, maybe vulnerable scapegoats make easier targets than the wealthy, high-powered lawyers who created and benefitted from the culture in which those scapegoats did their jobs.


Question #14.A. in the Wall Street Journal’s year-end quiz on December 28, 2012:

“True or False:

Before law firm Dewey & LeBoeuf LLP filed for bankruptcy in May, it was sued by a janitorial services company saying it was owed $299,000.”

Answer: True.”

This small item brought to mind reports of a January 2012 meeting where Dewey & LeBoeuf’s former chairman Steven H. Davis is said to have described the firm’s financial condition: profits in 2011 of $250 million, but more than half was already committed to pension obligations and IOUs to partners for shortfalls in prior years’ earnings. Together, partners would have to devise an action plan. “You have to own this problem,” he allegedly told them.

Who owns the problem now?

One simplistic narrative suggests that Davis himself should bear most of the blame for everything that went wrong with the firm. But in Dewey docket filing #654, his attorneys recently cautioned against such a rush to judgment.

For example, they assert that during the 12-month period immediately preceding the firm’s bankruptcy filing, “fifty-one partners received a higher distribution than Mr. Davis,” who, the say, got $1 million. Is that the behavior of a self-aggrandizing villain?

No names, please

The firm’s July 26, 2012 “Statement of Financial Affairs” (docket filing #294) identifies Dewey partners only by employee number, but it offers a window into some of those 51 highly paid partners. The dollars that some received as the firm imploded contrast sharply with Davis’s January admonition that they should “own the problem.”

For example, Dewey partner 06780 received more than $6 million in draws and distributions between May 31, 2011 and May 21, 2012. Starting in January 2012 alone, that partner received the following:

1/3/12:     $391,667,67 – Partner Distribution

1/3/12:       $25,000.00 – Partner Draw

1/11/12:    $250,000.00 – Partner Distribution

2/3/12:       $25,000.00 – Partner Draw

3/1/12:        $25,000.00 – Partner Draw

3/14/12:     $391,666.67 – Partner Distribution

4/4/12:       $264,166.67 – Partner Distribution

4/4/12:         $25,000.00 – Partner Draw

5/21/12:      $264,166.67 – Partner Distribution

5/21/12:       $25,000.00 – Partner Draw

The May 21 payments totaling $289,000 occurred shortly after the firm’s cleaning service had filed its complaint seeking approximately that amount for services rendered through April 30. A week later, Dewey filed for bankruptcy.

Dewey Partner 06512 received distributions of $2.8 million in January 2012 alone, accounting for a big chunk of the more than $6.5 million in draws and distributions that this partner received between May 31, 2011 and May 21, 2012.

Dewey Partner 86059 received $3.4 million in draws and distributions from May 30, 2011 to May 8, 2012, including more than $1 million after January 30, 2012.

Overall, 25 top Dewey partners received $21 million during the final five months of the firm’s existence. During the last seven months of 2011, the same group of 25 had already received another $49 million.

Stated another way, of the $234 million distributed to all partners during the 12 months preceding the firm’s bankruptcy, the top 25 (out of 300) received more than $70 million. Someday, we might learn how much this select group also received from the proceeds of the firm’s $150 million bond offering in April 2010.

Fungible money

Complementing the “Davis-as-sole-villain” narrative, another current theme is that the recently approved partner compensation plan proves that former partners are, in fact, “owning the problem.” That may be true for most of the more than 400 who will return a combined $71 million to the Dewey estate. But consider another set of facts.

Back in May, former Dewey partner Martin Bienenstock had just resigned from the firm when he gave a wide-ranging interview to the Wall Street JournalReporters Jennifer Smith and Ashby Jones asked him whether “it was safe to say that the firm used credit lines to pay partners, at least in part.”

Bienenstock answered: “Look, money is fungible. The $250 million in profits [for 2011] were real profits. Instead of using it to pay partners, a lot of it went to pay other things, like capital that other partners were due, and pension payments to retired LeBoeuf lawyers.”

In the same interview, Bienenstock said that at the end of December 2011 the firm had drawn down $30 million of its $100 million revolving bank credit line. As the firm disintegrated during the first five months of 2012, it tapped another $45 million.

You may be wondering whether any former Dewey partner’s contribution under the recently approved “clawback” plan may be, at least in part, simply returning money that the firm borrowed and then distributed to that partner as the firm collapsed. Perhaps one answer is Bienenstock’s retort that “money is fungible.”

Collateral damage

Another answer is that any time a bankrupt’s liabilities exceed its assets, the shortfall comes from somebody. Those victims wind up “owning the problem,” too. In addition to partners who lost their capital and didn’t receive a fair share of distributions in 2011 and 2012, unsecured creditors became involuntary lenders who will never be repaid in full.

Which takes us back to Dewey’s cleaning service. Even with their outstanding April invoice of $299,000, ABM Janitorial Services apparently kept working into May. According to Dewey’s July 26, 2012 “Schedule of Creditors Holding Unsecured Nonpriority Claims,” ABM’s claim had grown to $346,000 by May 28.

How much will ABM  recover? Dewey & LeBoeuf’s December 31, 2012 “Amended Confirmation Plan Disclosure Statement” predicts that general unsecured debtors will get between a nickel and 15 cents on the dollar.

The saga of Dewey & LeBoeuf isn’t over, but it’s the big law firm story of the year. And it’s a sad one.


This is the fourth of a five-part series profiling Dewey & LeBoeuf’s former leaders. Richard Shutran (Trinity College, B.A., 1974; New York University, J.D., 1978) joined Dewey Ballantine in 1986 and rose to co-chair of the firm’s Corporate Department and Chairman of its Global Finance Practice Group. He left his position on Dewey’s Executive Committee in 2010, but in 2012 became a member of the four-man office of the chairman tasked to save the firm.

The Dewey & LeBoeuf website described Shutran’s transactional practice as “counseling…with respect to leveraged finance and project finance matters, mergers and acquisitions, and restructurings and reorganizations….” That makes him a numbers guy, someone especially well-suited to the challenges facing his firm when it asked him to return to leadership as one of the Gang of Four.

The 2010 bond issuance

Dewey’s 2010 private placement memorandum included Shutran’s biography in its “Senior Management” section. At the time, Bloomberg news reported on the $125 million bond offering for which Shutran said that the bonds’ interest rates were more favorable than the firm’s bank loans. That was true.

As partners were checking out two years later, the Daily Journal reported that Dewey was renegotiating those bank loans: “Richard Shutran, co-chair of Dewey’s corporate department, described the negotiations as standard.” At that point, perhaps they were.

Another “bond” issuance

Meanwhile, the firm was pursuing what fellow Gang of Four member Martin Bienenstock described as “a plan to deal with the shortage of payments to some partners.” In particular, those with guaranteed compensation deals had taken IOUs during earlier years when profits had fallen short of targets. The “plan” was to dedicate six percent of the firm’s income for six or seven years to pay them off, starting in 2014.

In addition to ongoing bank debt, the first wave of 2010 bond payments came due in 2013 and would continue through 2023. Now another debt repayment plan — to a special class of so-called partners — would take another chunk of future partnership earnings from 2014 to 2020.

Funny numbers

At about the same time, Shutran moved to the center of another controversy – also not of his making – relating to his firm’s financial health. He assured a Bloomberg reporter that the departure of Dewey’s elite insurance group “had no impact on our firm’s profitability. That group was break-even at best.” But he also said the firm had earned about $250 million in profits for 2011. The American Lawyer didn’t think that number jibed with what Dewey had provided for the magazine’s annual rankings.

On March 21, 2012, The Wall Street Journal reported The American Lawyer’s retroactive revisions to Dewey & LeBeouf revenue and profits numbers for 2010 and 2011 — by a lot. For example, Dewey’s 2011 average partner profits dropped from $1.8 million to $1.04 million. Shutran suggested methodological differences were to blame:

“‘They’re just not comparable numbers,’ Mr. Shutran said. ‘That’s something people like to pick on.’ Robin Sparkman, the editor-in-chief of the American Lawyer, said Dewey & LeBoeuf’s numbers were given to them by the firm’s management.”

About that bank loan

On April 11, 2012, Dewey identified seven key players essential to the firm’s survival. Shutran wasn’t among them, but he responded to questions about whether the wave of partner defections had triggered bank loan covenants: “It has not had any effect under (the) agreements,” he said. There’s no reason to doubt him.

But the real problem by then wasn’t the bank loans. It was the accumulated amounts owed for annual distributions to partners in excess of the firm’s net income. As Bruce MacEwen’s analysis suggests, whether it’s called mortgaging the future or something worse, the result is the same.

Something went terribly awry at Dewey & LeBoeuf, but here’s the scary part: among big law firms, some of the things that created Dewey’s predicament aren’t unique.


This is the first in a series profiling Dewey & LeBoeuf’s former leaders. Morton Pierce (Yale University, B.A., 1970; University of Pennsylvania, J.D., 1974) is an appropriate place to begin because on May 3, 2012, he told The Wall Street Journal that he hadn’t been actively involved in Dewey’s management for years and had stepped down from the firm’s Executive Committee in 2010.

Pierce is widely acclaimed as one of the country’s top mergers and acquisitions attorneys. He was chairman of Dewey Ballantine when its attempt to merge with Orrick, Herrington & Sutcliffe failed in 2007.

A partnership within a partnership

Pierce was a principal architect of Dewey Ballantine’s merger with LeBoeuf Lamb. Based on Bruce MacEwen’s analysis of the financial data, Dewey got the better end of that deal. As for Pierce himself, The Wall Street Journal reports that he “had negotiated a pay package that guaranteed him $6 million a year for six years, according to a person with direct knowledge of the arrangement.” The subject of my next post, Martin Bienenstock, said that there were many such deals to lock up talent for at least four years after the merger.

Early in 2010 — the year Pierce says he left the firm’s Executive Committee — Dewey mortgaged its future with a $125 million bond offering (repayment due from 2013 to 2023). In 2011, the sixty-two-year-old Pierce negotiated a new deal for himself. The Journal continues: “[H]e secured a new, eight-year contract that would pay him $8 million for several years and wind down to $6 million in later years, that person said.”

Dewey’s next gambit: IOUs to the oxymoronic group — guaranteed compensation partners — when the firm didn’t earn enough current income to pay them in full. Committing future profits to make up for prior periods of missed earnings is, at best, a dubious strategy. At worst, it transforms a partnership into something that looks like a Ponzi scheme. It’s difficult to envision an attorney recommending the idea to a client.

A firm leader?

Pierce’s effort to distance himself from management is interesting. He’s featured prominently as part of the firm’s “Executive Office” in the 2010 Private Placement Memorandum for its bonds. Two years later, an April 11 2012 article identified Pierce as “one of seven key lawyers” who determined Dewey’s fate.

Until the day he left in May 2012, the firm’s website still introduced his biographical page as follows:  “Morton Pierce is a Vice Chair of Dewey & LeBoeuf and co-chair of the Mergers and Acquisitions Practice Group. He is also a member of the firm’s global Executive Committee.”

Not my job

From a self-proclaimed distance, Pierce described Dewey’s leaders in the third person. When asked about an April 2012 meeting at which senior partners supposedly recommitted themselves to the firm and its survival, Pierce’s only comment was: “There was a meeting and I was there.”

Three weeks later, he told the Journal, “I think the executive committee did the best job that they could under the circumstances.” That article continued, “Mr. Pierce didn’t assign blame for the firm’s current situation.”

Pierce told the NY Times, “I am sorry about what happened”  — as if some external event or rogue actor was responsible.

The nature of leadership

Even so, Pierce kept his sense of gallows humor while packing up for White & Case. Describing how he’d like to merge all of the wonderful firms that had expressed interest in taking him as Dewey imploded, he told The Wall Street Journal on May 3: “Although looking at the Dewey & LeBoeuf merger, maybe mergers aren’t such a good idea.”

I suspect that most of the 2,000 Dewey lawyers and staffers who once worked at the firm don’t think Pierce has much of a future in comedy. He didn’t mention his other non-joke: that his resignation letter reportedly claimed that the firm owed him $61 million.

If the Dewey spin machine and website description were accurate, Pierce remained at the center of power until the moment he resigned from the firm. If, as he claims, he wasn’t involved in management after 2010, that’s worse. The notion that someone of Pierce’s professional stature would remain on the sidelines as his firm pursued misguided strategies and then would watch it spin into oblivion is stunning.

Senior partners in big firms often complain about young lawyers’ unwillingness to take responsibility for mistakes and their consequences. Perhaps some of the profession’s so-called leaders could set a better example.