By Jennifer Smith and Ashby Jones
Twelve partners are leaving a New York law firm, Dewey & LeBoeuf LLP in the largest group defection yet from the firm troubled by internal disputes about compensation.
The partners are to join the insurance practice at Willkie Farr & Gallagher LLP, according to a spokesman for Dewey & LeBoeuf.
The group move, which could also include a number of junior attorneys who work for the partners, strikes at the heart of its insurance practice, long regarded one of the best in the U.S.
At least 18 partners have left Dewey & LeBoeuf LLP since January, including two this week, fueling speculation in the legal community about the firm’s financial condition. The firm was created in 2007, the result of a high-profile merger between two old-line New York firms.
“We are disappointed to see these partners leave the firm — they have been long-term colleagues and successful practitioners in the insurance sector for many years,” said firm chairman Stephen Davis in an internal memorandum obtained by the Wall Street Journal . “We recognize the emotional impact that these departures will have on our partnership and colleagues.”
However, Mr. Davis said the departures would “not have an adverse financial impact on the firm.”
The group headed to Willkie Farr includes a few lawyers that ex-partners said were key rainmakers at the firm .
Among those departing: Alexander Dye, Michael Groll, John Schwolsky, and Robert Rachofsky. “Our team is very excited by the opportunity to join Willkie,” said Mr. Dye, in a statement. We see terrific synergies with the firm’s world-class private equity, M&A and asset management practices, as well as its long-established and substantial insurance practice.”
Mr. Groll declined to comment and Mr. Schwolsky did not immediately return calls seeking comment. Mr. Rachofsky declined to comment.
The latest departures will cost Dewey a total of $ 22 million in 2012, according to the memo. Earlier this month the firm reported 2011 revenue of $ 935 million—a 2.8% increase from the prior year—and a slight uptick in profits. It also announced layoffs.
Dewey & LeBoeuf made its 2007 debut at a particularly challenging time. The economic downturn of 2008 slowed profit and revenue growth across the global legal-services market. Many firms laid off associates and trimmed their partners ranks.
Still, after the merger, the 1,100-lawyer firm began aggressively recruiting seasoned lawyers with big books of business. Last year the firm took on 37 new partners, and lost 14, according a spokesman at the law firm, which has approximately 300 partners in total.
To lure and keep their biggest earners, Dewey & LeBoeuf management struck payment agreements with dozens of partners in the years since the merger took place, according to interviews with former partners.
The agreements said partners would get a certain amount of money each year—a fixed amount, instead of a certain percentage of firm profits, they said.
When profits failed to meet expectations, money to meet the guarantees came out of compensation other partners had been promised, according to ex-partners and a partner at the firm, who said Dewey & LeBoeuf has been issuing the equivalent of IOUs to some partners for years. Last year, even partners with preferential agreements didn’t receive all the money they were owed, according to those lawyers.
“For years you had the haves and have-nots,” a partner said, earlier this week. “What’s happening now, is the haves are not getting paid.”
The firm is also saddled with a significant amount of debt. Ex-partners estimate Dewey & LeBoeuf owes about $ 250 million, between a bond issue it floated in 2010 and another $ 100 million in revolving lines of credits with a number of banks. Mr. Davis has said the firm isn’t in default on its loans and has the same aggregate debt it had at the time of the firm’s foundation.
Willkie co-chairman Thomas M. Cerabino, in a statement, said the new partners were “among the most elite practitioners in their field and will add greatly to our capabilities in their areas of expertise.”