During the last quarter of 2012, Ruden, the former large Florida law firm, confirmed its liquidating chapter 11 plan (and the first sale of a law firm’s assets as going concern through Chapter 11 in the history of the United States). At about the same time, the bankruptcy judge overseeing Dewey’s bankruptcy approved a $71.5 million settlement between the estate of and its former partners. This settlement appears to be a significant step forward in moving the Dewey chapter 11 case in a positive direction.
Ruden and Dewey have both ended up in the same place-bankruptcy court–through alternative paths marked by stark differences. But the paths they have taken in advance of, and once in, bankruptcy have been marked by a divergence in both theory and practice. By many accounts, Ruden’s experience has been significantly less acrimonious than Dewey’s. Indeed, most of Ruden’s employees were able to secure jobs going forward with the firm’s buyer, another Florida firm, Greenspoon Marder, making the difficult situation a little easier. Most importantly, Ruden’s clients had an almost seamless transition to a new firm if they so desired.
Dewey, on the other hand, left hundreds of lawyers and support staff scrambling to find work. The Dewey chapter 11 case has spawned litigation against partners and required former partners to return prior compensation. The expectation is that Dewey’s bankruptcy will be protracted and perhaps perilous for former partners.
Most attorneys who represent corporate debtors understand the “delay and pray” approach to financial distress (although they rarely counsel such an approach). In most instances, last minute financing or angel investors do not materialize and even when such life lines are available, they rarely result in more than a superficial blissful delay of the inevitable. As opposed to delay, Ruden proactively charted a path, one that had never been tried before, and found a way to save significant value for its creditors, employees and clients. Ruden is a bankruptcy success story and indeed may provide a model for struggling professional services businesses to address increasingly difficult economic headwinds.
The last chapters of the Dewey saga are still to be written, but bankruptcy and dissolution appears by all accounts to have been foisted upon the firm, not planned in advance.
Dewey’s reputation in the legal community carried it along through generations of success. Many fine lawyers walked the halls of Dewey, and hundreds of wonderful employees helped to provide top-notch legal services for years. Because of the great success enjoyed by Dewey, the “fall” has been that much more tragic. While Dewey and Ruden are both examples of law firm bankruptcy cases, the lesson to be learned for business people of all walks is plain: don’t wait. Be proactive and do not be afraid to try something novel.
*Full Disclosure: Our firm represented Ruden McClosky in the discussed matter. However, the authors were not involved in the case.