Stuart Saft
By the time Dewey & LeBoeuf filed for bankruptcy late last month, nearly every attorney from its once-formidable real estate practice had jumped to a new firm. In doing so, they scattered its roster of impressive clients, irrevocably altering New York City’s legal landscape.
Stuart Saft, the former chair of Dewey’s global real estate practice and an icon in the world of New York real estate, led the exodus. In late April, he decamped for Holland & Knight along with seven Dewey associates, three paralegals and two legal secretaries.
Early last month, a six-person team, including Dewey partners Peter Britell, Gordon Davis and Suzanne St. Pierre, joined the Washington-based law firm Venable, more than doubling that firm’s New York real estate office. A week later, New York–based Schulte Roth & Zabel snagged a 10-person team of private equity and real estate lawyers, including partners Joseph Smith and Marshall Brozost.
The departed real estate lawyers are among hundreds of Dewey staffers who’ve found new jobs since a rescue deal with top law firm Greenberg Traurig fell apart in late April. Dewey — created five years ago by a merger between Dewey Ballantine and LeBoeuf, Lamb, Greene & MacRae — at its peak employed more than 2,500 people, including roughly 1,400 lawyers around the world.
In the largest law firm collapse in United States history, Dewey has effectively shut down its 1301 Avenue of the Americas headquarters and announced plans to liquidate. The firm is also currently under investigation by the Manhattan District Attorney’s office for alleged financial irregularities reported by a group of partners.
The firm’s dissolution has profoundly impacted the landscape of real estate law in the city and beyond. Rival law firms in the U.S. and abroad have plucked lawyers and sometimes whole divisions from Dewey. For example, Greenberg Traurig picked up Dewey’s 50-attorney Poland office. In New York, Dewey board member and bankruptcy lawyer Martin Bienenstock went to Proskauer Rose, taking five partners with him. The firm later added Ralph Ferrara, a vice chairman at Dewey and former general counsel of the U.S. Securities and Exchange Commission, along with three of his partners.
At the beginning of this year, Dewey had 56 real estate lawyers globally and 28 in New York. At this point, nearly all of them have landed at other firms, taking their clients with them. Sources said all the firms hiring from Dewey are looking for one thing: to establish a foothold in the New York real estate business in anticipation of the economic recovery gaining full steam.
Saft, for example, is “one of the preeminent real estate practitioners in New York,” said Martin Miner, who leads Holland & Knight’s New York real estate practice. “We think having Stuart gives us the opportunity to expand the scope of services we add out of New York.”
The unraveling
According to multiple legal sources, the seeds for the megafirm’s demise were sewn by the historic merger that created Dewey LeBoeuf.
It all started in 2006, when Manhattan-based Dewey Ballantine, a prestigious but financially troubled law firm in the investment banking sector, announced plans to merge with San Francisco–based Orrick, Herrington & Sutcliffe.
Dewey Ballantine had grown over the years into one of the country’s top mergers and acquisitions firms. But when its merger with Orrick fell through, the firm faced plummeting profits and considerable debt. So the firm’s leadership was receptive when approached by LeBoeuf, Lamb — a firm widely regarded as financially sound but lacking Dewey Ballantine’s prestige.
Once merged, the newly anointed Dewey & LeBoeuf embarked on a now-notorious strategy of luring new partners with seven-figure, guaranteed contracts, on the theory that these well-compensated rainmakers would generate a windfall of new business.
Among the high-profile new hires was Saft, then-chair of the real estate practice at Wolf Haldenstein. (Saft denies receiving a guaranteed salary at Dewey, though several of his colleagues at Wolf Haldenstein say they were offered guaranteed money to come with him.)
Snagging Saft was considered a major coup for Dewey. Viewed as one of the top offering plan lawyers in the city, Saft has represented some of the highest-profile real estate projects in New York, including the condo conversions of the Upper West Side’s Apthorp, Manhattan House at 200 East 63rd Street and the Sheffield near Columbus Circle. LeBoeuf, Lamb had a long history of handling real estate deals in the nonprofit and health-care arenas, but Saft’s practice broadened its scope.
According to sources inside Dewey, up to 100 partners were given guaranteed deals — some of up to $6 million, annually — at a time when other partners were paid only $300,000 to $450,000. The results of that arrangement are now being etched in the history books: As the press has widely reported, that strategy backfired when the capital markets seized up in 2008. As the high transaction volume that attorneys were used to during the boom began to dry up and clients began to balk at Dewey & LeBoeuf’s high legal fees, the firm struggled to turn a profit.
“Once the world fell apart economically, it never had a chance,” said Davis, who spent more than 13 years at LeBoeuf, Lamb before the merger. A specialist in land-use and environmental law and nonprofits, Davis’s clients include Mt. Sinai Medical Center, which he represented in a 2008 deal to sell air rights to Durst Fetner for its residential tower at 1212 Fifth Avenue.
Davis said at Dewey, a select group of favored partners were included in decision-making, while others were left to swim against the tide.
“If you have a [compensation] range of 15 to 1 between the top partners and everyone else, it’s a recipe for disaster,” he said.
Jeff Schwartz, a partner at Wolf Haldenstein, said he declined a guaranteed-pay offer from Dewey several years ago because such setups tend to “create an ‘us-against-them’ kind of mentality.”
What started out as a mentality is now playing out in the courts. Not only have civil actions been filed by federal regulators claiming Dewey underfunded its pension by $80 million, but a former employee has alleged that the firm failed to warn staffers about the pending closure.
According to documents obtained by The Real Deal, when Dewey filed for bankruptcy, it owed $225 million to secured lenders, $50 million to landlords at its office buildings and $40 million to vendors. At the same time, the firm was owed some $255 million in expected payments from its clients.
Former Dewey & LeBoeuf attorneys now at Venable. From left: Susan Golden, Peter Britell, Gordon Davis and Suzanne St. Pierre
The real estate group
As reports of the firm’s financial and personnel woes surfaced, Saft portrayed Dewey’s real estate group as largely insulated from these troubles.
“None of the real estate partners are involved, none of the disaffected partners are real estate partners and none of the disaffected partners nor their staffs ever performed any work for the real estate department’s clients,” Saft wrote in an e-mail to clients obtained by The Real Deal in March.
But behind the scenes, sources said, Saft had been complaining for months about delinquent payments from his real estate clients, many of whom were hit hard by the 2008 financial collapse.
In many ways, the real estate practice was among the most directly impacted by the economic downturn, with new condo development nearly shutting down and existing megaprojects, like the Apthorp and Manhattan House, struggling to find buyers.
Saft attributed the firm’s problems to the economy, and said other law firms are likely to face a similar fate.
“What happened at Dewey was very symbolic of things that happened across the country,” he said.
But sources say another obstacle for Dewey’s real estate practice was its high fees. (Saft, for example, told The Real Deal in April that his standard rate is $925 an hour.)
In the current economic climate, many real estate clients are willing to forgo a fancy law firm in order to save money, attorneys said. More and more clients are shopping for the lowest possible rates, and are willing to walk if they can find a firm they like in the boroughs or even Long Island to represent them.
In a sign that even major companies are rethinking costs, one partner at a boutique Manhattan real estate firm said at least two Fortune 500 companies have contacted them seeking representation.
“We think it’s symptomatic of what’s plaguing the big firms,” said the attorney, who asked not to be identified.
Another boutique law firm, Heiberger & Associates, which specializes in landlord-tenant cases, is also seeing an increase in business from landlords and commercial tenants looking to reduce overhead. The firm generally charges no more than $300 an hour.
“I think people are very open to switching,” said Jamie Heiberger-Jacobsen, founder and president of Heiberger & Associates. “I’ve picked up accounts that I wouldn’t have even thought of approaching years ago.”
As a result of these problems, Dewey’s real estate partners have been looking to jump ship for months, sources said.
Most of Dewey’s real estate alums are viewed as good lawyers with a lot of “portable business,” and as a result have found work quickly, said one of the city’s top legal headhunters.
Jeff Lenobel, partner and chair of the Schulte Roth real estate practice, said bringing on Dewey alums was a natural fit.
Much like “when you meet a girl for the first time,” he said, “you know whether this is going to work.”
Davis said when it came to switching firms, “for our particular group we found a lot of choices.” The group was considering joining Saft at Holland & Knight, he said, but ultimately chose Venable instead.
Dewey partners may not be having trouble finding jobs, but the firm’s dissolution has unleashed hundreds of junior lawyers and support staff into a still-shaky job market. And Dewey’s disintegration has likely made it harder for other real estate lawyers to find work — even as the economy begins to improve, sources said.
“Clearly the market for real estate lawyers is picking up, but it’s nowhere near where it used to be,” the headhunter said.
Dewey’s collapse is also raising concerns among attorneys and other industry executives about whether other New York law firms are exposed to the same types of problems, which could worsen if the economy fails to turn around in the near term.
“My guess is that every large firm right now is looking at their operations in light of what’s happened to Dewey,” said Saft.
If nothing else, Dewey’s fate has served as a warning.
Attorney Alan Waldenberg, chair of the tax group at Schulte Roth & Zabel, said he was taken aback that such a successful law firm could unravel in such a short period of time.
“It’s tragic,” he said, adding that Dewey was “a great law firm, a great institution that had a thriving business.”