Now this is more like it. The ABA goes beyond the obvious soundbite and actually digs a little, exposing some of the root causes of Brobeck’s failure. Turns out the firm borrowed heavily to finance the debt – the article not-so-subtly lays this decision at Tower Snow’s feet – and couldn’t make its quarterly partner distributions this month in order to afford the $26m debt payment due to Citibank.
The more interesting question raised by the article is what happens to the partnership in the wake of the dissolution:
David M. Neff, a partner at Piper Rudnick in Chicago who represents Peterson Ross, says any Brobeck bankruptcy could be legally significant. It would likely help define the extent to which partners in a limited liability partnership are protected from personal liability for firm debts. (See “Partners at Risk,” August 2002 ABA Journal.)
“What I can tell you is that in any bankruptcy case, they will face challenges,” Neff says of Brobeck lawyers. “It will test the LLP structure. We expected Arthur Andersen to be the big test case. It looks like it will be Brobeck instead.”
And what of Citibank? This is the bank, after all, that has a private banking group just for law firms and counts more than 500 law firms and 35,000 lawyers as clients. $90m in debt for one client is a lot to bear. And how many other firms do you think they let finance their way to growth?
P.S. – The article also mentions two more dissolutions in the past week: Skjerven Morrill (IP boutique in the Bay Area) and Peterson Ross (Chicago insurance firm). Is anyone doing a law firm dead pool?