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UC Law Business Journal

Abstract

“Partner runs”—mass, near-instantaneous departures of partners from distressed law firms—are a distinctive feature of the American legal profession, produced by an interaction of legal ethics rules, partnership governance, and bankruptcy law. A partner run means that even large and profitable law firms can abruptly liquidate. Given this fragility, it is urgent to learn: do partner runs and the governance law that enables them impose lasting harm on the legal profession by permanently damaging the careers of the lawyers caught in them?

This Article provides the first comprehensive empirical examination of this issue using the 2012 bankruptcy of Dewey & LeBoeuf, the largest law firm failure in American history. Using hand-collected data from professional directories and news reports of the career outcomes of Dewey’s lawyers and similarly situated lawyers at Dewey’s principal competitors (1,575 lawyers total), I show the impact of the partner run in both the short and long run.

Immediately after the firm crumbled, about 80% of Dewey’s partners remained in Biglaw as partners or counsel, while about half of Dewey’s associates remained Biglaw associates. These Dewey associates who remained in Biglaw were mostly cluster-hired alongside their practice group, and are more likely to be (1) men and (2) Biglaw partners in 2022. However, the overall distribution of 2022 employment, especially for ex-Dewey associates, is quite similar between alumni of Dewey and its rivals. I therefore find little evidence for stigma against (non-core management) Dewey lawyers or long-term damage from dissolution of firm-specific relational capital in the labor market. For lawyers who were likely to have stayed in Biglaw anyway, the firm essentially reconstitutes itself in a diaspora across Biglaw.

Posthumous persistence of relational capital at the sub-firm level of the practice area therefore limits the long-run cost of partner runs to the legal profession at an institutional level, at least in times when the legal job market is somewhat liquid. Policymakers and state supreme courts should be cautious in modifying the rules that inadvertently generate partner runs, like the requirement of lawyer ownership of law firms, if such changes would also generate controversial results like the mass intrusion of private equity to the legal profession. These law firm houses of cards, it seems, can regenerate elsewhere.

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