Brobeck in advanced merger talks with Morgan Lewis

Brobeck Phleger & Harrison is set to enter due diligence with its new potential merger partner Morgan Lewis & Bockius after reaching a resolution on Brobeck's wide-ranging liability problems

Sources close to both firms said they reached an agreement on putting in place a structure to manage Brobeck's liabilities, which include thousands of square feet of unused real estate.

Brobeck is believed to have entered talks with Morgan Lewis in earnest after merger negotiations with Washington DC's Hogan & Hartson fell through over a week ago due to client conflicts.

However, there have been concerns that Brobeck's commercial property burden would act as a stumbling block to any merger talks.

It has since emerged that Brobeck had the opportunity to sublet some leases to Clifford Chance in July, when the UK firm took on a raft of partners from Brobeck, led by former chairman Tower Snow.

It is understood that Clifford Chance offered Brobeck around $15m (£9.6m) to sublet over 100,000 sq ft of space. This included five-year leases on Brobeck's San Francisco and Los Angeles offices, a three-year lease on its San Diego site and the remaining year at the firm's Palo Alto branch at Geng Road.

A Brobeck spokeswoman confirmed that there had been discussions about subletting space to its former partners, but she said: “There were all kinds of conditions attached to the agreement which were impossible to meet.”

A tie-up between Brobeck and Morgan Lewis would create a US giant with 500 lawyers based on the West Coast and 900 split throughout New York, Philadelphia and DC.

Commenting on the potential merger, one source said: “People forget that Brobeck has some very good lawyers and still has a very loyal client base, which is hugely attractive.”

Both Brobeck and Morgan Lewis declined to comment on “merger rumours”.