Merger talks between New York's Pennie & Edmonds and the West Coast's Cooley Godward have collapsed after the two firms came to blows over accounting differences
Talks between the two firms were already beginning to unravel two weeks ago because of integration issues after a group of heavyweight partners at Pennie's New York office spoke out about a tie-up. It is understood that both firms refused to compromise over the treatment of accounts receivable. At Pennie, partners who have left the firm are entitled to income from work they completed towards the end of their time at the practice. This means that income is deferred over a period, which the retired partner will then receive anytime between two to five years. The accounts receivable is used to fund the running of the firm because Pennie's capital pool - the partners initial equity investment - is relatively small. The system is at odds with the one at Cooley, and it is understood that the firm was worried that Pennie's treatment of accounts receivable would leave the merged firm liable to pay out large amounts of money to former partners. As a remedy, it is believed that Cooley asked Pennie to contribute all of its earnings to the merged firm over a number of months and to pay its own partners and fund the Pennie practice out of its own deferred accounts receivable. But the condition was vetoed by Pennie partners, causing the already fragile talks to founder.