Could Mudge Rose have been rescued?
17 October 1995
WITH less than three months to go until the doors slam shut on yet another US law firm, the New York legal market has again become flush with attorneys looking for new professional homes.
In the weeks surrounding its 2 October dissolution decision 126-year-old Mudge Rose Guthrie Alexander & Ferdon released almost 200 lawyers onto the market, many of them long-serving partners.
Set to follow the same route as lawyers from defunct New York firms Lord Day & Lord, Barrett Smith and Shea & Gould - both of which closed last year - Mudge attorneys are now selling both entire practice groups and individual services.
A number have already been signed by Latham & Watkins, King & Spalding, Winthrop Stimson Putnam & Roberts, Coudert Brothers and Thacher, Proffitt & Wood, while others are either involved in discussions, retiring, or taking time out before the firm shuts down at the end of the year.
But while the Mudge liquidation committee assesses the damage, weighing assets up against debts, outsiders are left wondering what went wrong.
What is known is that recent years have seen a series of attorney defections, the loss of a major client and a downturn in Mudge's key municipal bonds practice. But there is much more to the tale.
Insiders tell of bruised egos, dissatisfaction with some of the practice's high-profile signings, and an increasing number of clashes among partners over the future of the firm.
One partner said the first blow was delivered when the former Governor for New Jersey James Florio was brought on board, along with political lobbyist Leonard Garment, former counsel to ex-Mudge partner President Richard Nixon, and Bush camp trade representative Carla Hills.
"The approach was to try to expand the practice by bringing in people with political reputations," said the partner. "Unfortunately, they were not proven producers of revenue."
Just after Florio started one of the firm's biggest clients, Cigna Corporation, moved to O'Melveny & Myers. As part of the deal the firm took on 28 of Mudge's partners and associates to handle the case - but not Florio. Cigna's contract with Mudge was rumoured to be worth $15 million.
Running tandem to the Cigna defection was the Federal Reserve Board's move to cut interest rates. This brought about the decline of the market for new municipal bonds issues and the decline of a significant Mudge practice area.
In the wake of Mudge's death the executive committee has been criticised for failing to take action to reduce expenses at this crunch time.
"There were disappointing profits, certain people failed to take steps to reduce expenses, and that started a series of defections," said the partner.
"Management was again prodded to take drastic action to reduce expenditure in 1995. They achieved considerable success, but it came too late."
Among the last-ditch rescue measures attempted by the firm were merger talks with Coudert Brothers, Kelley Drye & Warren and the New York office of Graham & James. In September Mudge was still hoping to save itself through a link with Squire Sanders & Dempsey.
But it was former executive committee chair John Kirby, replaced as leader by Donald Zoeller little over a month ago, who was to deliver Mudge its final body blow.
On 29 September, days before members voted to shut down, Kirby quit for Californian giant Latham & Watkins.
With him went 12 partners and 19 associates, including white collar defence specialist Kenneth Conboy, who was reported to have sided with Kirby's view that Mudge should split and market itself in pieces.
Big-name litigator James Kearney joined the defectors, ending any chance of selling the litigation team as a whole, and Mudge's Tokyo partners Takashi Matsumoto and Tomoaki Kenaga were recruited to build a Japanese practice for Latham. The future of Mudge's Paris office is still unclear, although it is rumoured to be speaking to Couderts.
Name partner Robert Ferdon has also moved out, amid speculation he will join O'Melveny, Zoeller is expected to retire, and Malcolm Schade, brought in to replace Zoeller as executive partner when Kirby was ousted from his chairmanship, has started at Thacher, Proffitt & Wood. He remains on Mudge's liquidation committee.
"The decision to dissolve was taken in the light of a number of developments including both the collapse of merger negotiations and withdrawals from the firm of large numbers of partners and their clients to an extent which convinced the remaining partners that it was not feasible to continue an operation beyond the end of the year," said Schade.
"Too many partners apparently concluded that the prior management of the firm was not pursuing policies which were in the best interests of the majority of the partners and likely to reduce the downward trend in revenue and profits which began at the beginning of last year.
"We are now engaged in attempting to arrange our affairs so that we can minimise the disruption and harm to employees and clients and so that creditors will be paid.
"It's probable that the firm's assets, including accounts receivable and unbilled time, will be sufficient to meet all debts."