Brobeck’s Inferno: Remaining Attorneys Tell Tale of Woe

If it’s Wednesday, we must be in hell. That’s what was running through the minds of some of the hundreds of lawyers and support staff at the San Francisco headquarters of failed law firm Brobeck, Phleger & Harrison. “I don’t think I’ll be here much longer,” one attorney told Private Equity Week in hushed tones on his phone. “Rumor has it that they’re letting 130 attorneys go today.” Asked how he’s getting any work done in that climate, he replied: “Work? I’m packing boxes.”

Once one of the largest and most profitable technology law firms, Brobeck announced on Jan. 30 that it was winding down. At its height during the dot-com boom, the firm employed more than 1,500 people, including about 900 attorneys. As of last Wednesday, its roster of attorneys was just over 500.

The dissolution of the 77-year-old firm has been anything but orderly, raising questions for the firm’s clients, which include venture firms Kleiner, Perkins, Caulfield and Byers; Lightspeed Venture Partners; Sierra Ventures, VantagePoint Venture Partners and others. Brobeck has been one of the most active firms in the venture capital world, doing deals for more than 400 venture-backed companies per year for the last three years, placing it on a par with Palo Alto, Calif.-based Wilson, Sonsini, Goodrich & Rosati in the world of tech startups.

One has to wonder if this is what the folks at Citigroup had in mind when they announced that they were seizing the assets of the firm in lieu of the $90 million Brobeck owes to the bank. Ostensibly, Citigroup hoped to recoup some of those funds from the receivables – billings of the firm’s hundreds of lawyers that are due to Brobeck. But if there was any intent of continuing an orderly wind down of Brobeck’s operations, Citigroup should have given more consideration to the impact its announcement would have on the firm’s employees.

No one could be reached at Citigroup by press time.

Maybe Citigroup thought that it would inherit a stable core of the business, allowing a kind or orderly, lets-collect-these-debts kind of transition. Maybe it figured it would wind up with a reduced operation of essential business by leaders of key practice groups. After all word had spread around the firm, in the form of e-mails of self-congratulation, from the group negotiating through a thicket of tough issues, that Brobeck would in fact make it. The toughest issue, negotiating limits or reducing the personal liability of the firm’s partners with landlords and other leaseholders, was recently completed. Negotiations for the acquisition of the firm by Morgan Lewis & Bockius (ML&B) were making progress and those talks were ongoing in Brobeck’s San Francisco office, as of last Wednesday, Feb 6.

Many media accounts of the Brobeck’s struggles incorporate comments to the effect that there was shock amongst the firm’s employees about the suddenness of the announcement. The truth is that employees were giving the firm a two out of three chance of survival weeks ago. Specifically mentioned were equally weighted paths for the firm of dissolution, sale or a continued struggle to survive. Most employees, for example, had long since heard the story of how Steven Zager, the rainmaker whose departure is said to have prompted Citigroup’s foreclosure, had a moving van remove his personal art and furniture over a weekend.

The firm announced its first post-dissolution layoff on Feb. 4, telling about 80 support staffers across the country that they should turn in their badges and pick up their final paychecks via phone messages. With those calls, the last semblance of an orderly transition through the quiet filing of a dissolution of the business with the state of California had passed. Not that it has been business as usual at Brobeck over the last two months. Not with doors along the firm’s hallways constantly closed, resumes coming off printers and small groups of attorneys clustered in intense conversation.

“Certain partners are continuing to work, remarkably, between all of the shit that is going on,” says one attorney in the One Market office. But they’re starting to look like the violin players on the Titanic. “FedEx cut us off yesterday, the supply of paper is dwindling, and everyone who is non-essential is feeling exposed,” says an attorney who has bee with the firm for a decade. “Everyone is in a mad scramble to burn copies of their files to CD.” One of the largest law firms in the nation is quickly dissolving into a free-for-all.

The remaining partners have an interest in recovering as much as possible of the firm’s receivables, by way of lessening their liabilities. But at the same time, as the magnitude of the disaster taking place is made known, some clients are “likely to say: F-you to Citi,'” one Brobeck attorney says. “Why should I pay CitiBank?” Many of the firm’s senior people, meanwhile, are behind closed doors doing interviews with potential new employers and making no pretense about doing so.

Insiders say that many partners are working on deals to find homes for their practice groups. ML&B, for example, is still showing interest in acquiring Brobeck’s Business & Technology Practice, Commerce & Finance Practice and individual attorneys. “But, it won’t happen,” predicts one departing attorney. “It’s more likely that [ML&B] will take one person here or two from another practice.”

Most of the people at the firm today are packing boxes, cleaning files and having conversations with colleagues. “There is a sense that most of us will be gone long before the last day of business on Feb. 28,” says an insider. The biggest problem many of the staff members now face is the limit on the firm’s shredding capacity. “We have to clean out our files, and you can’t just throw them out: There are confidential materials there and we don’t have industrial shredders,” the insider says. “Guys are throwing away back-up from 20 years of work.”

One supplier has not cut off the firm: the company that hosts the firm’s Web site. The site isn’t exactly up to date, though. Brobeck’s home page still advertises that Fortune magazine named Brobeck “one of America’s 100 best companies to work for.” The thousand venture-backed companies that have worked with the firm will, no doubt, be haunted by the tagline on a presentation in the venture financing section of the site. It reads: “Brobeck. When your future is at stake.”

Email Jerry Borrell