NYT: A Lawyer and Partner, and Also Bankrupt

By James B. Stewart

Anyone who wonders why law school applications are plunging and there’s
widespread malaise in many big law firms might consider the case of Gregory M.
Owens.

The silver-haired, distinguished-looking Mr. Owens would seem the
embodiment of a successful Wall Street lawyer. A graduate of Denison University
and Vanderbilt Law School, Mr. Owens moved to New York City and was named a
partner at the then old-line law firm of Dewey, Ballantine, Bushby, Palmer &
Wood, and after a merger, at Dewey & LeBoeuf.

Today, Mr. Owens, 55, is a partner at an even more eminent global law firm,
White & Case. A partnership there or any of the major firms collectively known as
“Big Law” was long regarded as the brass ring of the profession, a virtual
guarantee of lifelong prosperity and job security.

But on New Year’s Eve, Mr. Owens filed for personal bankruptcy.

According to his petition, he had $400 in his checking account and $400 in
savings. He lives in a rental apartment at 151st Street and Broadway. He owns
clothing he estimated was worth $900 and his only jewelry is a Concord watch,
which he described as “broken.”

Mr. Owens is an extreme but vivid illustration of the economic factors roiling
the legal profession, although his straits are in some ways unique to his personal
situation.

The bulk of his potential liabilities stem from claims related to the collapse of
Dewey & LeBoeuf, which filed for bankruptcy protection in 2012. Even stripping
those away, his financial circumstances seem dire. Legal fees from a divorce
depleted his savings and resulted in a settlement under which he pays his former
wife a steep $10,517 a month in alimony and support for their 11-year-old son.

But in other ways, Mr. Owens’s situation is all too emblematic of pressures
facing many partners at big law firms. After Dewey & LeBoeuf collapsed, Mr.
Owens seemingly landed on his feet as a partner at White & Case. But he was a full
equity partner at Dewey, Ballantine and Dewey & LeBoeuf. At White & Case, he
was demoted to nonequity or “service” partner — a practice now so widespread it
has a name, “de-equitization.”

Nonequity partners like Mr. Owens are not really partners, but employees,
since they do not share the risks and rewards of the firm’s practice. Service
partners typically have no clients they can claim as their own and depend on
rainmakers to feed them. In Mr. Owens’s case, his mentor and protector has long
been Morton A. Pierce, a noted mergers and acquisitions specialist and prodigious
rainmaker whom Mr. Owens followed from the former Reid & Priest to Dewey,
Ballantine to Dewey & LeBoeuf and then to White & Case.

“It’s sad to hear about this fellow, but he’s not alone in being in jeopardy,”
said Thomas S. Clay, an expert on law firm management and a principal at the
consulting firm Altman Weil, which advises many large law firms. “For the past 40
years, you could just be a partner in a firm, do good work, coast, keep your nose
clean, and you’d have a very nice career. That’s gone.”

Mr. Clay noted that there was a looming glut of service partners at major
firms. At the end of 2012, he said, 84 percent of the largest 200 law firms, as
ranked by the trade publication American Lawyer, had a class of nonequity or
service partners, 20 percent more than in 2000. And the number of nonequity
partners has swelled because firms have been reluctant to confront the reality that,
in many cases, “they’re not economically viable,” Mr. Clay said.

Scott A. Westfahl, professor of practice and director of executive education at
Harvard Law School, agreed that service partners faced mounting pressures.
“Service partners need a deep expertise that’s hard to find anywhere else,” he said.
“Even then, when demand changes, and your specialty is no longer hot, you’re in
trouble. There’s no job security.” He added that even full equity partners were
feeling similar pressures as clients demanded more accountability. “Partners are
being de-equitized,” he said, as Mr. Owens was. “That’s a trend.”

Mr. Owens specializes in financing and debt structuring in mergers and
acquisitions, a relatively narrow expertise where demand rises and falls with the
volume of merger and acquisition deals that his mentors generate. Former
colleagues (none of whom would speak for attribution) uniformly described him as
a highly competent lawyer in his specialty and, as several put it, “a lovely person”
who relishes spending time with his son. But he does not seem to be the kind of
alpha male — or female — who can generate revenue, bring in clients and are
generally prized by large law firms.

At Dewey & LeBoeuf, Mr. Owens’s name was perennially among a group of
partners who were not making enough revenue to cover their salaries and
overhead, according to two former partners at the firm. But each time, the
powerful Mr. Pierce, then the firm’s vice chairman, protected Mr. Owens, they
said.

“He was very good at what he knew,” a former Dewey & LeBoeuf partner said.
“But he wasn’t built to adapt. To make it as a law firm partner today, you have to
periodically reinvent yourself.”

As partners were leaving Dewey & LeBoeuf in droves as it neared bankruptcy
in 2012, Mr. Pierce went to White & Case. Mr. Owens followed, but this time as a
salaried lawyer, not an equity partner, even though he has the title of partner.

A spokesman for White & Case said Mr. Owens and Mr. Pierce had no
comment. Neither did the firm.

Mr. Owens has been well paid by most standards, but not compared with top
partners at major firms, who make in the millions. (Mr. Pierce was guaranteed $8
million a year at Dewey & LeBoeuf.) When Mr. Owens first became a partner at
Dewey, Ballantine, he made about $250,000, in line with other new partners. At
Dewey & LeBoeuf, his income peaked at over $500,000 during the flush years
before the financial crisis. In 2012, he made $351,000, and last year, while at
White & Case, he made $356,500. He listed his current monthly income as
$31,500, or $375,000 a year. And he has just over $1 million in retirement
accounts that are protected from creditors in bankruptcy.

How far does $375,000 a year go in New York City? Strip out estimated
income taxes ($7,500 a month), domestic support ($10,517), insurance ($2,311), a
mandatory contribution to his retirement plan ($5,900), and routine expenses for
rent ($2,460 a month) transportation ($550) and food ($650) and Mr. Owens
estimated that he was running a small monthly deficit of $52, according to his
bankruptcy petition. He has gone back to court to get some relief from his divorce
settlement, so far without any success.

In his petition, Mr. Owens said he didn’t expect things to get any better in
2014.

And they could get worse. The most recent deal on White & Case’s website in
which Mr. Owens played a role was the relatively modest $392 million acquisition
of the women’s clothing retailer Talbots by Sycamore Partners, in which Mr.
Owens (working with Mr. Pierce) represented Talbots. That deal was announced in
May 2012. The White & Case spokesman did not provide any examples of more
recent deals.

“In almost any other context, $375,000 would be a lot of money,” said
William Henderson, a professor at the Indiana University School of Law and a
director of the Center on the Global Legal Profession. “But anyone who doesn’t
have clients is in a precarious position. For the last 40 years, all firms had to do
was answer the phone from clients and lease more office space. That run is over.
The forest has been depleted, as we say, and firms are competing for market share.
Law firms are in a period of consolidation and, initially, it’s going to take place at
the service partner level. There’s too much capacity.” He added that law firm
associates and summer associates had also suffered significant cuts, which has
culled the ranks of future partners.

All this “has had a huge effect on law school enrollment,” Professor
Henderson said.

Mr. Clay, the consultant, said many firms had been slow to confront the
reality that successful service partners were probably going to need to work more
hours than rainmakers, not fewer, to justify their mid- to high-six-figure salaries.
Many of them “seem to have felt they had a sinecure,” Mr. Clay said. “They’re well
paid, didn’t have to work too hard, they had a nice office, prestige. It’s a nice life.
That’s O.K., except it’s not the kind of professional life that will do much for a firm.
These nonequity positions were never meant to be a safe place to rest and not
work as hard as everyone else.”

And these lawyers may have to give up the pretense that they’re law firm
partners. In his bankruptcy petition, Mr. Owens describes himself as a “contract
attorney,” which has the virtue of candor.

“From a prestige standpoint, being called a partner is something that’s very
important to people,” Mr. Westfahl observed. “Lawyers tend to be very
competitive, and like all people, titles and status matter. But to the outside world,
where people think all partners are equal, it’s deceptive. And inside the firm,
everyone knows the real pecking order. When people see that partners are treated
disparately, it causes unnecessary dissonance and personal frustration.”

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