Stroock’s Demise Foretold by Partner Exits, Pension Problems

The collapse of Stroock & Stroock & Lavan marks the stunning end of a nearly 150-year-old law firm that’s long been among the country’s most profitable.

Stroock’s executive committee plans to wind down operations in the coming weeks, according to a person familiar with the situation. Its partners last week voted to dissolve the business, the firm’s leaders said Oct. 30 in an internal email.

Stroock is the first major casualty of a slowdown in demand that appeared to catch some large law firms off guard, spurring layoffs across the industry. The firm’s demise also follows a longer downward trend that started with the 2008 recession and the failure of some of its major clients.

A big blow came last year, when mass departures decimated Stroock’s bankruptcy group, one of two strategic pillars. That left Stroock unable to bank on restructuring work when the global economic downturn dried up its other focus area, commercial real estate.

It’s “remarkable they held together as long as they did,” said Jon Lindsey, a veteran legal recruiter at Major, Lindsey & Africa. “When they lost the bankruptcy group, I think for most firms that would have been the end.”

Merger talks failed to generate a buyer, even as the firm cleared up a $6 million annual pension obligation that had been left to fester, and the departures continued. A group of at least 30 partners, largely from the real estate practice, are now on the move to rival Hogan Lovells.

The Downward March

Stroock partners voted Oct. 24 to authorize the executive committee “to dissolve the firm at the appropriate time,” co-managing partners Jeff Keitelman and Alan Klinger said in the internal email.

The pair declined requests for comment.

Keitelman, a prominent D.C. real estate lawyer, is among the Stroock partners that inked a deal to move to Hogan Lovells. His top clients have included Pfizer, Cisco Systems, Verizon, and Columbia Property Trust.

Keitelman was elevated to a co-managing partner role in 2016, one year after joining the firm. He shared leadership duties with Alan Klinger, a New York litigator known for advising public sector unions and employee benefits funds, who has been co-managing partner for 16 years.

Hogan approached the group around August, Hogan CEO Miguel Zaldivar said. The firm was looking to bolster its real estate investment trust capabilities and establish a presence in New York but was not interested in acquiring Stroock outright, according to Zaldivar.

Stroock also continued to talk tie-up with Pillsbury and explore other options. The firm’s merger talks with Nixon Peabody hit the skids months earlier and similar discussions with Steptoe & Johnson, Squire Patton Boggs, and McGuireWoods didn’t prove fruitful.

Stroock’s pension obligations posed a hurdle. The firm failed for years to set aside enough money to fund pensions for retired partners.

At one point, the firm’s annual unfunded pension liability was upward of $8 million annually.

Many firms in the last decade or more have cleaned up similar obligations through buyouts and other moves. Stroock and Baker Botts—another firm exploring merger options—were among the latest to take such actions.

By August, Stroock secured the votes to buy out pensioners owed roughly $6 million per year, according to the firm. But departures continued to dwindle the firm’s lawyer roster, threatening its ability to find a buyer.

Stroock’s roots trace back to 1876, when M. Warley Platzek put out his shingle in Manhattan. Stroock brothers Moses and Sol later joined the firm, which was known as Stroock & Stroock until partner Peter Lavan was added to the masthead in 1943.

The firm was known for deep political connections across New York City, as well as its work for powerful public sector unions.

Stroock was among the 50 largest law firms by revenue when The American Lawyer began tracking firms in the late 1980s.

The firm lost two major clients in the blink of an eye during the 2008 recession, when investment banks The Bear Stearns Companies Inc. and Lehman Brothers Inc. failed. That zapped the firm’s burgeoning capital markets practice. Stroock trimmed its own ranks the following year, laying off 10% of its associates.

It fell out of the Top 100 by gross revenue in 2009 and saw profits fall by double digits that year. Stroock’s gross revenue continued a mostly steady decline over the following decade.

Practice Strengths

The firm long based its prospects on two practice areas, bankruptcy and real estate. Those areas are largely countercyclical: when broader economic forces take a bite out of the commercial real estate market, they tend to also push more companies into restructuring.

Stroock, like other major law firms, rode a pandemic-era boom in corporate transactions that saw some break financial records.

The firm’s own revenue and profits per equity partner ticked up in 2021. But by the time the global economy took a turn for the worse a year later, much of Stroock’s bankruptcy team was already gone.

Dozens of bankruptcy lawyers, including nearly 20 partners, departed the firm in March 2022 for Paul Hastings.

Leading the exits was partner Kris Hansen, the restructuring practice group head, who represented creditors in the bankruptcies of retail stores Brookstone Inc., J.C. Penney Co. Inc., Sears Holding Corp. and Toys ‘R’ Us Inc. Months later, the group won a plum position as lead lawyers for the creditors committee in the cryptocurrency exchange FTX’s Chapter 11 bankruptcy.

Stroock lost another 27 lawyers to Steptoe in July 2023. The exits included Julia Strickland, managing partner of Stroock’s Los Angeles office and head of its national financial services litigation, regulation and enforcement group, and Michele Jacobson, chair of Stroock’s general litigation practice.

Richard Stern, who replaced Hansen as head of Stroock’s restructuring and bankruptcy practice, jumped to Morgan Lewis & Bockius around the same time along with four other attorneys.

‘A Run on the Bank’

Law firms are delicate structures. When partners start heading for the exits, a herd of departures can quickly turn into a stampede.

John Morley, a Yale Law School professor who’s written about law firm failures, compares the phenomenon to a bank run. Law firm partners bear the cost of rainmaker departures in the form of lost profits. That incentivizes them to look for higher compensation at other firms.

“So then the second partner leaves, and the second departure makes the firm even worse off, and so on down the line,” Morley said. “And it ultimately looks like a run on the bank.”

This risk is especially acute at firms with fewer total partners.

“A common thread is that firms that are much smaller and less profitable than close competitors for talent often are at a disadvantage attracting and retaining,” said Kent Zimmermann, a partner at law firm consultancy Zeughauser Group. When they’re “exposed to a relatively small number of departures,” he said, “that can really change the course of history for the firm.”

More than 70 partners left LeClairRyan in the year before the massive Richmond, Va. firm went belly up, eventually filing for bankruptcy in late 2019. San Francisco’s Sedgwick LLP suffered a similar fate after losing 30 partners in 2017.

And then there’s Dewey & LeBoeuf, the largest law firm to implode in the legal industry’s modern era. Dewey was set to become a powerhouse when the Great Recession hit and some 200 partners fled amid claims of mismanagement and overpaying star partners.

Stroock’s executive committee “is very much trying to keep it out of” bankruptcy, according to one person familiar with the matter.

That would avoid some of the complications that can come with long, drawn-out court battles over a defunct firm’s remaining assets and liabilities, said Leslie Corwin, a lawyer at Duane Morris who’s overseen numerous law firm wind-downs.

“Bankruptcy is what you want to avoid at all costs,” Corwin said. “The trustee in law firm bankruptcies claws back compensation against individual partners. So that is why, if you’re a law firm or an accounting firm, bankruptcy cases are not pretty.”

Internally, the winding down has been pitched as the best option for the most people.

Keitelman and the roughly 30 partners headed to Hogan are said to be taking some associates and staff with them.

Klinger, the other co-managing partner, is among 10 to 15 remaining partners who have not publicly said where they’re headed next.