Robert Caplin/Bloomberg NewsThe Manhattan district attorney’s office is investigating Steven H. Davis, a former chairman of Dewey & LeBoeuf.Dewey & LeBoeuf, the corporate law firm fighting for survival amid partner defections and heavy debt, ousted its former chairman from the firm’s management on Sunday and ended talks with a potential merger partner, according to an internal memo.
Steven H. Davis, the firm’s former chairman, was removed from his leadership posts amid a criminal investigation by the Manhattan district attorney focused on his conduct. On Friday, the firm’s management disclosed that state prosecutors had started an investigation into allegations of financial improprieties.
Mr. Davis did not return phone calls and e-mails seeking comment, but on Sunday, he sent his partners an e-mail in which he defended his leadership of Dewey and said he was “saddened by the events of the past several days.”
Both the internal memo and the e-mail were reviewed by The New York Times.
“My decisions as chairman were made in good faith and in the firm’s best interests,” Mr. Davis wrote. “I trust as this process continues, a dispassionate and disinterested review of the facts will confirm that I have not engaged in any misconduct.”
“It has been a great honor and privilege to serve you as chairman,” he added. “I did my best to navigate the firm through challenging and turbulent times, and I deeply regret our current situation.”
The firm also told its partners on Sunday that merger talks with Greenberg Traurig, a rival firm, were terminated without a deal being reached.
Dewey’s leadership had been trying to structure a prearranged bankruptcy filing in which it would combine with Greenberg Traurig, one of the nation’s largest law firms, and avoid liquidation.
A bankruptcy filing by Dewey would be the largest law firm bankruptcy in United States history.
The firm employed about 2,000 people at the beginning of the year — roughly half lawyers and the rest support staff, including paralegals, secretaries and mailroom clerks.
But Dewey’s leadership also said that it was talking to other law firms about potential deals throughout the weekend.
“We are in discussions with other firms about a possible transaction and will consider those and other options for the firm moving forward,” the memo said.
Those firms are SNR Denton and Patton Boggs, according to a person with direct knowledge of the discussions who spoke on the condition of anonymity because he was not authorized to discuss them publicly.
Several Dewey partners defected to Patton Boggs earlier this month.
A spokesman for Patton Boggs declined to comment. A spokesman for SNR Denton did not immediately respond to requests for comment.
Time is running out for Dewey. Nearly 80 of Dewey’s 300 partners have left the firm since last year’s disappointing financial performance led the firm to slash the compensation of many of its partners.
Compounding its problems, Dewey overextended itself by aggressively hiring star lawyers away from rival firms with lucrative multiyear guarantees.
The precipitous decline in its partnership ranks has caused the firm to breach covenants on its loans.
Dewey faces a Monday deadline as it tries to renegotiate its lending agreements with its banks — JPMorgan Chase, Citigroup, Bank of America and HSBC.
That deadline, already extended once, could be further delayed, according to people involved in the discussions.
A spokesman for JPMorgan declined to comment.
Dewey’s discussions with its banks are taking place without Mr. Davis, 58, who has run the firm since it was formed in 2007 by the merger of Dewey Ballantine and LeBoeuf, Lamb, Greene & MacRae.
State prosecutors opened an investigation into Mr. Davis after several partners at the firm presented evidence of possible financial improprieties, according to people with direct knowledge of the matter who spoke on the condition of anonymity.
Among the issues, said a person connected to the case, is whether Mr. Davis misled lenders about Dewey’s financial condition.
The inquiry is in its early stages and there is no indication that any crime has been committed, this person said.
Dewey has also started its own internal investigation and said it would cooperate with the district attorney. Erin Duggan, a spokeswoman for the district attorney’s office, declined to comment.
Last month, Mr. Davis was stripped of his chairman’s title and was named to a five-person “office of the chairman” in which he was joined by four of the firm’s top-producing partners, including Martin J. Bienenstock, the head of Dewey’s bankruptcy practice, and Jeffrey L. Kessler, who runs litigation.
Several Dewey partners, however, speaking on the condition of anonymity, said that Mr. Davis was kept in the leadership post because a sudden ouster might alarm the banks or potential merger partners.
Dewey said on Sunday that it was removing Mr. Davis from the firm’s “office of the chairman” and its executive committee. It added that Mr. Davis’s removal should not be interpreted as having anything to do with the district attorney’s investigation.
“The firm will continue as usual tomorrow as we work through these options and there will be no disruption in the work or service we provide to our clients,” the firm’s memo read.
There has, however, been a disruption in Dewey’s summer associate program. On Friday, the firm’s management wrote an e-mail to a group of law-school students who had landed prestigious summer jobs at Dewey, an internship that would pay them $3,000 a week. The position almost guaranteed a permanent spot after graduation as a first-year associate at Dewey, paying $160,000 a year.
The e-mail said the firm was canceling its 2012 summer associate program, but would do its best to help the students find a position elsewhere.
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