By Jan. 14, 2005, emergency partnership meetings had become something of a routine at Testa, Hurwitz & Thibeault LLP. Most of them were called to discuss the Boston-based law firm’s increasing inability to retain attorneys, and whether or not an appropriate merger partner could be found to stem the bleeding. This one, however, was going to be different, and everyone knew it as they filed in just before 9a.m.
“I’m eating breakfast at home earlier that morning, and my wife hands me a newspaper article about how we might be voting to disband,” recalls a former Testa Hurwitz partner, who declined to be named. “I already had known what was probably coming, but still kind of hoped that [managing partner George Davitt] had pulled some sort of rabbit out of his hat, and that the reporter would be forced to print a correction.”
Carl Metzger, a securities litigation partner with the firm who since has been hired by Goodwin Procter, felt the same way. “We all knew it was a distinct possibility, but it was still very disappointing once we got to the reality that it was actually happening,” he says.
Less than 20 minutes later, the Testa Hurwitz partnership had voted to disband (with one lone objection), and the landlord of 125 High Street was told to begin searching for a new tenant. Associates and counsel were gathered for 9:30 a.m. meetings, while the remaining staff was informed at 10 a.m. that Testa Hurwitz would formally shut its doors in two months time. Everyone with a backup plan began finalizing arrangements. Those who didn’t worked the phones with a vengeance.
Cause and Effect
It has been suggested that Testa Hurwitz’s failure was caused by a perfect storm, in which the tech bubble collapse ran headstrong into the firm’s lack of practice diversification. There is certainly more than a kernel of legitimacy to this theory Testa Hurwitz was, for the most part, an outsized technology and private equity law boutique but the center of that storm had little to do with term sheets or terabits. Instead, it involved the cult of personality surrounding firm patriarch Dick Testa.
Testa was basically an East Coast version of Larry Sonsini, serving as unofficial dean of the Route 128 crowd. He had graduated from Harvard Law School by the age of 23, been mentored by American Research & Development founder Georges Doriot and made partner at Gaston & Snow. By the tender age of 32, however, Testa was ready to hang his own shingle, and founded Testa Hurwitz with the goal of running the world’s largest private equity law firm.
The plan worked, largely because of the loyalty engendered by Testa himself. A no-nonsense guy who was quick with a compliment, Testa acted like an amenable tractor beam able to recruit the best talent without losing many existing partners to rival firms. He also extended that magnetism to clients, many of whom would have retained Testa Hurwitz, even if their primary contact went elsewhere.
“We’d be on the verge of signing a client away from [Testa Hurwitz], but then get a last minute phone call that they weren’t changing firms, because it would really disappoint Dick,” says a partner at another Boston-area firm. “I think people also were a bit concerned about their reputations, in that they didn’t want to be known as someone who was ungrateful to [Testa].”
All of that changed, however, when Testa died in his sleep on Monday, Dec. 2, 2002, at the age of 63. The following Saturday, more than 500 people paid their respects at St. Ann’s Parish in Wayland, Mass.
At first glance, it seemed that Testa Hurwitz would be structurally sound enough to weather its founder’s unexpected passing. Dick Testa had relinquished his managing partner role nearly two years earlier, with firm veteran William Asher taking over the day-to-day grunt work.
The reality, however, is that people like being associated with an icon (even if they have to pay for the privilege), and Asher wasn’t one, despite having spent just one less year at the firm. Moreover, macro economic troubles had depleted both the tech and private equity client pools, meaning that certain rival firms began a fairly extensive pilfering effort.
“Headhunters began calling the partners, and even a lot of the associates… like they smelled blood,” says a former Testa Hurwitz attorney, who recently joined Ropes & Gray.
Slowly but surely, Testa Hurwitz attorneys began to entertain offers. One of the first high-profile partners to leave was John Hession, an emerging company and venture capital star who joined McDermott, Will & Emery in July 2003. The following February, a trio of intellectual property attorneys Steven Bauer, Joseph Caprano and Daniel Bernstein agreed to open a Boston office for New York law firm Proskauer Rose. Others would soon follow, including: Richard Sanders to Sullivan & Worcester in March; Thomas Frongillo to Mintz Levin in June; and Jordan Hershman to Bingham McCutchen in August.
Not even an economic recovery and VC fund-raising resurgence could right the ship. According to American Lawyer, profits per Testa Hurwitz partner fell over 31% between 2002 and 2003, with overall firm revenue dropping from $145 million to $110 million. By the time that George Davitt succeeded Bill Asher as managing partner in late September 2004, the firm’s attorney roster was nearly 17% smaller than at its 2002 peak, shortly before Dick Testa’s death.
Can’t Stop This Train
George Davitt was, by most accounts, a talented administrator who believed that Testa Hurwitz’s troubles could be overcome. What he wasn’t, however, was an icon. Nor was he likely aware that entire groups of partners were shopping for new employment, including seven members of Testa Hurwitz’s famed private equity group.
Just weeks after Davitt took the reins, partners Timothy Maguire and Thomas Beaudoin left for the greener pastures of Brown Rudnick and Wilmer Cutler Pickering Hale & Dorr, respectively. Shortly after, Richard Sanders was able to lure three more Testa Hurwitz attorneys to Sullivan & Worcester.
Davitt now believes that the final straw came in early December, when 10 partners simultaneously announced their intention to leave. Derisively referred to as the “Seven Dwarves” and “Three Stooges”, defectors included the aforementioned private equity septet (headed to Proskaur Rose), and a trio of prominent corporate partners (headed to Bingham McCutchen). Testa Hurwitz desperately demanded that all 10 honor their contracts by remaining an additional three months, but the damage could not be undone.
“Things happened very quickly after the 10 decided to leave,” says Bill Schnoor, the most notable private equity partner left at Testa following the Dwarves’ departure (he would later join Goodwin Procter).
Indeed, Testa Hurwitz became a recruiter’s paradise, with once-covert negotiations being conducted out in the open. Certain attorneys began occasionally working at home to escape the noise, while press leaks became so ubiquitous that the firm stopped commenting on the future plans of individual partners (except to erroneously deny a report that Bill Asher and Steven Hurwitz had agreed to sign with Choate, Hall & Stewart).
Through it all, George Davitt refused to make contingency plans. Instead, he immersed himself into “serious” merger talks, even though some of the most logical acquirers such as Cooley Godward declined to participate. By the week of January 3, however, Davitt recognized that Testa Hurwitz didn’t have much left to acquire. He requested, and received, permission to inquire about alternate employment. Like nearly 60 other Testa Hurwitz attorneys, Davitt would head to Goodwin Procter.
“I’m not surprised that they weren’t able to merge,” offers Alex Temel, a partner in the Boston office of Proskauer Rose. “Integrating an entire law firm is difficult to do, particularly if you’re more interested in one group of attorneys than another group of attorneys within the same firm.”
In a formal statement released after the remaining partners voted to disband, Davitt said: “A law firm such as ours, although prominent, profitable and filled with talented lawyers is like any professional services organization knit of a fabric that, if stretched too thin, can unravel.”
In the aftermath of Testa Hurwitz’s dissolution, some people couldn’t help but wonder if firms like Proskauer Rose, Bingham McCutchen and Goodwin Proctor could be held liable.
The most common comparison drawn is to that of Silicon Valley law firm Brobeck, Phleger & Harrison, which blamed attorney raids by Clifford Chance and Morgan Lewis for its own demise. The Brobeck estate sued both firms, and settled for tens of millions of dollars. If its good enough for Brobeck, why not for Testa Hurwitz?
The answer seems to be that Brobeck needed the money to pay off creditors and an absurdly expensive Sand Hill Road lease. Testa Hurwitz, on the other hand, has enough cash on hand to pay all vendors, and insists that it will not file any such suits. Instead, it will just quietly close its doors later this month.