Once an Ambitious Law Firm, Reduced to Grim Dispatches A few dozen students from some of the nation's top law schools received a distressing e-mail last Friday from Dewey & LeBoeuf. The law firm's 2012 summer internship program, which would have paid the students more than $3,000 a week, was being canceled. On Monday, about 50 former Dewey partners opened their in-boxes to find a poignant note. A fellow former partner said he was starting an assistance fund for Dewey staff and junior lawyers who might find themselves unemployed. The same day, Dewey's remaining partners received a grim dispatch from the firm's leadership. Given Dewey's state, management encouraged them to look for new jobs. These are dark days for Dewey & LeBoeuf, the New York law firm on the brink of collapse amid a partner exodus. Forged by a 2007 merger, it had set its sights on quickly becoming a global powerhouse in corporate law, employing more than 1,300 lawyers in 26 offices across the globe at its peak. Now the firm is teetering under the weight of too much debt and outsize pay guarantees made to its star lawyers. Lawyers and staff, unable to focus on their client matters, milled about Dewey's office "shellshocked" on Tuesday, according to an employee. At one point, there was confusion over whether the firm's health care provider had suspended medical coverage, leading the firm to send an officewide e-mail blaming an "administrative issue" for the apparent suspension and explaining that coverage would soon be fully restored. "Law firms aren't very joyful places even when things are going well," said the Dewey employee, who spoke on the condition of anonymity. How would I describe the atmosphere now? The first word that comes to mind is funereal. Dewey's woes reflect in large part the challenges faced by other big law firms throughout the country that are trying to grow in a slow economy populated by cost-conscious companies. While it may not be as extreme as in the case of Dewey, a widening divide in pay between senior lawyers and the junior ones who are responsible for much of the work is creating tensions at some firms. For many in the legal industry, Dewey's turmoil is a sobering lesson on unchecked ambitions. Tuesday brought more setbacks for Dewey, whose roots go back to 1909. The firm's partners in London are exploring a possible wind-down of the firm's British arm, according to a person with direct knowledge of the situation. Dewey's British operation, which also encompasses its Paris office and is a separate legal entity from the United States partnership, has more than 200 lawyers and support staff. At least four partners in the United States walked out the door on Tuesday. Stuart M. Saft, the global head of the real estate practice, decamped to the law firm Holland & Knight. Mr. Saft, whose clients include the developers Harry Macklowe and the Lower Manhattan Development Corporation, said on Tuesday that he was deeply saddened by Dewey's woes, but had no choice but to leave given the firm's uncertain fate. He said 43 firms had recruited him since problems surfaced in March. "I postponed leaving the firm as long as I possibly could because I felt that leaving would only further destabilize the situation," said Mr. Saft, who said that all of his clients were moving with him to his new firm. Nearly 90 of the firm's 300 partners have departed since January. Also on Tuesday, a pair of private equity partners, Ilan S. Nissan and Christian C. Nugent, left for Goodwin Procter. Lyle Roberts, a securities litigator in Washington, joined Cooley. The steep, persistent decline in its partnership rolls has jeopardized the firm. Like Mr. Saft, many departing partners are taking their clients with them. And the firm has breached covenants in lending agreements with its banks, which require a law firm to maintain a minimum number of partners. Yet even as it lost talent over the last several months, Dewey continued to handle prominent assignments. Its lawyers represented the Los Angeles Dodgers in the baseball team's bankruptcy and eventual sale. A team of merger and acquisition lawyers in Silicon Valley recently advised the computer company Dell on two takeovers. And the firm is defending the gene sequencing firm Illumina from a hostile bid by the drug giant Roche. Dewey's leadership is working around the clock to save the firm. Martin Bienenstock, the head of its restructuring practice, said this week that the firm had no plans to file for bankruptcy. In recent weeks, Mr. Bienenstock, joined by three other partners in Dewey's "office of the chairman," have been trying to structure a complex transaction in which they would file a prearranged bankruptcy and strike a merger deal with another law firm. Such a deal could help Dewey's partners avoid a painful dissolution and protect them from claims by the firm's creditors. One possible asset that has been largely overlooked as Dewey seeks out a merger partner is the firm's prime real estate in Midtown Manhattan, according to people with knowledge of the firm's finances. Dewey operates out of 10 floors at 1301 Avenue of the Americas, a luxury office building, with a below-market, long-term lease that could be valuable to a potential acquirer or for a sublease. The elegant, wood-paneled offices were used for scenes in the George Clooney legal thriller "Michael Clayton." Standing on the sidelines as Dewey tries to save itself is Steven H. Davis, the firm's former chairman, who was ousted from his leadership posts last weekend. The Manhattan district attorney's office is investigating whether Mr. Davis committed any crimes in his management of the firm. Barry A. Bohrer, a lawyer for Mr. Davis, says his client is confident that the investigation will conclude that he did nothing wrong. But legal industry experts are questioning whether Mr. Davis's aggressive growth strategy was in the best interests of the firm. Mr. Davis extended dozens of lucrative long-term contracts to Dewey's lawyers to keep the existing partners happy and poach star lawyers from other firms. While large corporate law firms have increasingly used guarantees to attract talent, the scope and scale of Dewey's pay packages was an outlier. Several Dewey partners had pay packages worth more than $5 million a year. These so-called rainmakers include Morton A. Pierce, a mergers and acquisitions deal maker; Michael L. Fitzgerald, a corporate lawyer specializing in Latin America; and Berge Setrakian, a partner with a large international practice. All three have remained at the firm. Last fall, after it became evident that the firm's profits would disappoint, Mr. Davis disclosed that about 100 lawyers had guarantees of some kind, putting the firm in financial straits. Salaries were slashed for several partners who had multimillion-dollar annual pay packages, including Henry C. Bunsow, a patent litigator in San Francisco, and Alan Salpeter, a Chicago trial lawyer. Neither has left Dewey. Multimillion-dollar payouts were never a concern for the roughly 1,000 employees who make up Dewey's support staff. John J. Altorelli, a former Dewey partner now at DLA Piper, e-mailed his former partners on Monday to start an assistance fund if they find themselves out of a job. He said he was making an initial donation of $10,000 and urged others to chip in. "I hope you are all doing well under the circumstances," Mr. Altorelli wrote. The turmoil at Dewey & LeBoeuf also underscores the risks in law firm mergers. Dewey was the product of a boom-era combination between the New York firms Dewey Ballantine and LeBoeuf, Lamb, Greene & MacRae in 2007. At the time, Dewey was having some financial difficulties, but Mr. Davis pushed the idea of the merger, arguing that law firms needed to get bigger to compete in a global economy. Mr. Davis was also said to be enamored with the Dewey name and its "white shoe" aura.