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Friday, September 14, 2012
Dewey Docket: Filing Frenzy Before Hearing on ‘Clawback’ Plan
Per the Wall Street Journal's Law Blog:
September 14, 2012, 9:14 AM By Jennifer Smith
Update: In a development that should surprise precisely no one who has followed the collapse of New York law firm Dewey & LeBoeuf LLP, the firm’s former chairman and two other non-legal executives expect to be sued.
This comes via court papers filed late Thursday night by lawyers for former Dewey chair Steven Davis, former executive director Stephen DiCarmine and former chief financial officer Joel Sanders.
(Sidenote: As AmLaw reported last week, Mr. Sanders is now employed by a Florida law firm whose leaders “thought he could teach us some things” about how big firms do business.)
Back to the docket: the virtually identical filings disputed the alleged culpability of Messers. Davis, DiCarmine and Sanders in sinking the firm, and raised partial objections to a proposed $71 million settlement with former Dewey partners that will be the subject of a hearing next week.
The filings said that legal releases offered to ex-partners through the plan would hamper the leaders’ ability to defend themselves against litigation. They also said the plan should name participants, and how much each will contribute, so that the leaders, if found partially responsible, would only bear proportionate liability.
A lawyer for all three did not immediately respond to a request for comment.
The docket in the Dewey & LeBoeuf LLP bankruptcy grew by leaps and bounds Thursday, as ex-partners and creditors in the biggest law firm collapse in U.S. history filed a flurry of papers over proposed $71 million settlement with some of the firm’s former partners.
Next week a federal bankruptcy judge is scheduled to hear arguments over the plan, which would grant immunity from future lawsuits to lawyers who fork over some percentage of past earnings paid out as Dewey headed into bankruptcy.
With a week to go before the hearing, some ex-partner groups have blasted the plan, others have grudgingly signed on, and the firm’s creditors are also on board. Let’s take a tour through the filings, shall we?
Approval of the settlement, called the Partner Contribution Plan, or PCP, would mark the most significant recovery yet for Dewey’s creditors. The firm sought Chapter 11 protection this spring and owes creditors at least $315 million (and possibly as much as $560 million).
Lawyers for one group of ex-partners who agreed to the plan urged Judge Martin Glenn to sign off, saying in a motion filed Thursday that while their clients were unhappy with being asked to pay, the plan offered them “the opportunity to pay significant sums of money to buy certainty and peace of mind to enable them to move on to a fresh start free from years of fear and uncertainty.”
Dewey’s unsecured creditors, having ensured they would get a cut of the payout, also support the settlement—to a point—although they called it “rough justice.”
Dewey’s bankruptcy advisors have said the settlement is the fastest way to settle up some of the debts and will avoid tortuous years of litigation. Reached on Thursday evening, Albert Togut, the estate’s bankruptcy lawyer, declined to comment beyond what had been laid out in earlier court filings.
Then there is the “Hells No” category, represented by these two groups: the official committee of former partners, and an ad hoc committee of retired partners who have asked the judge to appoint an independent trustee or examiner.
Both groups say the proposed settlement is premature, is not in the best interest of creditors, and is riddled with conflicts because it was essentially engineered by the same Dewey leaders who could face liability for their role in the firm’s collapse. They also say no analysis was done on what ex-partners might have otherwise owed creditors (which depends in part on when the firm became insolvent). The ex-partners were collectively paid about $432 million in 2011 and 2012.
From the objection filed by the official committee of former partners:
The Debtor is managed by individuals who remain partners and who were actively engaged in many of the Debtor’s most controversial pre-petition actions. Even if they are well-intentioned, they have personal relationships with former colleagues, personal biases regarding pre-petition transactions and the cause of the Debtor’s demise and, most importantly, concerns with regard to their own personal exposure.
Both of the objecting committees criticized the lack of transparency concerning settlement details or how those numbers were reached. From the objection by the ad hoc committee of retired partners from the LeBoeuf side of the firm:
The Debtor has not revealed the compensation paid to any partner during 2011 and 2012, has not disclosed the members and service dates of the partners subject to the Executive Committee premium, has not identified the tort claims sought to be released against individual partners, and has not disclosed the PCP settlement amounts for any individual partner. The Debtor has previously justified this absence of disclosure due to its “concern for the privacy of individuals.” Now that the Debtor seeks approval of the PCP, its concern for the privacy of the amounts it paid to its insiders needs to yield to the “strong presumption and public policy in favor of public access to court records.”
They also both pointed to a recent New York federal court ruling on who can claim profits from unfinished legal business, saying it throws the Dewey plan’s viability in doubt. Partners who have agreed to participate in the settlement can pull out if separate claims on profits from legal work they took with them to their new firms are not resolved by Sept. 30, they said.