On February 15, with Dewey & LeBoeuf entering what would prove to be its death spiral, the firm quietly settled a $3 billion malpractice suit filed against it in Missouri three years ago by state insurance regulators who accused predecessor firm LeBoeuf, Lamb, Greene & MacRae of participating in a conflict-riddled scheme to push General American Life Insurance Co.—at one time the Show Me State’s largest life insurer—into insolvency and, ultimately, the hands of fellow LeBoeuf Lamb client MetLife.

The abrupt dismissal of the case less than a month before it was to go to trial came amid a stream of partner departures and mounting concerns about the firm’s financial condition, but it is hard to know whether resolving it added to the fiscal woes that ultimately doomed Dewey to oblivion. That’s because, three months later, the settlement’s terms—and details about how much money the firm agreed to pay out—remain shrouded in secrecy.

The Missouri Department of Insurance’s Web site lists the settlement amounts paid by three other defendants targeted in related suits—accounting firm KPMG ($18 million), Morgan Stanley ($95 million), and Goldman Sachs (just over $100 million)—that have contributed to $1.425 billion in distributions that General American’s holding company had dispersed to some 300,000 policyholders as of September 2009. (A final distribution for an undisclosed amount is scheduled for later this year.) 

No such information is available about the suit against Dewey. All that the insurance department Web site says on the subject is that as of February 2012, “The Dewey & LeBoeuf case has been resolved.” Contacted for comment by The Am Law Daily, insurance department spokesman Travis Ford declined to elaborate on that single sentence. A mid-February court filing simply says the case has been dismissed with prejudice by stipulation and that the parties must bear their own costs.

One person familiar with the settlement would only say the amount Dewey agreed to pay was less than KPMG’s $18 million settlement figure and should be covered by the firm’s professional liability policy. According to a second source familiar with the firm’s operations, that policy has a $300 million cap and a $2 million deductible, was brokered by AON, and was issued by Bar Insurance and Reinsurance, a company incorporated in Bermuda that provides professional liability insurance to an unspecified number of large law firms. Richard Howe, a Bar Insurance director and of counsel at Sullivan & Cromwell in New York, declined to confirm that Dewey is among the firms served by the insurance group.

Whatever the sum, it’s possible given Dewey’s impending liquidation that the Missouri insurance department—and, by extension, the General American policyholders on whose behalf the suit was filed—will join the list of parties lining up to be paid by the rapidly vanishing firm. That list already includes Dewey’s bank lenders, the holders of $125 million in bonds the firm issued in 2010, vendors, landlords, former employees, retirees, and partners who have moved to new firms as Dewey collapsed.

The case may also have created another potential creditor: Shook, Hardy & Bacon, which served as Dewey’s defense counsel in the matter and whose bills are likely substantial. After all, as one December 2011 court filing states: “Put plainly, this is a big case. There have been literally millions of pages of documents exchanged in discovery, over one thousand exhibits, and dozens of depositions taken which cover thousands of pages of transcript.” Shook Hardy chair John Murphy declined to comment on whether his firm has been paid for its work on the matter.

A LAST-MINUTE LAWSUIT

The Missouri insurance department did not sue Dewey & LeBoeuf until long after it had sued, and settled with, Goldman Sachs, KPMG, and Morgan Stanley over their dealings with the company. (The insurance department also unsuccessfully tried to pursue Lloyd’s of London and former General American officer Leonard Rubenstein.)

Indeed, Dewey claims in court filings that it was taken aback by the suit because Albert Riederer, a former state appellate judge and prosecutor serving as deputy special liquidator in connection with the General American receivership, had said the firm would not be the target of litigation. (Riederer said publicly in 2006 that “the heavy lifting on the legal issue is winding to a close.”)

That all changed in February 2009, when John Huff was appointed as the insurance department’s director. Three months later—and just days before the statute of limitations would expire—the suit against Dewey was filed in Missouri’s Nineteenth Judicial Circuit. (The litigation was later moved to the state’s Thirteenth Judicial Circuit.) Neither Huff, through department spokesman Ford, nor Riederer, who makes $300,000 a year as deputy special liquidator, responded to requests for comment.

The initial complaint [PDF]—which accuses Dewey of, among other things, malpractice, breach of fiduciary duty, fraud, and negligence—and an amended complaint filed in March 2010 outline what General American’s receivers claim were the faulty advice and conflicts of interest that led LeBoeuf Lamb to improperly advise that the insurer first be placed into receivership and then sold to MetLife in order to benefit the latter company as it prepared for a $2.9 billion initial public offering.

(The suit also named Richard Liddy, General American’s president and CEO from 1992 to 2000, as a defendant. Liddy, accused of breach of fiduciary duty, negligence, and negligent misrepresentation, was dismissed as a defendant in the case in January 2011 with no money exchanged, according to his lawyer Alan Kohn, of Kohn, Shands, Elbert, Gianoulakis & Giljum in St. Louis.)

WALL STREET V. MAIN STREET?

According to the amended complaint, General American initially hired LeBoeuf Lamb in 1998 to advise it and conduct due diligence in connection with a planned demutualization and its own planned initial public offering.

At the time, the insurer appeared to be doing well. A Missouri institution with more than 4,000 employees that was valued that year at more than $2 billion. General American was overseen by a 13-member outside board of directors populated by a virtual Who’s Who of the St. Louis political, business, and civic establishments. According to a 2002 story in the St. Louis Business Journal, those board members at various times included John Danforth, a retired U.S. senator and current Bryan Cave partner; former Anheuser-Busch chairman August Busch III; Enterprise Rent-A-Car CEO Andrew Taylor; William Cornelius, the retired chairman of the power company now known as Ameren; retired Monsanto executive and St. Louis Symphony board chair Virginia Weldon; and grocery chain scion Craig Schnuck, 

According to the suit brought against Dewey, however, LeBoeuf partner Sue Kempler told General American’s directors in 1999 that in the face of a “run on the bank” that had depleted the insurer’s assets, the company should shelve the public offering and instead seek protection through administrative supervision under the auspices of the Missouri insurance department.

The complaint attributes the sudden liquidity crisis in large part to a high-risk investment product known internally as Stable Value Operations (SVO), which ratings agencies viewed as risky because General American could be obligated to repay all SVO–related investments within a compressed time frame if asked to by investors—which is what happened in 1999. Echoing similar allegations lodged against KPMG and General American’s financial advisers at Goldman Sachs and Morgan Stanley, the suit faults the LeBoeuf lawyers for failing to warn the company’s board that holding more than $6 billion in SVO products was dangerous and could sink the insurer.

Once Kempler persuaded the board to approve what she allegedly said could be a temporary move into administrative supervision, the complaint claims, LeBoeuf partner Alexander Dye advised the company to sell itself to MetLife for a “discounted” price of $1.2 billion.

In essence, the complaint argues, LeBoeuf provided its legal advice—which resulted in “millions of dollars in fees”—with “its own self interests and the interests of its other, larger, more lucrative clients” above those of General American. Those more lucrative clients, according to the complaint, included MetLife, Goldman Sachs, and Morgan Stanley, all of which employed LeBoeuf lawyers, including some of the same ones advising General American.

DEWEY PUSHES BACK

While acknowledging in court filings that it had represented those clients, Dewey claims those assignments did not conflict with its representation of General American and that it disclosed any dual representations. In a 111-page answer and counterclaim to the amended complaint filed in April 2010, the firm labels the accusations against it “completely without merit, a misuse of power, and not authorized by Missouri’s laws over the business of insurance.”

Far from providing improper advice, Dewey says in its response that the LeBoeuf lawyers “provided sound and appropriate legal advice to a client in serious trouble” and that “LeBoeuf Lamb neither caused the crisis nor harmed its client.” Furthermore, Dewey argues, Huff’s own lawyers from Sidley Austin confirmed at the time of the so-called bank run that the advice LeBoeuf provided with reference to General American’s sale to MetLife was sound.

“This baseless lawsuit should be dismissed,” Dewey’s answer states, adding that the General American holding company’s “liquidation and final distribution to its remaining, yet dwindling, membership should be concluded as soon as possible.”

Expert testimony submitted by Mark Tharp, whose expertise comes in part from working as a court-appointed fiduciary on 36 insurance company failures, supports Dewey’s argument. In court papers, Tharp says the liquidity problem was embedded into the company’s SVO product, that General American had long been overvalued, that the course of action it took leading up to the sale to MetLife was necessary, and that MetLife actually overpaid for the company. (While the allegations against Dewey & LeBoeuf are limited to LeBoeuf Lamb, predecessor firm, Dewey Ballantine also figures into the saga. Lawyers from that firm represented MetLife in the General American acquisition.)

Few parties close to the case had much to say when contacted by The Am Law Daily. Requests for comment on the suit’s settlement were not returned by Dale Doerhoff, a name partner at Cook Vetter Doerhoff & Landwehr who represented Dewey along with Shook Hardy; press representatives for Dewey & LeBoeuf; and the firm’s general counsel Janis Meyer (who, as of Friday, was one of a few leaders still remaining at the firm). Kansas City–based Shook Hardy partner Harvey Kaplan, who led his firm’s Dewey defense team—which also included partners Robert Adams, Joseph Reiben, and Steven Soden, and of counsel Elizabeth Burke—declined to comment.

Lawyers who served as outside counsel for the plaintiffs at Armstrong Teasdale and Missouri firm Shaffer Lombardo Shurin also did not return requests for comment (Both firms have reaped substantial fees for their work on behalf of the insurance department in the matter, according to St. Louis Business Journal. In the case of the Morgan Stanley settlement, for instance, the two were awarded a combined total of more than $28 million in fees, the paper reports.)  Wally Bley, a Missouri lawyer who worked as local counsel for the insurance department, told The Am Law Daily he did not participate in or have knowledge of the settlement discussions.

As for the LeBoeuf lawyers mentioned in the suit, Kempler died in 2011, and Dye—whose decision to lead a team of 12 Dewey partners to Willkie Farr & Gallagher in mid-March is widely viewed as one of the key events that sent his former firm into its free fall—declined to comment.

Jake Kreinberg contributed reporting.