When those guiding Dewey & LeBoeuf through Chapter 11 first unveiled the plan calling for all former partners who received cash payments from the firm between 2011 and 2012 to repay the bankrupt estate according to a sliding scale in exchange for a waiver from any Dewey-related liability, the response was not entirely positive.
Among the main complaints about the so-called partnership contribution plan distributed on July 11: that Dewey’s former leaders—who were presumably in a position to halt the firm’s collapse—were not being asked to repay the estate more on the basis of their status.
On Thursday, the stewards of the Dewey bankruptcy moved to address those concerns and build more support for the settlement proposal, presenting a revised plan that asks for greater contributions—a total of $2.1 million—from the firm’s executive committee members.
Other changes include whittling the total sum sought via the settlement from $103.6 million to $90.4 million, trimming the number of former partners being asked to participate from 709 to 672, lowering from $25,000 to $5,000 the minimum amount a former partner can agree to repay the estate in order to receive the liability waiver, and elevating from $3 million to $3.5 million the maximum amount of an individual contribution. The deadline for partners to sign on to the plan has been pushed back to August 7. (While the estate’s current budget runs out at the end of the month, Mitchell said he and the firm’s other advisers are working with Dewey secured creditors to hammer out an extension and that he is “confident” the estate will get the money needed to continue operating until August 7.)
In addition to being released from all future liability, those who take part in the settlement are also barred from initiating their own suits in connection with any Dewey-related grievances. Under the revised plan, the Dewey estate is also agreeing to pay any expenses related to preparing K-1 tax documents required of those in the partnership for 2011 and 2012.
In a press briefing held before the new proposal was shared with former partners, Dewey’s chief restructuring officer, Joff Mitchell, said it was prudent to make the revisions in light of the numerous questions and complaints that arose over the last two weeks—some of which came in the form of more than 1,000 emails: “We thought it was appropriate to make some changes.”
As with the original plan, the payments being sought are based on a percentage of each partner’s earnings in the roughly 17-month period between January 2011 and the firm’s bankruptcy filing in May. On top of the $75 million being sought in that category, partners are being asked to pay 50 percent of any unpaid capital (for a total of $5.1 million) and 60 percent of tax advances ($10.3 million). With the revisions, unpaid capital amounts will now be assessed based on the lower target compensation amount between 2011 and 2012.
The plan, which Mitchell said still needs to garner enough support to equal $50 million in intended payments before Dewey’s creditors will sign off, excludes longtime firm chairman Steven Davis. Two former Dewey partners who have continued to work for the estate, Stephen Horvath III and Janis Meyer, also are not being asked to make any payments, though they will be included in the release.
Mitchell said the decision to exclude Horvath and Meyer—who are being paid a combined $58,000 a week to serve as Dewey’s dissolution committee—was arrived at when the pair agreed to help with the wind-down effort. As of now, Horvath is expected to stay with the estate through August and Meyer through November.
The new executive committee premium affects anyone who sat on the governing body—which often numbered more than 30 partners—at any point from the October 1, 2007, merger of LeBoeuf, Lamb, Greene & MacRae and Dewey Ballantine, through December 31, 2011. Those affected are being asked to pay back an extra 20 percent of the money they received on a prorated basis depending on the amount of time served. The premium “does not reflect a conclusion that any EC member breached a duty or bears responsibility for the firm’s failure, but does acknowledge that EC members bear a greater risk of suit from claims that are being released under the PCP,” according to a copy of Thursday’s presentation reviewed by The Am Law Daily.
Separately, the Dewey estate continues to pursue what Mitchell said is roughly $60 million in so-called Jewel v. Boxer, or unfinished business, claims for revenue resulting from work brought by Dewey partners to new firms in the months prior its collapse. Mitchell said there are 60 former Dewey billing partners who will be approached about Jewel claims. While that money is not accounted for in the proposal made Thursday, the estate expects both types of claims to be resolved in a similar time frame. Mitchell said that even though the deadline to sign on to the plan is August 7, it will take months to finalize and will be submitted to the court in conjunction with a bankruptcy confirmation plan.
Over the past few weeks, former partners speaking to The Am Law Daily have expressed skepticism about the partner contribution plan. Some have expressed annoyance that they were being penalized more heavily because they actually received profit payments earned in 2010 in 2011, versus others who were paid on time in 2010. Mitchell said Thursday that his team did not address those complaints in the revised plan.”The reality is, there was a lot of cash paid in 2011 attributed to 2010 earnings,” he said, adding that separating it out would have meant making other adjustments to the plan to offset the shortfall.
Mitchell seemed optimistic that the new plan would gain more support than the previous version, though he continued to acknowledge that “I don’t think anyone is going to be happy with this.” He added: “Partners are being asked to make a choice between two outcomes, neither of which they particularly like.”