Former Dewey & LeBoeuf partners have so far agreed to pay more than $70 million as part of a proposed settlement, far exceeding the $50 million that advisers to the bankrupt firm’s estate have said they required to seek court and creditor approval for the plan and repay a portion of Dewey’s substantial debts.
The settlement, which comes less than three months after the firm declared bankruptcy, is designed to help repay creditors owed some $250 million in secured debt and at least $300 million more in unsecured claims.
Dewey’s advisers received in excess of $70 million in commitments—out of the $90.4 million combined total being asked of 672 former partners worldwide—by a Thursday evening deadline for partners to sign on, according to an email sent by Dewey’s chief restructuring officer Joff Mitchell to partners just before noon EDT Friday. “We are still reviewing submissions and expect to be able to confirm a final number next week,” Mitchell said in the email, a copy of which was obtained by The Am Law Daily.
With the settlement total reaching the $70 million figure, all of the partners who chose to participate will receive a 5 percent discount on the amount that is being asked of them as offered in one of several incentives added to the plan since it was first presented on July 11. The number of partners who had agreed to sign on by Thursday’s deadline was not immediately available Friday, but is well in excess of 300.
The settlement called for partners to return between $5,000 and $3.5 million apiece in excess compensation received in 2011 and 2012, as well as additional money related to tax advances and unpaid capital contributions. In return, they are to receive a waiver of Dewey-related liability.
The full extent of that waiver—and the final confirmation that the settlement itself will go through—both require the approval of Manhattan bankruptcy court judge Martin Glenn, who is overseeing Dewey’s Chapter 11 case.
Former longtime Dewey chairman Steven Davis was not offered a chance to settle, and the Dewey estate has made it clear it plans to pursue claims against him. Davis’s lawyer, Ned Bassen of Hughes Hubbard & Reed, had no comment Friday.
In a statement, Mitchell called the settlement’s apparent success a “key milestone we are pleased to have reached,” characterizing it as “an early settlement that can deliver meaningful recoveries to creditors and let former partners put this behind them.” Through a spokeswoman, Mitchell declined to comment further Friday.
Creditors still need to approve the deal, and as of Thursday, one group in that camp appears to be putting up some resistance.
A filing made by an official committee of former partners, composed primarily of retired partners from Dewey legacy firm LeBoeuf, Lamb, Greene & MacRae, has asked Glenn to appoint a neutral examiner to analyze the settlement and make sure it is in the best interest of creditors.
The filing comes in response to a separate motion made a week earlier by a separate, ad hoc committee of retired LeBoeuf Lamb partners, asking that the case be put into the hands of a Chapter 11 trustee or examiner. Unlike that group’s request, the official committee, represented by Kasowitz Benson Torres & Friedman partner David Friedman, said it believes it is premature to have a Chapter 11 trustee installed.
In the motion filed Thursday, Friedman argues that members of the team winding down Dewey’s affairs—which includes two former partners, bankruptcy counsel at Togut, Segal & Segal, and the restructuring firm Zolfo Cooper—are fundamentally conflicted because all were hired during Dewey’s prebankruptcy downward spiral and “were actively engaged in many of the Debtor’s most controversial prepetition actions.” (For more on what led to the firm’s collapse, see “House of Cards” from the July issue of The American Lawyer.)
“Regardless of whether the PCP delivers the right economic outcome, it plainly is the outgrowth of a flawed process,” the motion states. Among the alleged flaws: that the deal was “created with almost no analysis of the merits of the claims being settled” and that the estate has not yet determined when the firm was actually insolvent or undercapitalized.
The creditors argue that the settlement favors higher paid partners and business generators at the expense of retirees and long-ago departed partners. Those partners have been pressured, according to the motion, “on no basis other than the veiled threat that a ‘release is valuable.’ “
“The estate cannot be permitted to sacrifice its claims against the top partners upon the altar of cronyism and expediency,” the motion says. “An examiner can avoid that result.”
(In a footnote, the motion also notes that while Dewey’s advisers have continuously said they are going to break new ground in getting a deal approved quickly and without a trustee, the reason that hasn’t worked in several past law firm bankruptcies “is not that those cases lacked the Debtor’s esprit de corps. It is that in any law firm bankruptcy the primary assets are claims against the partners and those claims simply cannot be maximized by the partners themselves.”)
Ed Weisfelner, a partner at Brown Rudnick representing an official committee of unsecured creditors, did not respond to a request for comment Friday on his group’s stance on the deal.
One former partner interviewed Friday, speaking on condition of anonymity, says he went along with the settlement plan even though he has no reason to believe he would be subject to any liability. “It was a peace-of-mind decision,” he says. “I didn’t want to have the potential risk for the next five to 10 years.”
He also felt considerable pressure from the estate, he says. “They structured it under a strong air of compulsion. They put out a whole parade of horribles of potential liability.”
Another former partner, one who didn’t sign on to the deal, said Friday that he thinks former partners should have resisted. “For partners not to stand up and fight is pathetic,” this partner, also speaking anonymously, said. “It’s just a testament to the weakness of my partners and also the system, that they threatened people who have done nothing wrong.”
Said this former partner: “I can’t wait for them to come after me.”