A fraud suit launched in California state court by former Dewey & LeBoeuf partner Henry Bunsow against several former leaders of the defunct law firm is headed to New York, a judge ruled Wednesday.
Bunsow’s suit has been the subject of a jurisdictional battle since soon after he filed it on June 13, claiming that former Dewey chairman Steven Davis and others affiliated with the firm wooed new partners using a Ponzi-like scheme that portrayed Dewey as fiscally stronger than it actually was. Bunsow’s suit also names as defendants former Dewey partner and litigation head Jeffrey Kessler, former executive committee member James Woods, former chief financial officer Joel Sanders, and former executive director Stephen DiCarmine.
As of late July, Davis, DiCarmine, and Sanders had successfully removed the suit to federal bankruptcy court in San Francisco by arguing that the litigation is related to Dewey’s Chapter 11 bankruptcy case and should therefore be combined with those proceedings. (The trio also contends that they should be dropped as defendants in the suit and replaced by Dewey, an issue that remains unresolved.)
Since then, Bunsow has continued to insist that the case be heard in San Francisco state court because it deals with state tort law claims and should be heard by a California jury. He also contends that his claims are against the individuals named as defendants, not against the Dewey estate.
U.S. Bankruptcy Judge Thomas Carlson in San Francisco ultimately rejected those arguments, ruling in an order issued Wednesday that the suit be transferred to U.S. Bankruptcy Judge Martin Glenn in Manhattan, who is overseeing Dewey’s Chapter 11 bankruptcy case.
Glenn can now decide whether to keep the case himself, send it to arbitration or to New York district court, or return it to where it started, San Francisco superior court. In his order, Carlson made a reference to the latter option, calling Bunsow’s arguments on that count “not necessarily persuasive.”
Bunsow, a patent lawyer, joined Dewey in January 2011, two months before his then-firm Howrey failed. He now coheads an intellectual property boutique in San Francisco with other former Dewey lawyers.
Cecily Dumas, a bankruptcy attorney in San Francisco who is representing Bunsow on the jurisdictional issue, said Friday that while moving the case to New York will cost money and time, she believes the law dictates that the case ultimately must return to California state court. “It absolutely won’t make any difference” that the decision is now in the hands of Glenn, she says, adding that at an October 19 hearing she urged Carlson to “save us from this lap around the field.”
Ned Bassen, a Hughes Hubbard & Reed partner who represents Davis, DiCarmine, and Sanders, said in an email that he and his clients are “pleased by the ruling and look forward to Judge Glenn’s consideration of the matter.” (Since Dewey’s May 28 bankruptcy, Sanders has moved to Florida to become the chief financial officer at Greenspoon Marder, DiCarmine has begun taking classes at Parsons The New School for Design, and Davis remains unemployed.)
Morrison & Foerster partner Arturo Gonzalez, who represents Kessler, now a partner at Winston & Strawn, said he believes Bunsow’s claims are against the firm and that “they should be resolved in bankruptcy court.”
Woods, who is now at Mayer Brown and does not yet appear to have counsel in the case, according to the online docket, did not immediately respond to a request for comment Friday.
In his complaint, Bunsow alleges that from 2008 onward, the defendants “concocted and participated in a scheme and conspiracy intended to misrepresent the financial performance of Dewey,” and “conspired to publicly and privately misrepresent the financial performance, history and stability of Dewey in order to attract successful partners from other law firms to join Dewey.” He also takes issue with Dewey’s capital contributions policy, saying in the complaint that the firm never intended to return the money—in his case, $1.8 million. In total, Bunsow is seeking $7 million.
According to filings in the Dewey bankruptcy, Bunsow is not among the former partners who have signed on to a so-called partner contribution plan that is expected to bring $71.5 million into the estate’s coffers. Partners who did sign on to the settlement agreed to assign any claims they have against Dewey partners or the firm itself to the bankruptcy estate.
Glenn’s docket stalled this week in the wake of Hurricane Sandy, which shut down bankruptcy court in lower Manhattan. The storm’s lingering impact prompted the postponement of a hearing in the Dewey bankruptcy scheduled for Thursday at which Glenn was expected to hear arguments on whether an official committee of former Dewey partners appointed by the U.S. trustee to preserve the interests of firm retirees should be disbanded. A new hearing date has not yet been set.