In a Tuesday afternoon conference call, Dewey & LeBoeuf‘s bankruptcy team outlined the basics of a proposed plan that would see a settlement with former partners reached within the next six weeks and bring in much-needed money to the estate.
In an effort to achieve a speedy resolution, the bankruptcy team emphasized that a settlement would absolve former partners—with the exception of former chairman Steven Davis—of any future liability in relation to the firm, according to a person on the call. A critical mass would have to agree to the settlement for it to be approved by creditors, according to this person, though the call’s leaders did not specify what that number would be.
A lawyer for Davis and a Dewey spokesman had no comment about the conference call.
The hour-and-a-half-long call, which was open to former partners and their counsel, was led by the two members of Dewey’s dissolution team, Janis Meyer and Stephen Horvath III, as well as its chief restructuring officer, Joff Mitchell of Zolfo Cooper. (Until Dewey’s May 28 bankruptcy, Meyer served as the firm’s longtime general counsel and Horvath as its newly instated executive partner). Other members of Dewey’s team also spoke, including lead bankruptcy counsel Albert Togut and other members of Zolfo.
Lawyers for the Dewey estate have repeatedly said in court hearings and public meetings that reaching agreement on a so-called partner contribution plan would be a novel way to resolve issues with former partners within weeks, rather than the years typical of law firm bankruptcies. As explained Tuesday, partners would pay an as-yet-unspecified amount of money into the estate in exchange for a release that would have all sides promise not to pursue further legal action against each other, according to the person on the call.
In past law firm bankruptcies, including those of Thelen, Heller Ehrman, and Coudert Brothers, the firms’ estates have brought litigation against the firms where former partners have landed using so-called clawback suits seeking the return of profits brought with them to their new employers. Togut has said publicly that he is hoping to avoid a similar course of action with Dewey and resolve any disputes with former partners quickly.
Speaking to reporters after a court hearing last week, Togut said the money being asked of former partners could be related to unfinished business they took with them, compensation they’ve been paid, and other factors.
But even as Togut and his team propose a settlement with former Dewey lawyers, some of those same lawyers are seeking money from the firm.
A group of former partners from Dewey predecessor firm LeBoeuf, Lamb, Greene & MacRae are fighting for pension benefits through an official committee of former partners created by the U.S. trustee’s office as part of the bankruptcy proceedings. And former partner Henry Bunsow, who joined Dewey in January 2011 a few months before his former firm, Howrey, collapsed, sued a number of former Dewey leaders in San Francisco state court June 12 seeking more than $5 million.
The Tuesday call did not address the option of any money being paid from the estate to former partners, according to the person on the call.
Two lawyers who are representing groups of former partners, Tracy Klestadt of Klestadt & Winters and Mark Zauderer of Flemming Zulack Williamson Zauderer, would not comment on the call other than to say there’s still a sense of “wait and see” on what the settlement will entail.
“It was a productive call, though no details were provided as to the partner contribution plan,” says Kledstadt.
The call attendees were told that a plan, which is being constructed with the help of financial consulting firm Goldin Associates, would be presented to creditors by next week. The overall sentiment on the call, according to two people in attendance, is that partners will be better off agreeing to the settlement now, rather than waiting for whatever legal action might be brought later, particularly if the bankruptcy gets handed over to a trustee.
Events have unfolded quickly in the three weeks since Dewey’s Chapter 11 filing, which came after several months of rapid partner losses and amid questions about the firm’s financial health.
The estate received bankruptcy court approval last week for a $24.8 million budget, funded out of its secured lender’s cash collateral, to keep the bankruptcy operating through the end of July. That budget includes $3.5 million for Dewey’s professional advisers, who recently filed applications laying out their fees and history with the firm, as well as $753,000 for advisers to the unsecured creditors’ committees and $2.2 million for other lawyers working on the bankruptcy.
Since its bankruptcy began, Dewey has also resolved a lawsuit brought by the Pension Benefit Guaranty Corporation, the federal agency that is taking over what it says is a pension plan underfunded by $80 million. The PBGC continues to be Dewey’s largest unsecured creditor.