Advisers working for the bankrupt Dewey & LeBoeuf estate are in for a busy day Monday, when they will seek the bankruptcy court’s approval for their plans to unload the defunct firm’s leases around the world, establish a system for disposing of client files, and continue employing nine professional services firms working on the Chapter 11 case.
With various parties filing objections to the Dewey estate’s plans on all three fronts, Monday’s hearing before U.S. Bankruptcy Judge Martin Glenn, which is scheduled to start at 3 p.m., could be animated and prolonged.
Tensions already appear to be mounting between U.S. Trustee Tracy Hope Davis and lead Dewey bankruptcy counsel Albert Togut. As previously reported on The Am Law Daily, Hope Davis, whose office is overseeing the Dewey bankruptcy, has expressed concern about applications filed by 10 advisers that have already been retained by—and hope to keep working for—the Dewey estate or committees representing the firm’s unsecured creditors. In her lengthy objection, Hope Davis contends that some of the advisers failed to adequately prove that their representation of Dewey does not present inherent conflicts, that several of them appear to be playing redundant roles in the bankruptcy, and that using a public relations firm is not necessary in a bankruptcy.
Togut responded to Hope Davis’s objections with some harsh words of his own in a filing submitted Thursday, saying that Dewey “did not make these retention choices in a vacuum; it made them with serious creditor oversight.” Objections lodged by Hope Davis and others that firms’ roles seem duplicative “ignore the obvious and are thus mechanical, and not thoughtful,” Togut argues, explaining that while his firm has a great deal of expertise in bankruptcy matters, he requires the assistance of outside advisers in connection with other issues. (The advisers the Dewey estate proposes to continue employing include Proskauer Rose, for employment work, D.C. law firm Keightley & Ashner, crisis communications firm Sitrick & Company, and several restructuring and collection firms.) Togut also contends that “if efficiency and cost matter, on that basis alone, the Objections should be overruled.”
In his own filing, public relations guru Michael Sitrick says his company will cease working for Dewey past Monday if the judge disagrees with the hiring. So far, Sitrick & Company has helped develop a plan for announcing the Chapter 11 filing, drafted memos to send to Dewey employees and landlords, managed a hotline for anyone with questions, and fielded media calls, according to the filing.
Proskauer partner Lawrence Sandak submitted a filing in support of his firm’s continued role in the case, refuting Hope Davis’s contention that Proskauer may be in conflict with the estate’s interests because the firm hired 53 Dewey partners and employees as their former firm collapsed. Sandak further asserts that Proskauer’s institutional knowledge made it essential that his firm step in quickly as Dewey faced a number of labor and employment issues leading up to the bankruptcy filing, including preserving the tax status of its 401(k) plan. (He also says in the filing that Proskauer received more than $200,000 from Dewey in the 90 days prior to its bankruptcy, addressing one question Hope Davis raised in her filing.)
A number of uncontested motions will also be on the agenda Monday, including requests to pay employee wages and taxes due before the firm’s May 28 bankruptcy filing, to continue using existing bank accounts, and to renew existing insurance policies. In addition, the proposed agenda lists as an “adjourned matter” a lawsuit filed by Vittoria Conn, a former Dewey staffer, accusing the firm of violating the federal Worker Adjustment and Retraining Notification Act.
The Dewey estate is already gathering up additional items for consideration at a second hearing scheduled for July 25. The most interesting of those issues is a proposal to pay bonuses to the 52 employees currently on the Dewey payroll to make sure they stay motivated and don’t leave until the wind-down is complete. The so-called employee retention and employee incentive plans, first noted by The Wall Street Journal, would set aside a total of $450,000 to be paid to employees who stay through certain key dates and perform well. The estate also proposes to earmark an additional $250,000 in contingency fees for those employees who successfully collect unpaid bills (of which there were $217.4 million in the United States as of the firm’s bankruptcy filing on May 28).
Along with bill collection, the employees—not including senior management—are, among other things, helping to maintain computers and other technology, prepare financial reports, and develop potential third-party claims. Those contributions, according to a July 3 motion, “are integral to the efficient and expeditious wind-down of the Debtor’s affairs, as well as the maximization of funds available for distribution to creditors.”
The motion indicates that the remaining employees may be having a difficult time staying motivated in a stressful work environment and positions that are sure to disappear in the not-too-distant future. Because of that, the Dewey estate says in its filing proposing the retention plan that it “seeks to prevent any further employee attrition and to restore morale by providing appropriate incentives sufficient to motivate the Employees to remain with the Debtor.”
That plan acknowledges that the Dewey bankruptcy could be converted to a Chapter 7 proceeding, which would put the firm’s estate under the control of a trustee rather than the advisers now leading the wind-down effort. In that case, the firm says, employees who would received prorated payments.
In a separate development, former Dewey partners are expected to get some insight Wednesday into details of a proposed partner contribution plan that would see them chip in money to the estate. Partners and their counsel are scheduled to meet in person in New York and by phone Wednesday at 3 p.m. to hear the sums being asked of them, according to one person briefed on the meeting.