The push to persuade Dewey & LeBoeuf partners to sign on to a proposed $90.4 settlement plan continued Thursday, with the defunct firm’s advisers offering up several modest incentives in what appeared to be a final bid to winning enough support for the settlement to succeed.
The latest revision to the so-called partner contribution plan came a day after a group of retired LeBoeuf, Lamb, Greene & MacRae partners as well as spouses of deceased retirees asked Manhattan Bankruptcy Judge Martin Glenn to put Dewey’s Chapter 11 bankruptcy in the hands of either a trustee or an independent examiner to ensure the fairness of the proceedings.
Having the bankruptcy taken over by an outside party is precisely what Dewey’s advisers have said the $90.4 settlement plan—which calls for some 700 former firm 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—is designed to avoid.
Dewey’s advisers are hoping to receive commitments of at least $50 million, the threshold needed to present the plan to creditors, by a Tuesday deadline. If the plan fails and a trustee step in, the firm’s advisers warn, the case is certain to become more litigious and drawn-out. (As The Am Law Daily reported Monday, it would indeed be a first in law firm bankruptcy history for such a deal to be struck so quickly. Financial disputes between defunct firms and former partners typically drag on for years.) In exchange for signing on to the proposal, those who participate will get a release from Dewey-related liability.
The LeBoeuf Lamb retirees, an ad hoc group of 54 partners from the firm that merged with Dewey Ballantine in 2007 to create Dewey & LeBoeuf, are unhappy with the settlement proposal and with the way Dewey’s bankruptcy has been run since the firm’s May 28 filing. In a motion filed with the bankruptcy court late Wednesday, they argue that the case is riddled with conflicts of interest and that decisions continue to be made to benefit “insiders” who contributed the most to the firm’s late-May collapse.
“Prepetition and postpetition mismanagement of the Debtor, encumbered by blatant conflicts of interest, make the incumbents incapable of acting as fiduciaries and create a reality and an appearance of impropriety that will illegitimize any consensual resolution of this case,” the LeBoeuf Lamb retirees state in their filing.
The incumbents in question include lead bankruptcy lawyer Al Togut and chief restructuring officer Joff Mitchell, both of whom were hired by Dewey in advance of the bankruptcy filing. Two former Dewey partners, Stephen Horvath and Janis Meyer, have also stayed on to help oversee the firm’s dissolution. As the retirees note in their filing, Horvath and Meyer have been paid substantial sums—a combined $58,000 per week—to stay on, and will be absolved of any Dewey-related liability if the proposed settlement goes through even though they aren’t being required to return any money to the estate. Through a spokeswoman, Dewey’s advisers declined to comment.
The deadline for approving the partner contribution plan, which Dewey’s advisers refer to as the PCP, has already been pushed back twice amid questions about how fairly it treats more junior partners and retirees who had no hand in the events that led to the firm’s collapse. Another extension appears unlikely.
In a brief call Thursday morning, Mitchell told former partners that creditors will not agree to continue funding the case if a deal isn’t reached, according to a former partner on the call. Mitchell noted during the call that secured creditors have $260 million in claims, and unsecured creditors have at least an additional $300 million.
In the hopes of building support for the plan, Mitchell said during Thursday’s call that if the estate receives commitments of at least $65 million by Tuesday, plan participants will get a 2.5 percent discount on the amount they are being asked to contribute. The discount rises to 5 percent if the estate gets at least $70 million in commitments.
Mitchell explained that an alternative discount is available for former partners who collect unpaid bills generated during their Dewey tenure. For every bill fully collected, 5 percent of that bill will be deducted from the settlement amount being asked of the partner in question. Lesser discounts are available to partners who collect at least 95 percent of any given bill. A partner can only benefit from one discount or the other, whichever reduces his or her payment to the estate the most.
According to the former partner on the call, Mitchell stressed that the incentives discussed Thursday will be the last revisions made to the settlement plan. In addition, partners were directed to a frequently asked questions list and told that the firm’s advisers do not have enough time to answer all the questions coming in via email.
Mitchell acknowledged during the call that Dewey advisers were aware that the retirees’ motion seeking the installation of a trustee was in the works before the group made the filing. He also said that if the partner contribution plan wins enough support, Glenn is expected to reject the motion.
In Wednesday’s filing, the retirees’ counsel at Dorsey & Whitney argues that the “senior-citizen members” of the group are among the most affected because they have no means to replace the money they are being asked to contribute. The filing also says “the Debtor is strong-arming and intimidating [them] into contributing fresh funds into the PCP without any articulated legal basis for requiring them to do so.”
In a statement, Annette Jarvis of Dorsey & Whitney said “The goal of the Ad Hoc Committee is to ensure that the bankruptcy proceeding is conducted with transparency, care and fairness to all constituencies, not only the members of the Ad Hoc Committee and other creditors, but also partners who did not cause the failure of the firm.”
Retirees under the premerger LeBoeuf’s plan stopped receiving payments in late 2009 and early 2010, according to the filing. The payments recommenced in April 2010, but by the end of that year they were once again delayed, even as large distributions were being made to current partners.
In a litany of complaints against Dewey management, the retirees also point out a 1 percent fee imposed on Dewey 401k plans after the firm went bankrupt that they say the U.S. Department of Labor is investigating.
“This case cries out for an independent person to conduct a full and impartial investigation and to take control over the disposition of insider claims,” they argue.
David Friedman of Kasowitz Benson Torres & Friedman, who is representing an official committee of former partners largely comprised of retirees, said in a statement that his group shares the concerns of the ad hoc committee, adding: “The treatment by Dewey & LeBoeuf of its retired partners has been shameful and the PCP simply continues the attempts by the firm’s management to enrich the most powerful at the expense of the most vulnerable.”