Citibank is forcefully denying allegations by a former lawyer with defunct Dewey & LeBoeuf that the bank conspired with firm leaders to woo lateral partners with a Ponzi-like scheme aimed at paying off Dewey’s bank debt through a steady flow of capital contribution payments.

In a 25-page filing in New York federal court, Citi asserts partners should have done their own research into the firm’s financial condition and it wasn’t the bank’s responsibility to warn them. Citi also laid out why it believes it deserves repayment of a loan it extended to former Dewey partner Steven Otillar, who borrowed $207,000 from the bank in 2011.

Citi’s filing last week came in response to Otillar’s allegations that the bank conspired with former Dewey leaders to fraudulently induce partners to join the firm and his claim that Citi should have cautioned him about Dewey’s financial troubles when he took out the loan.

The back-and-forth between the two sides originated in Citi’s lawsuit against Otillar and his wife, filed just days after Dewey’s May 28 bankruptcy seeking the immediate recovery of the loan. Otillar argued in response that he should be allowed to bring counterclaims against Citi and conduct discovery before being forced to repay the $209,670 loan balance and interest.

What still hasn’t been explained by any of the parties involved is why Otillar, a relatively junior partner from Dewey’s Houston office, appears to be the only former Dewey partner the bank has sued so far. Citi launched a six-year capital contribution program with Dewey in 2010, according to former partners. Dewey agreed to pay the interest for the first three years, and partners committed to contributing 36 percent of their targeted yearly compensation to the Dewey partnership by the end of the calendar year when they joined. Dewey promised to repay any remaining portion of the loan and return the rest of the money to partners who left within three years.

Ample Opportunity

In its filing last week, Citi laid out why it believes it deserves repayment from Otillar and his wife, and why the couple should not be allowed to prolong the case with discovery. In disputing Otillar’s accusations, Citi argued he had ample opportunity to assess Dewey’s financial condition on his own.

Citing a clause in Dewey’s partnership agreement that any partner “shall have the right to inspect books and records of the Partnership,” Citi contends, “It is apparent from Otillar’s motion papers that he never availed himself of this opportunity at any time before signing on as a partner or before taking out his Citibank loan or indeed ever.”

The court filing at times seems to avoid the issue of whether or not some of Otillar’s assertions are true, arguing instead that they have no place in the dispute.

“While Otillar claims that he was kept in the dark about the firm’s finances, this is completely irrelevant under governing New York law,” Citi writes, arguing the bank cannot be held liable for failing to disclose confidential information about one of its customers to another.

Touching on Otillar’s point that Dewey lured a large number of lateral partners so it could pay off its bank debts, Citi wrote: “Even if partners’ capital contributions were used to repay Dewey’s indebtedness — so what? No one has ever questioned the legitimacy of Dewey’s bank loans, and repaying debt is certainly a proper use of partnership funds.”

Citi’s relationship with Dewey dates back to the 1970s, and it was one of the financial institutions that had extended a $100 million line of credit to the firm. Citi cashed out its portion of Dewey’s debt before the firm filed for Chapter 11 protection.

“Citibank had no control over how Dewey utilized that money and no obligation to police it,” bank attorneys wrote.

Citi’s lawyer, Michael Luskin of Luskin, Stern & Eisler, did not respond to repeated requests for comment. A Citi spokeswoman repeated an earlier statement that Otillar’s claims “are without merit and we will defend against them vigorously.”

Otillar, now with Akin Gump Strauss Hauer & Feld, declined to comment. His lawyer, Becker & Poliakoff partner Helen Davis Chaitman in New York, said, “We believe we’ll be able to prove our contentions in discovery.”

Administrative Credit

An addendum to the filing also reveals for the first time that three of Dewey’s administrators — executive director Stephen DiCarmine, chief financial officer Joel Sanders and finance director of finance Frank Canellas — had Citi letters of credit.

A declaration by Jeffrey Cole, a senior credit officer in the Citi Private Bank Risk-Law Firm Group, said the three took out the letters in early 2010 for an unspecified dollar amount. All three of the letters expired in December 2011 without being drawn upon.

Otillar’s motions argued, “The only reason someone would want a letter of credit is that he had reason to believe the firm would not survive.”

No hearings have been scheduled yet in the case.

In other Dewey developments, a hearing is scheduled for a judge to decide whether a proposed $71 million settlement with former partners should be approved. Groups of former partners as well as creditors took positions either for and against the settlement in a batch of court filings submitted Thursday.