The Dewey & LeBoeuf estate made one last push Wednesday to win support for a proposed $72 million settlement with former partners, filing responses in court to objections raised over the past few weeks by parties who question the fairness of the proposed plan and the motives of those who put it together.
U.S. Bankruptcy Judge Martin Glenn is scheduled to hear arguments at a Thursday morning hearing both in favor and against the so-called partner contribution plan, which would award those who have agreed to repay money to the Dewey estate a waiver of Dewey-related liability. Several other items are also on the agenda, including a contested request by a group of retired partners that the Chapter 11 case be put in the hands of a neutral examiner, and a motion by XL Specialty Insurance Company that seeks the court’s permission to advance defense costs to former Dewey leaders facing allegations of wrongdoing.
The settlement plan, presented to former Dewey partners in mid-July, reached a consensus in August, and Dewey’s advisers filed their motion asking Glenn to approve the plan August 29.
Since then, two groups of retired partners—one with an official role in the bankruptcy, the other an ad hoc group—have expressed the strongest objections to the settlement plan. Both groups argue, among other things, that the plan favors former Dewey partners who have ties to Dewey’s advisers. In its Wednesday response, the Dewey estate states that while the two groups “still insist that [chief restructuring officer Joff] Mitchell was somehow controlled by the Wind-Down Committee or other dark forces . . . no facts support this contention, none are identified by the dissident group of retirees who are objecting to the Motion and approval of the [partner contribution plans], and none can be identified because they do not exist.”
To support its contention that the plan is fair, Dewey filed a portion of a transcript from a recent deposition of David Pauker, the executive managing director of Goldin Associates, the firm that assembled the partner contribution plan. The seven-page excerpt reveals the calculus involved in deciding whom to include in the proposed partner settlement. Former Dewey chairman Steven Davis, as well the firm’s former executive director, Stephen DiCarmine, and former chief financial officer, Joel Sanders, were not allowed to participate in the plan.
According to the transcript of Pauker’s deposition, the three men are the focus of potential breach of fiduciary duty claims that Dewey plans to bring as a way of tapping into a $50 million insurance policy that covers such claims. In his testimony, Pauker explains that the Dewey estate considered the potential for suing other former Dewey leaders as a way of raising more money for the estate, but ultimately decided that going beyond those three “would not necessarily increase the recoveries available.”
Pauker also acknowledged during the deposition that the estate’s advisers could have done an extensive search through old emails and correspondence to try and find a “smoking gun” to establish that other members of Dewey management knew about extensive compensation guarantees given to Dewey partners and chose to hide that information from the broader partnership. The estate chose not to do so, Pauker said, because it was eager to push through the partner contribution plan in 90 days.
“We did not conduct the kind of investigation that we might have conducted as a Court-appointed examiner because we had neither the time nor the resources,” Pauker said, according to the transcript. He also noted that the sums former executive committee members were expected to pay under the partner contribution plan were crucial to reach the threshold amount necessary for the plan to succeed.
Elsewhere in the Wednesday filings, Dewey addressed dissenters who have argued that the names of the partners who signed on to the settlement should be made public. In a declaration, Mitchell says he is willing to make such a disclosure within five business days of the court approving the plan. He explains that former partners and Dewey advisers had access to the information, but that it has been withheld from the public because, “based on requests made by many former partners and/or their counsel, the Debtor determined to keep the identity of Participating Partners and their respective Partner Contribution Amounts ‘confidential.’ Former partners expressed the concern that they did not want their willingness to settle claims against them by the Debtor made public unless and until the PCPs were approved by the Court.”
One group of former partners’ grievances has, however, already made it onto the bankruptcy docket. Bankruptcy lawyers Bruce Bennett, Sidney Levinson, James Johnston, and Joshua Mester, who all moved to Jones Day from Dewey in the weeks before the firm’s late May collapse, have been given a special arrangement with regards to the partner contribution plan. A stipulation filed with the court last week, and signed by Glenn, dictates that the group does not have to comply with an aspect of the PCP waiver that prohibits them from bringing claims against the estate.
The team, according to the stipulation, sent a “notice of dispute describing claims for fraud, misrepresentation, breach of fiduciary duty, and other claims” against Dewey, members of its executive committee, and others a week before the firm filed for bankruptcy protection. The stipulation further states that Bennett’s team, which is still preparing its final fee application in the Los Angeles Dodgers bankruptcy case, has “taken steps to preserve and pursue the damage claims against the defendants in accordance with the dispute resolution provisions contained in the partnership agreement.”
Two objections filed by Dewey’s official committee of unsecured creditors—that the firm’s U.K. branch should not be included in the plan and that former Dewey partners Stephen Horvath and Janis Meyer should not be allowed to receive the same liability waiver without contributing any money to the settlement simply because they are working on winding down the firm’s operations—were not explicitly addressed by the estate in its response. In a footnote, the estate’s lawyers note that both issues have been set aside until further discussions can take place.
One filing made Wednesday shows that Horvath and Meyer were put in place as the dissolution committee members as of May 11, a point at which Dewey was still not publicly saying the firm’s closure was imminent. The agreement, made by the executive committee, gave Horvath and Meyer “full power and authority and discretion to take all steps necessary to wind down the Firm’s business and affairs,” and notes that they will be compensated for the effort.