The judge overseeing Dewey & LeBoeuf’s Chapter 11 proceedings on Tuesday approved a settlement plan under which ex–Dewey partners will repay the defunct firm’s estate $71.5 million, making the bankruptcy the first in which a major law firm has managed to resolve claims against a majority of its former partners within mere months of dissolving.
In his 27-page ruling, U.S. bankruptcy court judge Martin Glenn also firmly rejected a call from two groups of retired partners affiliated with predecessor firm LeBoeuf, Lamb, Greene & MacRae that he appoint an examiner to review the settlement. In refusing that request, Glenn said bluntly that the retirees motion “was filed for an improper purpose as a litigation tactic to try to derail approval” of the plan.
Roughly 450 former Dewey partners have so far agreed to pay the estate sums ranging from $5,000 to $3.37 million apiece based on money they received from the firm in 2011 and 2012. In exchange, those who have agreed to participate in the settlement will receive a waiver of most Dewey-related liability, though the so-called partner contribution plan does not protect them against suits that may be brought by third parties or former partners who do not sign on.
Lead Dewey bankruptcy lawyer Albert Togut championed the plan since the day after Dewey filed for Chapter 11 bankruptcy protection May 28. It was presented to former firm partners on July 11 and, after several rounds of revisions, approved by a quorum of those partners—many of them begrudgingly—by August 16.
In his ruling, Glenn emphatically supports the plan’s construction and execution, saying it “will lead to a quicker wind-down in Chapter 11, and—more importantly—a quicker and more certain distribution to creditors.” He also says he found no evidence to support allegations raised by both an ad hoc committee of retired LeBoeuf Lamb partners and an official committee of former partners that the negotiations that produced the settlement were the “product of collusion” between interested parties. The dissenting groups’ assertions were based, in part, on the fact that Togut, as well as Dewey’s chief restructuring officer, Joff Mitchell, were hired before the firm went bankrupt, as well as the continued presence of two former Dewey partners, Janis Meyer and Stephen Horvath, on the firm’s wind-down committee.
Three Dewey leaders—former chairman Steven Davis, former executive director Stephen DiCarmine, and former chief financial officer Joel Sanders—were not allowed to participate in the settlement, and the estate has said repeatedly that it intends to pursue claims against the trio.
Ned Bassen, a Hughes Hubbard & Reed partner who is representing Davis, DiCarmine, and Sanders in connection with the bankruptcy, said via email that his clients were pleased that Glenn addressed their concerns that they not be blamed for more than their proportionate share of the firm’s demise. Bassen also pointed to a footnote in the ruling in which Glenn wrote that, “The Court has no basis to conclude—and does not conclude—that there are any viable claims that can be pursued against Davis, DiCarmine, and Sanders, or what defenses they may be able to assert.” (Glenn’s ruling comes a day after the Wall Street Journal reported that the Manhattan district attorney’s office is continuing its investigation into the circumstances surrounding Dewey’s fall.)
In a statement, Dorsey & Whitney partners Annette Jarvis and Eric Schnabel, who represent the ad hoc committee of retired partners, said they are “very disappointed” that the judge rejected their motion to appoint an examiner. “The sordid facts underlying the Dewey & LeBoeuf demise cry out for investigation by an independent examiner,” the statement continues. “The Court’s attribution of improper motives to the retirees who brought the motion adds insult to injury. The Ad Hoc Committee will be examining the decision with a view to appeal.” David Friedman, a Kasowitz Benson Torres & Friedman partner who represents the official committee of former partners, did not return a request for comment.
Mitchell reacted enthusiastically Tuesday to Glenn’s ruling, calling it the “right result” for creditors and former partners.
“Now our job is to finish off the case and get it confirmed and collect settlement proceeds and distribute them,” Mitchell said, adding that he and the estate’s other advisers hope to have a Chapter 11 plan—which would lay out how creditors are to be paid—approved by either December or January. Once that happens, collections based on the settlement can begin.
Mitchell says he thinks it is unlikely the case will be converted to a Chapter 7 proceeding at this point, something Togut frequently raised as a possibility if the partner contribution plan failed to win approval, and that Glenn acknowledged in his ruling. Mitchell also says he expects some of the roughly 220 former partners who have not yet signed on to the settlement to do so now that Glenn has given the plan his blessing—and that the estate is likely to waive any late fees it previously said would apply for those who waited too long. The estate is also in preliminary talks with firms that hired partners handling ongoing Dewey matters to seek the return of money based on the unfinished business doctrine, Mitchell says.
Mark Zauderer, a lawyer who represents 58 former Dewey partners, called the course of events since Dewey went under and the approval of the settlement “an unfortunate situation that yielded a practical result that really allows competent professionals to go on with their professional lives.”
In prior law firm bankruptcies—including those involving Coudert Brothers, Thelen, and Heller Ehrman—costly litigation with former partners has dragged on for years, something Glenn noted several times in his ruling.
Ultimately, according to Glenn, “The benefits of the [plan] are incontrovertible.”
No Decision on Dewey Settlement Proposal Until Next Week, Oct. 4, 2012
$71.5 Million Dewey Settlement Plan Now in Judge’s Hands, Sept. 21, 2012