Six months after seeking bankruptcy protection amid the largest law firm collapse in U.S. history, Dewey & LeBoeuf has finalized a plan designed to repay creditors a portion of more than $600 million in total debt while liquidating the remnants of what was until earlier this year a 1,300-lawyer enterprise.
In a bevy of Thanksgiving eve filings that serve as Dewey’s official Chapter 11 plan and disclosure statement, the advisers guiding the defunct firm through bankruptcy detail what led to its downfall, highlight what they believe they have accomplished so far, and lay out how they envision divvying up whatever money they are able to bring in.
Chief among the estate’s achievements to date, according to the latest batch of filings, is the successful execution of a so-called partner contribution plan with roughly 400 former Dewey attorneys that is expected to yield $71.5 million for the estate. (Those who agreed to participate in the plan can neither sue nor be sued by the estate).
Most of that sum is earmarked for Dewey’s secured creditors, a group that includes lead Dewey lender JPMorgan Chase and, according to the Dewey team, is owed a combined total of $261 million. The estate proposes in court filings to treat an additional $100 million originally listed as secured debt as unsecured debt instead. Companies that entered property or equipment leases with Dewey have filed another $44.5 million in secured debt claims, the filings say.
According to the disclosure statement filed as part of the bankruptcy plan—which must be approved by the court and the firm’s creditors before a proposed liquidation can proceed—80 percent of the first $67.5 million to be raised via the partner contribution plan as well as the same percentage of an as-yet-unspecified amount of unfinished business claims to be brought against firms that hired Dewey partners will go toward paying off secured debt.
Secured lenders will also get any of the estimated $218.6 million in unpaid bills the estate manages to collection, as well as most of the money that comes in as a result of mismanagement claims, insurance claims, or the disposal of other firm assets.
The firm’s unsecured creditors—which the disclosure statement lists as having claims totaling $284.9 million—are to get whatever remains after the secured creditors are repaid.
Dewey’s advisers—a group that includes lead bankruptcy lawyer Albert Togut and chief restructuring officer Joff Mitchell—argue forcefully in the filings that their proposal represents the best and quickest path out of Chapter 11 for the once-proud firm. They propose that a hearing on the plan be scheduled for January 3, that objections be filed by February 11, and that confirmation hearing be set for February 27.
“The Debtor does not believe that there is a viable alternative for completing the Bankruptcy Case Other than through confirmation of the Plan,” the Dewey team states in one filing, adding that “any alternative other than confirmation of the Plan could result in extensive delays and increased administrative expenses, thereby resulting in smaller distributions on account of claims and interest in the Debtor.”
The estate currently estate employs 37 people—including dissolution committee members and former Dewey partners Stephen Horvath and Janis Meyer—who are helping to wind down the firm’s operations. The filings note that Horvath and Meyer will no longer work for the firm once a bankruptcy plan is approved, and will receive all the protections provided by the partner contribution plan.
The filings mention that there are currently 13 active lawsuits pending against the estate, all of which should be covered by the $275 million in malpractice insurance coverage the defunct firm still has. Any claims the government may assert against Dewey or any of its former partners— including anyone who participated in the partner contribution plan—remain valid, according to the filings. Among the matters that could fall into this category: the ultimate outcome of the Manhattan district attorney’s criminal probe into former Dewey chairman’s Steven Davis’s stewardship of the firm. Davis has denied any wrongdoing.
Earlier this month, the official committee of unsecured creditors formed in connection with the bankruptcy took its first stab at a major recovery when it asked the court’s permission to sue Davis, former executive director Stephen DiCarmine, and former chief financial officer Joel Sanders. All three—who have so far been prevented from participating in any settlement offers—are potentially covered by a $50 million management liability policy held by Dewey.
In a November 12 filing, the unsecured creditors committee attribute Dewey’s collapse to the trio’s “reckless management” of the firm’s finances, specifically “a secret and reckless campaign of handing out guarantees atypical of industry norms”—the firm has said that 130 partners received specialized compensation agreements—and a recruiting strategy that resembled a Ponzi scheme. (Two former Dewey partners engaged in litigation related to the firm’s collapse have made similar allegations in court documents.)
In a filing submitted Wednesday, Davis’s lawyers at Kirkland & Ellis decry the sensational language used in the committee’s filing, saying that while they don’t question the committee’s right to sue Davis, they object to what they describe as the group’s use of the motion as “a platform for launching needless and inappropriate personal attacks on Mr. Davis and promoting fanciful theories of wrongdoing.”
In the filing, Davis’s attorneys also rebut what they claim are misstatements by the committee that he engaged in “self serving behavior” that was motivated by greed,” noting his relatively modest compensation package—$300,000 for his work in 2010, and $1.1 million in the year leading up to Dewey’s bankruptcy.
“While ‘greed’ is a theme of the Committee’s Motion, the litigation that eventually ensues will address the question of whose greed,” Davis’s lawyers write.
In a Wednesday filing of their own, DiCarmine and Sanders, also objected to the allegations made against them by the unsecured creditors’ committee. The pair, represented by Hughes, Hubbard & Reed, argue that discovery will show that, “rather than being responsible for the Firm’s failure,” DiCarmine and Sanders “fully and responsibly performed their duties, including, for example, by reducing the Firm’s expenses by over $100 million.” The filing also questions whether Sanders and DiCarmine are in fact covered under the $50 million insurance policy.