Al Togut doesn’t look like a bankruptcy lawyer. At least he doesn’t think so.
“I’m too tall,” the 6-foot-5 Togut says, sleeves rolled up and tie loosened as he holds forth in the slightly messy Manhattan office where he has worked for more than 25 years. His walls and desk are littered with reminders of some of the more interesting places his career has taken him: a photo of a grinning Togut surrounded by the Rockettes; a silver bullet from a company that owned the rights to The Lone Ranger; a caricature of actor Zero Mostel plucked from the wall of legendary Broadway-haunt Sardi’s. “Seriously, you go to bankruptcy functions and everyone is 5-foot-9.”
In the 35 years he has been practicing law, Togut’s imposing physical stature isn’t the only thing that’s made him stand out in New York’s bankruptcy bar. His willingness to pick up assignments that the lawyers he considers his peers eschew has helped his boutique, Togut, Segal & Segal, forge lucrative and mutually beneficial relationships with the much larger Am Law 100 firms that often snag the most significant restructuring assignments.
And though the 63-year-old Togut—the eldest child of a kitchen supply salesman and a housewife from upstate New York—says he is humbled by how far he has come, he speaks with a self-confidence that falls just shy of boastful. “Nobody doesn’t know who I am,” he says, ticking off a list of major cases in which he has played a role, mostly through referrals from counterparts at bigger firms: Enron, Chrysler, General Motors, American Airlines. “I can give you billion-dollar case after billion-dollar case.”
One of Togut’s most recent assignments, the Dewey & LeBoeuf bankruptcy, doesn’t come close to making his billion-dollar list, but it has nonetheless earned Togut more attention than any other this year and is likely to establish precedent in the field of law firm bankruptcies.
If all goes according to schedule, the Dewey estate could see its Chapter 11 plan confirmed by the end of February, just nine months after the firm became the largest ever to fail when it sought bankruptcy protection May 28. Once that happens, Togut and chief restructuring officer Joff Mitchell of Zolfo Cooper will conclude their work for Dewey and a pair of trustees tasked with collecting receivables and maximizing the estate’s remaining profits will take over.
The case has moved swiftly, in part because of a novel idea Togut came up with that has become a crucial element of the Chapter 11 plan: a settlement with 450 former Dewey partners that is expected to bring in $71.5 million—a small but important fraction of Dewey’s more than $600 million in debts—and free those who have signed on from future Dewey-related litigation. (The plan must still overcome an appeal filed by a group of retirees, and partners could still face claims from the firm’s former New York landlord.)
Dewey’s bankruptcy has given Togut the chance to correct what he views as mistakes in past law firm failures, but it doesn’t qualify for what he deems a “great case.”
“There’s not been a great law firm case, including this one,” he says in the emphatic, explanatory tone he has honed over years of making arguments in court. “This has been hard. Emotionally difficult. Taxing. Exhausting.” How so? “I like to save businesses,” he says. “As a lawyer, this is very sad for me.”
Finley Crumbles: “A Disaster of a Case”
Togut says he was leery when fellow bankruptcy lawyer Martin Bienenstock, a longtime acquaintance then serving on Dewey’s five-person office of the chairman, called asking for help in April.
“I had sworn I would never touch a law firm,” Togut says—with good reason. Nearly 25 years ago, he took a case he credits with helping him establish his reputation: the Chapter 11 bankruptcy of Finley, Kumble, Wagner, Heine, Underberg, Manley, Myerson & Casey, which rose quickly and flamed out just as fast in a spectacular 1987 collapse that earned the American Lawyer cover line “The firm everyone loves to hate is falling apart.” (Several months earlier, the magazine had dubbed Dewey predecessor Dewey, Ballantine, Bushby, Palmer & Wood “a Finley, Kumble in sheep’s clothing” as a result of a recent growth spurt).
“It was a completely dysfunctional firm,” Togut says of Finley Kumble, explaining it as a Ponzi-like enterprise that grew by borrowing against the receivables it collected from firms with which it merged. (Togut declined to comment on claims made in lawsuits filed by two former Dewey partners that it, too, operated as a Ponzi scheme, albeit for different reasons). After Finley Kumble’s bank lenders—whose $85.5 million in unpaid loans were unsecured—forced the firm into bankruptcy, “the partners headed for the hills,” says Togut, who was initially hired, over the banks’ protests, to represent unsecured creditors. “The partners were not only gone, they didn’t want to talk to each other.” He adds: “It was just a disaster of a case.”
It was also the first time a large law firm had gone bankrupt, a development complicated by the fact that, as was typical at the time, Finley Kumble was structured as a general partnership, meaning each of its 284 partners were individually liable for the firm’s $112 million in total debts.
It took four years and more than $26 million in legal fees until a bankruptcy plan was confirmed in the case. At that point, Togut went from creditors committee counsel to trustee. By 1995, most former Finley Kumble partners had agreed to help pay off the firm’s creditors, though payments were still being collected 15 years after the case began and litigation against one former name partner dragged into 2002.
Though painful, Togut says, the experience gave him a footing in the nascent field of law firm bankruptcies and led to assignments representing creditors in the 1994 failures of medical malpractice defense firm Bower & Gardner and storied general practice firm Shea & Gould. (Both had significantly smaller amounts of debt than Finley Kumble.)
Though Togut vowed to avoid law firm bankruptcies after wrapping up those cases, he says he periodically revisited the frustration he felt working on the creditors’ side in all three matters. “I kept watching what I thought were mistakes, big ones,” he says. “And I always wanted to be on the debtor’s side, but not on just an average kind of case.”
In Dewey’s collapse, he found what he was looking for.
A Leap of Faith: Asking Partners to Pay
Togut had a second reason to be wary about taking Dewey on as a client. Years earlier, Dewey Ballantine had given him what he calls a “breakthrough” case in which he represented the debtor in the 1995 bankruptcy of New York landmark Rockefeller Center Properties. (Dewey represented Rockefeller’s majority owner, the real estate wing of Japanese conglomerate Mitsubishi.)
“So,” he says, “I’m being called in to put my most endeared forwarder to sleep.”
Putting his trepidations aside, Togut agreed to meet with Bienenstock and Dewey’s other leaders as they scrambled to find a way out of what had become a desperate situation. Dewey’s leaders had already started merger talks with several firms, and Togut proposed doing a swift bankruptcy with all the parties on board once a deal was finalized. But the plan fell apart when potential merger partners, including Greenberg Traurig and SNR Denton, got spooked by the revelation that the Manhattan district attorney’s office had launched an investigation into the actions of demoted Dewey chairman Steven Davis. (He denies any wrongdoing.)
With the case becoming a straight Chapter 11 proceeding, Togut decided to unveil the idea he’d hatched after mulling over all those past law firm failures: The Dewey estate would ask former firm partners to help pay back creditors almost immediately through a settlement plan that would reward participants with waivers from Dewey-related liability. The goal: avoid the kind of litigation that had typically bogged law firm bankruptcies down for years. “If you want to boil down what my partner contribution plan concept was, it really was a leap of faith,” Togut says. “It was an idea that when articulated made sense, but nobody could point to anything and say that it would work.”
That could explain why Dewey’s former partners, once they were presented with it, did not immediately embrace the idea. Togut and Mitchell led a series of town hall meetings to explain the settlement proposal, which initially called for 709 former Dewey partners—including hundreds who had left the firm or retired prior to 2012—to return a portion of the compensation they had received in 2011 and 2012 when the firm was, in hindsight, likely insolvent. Taking what Mitchell labeled a “rough justice” approach, the plan placed partners into tiers and asked that they pay between $25,000 and $3 million apiece.
Still stinging from the way the firm had imploded, former partners—many of whom thought they, not the estate, should be getting paid—balked when the plan was unveiled on July 11. Weeks of meetings with former partners and their counsel followed. In the process, Togut and company made adjustments to their plan, changing the range to between $3,000 and $3.37 million, for instance, and adding an extra charge for former members of Dewey’s executive committee. Slowly, the plan gained support.
“It was a sales job,” says Mitchell. Some former partners saw it as a hard sell and criticized Togut and Mitchell for trying to bully them into signing on with ominous warnings about the litigation they would face it they didn’t participate. “I didn’t try to cajole people or threaten people into supporting the [plan],” counters Togut, who acknowledges hearing his tactics referred to as bullying. “What I wanted them to understand is that there’s a very dark side of the moon.”
That message clearly resonated. By mid-August, 450 former partners had agreed to return a combined total of roughly $71.5 million to the estate. Dewey’s advisers presented the plan to bankruptcy judge Martin Glenn, who approved it October 9 over the objections of a group of Dewey retirees. (The retirees are appealing Glenn’s decision in federal district court in Manhattan.)
Togut says that if he had to do it again, he would spend more time discussing the plan with individual retired partners to help them understand why they were included, though he dismisses any suggestion that they should not have been asked to chip in. “Even though they’re retired, they got money when the firm was insolvent, and they’re vulnerable to a clawback action, he says. “It was not meant to be penal. It was a service to them.”
A Bankruptcy Natural, with a “Finely Tuned Crap Detector”
Reaching consensus in the face of animosity is something Togut has become accustomed to in his years of practicing. “He understands the importance of getting a deal done,” Mitchell says. “He has that ability that not a lot of lawyers have to practice law and also understand there’s an end game.”
Togut’s focus on the final result and intolerance for those who disagree with him has earned him some detractors. “Al may not be the warmest and fuzziest guy in the world,” says legal consultant Jerome Kowalski, a former Finley Kumble partner sued by Togut in the wake of that firm’s collapse. “He’s a bit of a bulldog and is not one to be swayed by any other view.”
Togut cites the ability to reconcile competing interests among the handful of skills he finds necessary to being a successful bankruptcy lawyer: “You have to understand business really well. I do. You have to understand people really well. I do. You have to be very practical. I am. You have to have good political skills. . . . I’m good at that. And I don’t know, it’s like I was made to be a bankruptcy lawyer.”
He wasn’t always so sure about that.
Togut grew up in Albany, Queens, and Lake Success, New York, in what he calls a “Norman Rockwell” youth. He left home to attend New York University, becoming the first in his family to go to college. Upon graduating with a degree in economics in 1974, he intended to go to business school and then start a company. But with the economy slumping, he opted for law school, inspired by what he says were a preponderance of corporate CEOs with law degrees. Then, in his second year at St. John’s University School of Law in Queens, he says, he took a class with “one of the deans of the bankruptcy bar,” Conrad Duberstein, and “fell in love.” (At the time a private practitioner, Duberstein later served as the Eastern District of New York’s chief bankruptcy judge and has a Brooklyn courthouse named in his honor.)
After earning his law degree, Togut began working full time at New York firm Otterbourg, Steindler, Houston & Rosen, where Duberstein ran the bankruptcy group. He branched out on his own in 1980, a year after the Bankruptcy Code replaced the Bankruptcy Act and, as Togut puts it, changed the entire practice. Previously, lawyers working on a bankruptcy case couldn’t be paid in full unless creditors were too, making the work unattractive to those striving for the fattest profits. With the code’s introduction, bankruptcy lawyers were able to charge rates comparable to those their counterparts billed to vibrant corporate clients. Togut says the change kicked off a race among large firms to snatch up bankruptcy boutiques.
“I’m watching this, and I’m saying to myself, a vacuum was just created,” he says. He came up with an idea that he believed would keep him competitive and small at the same time: serving as conflicts counsel, a role in which he would handle finite assignments within a major bankruptcy— suing a creditor, for instance—that the lead bankruptcy firm couldn’t take on because of a prior client relationship.
Until the conflicts work caught on, Togut also carved out a niche as a Chapter 7 trustee, another type of assignment large firms typically didn’t seek out. Over the years, Togut has served as trustee for estates that ranged from those of individuals filing personal bankruptcy to the $4 billion case involving commodities broker Refco.
The Rockefeller Center Properties job in 1995 led to assignments on other large bankruptcies, including those of World Financial Center, Loew’s Cineplex, Delphi, and Charter Communications. “You do one well, then people want you,” Togut says. “You do five well, then everybody wants you. And that’s pretty much what happened.”
As Togut tells it, he played the pivotal role in every bankruptcy in which he’s had a hand. And while in reality he has sometimes had more of a supporting part, his peers in the bankruptcy bar nonetheless praise his abilities.
“He’s been smart,” says Harold Novikoff, the head of Wachtell, Lipton, Rosen & Katz’s restructuring and finance department and a longtime colleague and friend. “He didn’t want to go head to head with the big firms, and he saw there was a real need” for sophisticated lawyering in the trustee and conflicts areas.
Togut’s work as a trustee on “day-to-day flotsam and jetsam” cases as a result of his seat on the Southern District of New York’s trustee panel has given him “one of the most finely tuned crap detectors I’ve ever seen,” says William Brandt, a restructuring adviser who has known Togut for years and whose own stint on the Dewey case overlapped with Togut’s. “It’s served him well in a business where everyone is blowing smoke. . . . The essence of Al is that he’s a street smart, practical, hard-nosed player.” (Togut says he continues to pick up panel work, which pays a nominal rate per case, as a civic duty.)
Togut, Segal & Segal, which currently counts 20 lawyers, has seen a good deal of churn over the years within its junior ranks, though all four partners, as well as his office manager, have been with him for more than 20 years. In a show of collegiality, employees sport email addresses ending with @teamtogut.com, a nod to the way U.S. Bankruptcy Judge Prudence Abram referred to Togut and his lawyers during the Rockefeller Center case.
With its work on the Dewey case poised to conclude, Togut’s firm continues to work for the creditors committee in the American Airlines bankruptcy alongside Skadden, Arps, Slate, Meagher & Flom; for Kodak’s creditors along with Milbank; and as counsel to an official retirees committee in the $7 billion Nortel case. Earlier this year, attorneys from the firm also advised real estate brokerage Grubb & Ellis on its Chapter 11 restructuring, which resulted in the sale of the company’s assets to rival Newmark Knight Frank.
Togut typically charges $935 an hour, up from the $250 an hour he billed in the Finley Kumble days. His firm operates out of the 33rd floor of One Penn Plaza behind an imposing wooden door labeled “Law Offices.” Togut prides himself on building the firm with absolutely no debt, an attribute he can also claim in his private life. He waited to buy his first house until he had the cash—$55,000—and later sold it for $250,000 to help him buy his next home. Today, he lives primarily in Manhattan, with a weekend home in the Berkshires.
Sitting at his desk, Togut points to a few of the mementos scattered around the office, including a dictation machine that he still uses to prepare all his filings and a tree standing in the corner that covers the patch of window from which Togut used to look out at the World Trade Center towers. In a less somber reminder of the past, Togut also keeps an original Macintosh computer, long since unplugged, that he and his colleagues once tried to use as a fishbowl until they kept killing the fish. Hanging nearby is a photo of Apple founder Steve Jobs, whose philosophies Togut says he uses as inspiration.
“Think different,” Togut says, citing a famous Apple advertising slogan. “I did.”