For those not exhaustively tracking The Am Law Daily‘s coverage of every twist and turn in Dewey & LeBoeuf’s nine-month-old bankruptcy, here’s a primer of what’s to come Wednesday, when U.S. Bankruptcy Judge Martin Glenn hears arguments about whether he should approve the defunct firm’s Chapter 11 liquidation plan. At this point, only a few last holdouts stand in the way of the swift unraveling of the once-mighty firm.
The Details: Dewey’s advisers first rolled out the proposed Chapter 11 plan—a blueprint detailing how the bankrupt firm’s estate plans to repay secured creditors owed more than $262 million and unsecured creditors owed nearly $300 million—during Thanksgiving week. At the heart of the Chapter 11 plan is a so-called partner contribution plan reached after months of negotiations under which 450 former Dewey partners have agreed to return a total of $70 million earned during 2011 and 2012 in exchange for a waiver of Dewey-related liability. The Chapter 11 plan calls for the firm’s secured creditors to get 80 percent of that sum, with the balance going to unsecured creditors. (A group of retired partners that had challenged the partner contribution plan recently agreed to contribute another $440,734 at least to the estate in a separate settlement.) The Chapter 11 plan has gone through two rounds of revisions since it was first presented, with the final version filed with the court on January 7.
The Objectors: Six former Dewey partners are among those still hoping to stop the Chapter 11 plan from moving forward, in part by arguing that the partner contribution plan unfairly favors those who, because of their close ties to Dewey’s leaders, collected all their 2010 compensation that year rather than having a chunk of it deferred until 2011. The most active dissenters in this camp are former partners Andrew Fawbush and Elizabeth Sandza, who are represented by Helen Davis Chaitman. The pair have subpoenaed several major players in the bankruptcy and have also requested access to numerous documents related to the matter. Glenn ruled last week that Dewey’s advisers must turn over to Fawbush and Sandza more than 22,000 pages of documents already in the estate’s possession as the result of a prior challenge to the partner contribution plan, and must also make a handful of Dewey attorneys and one-time members of the firm’s management team—including former executive director Stephen DiCarmine—available for depositions and in-court interviews.
What Dewey Says: The estate argues that the points raised by the former partners have come too late, and that any questions about the fairness of the partner contribution plan have already been litigated. Glenn seemed inclined to support those arguments during a February 20 hearing. In court papers, Dewey’s advisers say Fawbush and Sandza and the other former partners objecting to the liquidation plan—none of whom have signed on to the partner settlement—will have an opportunity to defend themselves against potential clawback actions if the estate chooses to sue them. "They should not be allowed to delay the confirmation process or a prompt conclusion of this Bankruptcy Case," the estate argued in one filing.
In a separate filing made February 21, Dewey’s advisers took aim at a handful of other objections, including one that turns on the question of why those who have filed malpractice claims against the estate are considered a different class of creditor and another that focuses on why the plan does not provide for payments to be made to the former Dewey employees who accuse the firm of violating labor laws by failing to give adequate notice before conducting mass layoffs last May. Reached by email Monday, Dewey’s chief restructuring officer Joff Mitchell and lead lawyer Al Togut both said they are fully confident the liquidation plan, which has broad support from creditors, will be confirmed. Added Togut: "What we’re asking the court to approve has never been done, and in only nine months, in the largest law firm case ever filed in the bankruptcy court."
The Wild Card: Though the objections raised by Fawbush and Sandza may have little chance of succeeding, they are likely to inject some color into Wednesday’s proceedings. DiCarmine’s scheduled appearance, for instance, will mark his first turn in the bankruptcy court spotlight since Dewey’s collapse, though his lawyers at Hughes Hubbard & Reed have made it clear he won’t say much beyond confirming his name given that there is still a criminal investigation under way into the circumstances surrounding the firm’s implosion.
What’s Next: If Glenn signs off on the plan, most of the estate’s current advisers will step aside and be replaced by two committees, one organized to manage recoveries on behalf of the firm’s secured lenders and the other to maximize the firm’s remaining assets for distribution to unsecured creditors. The secured lenders will turn to FTI Consulting, which has been selected to serve as trustee of that committee, with Thomas Maher providing oversight.
Alan Jacobs, who runs an advisory shop in Woodmere, New York, has been tapped to serve as the estate’s liquidation trustee to bring in money for the unsecured creditors. Three lawyers will serve as Jacobs’s oversight committee: Brown Rudnick partner Edward Weisfelner, who is currently lead counsel for Dewey’s unsecured creditors committee; Mark Manski, who left the partnership of Greenberg Traurig in Boston earlier this month to start his own financial restructuring firm; and Nathan Read, an attorney at AEGON USA Investment Management. Weisfelner said Monday the oversight committee will function like a board of directors, getting paid a flat rate of something less than $25,000 per year for their service. Former Dewey partners Janis Meyer and Stephen Horvath, who have been working on the Dewey bankruptcy since the firm went under, may also continue to be called upon, though court filings say the terms of their service have not been solidified.
The exact amount of money the trustees will seek to recover outside of the partner contribution plan was unclear Monday, but potential sources of recovery include lawsuits filed against former partners who didn’t sign up to the plan, insurance coverage for mismanagement claims that Dewey’s advisers have made clear they plan to bring; and modest amounts from the sale of Dewey-owned art and other fixtures.