With no objectors left standing, U.S. Bankruptcy Judge Martin Glenn approved Dewey & LeBoeuf’s Chapter 11 liquidation plan Wednesday, clearing the way for the defunct firm’s creditors to begin collecting at least some of hundreds of millions of dollars they are owed and ensuring that Dewey’s unwinding will be among the swiftest and most orderly in the history of major law firm bankruptcies.
The plan approved by Glenn calls for Dewey’s secured creditors—a group that collectively holds nearly $262 million in claims—to be paid roughly 47 to 77 cents for each $1 they are owed. The defunct firm’s unsecured creditors—a group that has asserted hundreds of millions of dollars in additional claims—are in line to get roughly 5 to 14 cents per $1. Dewey’s current team of advisers will now hand the bankruptcy’s reins to a pair of trustees whose mission will be to maximize recoveries for those creditors.
Glenn’s approval of the Chapter 11 plan comes nearly nine months to the day after Dewey filed for bankruptcy amid mounting debt obligations and a mass partner exodus prompted by revelations that the firm could not pay its lawyers—many of them lateral hires wooed with outsize compensation guarantees—as promised.
Despite rancor among Dewey’s former partners following the firm’s collapse, approximately 500 of 700 of those partners have agreed to settle claims with the firm and contribute money to the estate. The majority of those former partners have committed to return a total of at least $70 million to the Dewey estate by contributing a portion of the compensation they received from the firm in 2011 and 2012 in exchange for a waiver of most Dewey-related liability. Another batch of more than 100 retirees who had been among the fiercest objectors to the Chapter 11 plan have agreed to a separate settlement expected to raise at least $494,000.
Three former top Dewey leaders, chairman Steven Davis, executive director Stephen DiCarmine, and chief financial officer Joel Sanders, were not allowed to participate in the so-called partner contribution plan and are likely to be sued by the estate. (Davis, at least, has also been the subject of a criminal investigation launched by the Manhattan district attorney’s office into the circumstances surrounding Dewey’s collapse. He has denied any wrongdoing.)
Wednesday’s rainy weather didn’t prevent a crowd of more than 60 people from packing Glenn’s lower Manhattan courtroom for what some expected would be a final display of Dewey-related drama. Those seeking such a show most likely left disappointed, however, as the two-hour hearing proceeded routinely following a series of last-minute settlements with a final group of objectors.
Dewey’s lawyers announced in court that a handful of former firm partners and others who had filed objections to the liquidation plan had agreed between Tuesday evening and Wednesday morning to drop their claims. With those challenges resolved—a development that also meant DiCarmine did not have to appear to testify as Glenn had previously ordered—the plan went forward completely uncontested.
Two former Dewey partners, John Campo and John Kinzey, were among those agreeing to abandon their objections, but not without publicly expressing their disappointment at what Campo called Dewey’s "unfortunate Chapter 11 case."
"We don’t necessarily like the plan, your honor, and have voted against it," Campo said in court. "But it’s more important to see administrative expenses be curtailed going forward so the liquidating trustee can . . . maximize distributions to Class 4 creditors." The pair, both bankruptcy lawyers who are now with Troutman Sanders, left Dewey predecessor firm LeBoeuf, Lamb, Greene & MacRae ahead of its ill-fated 2007 merger with Dewey Ballantine.
Former partner Michael Fitzgerald, now with Paul Hastings, also agreed to drop an objection to the plan, as well as a $38 million claim against the estate stemming from what he has said in court papers was the generous contract he received when he joined Dewey in 2011. His lawyer said in court that the exact terms of a settlement were still being hashed out, but that Fitzgerald expected to sign on to the partner contribution plan.
Lawyers for other dissenters who gave up their fight against the plan echoed Campo’s opinion. "There comes a point where you look at the economics of where you’re at," Dorsey & Whitney partner Annette Jarvis, counsel to an ad hoc committee of retirees, said in pledging support of the settlement with her clients. "We continue to believe we have legitimate claims and valid defenses, but given the projections on distributions, it made sense for the members to settle."
Under one of the settlements Glenn approved Wednesday, 15 former London-based Dewey partners will collectively pay $900,000 to be divided between the estate being liquidated in this country and the equivalent entity tied to Dewey’s defunct U.K. LLP. Dewey’s lawyers said they expect $650,000 of that sum to flow to the U.S. bankruptcy.
All told, Dewey’s chief restructuring officer, Joff Mitchell, said during Wednesday’s hearing that Glenn’s approval of the liquidation plan resolves $400 million of the $500 million in claims former partners had asserted against the estate.
In another settlement, claims brought by the Pension Benefit Guaranty Corporation, a federal agency that took over three Dewey-run pension plans last June, have been consolidated into one $120 million unsecured claim.
Before approving the plan at the close of the hearing, Glenn congratulated those working on the case for building such a broad consensus and resolving the few objections that did arise. "That is quite an accomplishment in itself," he said.
Delivering something akin to an Oscar acceptance speech, Dewey’s lead bankruptcy lawyer, Al Togut, used his closing argument to the court to chide skeptics who had doubted his ability to speed the Chapter 11 case toward closure. "Last May 28," he said, "I stood at the first hearing and I said that this case was going to be different. . . . And no one believed me. . . . And here we are about to make history." He continued: "What I told the court at the first hearing required people to take a leap of faith. . . . What got us to today is that people, one by one, became believers."
Even the lawyer representing lead lender JPMorgan Chase at the hearing, Kramer Levin Naftalis & Frankel partner Kenneth Eckstein, praised the way the bankruptcy has proceeded—while noting that the case has so far cost the lenders $55 million in cash collateral. "This case came to the court without an organized plan, without a way out," Eckstein said. "The fact that we’re here today, nine months later . . . I think is a testament to what an extremely successful plan this is."
Glenn’s approval of the Chapter 11 plan doesn’t end all litigation related to the bankruptcy. In addition to going after Davis, DiCarmine, and Sanders, the estate is likely to pursue claims against former partners who haven’t reached agreements with the estate, and former clients will be pressed to cover unpaid bills. A lawsuit brought by a former document specialist at the firm claiming Dewey gave inadequate notice when making mass layoffs last spring is scheduled to be certified as a class action in the coming weeks, and disputes over claims brought by former associates and other creditors will be heard in Glenn’s court next month. (Two lawsuits unrelated to the bankruptcy that pit former Dewey partners against banks that offered partner capital contribution loans are also proceeding).
Amid the hail of backslaps and handshakes that greeted Glenn’s final ruling, one man with a shock of curly hair stood to the side of the courtroom with an unhappy look on his face. The man, who identified himself as Steven Levitsky, a one-time Dewey counsel, said he had attended the hearing to see why Dewey’s former executive committee members weren’t being held accountable for the firm’s fall. He conceded that though the question had been raised, and addressed, many times over the past nine months, he still wanted answers. "Why didn’t they know what was happening?" he asked. "These people could have halted it."
But rather than initiate litigation against the bankrupt firm’s estate to prove his point, Levitsky—now counsel at Duane Morris in New York—said he has a different Dewey-related endeavor in mind: "I plan to write a book."