In the latest settlement resolving potential litigation between Dewey & LeBoeuf and the now-defunct firm’s one-time partners, Paul Hastings and two former Dewey partners have agreed to pay a combined total of approximately $1.6 million to Dewey’s bankruptcy estate.
According to filings made Monday in Manhattan federal bankruptcy court, Paul Hastings has agreed to contribute $575,000 of that sum in response to Dewey’s assertion that it has a monetary interest in seven matters Paul Hastings took on when it hired four partners—Latin America-focused corporate lawyers Michael Fitzgerald, Arturo Carrillo, and Taisa Markus, and antitrust lawyer MJ Moltenbrey—who fled Dewey prior to its May 2012 collapse. Such claims are brought under the so-called unfinished business doctrine that says dissolving firms still have a stake in matters brought elsewhere.
New York courts have been hesitant to fully embrace the unfinished-business theory, which has been widely applied in California because of a precedent established years ago in a state court case known as Jewel v. Boxer. Over the past year, New York federal court judges overseeing the bankruptcies of Thelen and Coudert Brothers have arrived at opposite conclusions in deciding where the money should go from hourly cases that continue after the firm where they originated goes under. Those decisions have both been appealed to the U.S. Court of Appeals for the Second Circuit, which is now poised to issue a precent-setting ruling on the issue.
So far in the Dewey bankruptcy, unfinished business claims have been slower to resolve than other claims against former partners. A $71.5 million settlement reached with ex-Dewey lawyers—under which participants agreed to repay the estate a portion of the money they received from the firm in 2011 and 2012 in exchange for a release from Dewey-related liability—served as the linchpin of a liquidation plan approved by U.S. bankruptcy court judge Martin Glenn on February 27. A separate set of retired Dewey partners have agreed to contribute at least $494,000 more to help pay off creditors. Neither settlement addresses unfinished business claims.
Beyond detailing what Paul Hastings has agreed to pay the Dewey estate, Monday’s filings show that Fitzgerald and Carrillo have agreed to drop $41 million in collective claims they had asserted against the Dewey estate and to instead pay, respectively, $840,229 and $170,922 as part of the so-called partner contribution plan. (Markus and Moltenbrey were among those who joined the so-called partner contribution plan last fall. According to the Monday’s filings, Markus will pay the estate $133,182, and Moltenbrey’s $37,573 contribution has been completely eliminated because of incentives offered for collecting on unpaid bills).
None of the four lawyers were with Dewey for very long before it began to implode. Fitzgerald made the move in June 2011 from Milbank, Tweed, Hadley & McCloy, striking a lucrative contract in the process. Markus and Carrillo joined in the same move. Moltenbrey jumped to Dewey in March 2011 from another dying firm, Howrey.
A Paul Hastings spokesman said Tuesday that firm is "pleased to have resolved this matter with the Dewey estate."
Dewey’s chief restructuring officer Joff Mitchell and lead bankruptcy lawyer Al Togut did not immediately respond to requests for comment Tuesday or to questions about how many other potential unfinished business settlements are in the works. Several months ago, Mitchell said his rough estimate was that the estate could recover between $60 million and $70 million related to unfinished business.
In an application to approve the settlement, Scott Ratner, an attorney for the Dewey estate, called the resolution of the claims a "major step in the case," adding that the Dewey estate believes the settlement "may serve as a catalyst for the future resolution of Unfinished Business Claims."
According to the Monday filing, a handful of other former partners have reached settlements with the estate over work taken with them, though the Paul Hastings deal is the first "stand-alone settlement" of hourly unfinished business claims. In one deal, for instance, former partners Bruce Bennett, Sidney Levinson, Joshua Mester, and James Johnston, all of whom are now with Jones Day, agreed in September to process bills for their work on the Los Angeles Dodgers bankrutpcy and to contribute 15 percent of the money earned to the Dewey bankruptcy. In another deal, Hunton & Williams essentially agreed to buy work in progress for two capital markets partners it hired from Dewey, Bud Ellis and Steven Loeshelle, for $250,000.
In separate filings this week, Dewey’s advisers told the court about another recovery: $429,525 from the sale of its art collection.