Former Dewey & LeBoeuf chairman Steven Davis has agreed to pay the bankrupt firm’s estate more than half a million dollars as part of a broader settlement that is expected to insulate him from most future claims related to his alleged mismanagement of Dewey.
As part of the settlement, which was filed with the bankruptcy court Monday, Dewey insurer XL Specialty Insurance Company has agreed to contribute $19 million to the estate to help pay off the firm’s creditors. XL’s $25 million policy has been depleted in recent months by mounting legal bills it must pay related to litigation initiated against former Dewey managers.
While the estate’s advisers have repeatedly said that Davis, former Dewey chief financial officer Joel Sanders, and former executive director Stephen DiCarmine are to blame for the firm’s collapse, Monday’s proposed settlement—and XL’s participation in it—ensures that the estate will not sue the three men or any other Dewey leaders for mismanagement. Davis’s deal, if approved by the court, also offers him the protections given to former Dewey partners who have signed on to a $71.5 million partner contribution plan.
In seeking court approval of the settlement, Brown Rudnick lawyers representing Dewey’s liquidation trustee said, "the benefits of the proposed settlement decisively outweigh the benefits of proceeding with litigation," which they say "would require extensive discovery, including millions of pages of documents to review and over 100 depositions." In addition, the lawyers write, Davis "has represented that he would vigorously defend any such Mismanagement Claims."
According to the filing, talks between Davis and the estate’s advisers began January 23—a month and a half after the estate sent the former Dewey chair a demand letter with "theories of liability and damages." As part of the settlement, Davis does not admit to any wrongdoing "and maintains that he fulfilled his duties and at all times acted in what he reasonably believed was in the best interest of Dewey and its estate." As the then chair of LeBoeuf, Lamb, Greene & MacRae, Davis helped engineer what proved to be the ill-fated 2007 merger with Dewey Ballantine that created Dewey & LeBoeuf.
Davis’s lawyer, Kirkland & Ellis partner Kevin Van Wart, characterized the settlement Tuesday as good, fair, and practical, saying that his client is "happy to have this issue resolved." (In the weeks leading up to Dewey’s demise, firm leaders said the Manhattan district attorney’s office had launched an investigation into Davis’s actions as chair. The status of that inquiry was unclear Tuesday. Davis has denied any wrongdoing.)
DiCarmine and Sanders have not reached their own agreements with the estate. Though the two men are largely protected against any claims the XL policy would have covered, they could still be sued for allegedly taking too much money from the firm while it was insolvent but had not yet filed for bankruptcy protection. Some 400 former Dewey partners avoided the possibility of facing similar claims by agreeing to repay the estate a portion of the compensation they received in 2011 and 2012 under a so-called partner contribution plan that was the linchpin of the firm’s Chapter 11 liquidation plan approved in February. (Hughes Hubbard & Reed partner Ned Bassen, who represents DiCarmine and Sanders, said the pair are weighing whether to file a limited objection to Monday’s settlement).
Brown Rudnick partner Howard Steel said during a court hearing Tuesday that former firm leaders could still face claims related to a fraud suit brought by former Dewey partner Henry Bunsow, who agreed to drop his suit and assign the claims to the estate. Of the potential defendants, DiCarmine and Sanders are the only individuals not totally protected by the various settlement plans. A handful of lawsuits brought by creditors and other third parties are also still in the works, and former Dewey leaders can tap excess coverage policies held by OneBeacon Insurance Company and Iron-Starr Excess Agency Ltd. for their defense in those matters, if necessary.
Davis’s $511,145 contribution is lower than what two dozen other former Dewey partners have agreed to pay the estate. The biggest contributions come from Berge Setrakian, who is now with DLA Piper and who, according to court papers, has agreed to make a $3.5 million payment, and former Dewey vice-chair Ralph Ferrara, who is now at Proskauer Rose and has agreed to contribute $3.37 million.
In reaching a deal with Davis, the estate said in its filings that among the factors it considered were his ability to pay, based on his recent tax returns, bank statements, and other financial records. A judgment against him, they concluded, "would likely encounter high collection risk."
According to the terms of Davis’s repayment note, he must pay the estate $511,145 in up to six yearly installments starting next March. On each payment date, Davis is required to pay 8 percent of his current salary and income tax refunds, and the amount due will accrue 9 percent interest.
Davis has yet to secure new employment since Dewey’s collapse, Van Wart said Tuesday (Sanders, meanwhile, is now the CFO at Florida firm Greenspoon Marder, while DiCarmine is taking fashion courses in New York.)
Steel had no comment Tuesday on the settlement on behalf of the estate. A lawyer for XL Specialty did not immediately return a request for comment.