Most law firms are wary of suing lawyers. Diamond McCarthy is not one of those firms.
The Texas-based litigation shop has been hired by Dewey & LeBoeuf’s liquidation trustee, Alan Jacobs, to pursue claims against former partners from the now-defunct firm, according to court filings made this week. The role is a familiar one for Diamond McCarthy, which is currently filling trustee roles in the Chapter 11 bankruptcies of Washington, D.C., litigation firm Howrey and convicted Ponzi schemer Marc Dreier’s defunct Dreier LLP.
Jacobs was appointed trustee in the Dewey bankruptcy following the approval of the firm’s Chapter 11 liquidation plan in February. In addition to Diamond McCarthy, Jacobs is being advised by Brown Rudnick, which served as counsel to unsecured creditors in the first phase of Dewey’s bankruptcy, and New York bankruptcy boutique Togut, Segal & Segal, whose lawyers led work for the debtor as it sought approval of the liquidation plan.
In its newest role, which does not require court approval, Diamond McCarthy is responsible for investigating whether to pursue so-called unfinished business claims against former Dewey partners related to work they took with them to their new firms, as well as clawback claims against 115 former partners who did not agree to sign on to a $71 million settlement that became the linchpin of the Dewey liquidation plan.
The laws governing a defunct firm’s ability to sue to recover proceeds from unfinished business are currently being challenged in law firm bankruptcies in California and New York, and Diamond McCarthy has pushed hard in the West Coast cases for the court to side with bankrupt firms.
"There are not too many people out there that know more about this than I and my partners do," says Diamond McCarthy founder Allan Diamond, who adds that Jacobs hired his firm following an intensive bidding process.
As part of the Dewey assignment, Diamond McCarthy is also tasked with negotiating with 22 former partners who insist the bankruptcy estate owes them money for debts including unpaid capital, deferred compensation, unmet bonuses, and profit distributions. In March, other lawyers working for Jacobs sought to push such claims to the end of the line when it comes time for creditors to be paid. As it stands, unsecured creditors are expected to receive no more than 14 cents on the dollar.
Diamond McCarthy partner Andrea Levin Kim explains in a letter filed Tuesday to U.S. Bankruptcy Judge Martin Glenn in Manhattan that the firm anticipates resolving those 22 claims amicably. In asking the court to delay a scheduled hearing on the claims from June 6 to July 11, she says that many of the former partners in question have "expressed their hope" that the extra time "may lead to mutually agreeable resolutions to claims without further litigation." Kim explains that the delay is necessary because her firm has only been on the job for two weeks and hasn’t yet full vetted the claims.
Donald Woods, a onetime partner at Dewey & LeBoeuf predecessor firm Dewey Ballantine, objected to Kim’s request in a filing of his own. Woods, now with McKool Smith in Los Angeles, called the delay "abusive" and says he has already paid for a plane ticket in order to be in New York for the scheduled hearing date. "I object to the practice whereby the Debtor unilaterally at any time no matter how close to the hearing date and without notice and an opportunity to be heard by the opposing side can adjourn these proceedings," he writes. Woods—who, according to court records, is seeking $20,829 from the Dewey estate—did not immediately return a call for comment.
For its part, Togut, Segal & Segal continues to represent Jacobs on lawsuits launched against Dewey, the resolution of creditor claims, and other miscellaneous matters, according to Al Togut. Brown Rudnick, meanwhile, is handling a pending settlement involving Dewey’s insurer and former firm chairman Steven Davis, and is also pursuing claims against other former leaders, Togut said via email.
In his role as Howrey’s trustee, Diamond has been busy in recent months negotiating with the 71 employers that took in Howrey partners following that firm’s March 2011 collapse. So far, Diamond has sued 17 firms that have opposed settlement talks, including Jones Day, Hogan Lovells, Pillsbury Winthrop Shaw Pittman, and Ropes & Gray, and has said he may sue more.
Among those firms still on his list: Dewey, which hired a number of partners from Howrey in 2011 including patent litigators Henry Bunsow and Denise De Mory, who have since opened their own firm. In a Monday filing, Diamond explains to U.S. Bankruptcy Judge Dennis Montali in San Francisco that his work in the Dewey case creates a conflict of interest in terms of his pursuit of claims against former Howrey partners who landed at Dewey. In light of that, the unsecured creditors committee in the Howrey bankruptcy has agreed to litigate such claims against Morrison & Foerster, Cooley, Paul Hastings, and other firms to which those attorneys moved after Dewey’s collapse.
The demands for money from one defunct law firm to the other go in both directions. Dewey, as Howrey’s former landlord in Silicon Valley, is also a Howrey creditor.