(Photo by Maggie Soladay)
Continuing his push to recover money for Dewey & LeBoeuf creditors, the trustee overseeing the liquidation of the failed firm’s bankruptcy estate has filed 11 new suits—nine of them against former Dewey partners—seeking to claw back a total of $22.5 million.
With the latest batch of claims, which were filed Tuesday, liquidating trustee Alan Jacobs has now targeted 32 former Dewey partners in hopes of recovering as much as $40 million to pay off the debts racked up by the largest U.S. law firm ever to file for bankruptcy.
The nine partners named in this week’s suits were all based overseas during their time with Dewey. All nine chose not to join roughly 450 other former firm partners who signed on to an October 2012 settlement that raised $71.5 million for the estate. As a result, Jacobs is now demanding that they—like the other former partners he has already sued—repay the estate amounts equal to all the compensation they received from Dewey starting in January 2009, the date he claims that the firm actually became insolvent.
In the largest single claim filed Tuesday, Jacobs seeks $13.9 million from former Riyadh, Saudi Arabia-based partner Khalid Al-Thebity, who has represented the Saudi government in various matters for nearly two decades. Al-Thebity joined Dewey predecessor LeBoeuf, Lamb, Greene & MacRae in 1998 and subsequently set up an affiliated firm in Saudi Arabia, where foreign firms can only operate via a licensed Saudi affiliate. He joined Patton Boggs as head of that firm’s affiliated Riyadh office in June 2012, roughly a month after Dewey sought Chapter 11 protection.
Others named in the claims filed Tuesday include former Dewey project finance partner Scott Brodsky, who opened a Johannesburg office for LeBoeuf Lamb in 2001 and moved to Baker & McKenzie in late May 2012, and former Beijing-based energy partner Dirk Walker, who joined King & Wood Mallesons on June 1, 2012. Jacobs is seeking $2.11 million from Brodsky and $2.14 million from Walker. The six other former partners sued Tuesday face claims ranging from $147,125 to $1.12 million.
Jacobs, who was appointed as liquidating trustee in March 2013, has hired Texas-based Diamond & McCarthy to handle the partner clawback actions. Andrea Kim and Christopher Murray, two firm partners who were involved in the litigation, declined to comment, as did Jacobs.
Like the previously filed clawback claims, the latest round says Dewey’s problems mounted in 2009, when profits fell far short of expectations and the firm appeased some partners by agreeing to increase their compensation the following year. When the firm’s finances continued to deteriorate, keeping those promises created an even greater shortfall. To make matters worse, the complaint states, some of Dewey’s top earners asked for—and got—additional compensation commitments in exchange for staying at the firm in its final few years.
According to the Tuesday filings, Al-Thebiti, Brodsky and Walker were among those whose compensation rose from 2010 on. Al-Thebiti, for example, received $2.9 million in 2009, $4.4 million in 2010, $6 million in 2011, and $534,018 in 2012, when he left the firm. Walker’s income also peaked in 2011, according to the complaint against him. He received $392,714 from the firm in 2009, $599,318 in 2010 and $759,655 in 2011. Brodsky’s income rose from $515,636 in 2009 to $852,373 in 2011.
Jacobs began filing suits last November against the former Dewey partners who did not sign the partner compensation plan and had brought 23 such actions prior to this week. According to his most recent status report, which was filed in March, and a review of the bankruptcy court docket, seven of those have settled and two have been stayed. The 16 cases that have not yet settled have been consolidated for the purposes of discovery. The defendants in all but one of those actions have filed answers saying they are not liable for the claims being asserted. (Both of the clawback cases that have been stayed involve former Dewey partners Geoffrey Coll and Gregory Owens, who filed for personal bankruptcy.)
Among the largest of the active claims in active litigation is one against John Altorelli, a former Dewey executive committee member who was among the first major lateral hires the firm made after the 2007 merger of LeBoeuf Lamb and Dewey Ballantine. The trustee is demanding that Altorelli—who gave a memorable interview to The Am Law Daily amid Dewey’s implosion and is now a corporate and finance partner at DLA Piper—repay the estate $12.9 million.
Altorelli—who is being represented in the clawback action by DLA partner Thomas Califano—has been identified as a likely prosecution witness in the criminal case brought by Manhattan District Attorney Cyrus Vance Jr. against former Dewey chair Steven Davis, former executive director Stephen DiCarmine, former CFO Joel Sanders and onetime client services manager Zachary Warren, who are accused of carrying out a massive fraud that helped hasten the firm’s demise. (All four men have pleaded not guilty to the charges against them; Warren is seeking to have his case separated from the one against Davis, DiCarmine and Sanders, in part because the firm defending him, Zuckerman Spaeder, is representing Altorelli in his role as a potential witness.)
The two other claims filed Tuesday on the trustee’s behalf target companies that received payments from Dewey in the 90 days prior to the firm’s May 2012 bankruptcy filing. One of the suits seeks the repayment of $865,359 that Dewey paid HBR Consulting, a legal consulting firm founded by Brad Hildebrandt and spun off in 2011, for unspecified services.
While Jacobs has sued nearly all of the former U.S.-based partners who did not sign on to the $71 million settlement, as many as a dozen of the firm’s former foreign-based partners have not been hit with clawback claims to date. Jacobs also has yet to file any so-called unfinished business suits seeking to recover money earned by firms as a result of work brought over by former Dewey partners. In December, the court approved his request to subpoena the dozens of firms that took on former Dewey partners for information that could provide the basis for such suits.
Jacobs has also sued several high-ranking firm employees, including former chief operating officer Dennis D’Alessandro, DiCarmine and Sanders, seeking the return of compensation they received under the terms of their employment contracts. He is seeking to recover $9.3 million from D’Alessandro and $21.8 million from DiCarmine and Sanders for six years of compensation and bonus pay.
DiCarmine and Sanders filed a motion to dismiss the complaint on May 1.