In its effort to recover money from former Dewey & LeBoeuf lawyers on loans to cover capital contributions to the firm, Citi Private Bank has so far initiated one legal action.
Citi sued Steven Otillar in New York state court just three days after Dewey’s May 28 bankruptcy filing. At issue: $209,670 Citi lent Otillar, a Houston-based energy and finance lawyer who joined Dewey as a junior partner from Baker & McKenzie in January 2011.
A review of online court dockets indicates Otillar remains the only borrower Citi has sued. But a little-noticed court filing he may not stand alone for long.
The document was filed by Luskin, Stern & Eisler, which took over as Citi’s lawyers in the Otillar action in late July. In asking the court to approve the switch, Luskin Stern lawyers said the firm “is handling numerous other matters for Citibank that are related to the demise of Dewey & LeBoeuf including many related to loans taken out by other former Dewey & LeBoeuf partners. Citibank now wants one firm to coordinate these matters and has selected LS&E to do this.”
No comment was offered by Michael Luskin, Citi’s lead lawyer in the case; Michael Stachura, a Citi managing director who oversaw the bank’s lending to Dewey lawyers; or a Citibank spokeswoman.
Many former Dewey partners have received demand letters and requests for repayment from Citi or Barclays — the two banks that lent money to Dewey partners to fulfill their capital contribution requirements — insisting the loans are immediately payable now that Dewey is dead. Otillar received his letter from Citi on May 21, according to the bank’s action against him.
For his part, Otillar, who has declined to comment on the matter, defended himself in a batch of filings in mid-August in New York federal court, where the case was moved in June. He alleges Citi and Dewey actively defrauded not just him and his wife, whom the bank has also sued, but also other recruits by hiding the full extent of Dewey’s financial situation.
Dewey and its management’s “scheme to defraud was intended to lure unsuspecting lateral hires to join the failing firm as equity partners, who would then be responsible for making significant capital contributions to [Dewey] when its revenue was insufficient to pay its obligations,” Otillar wrote in a 23-page filing.
The same document implicates Citi in the alleged misrepresentations, ultimately concluding “Citibank actively participated in the fraud and breach of fiduciary duty” and “Citibank had a duty to disclose what it knew.”
In response, a Citi spokeswoman said in a statement, “These claims are without merit, and we intend to defend ourselves against them vigorously.”
Citi began offering capital loans to Dewey partners around 2010, and its relationship with the firm dates back to the 1970s, according to former partners.
Citi was among four banks that extended a $100 million line of credit to the firm. In the weeks leading up to Dewey’s fall, Citi cashed out its portion of the debt, selling it to hedge funds and essentially removing itself as a Dewey creditor as the firm veered toward bankruptcy.
Dewey had a requirement — not uncommon among law firms — that partners contribute 36 percent of their target compensation to the firm as capital by the end of the calendar year when they joined the partnership. The money could be deducted from paychecks throughout the year or paid through a loan offered by a partner bank. Interviews with former Dewey partners and papers filed by Otillar indicate Dewey applied pressure on partners to choose the latter option.
Otillar accuses the bank of participating in a scheme under which Dewey was run as a Ponzi scheme — a term also used in former Dewey partner Henry Bunsow’s lawsuit against a handful of former Dewey leaders — by continually bringing in new partners and new capital though it was clear the firm would not be able to cover compensation promises made to laterals and legacy partners.