Dealing with the aftermath hasn’t been any more fun than watching the ship sink. New York law firm Dewey & LeBoeuf still has a long way to go before it’s finished winding down from its May 28 bankruptcy filing.
The latest bit of drama comes from a report yesterday that Dewey will present some of its former partners with a settlement proposal on Wednesday. The firm has been trying to recover funds from its former attorneys who jumped ship prior to its official demise.
Albert Togut, Dewey’s bankruptcy counsel, said in a court hearing yesterday that the firm will offer dollar figures for potential payments by former partners at a meeting tomorrow. It is not yet clear what partners would be asked to return money under the settlement and how much each partner would be asked to pony up.
Dewey may have claims against former partners to whom it promised massive salary guarantees and partners who are seen to have taken value from the firm when they brought their clients with them to other firms.
Despite the news, Ed Weisfelner, a lawyer for Dewey’s creditors’ committee, told Reuters that Togut was overselling the progress of settlement talks, and that none of the firm’s creditor constituencies have approved a dollar figure for a settlement.
“There are a lot of hours between now and Wednesday and hopefully we’ll reach some closure,” Weisfelner told Reuters. “I would have thought Dewey would seek approval, a thumbs-up, from its creditor constituencies.”
Dewey has been scrambling to scrape together money for weeks now.
In late June, Dewey’s bankruptcy team announced that it would present its former partners, whose earnings are subject to clawbacks, with an outline for how to settle claims with more than 5,000 creditors anxious to recover their money.
As part of the intended plan, partners who agreed to the settlement would be released from any future claims by Dewey’s estate and creditors, as well as from other partners. The intent of the latter clause was to promote participation from some of Dewey’s former rainmakers, many of whom had lucrative compensation packages or were in prominent positions within the firm and could be in the crosshairs of angry partners who blame them for the firm’s failure.
This provision was particularly noteworthy given that the firm’s former IP litigation specialist Henry Bunsow leveled the first publicly filed lawsuit from a former partner at five former members of the firm’s management team and a slew of people to be named later the week prior to the clawback announcement. In the suit, Bunsow claims they misrepresented Dewey’s financial performance and stability in an effort to recruit partners at other firms. He also asserts that the defendants then used the capital brought in by the new talent to pay favored partners and not run the firm. In a particularly scathing section of the complaint, Bunsow says that the firm’s management was “running a Ponzi scheme in order to enrich themselves and select partner of the Firm.”
Additionally, last week, the firm announced that it hopes to pay its 52 remaining workers up to $700,000 in bonuses in an effort to keep them happy and stick out however long it will take to finish dismantling what’s left of the defunct firm.
Because Dewey cannot afford to lose any more people, it argued before the court that it should be allowed to pay out incentive and retention compensation to its few remaining workers, who comprise billing, collections, IT and HR professionals.
“The employees are integral to the efficient and expeditious wind down of the debtor’s affairs,” the firm said last Tuesday in court papers. “Without the continued commitment of these employees, the debtor’s ability to complete an orderly liquidation and to make a meaningful distribution to creditors would be severely compromised.”
For more on the proposed settlement, read Reuters.
And for more from InsideCounsel on Dewey, read: