Posted Oct 10, 2012 06:35 pm CDT
Accused in a Tuesday opinion by a federal bankruptcy judge of seeking an independent examiner merely as a litigation tactic, a committee of retired partners of Dewey & LeBoeuf say the claim they acted improperly by doing so in the law firm’s massive Chapter 11 case “adds insult to injury.”
In a statement emailed to the Wall Street Journal Law Blog, a lawyer representing the ad hoc committee of some 50 retired partners and their widows also says her clients were “very disappointed” that U.S. District Judge Martin Glenn rejected their motion and are considering an appeal in the Southern District of New York case.
The group contends the $71.5 million clawback settlement from former Dewey partners approved yesterday by the judge was a lowball recovery that shielded insiders responsible for Dewey’s collapse. The bankruptcy, which is the biggest ever for a law firm, involves an estimated $315 to $560 million owed to creditors. The ad hoc committee says its members are owed $64 million in retirement benefits.
Under the settlement, former partners of the firm are expected to be required to contribute a clawback of between $5,000 and $3.5 million, representing a portion of their 2011 and 2012 income, in exchange for being protected from any future liability for Dewey’s debts. As the WSJ notes, the settlement was reached with unusual speed; such cases can take years to conclude, meanwhile racking up big legal fees for bankruptcy counsel.
In his decision (PDF), the judge, referring to various proposed partner contribution settlement plans, wrote that “it it has been clear that the ad hoc committee intended to do whatever it could to scuttle any proposed PCP. The examiner motion has been the main tactical choice of the ad hoc committee to try to derail the PCPs.”
Later on in the opinion, the judge says “the court concludes that the examiner motion was filed for an improper purpose as a litigation tactic to try to derail approval of the [partner contribution plans]. The applicable facts and law that lead the court to approve the PCPs, as explained below, establish that the debtor and its professionals conducted an appropriate inquiry and analysis of the facts and circumstances of this case to support moving forward now with the PCPs.”
However, the committee’s responding statement provided by attorney Annette Jarvis to the newspaper says, in part, that “the sordid facts underlying the Dewey & LeBoeuf demise cry out for investigation by an independent examiner. The Court’s attribution of improper motives to the retirees who brought the motion adds insult to injury. The Ad Hoc Committee will be examining the decision with a view to appeal.”
As detailed in earlier ABAJournal.com posts linked to a previous article about the approval of the $71.5 settlement, a number of former partners have filed lawsuits accusing Dewey leaders, and even the bank at which the law firm kept many of its accounts, of concealing from them its dire financial situation. By doing so, they contend, law firm leaders and the bank persuaded them to join the firm and make hefty capital contributions in recent years, when Dewey needed the money to stay in business.
Created in 2007 by the merger of two storied law firms, Dewey & LeBoeuf quickly fell apart because of overambitious expansion plans and excessive compensation promised to star partners, according to news reports.
ABAJournal.com: “Are Dewey’s Problems Unique? ‘Leverage Is Dangerous,’ Ex-Partner Bienenstock Says”
ABAJournal.com: “Former Dewey Partner’s Suit Compares Firm Leaders’ Lateral Partner Recruitment to ‘Ponzi Scheme’”
ABAJournal.com: “DA’s Dewey Probe Heats Up; ‘Major Focus’ Is on Statements Made to Lenders”