As we reported late on Monday night, Dewey & LeBoeuf has filed for bankruptcy — the largest law firm bankruptcy in U.S. history, in fact. You can access a copy of Dewey’s voluntary petition to enter Chapter 11 over here (via Scribd).
Yesterday afternoon, Dewey’s lawyers appeared in U.S. Bankruptcy Court for the Southern District of New York. The firm’s lead lawyer, Albert Togut, introduced himself as follows: “I can finally confirm the worst-kept secret of the year. I am counsel for Dewey & LeBoeuf.” He’s going to be a very busy man over the weeks and months ahead.
Let’s find out what happened at the hearing, and also take a closer look at one of Dewey’s most intriguing unsecured creditors: a (rather attractive) litigatrix, a former Dewey associate now at another firm, who is owed more than $400,000 in “severance” by D&L….
First things first: what happened at the two-hour-long, standing-room-only hearing? Judge Martin Glenn — a Biglaw escapee himself, by the way, a former O’Melveny & Myers partner who took the bench in 2006 — approved a host of fairly standard motions. He’s allowing the Dewey bankruptcy estate to pay employee wages and taxes due before the firm’s bankruptcy filing, to continue to access bank accounts in the firm’s possession, to keep existing insurance policies, to retain Epiq Bankruptcy Solutions as its claims and noticing agent, and to take 45 days rather than the standard 14 to submit a complete schedule of assets and liabilities.
(Dewey could use the extra time. As noted earlier, Dewey’s bankruptcy filings were internally inconsistent on the matter of the firm’s liabilities, sometimes citing $245 million and sometimes citing $315 million.)
But not every motion got granted. Here’s a report from the American Lawyer (reg. req.) on the most contentious aspect of the hearing:
[Judge Glenn declined] to approve a motion that would have allowed the Dewey estate to use cash collateral held by its primary lender, JPMorgan Chase, to fund the work of those responsible for winding down the firm’s remaining operations….
At issue: whether JPMorgan, as collateral agent to secured creditors owed some $225 million by the firm, could file a lien on recoveries from avoidance actions, which are claims that arise during the bankruptcy process that are typically reserved for the benefit of creditors….
Scott Ratner, a partner of Togut’s at New York bankruptcy boutique Togut, Segal & Segal, argued unsuccessfully that it was essential that those winding down Dewey’s operations be allowed to tap the cash collateral immediately. Kenneth Eckstein, a Kramer Levin Naftalis & Frankel partner representing JPMorgan, also argued that the remnants of Dewey be allowed to use the cash. Saying “the lenders are willing to fund this estate,” Eckstein noted that the bank had agreed to Dewey’s proposed $8.6 million budget for the next 21 days.
Glenn was unmoved. He told Eckstein that if he wanted greater assurance that JPMorgan’s money would be returned, “Roll your truck up and start collecting accounts receivable, Mr. Eckstein.”
Ouch. (We mentioned that mini-benchslap in today’s Morning Docket.)
If Dewey can’t access the cash, it’s going to run into some problems. For example:
Glenn did concede later in the hearing that the parties should find a way to fund a $700,000 insurance policy covering Dewey’s dissolution team: executive partner Stephen Horvath III, general counsel Janis Meyer, and Joff Mitchell of Zolfo Cooper, who is serving as Dewey’s chief restructuring officer. Togut said it was urgent that the policy be purchased before the end of business Wednesday in order to provide the trio with adequate protection against liabilities that might arise during the bankruptcy process.
Here’s the other big news out of yesterday’s hearing, as reported by DealBook:
Among the chief near-term goals of Dewey advisers is reaching an agreement to recover money from some of the firm’s former partners, many of whom departed earlier this year amid fear about their employer’s financial health. That exodus drained Dewey of revenue and the confidence that the firm would survive.
Albert Togut, a lawyer representing the Dewey estate, said in a hearing on Tuesday afternoon in federal bankruptcy court in Manhattan that the firm was working on a settlement, which could resolve a legal matter that could otherwise take years to figure out. He declined to give details after the hearing.
Still, a settlement is likely to take time. Mark C. Zauderer, a lawyer representing about 50 to 60 former Dewey partners, said in court that he and his clients had not heard what the basis of such claims would be.
There are some former Dewey partners who claim — perhaps in a bit of posturing — that the firm owes them money. See, e.g., M&A rainmaker Morton Pierce, who claims he’s owed the eye-popping sum of $61 million.
Now, on to the ex-associate who’s apparently owed over $400,000 by Dewey….