Clean-up efforts are underway at Dewey & LeBoeuf — and we’re not talking about the work of the janitors (at least not the ones who were allegedly stiffed on $300,000). Rather, we’re talking about the work being done by Dewey as debtor, aided by its high-priced advisory team, to put its affairs in order and to maximize the recovery for its creditors.
One of the biggest messes: how to deal with the firm’s hundreds of former partners. Dewey’s lead lawyer, Albert Togut of Togut Segal & Segal, has already made clear his plans to seek some funds from them.
In a conference call yesterday afternoon, Dewey’s bankruptcy advisers informed ex-partners about the contours of a possible global settlement….
The call lasted about 90 minutes and was open to former partners and their lawyers, according to Am Law Daily. Participants included Dewey’s two remaining partners, general counsel Janis Meyer and executive partner Stephen Horvath III; its chief restructuring officer, Joff Mitchell of Zolfo Cooper; and, of course, Al Togut.
Here’s a report on the call from the WSJ Law Blog:
Ex-partners from around the globe were briefed on the settlement’s progress during an hour-and-a-half conference call Tuesday afternoon with Dewey’s bankruptcy advisors and the two partners overseeing the dismantling of the firm. The swift timetable is intended to secure an agreement before the end of July, when a six-week plan to fund the bankruptcy process using lenders’ cash collateral expires, according to two ex-partners who participated in the call….
Partners who agree to the settlement may be released from future claims by Dewey’s estate and creditors, and also from claims against them by other partners, those ex-partners said. The latter provision is intended to secure participation from some of the firm’s top earners, the former partners said. Many of Dewey’s most prominent partners had lucrative pay guarantees or held leadership positions that could open them up to lawsuits from partners who blame them for the firm’s demise.
Such a deal sounds reasonable in principle. Both the Dewey estate and former D&L partners would benefit from a speedy and certain resolution, as opposed to a long, drawn-out, and expensive battle in court (which is what we’ve often seen in prior law firm bankruptcies). As one of our sources noted:
[Potential clawback claims against ex-partners] could potentially go back in time for several years of distributions. These will be scary numbers for any equity partner, and [raising them] begins the process of acculturating the partners to why it makes sense to make a deal now rather than fight. This first step would not be unlike forcing all the partners to watch gory films of traffic accidents for hours on end as part of the driver training program.
So some partners might want to strike a deal to avoid the flaming wreckage of Dewey — to pay up, walk away, and get on with their lives. But as they say, the devil is in the details — and there are a lot of messy details here that have not yet been worked out. As one former partner told the WSJ, “There were a lot of angry people on the phone. People felt that they should ask for higher contributions from the more highly-compensated people.”
What factors might go into the calculus in deciding how much partners should pay? Togut previously mentioned unfinished business the partners took with them to their new firms and how much they received in compensation before Dewey went under.
Of course, there are some catches, as noted by Am Law. For example, a critical mass of partners would have to agree to the plan in order for it to take effect. And, in a move that should shock no one, former chairman Steven Davis — whom some blame for driving the firm into the ground — will not be allowed to participate.
Can enough partners be convinced to participate in such a deal? Let’s discuss — and also consider whether former associates might get dragged into the mess….