A knowledgeable observer shared these thoughts with us:
It is easy to see why [a global settlement] would be highly attractive to the prominent partners. The real question is whether they will throw enough money into the pot to let those more junior and uninformed/non-management participating partners willing to go along with it. What leverages and pressures will there be against the junior partners to convince them to let the upper tier escape in the absence of a “fair” contribution? Could it be capital loans that have to be repaid to the lenders personally? Will the lenders cut a deal with those partners to ameliorate that personal exposure? Remember, these deals are separate and apart from the working line of credit and bond issuances, but they are inextricably linked to the overall capital structure of the firm and its failure.
That’s what is taking place on the partner front. Do other folks who had financial dealings with the pre-bankruptcy Dewey & LeBoeuf have anything to worry about? One reader sent these thoughts our way:
Team Togut has been handling the Saint Vincent’s Hospital bankruptcy. Just prior to the two-year filing deadline, Team Togut filed hundreds of preference complaints against the doctors who chose to stay with St. Vincent’s to the end rather than abandon ship. I can’t speak for all, but if the complaint they filed against the doctor who came to talk to me about it is any indication, the preference actions were mostly bulls**t, seeking payments that were obviously made in the ordinary course of business. Team Togut knows this, and it also knows that all the doctors would settle for a few thousand dollars rather than hire a lawyer to establish the defense to the preference action. I guess we want to encourage doctors to flee financially troubled hospitals.
Point is, the drawback actions won’t necessarily be limited to partners. Dewey associates have to worry about drawbacks? Maybe.
We shall see. Of course, dealing with former partners (and associates) isn’t the only Dewey mess requiring remediation. An ATL reader pointed out:
What happens with issues of SEC investigations regarding the bond offerings, PBGC investigations with funding of the defined plans, possible individual liability with unfunded 401k plans for which contributions were withheld, and DA investigations with respect to criminal transgressions? These are probably all outside the capability of resolution in this plan. But one can only do what one can do….
A more difficult reflection here is…. would this “solution” as it is headed be the best for the profession, the “have not” junior partners, and the creditors? Or does it set a poor precedent for responsible leadership and management of law firms by allowing the upper tier to drive the firm hard and fast into the wall, and on balance walk away with a lot of money in their pockets at the expense of junior partners, associates, staff, creditors, landlords, the PBGC, etc.? We will have to see what the terms proferred may be, and what issues are avoided to learn that answer, if a settlement is reached. If a settlement plan is not reached, we will learn a lot from that as well.
Dewey have a lot of fodder for reflections on law firm (mis)management? Most definitely.
P.S. For a collection of interesting articles raising related issues about law firm management, check out JD Supra.
Dewey Bankruptcy Team Pushes for Quick Clawback Settlement [WSJ Law Blog]
Former Dewey Partners Urged to Reach Quick Settlement [Am Law Daily via Morning Docket]
Former Dewey Chairman Will Be Excluded from Proposed Bankruptcy Settlement with Ex-Partners [ABA Journal]