As reported earlier by Bloomberg (via Morning Docket), a filing in the Dewey bankruptcy by JPMorgan Chase claims that Dewey blew through $43 million of the secured creditors’ cash collateral in a little over a month — from April 16 to May 28, when the firm filed for bankruptcy. Where did all that money go? It works out to a rate of about a million bucks a day — which is impressive!
The daily press reports of partner departures, mismanagement, exorbitant partner contracts and even the commencement of a criminal investigation by the District Attorney were too much for the firm and its partners to bear. Today, all but two of the partners are gone. Gone with them are millions of dollars in compensation, much of it paid with borrowed money over the past several months. Left behind, in addition to more than $225 million of secured debt, are, among other things, unfunded retirement benefits, uncollected accounts receivable, potential litigation claims, half a million boxes or more of client files, and office space in midtown that is vast, luxurious and empty.
Dewey have some former English majors in the house? Props to the Kramer Levin crew for their elegant wordsmithery (yes, “wordsmithery” is a word).
And that’s not the only juicy filing. The WSJ also notes the slap delivered by Dewey as debtor to the former partners concerned about their retirement benefits. From a Dewey filing:
[I]t is unclear whether these legacy partners are even creditors of the Debtor’s estate — let alone one of the most significant unsecured creditor groups they claim to be in their objection. In fact, the Debtor questions whether these legacy partners have any claims against the Chapter 11 estate because the benefits provided to the former partners under the Retirement Plan were payable only out of the Firm’s profits — a firm that is no longer operating. The Retirement Plan (at § 8.2), by its express terms, provides that such benefits are forfeited and do not constitute an obligation of the Firm. Given that the Debtor is a law firm in dissolution under Chapter 11, with liabilities greatly exceeding assets, there is no question that the Debtor will never generate a profit in the future. Thus, the constituency represented by the Legacy Partners Committee may not have any cognizable claims against the Debtor’s estate arising under the Retirement Plan. The agenda of the Legacy Partners Committee in the Chapter 11 Case needs to be questioned.
Ouch. But Dewey have a valid point? Isn’t this what it means to be a partner, an equity holder in a Biglaw business? During the boom times, you collect the profits; when things go bust, you are busted — the last people in line, behind all of the creditors, both secured and unsecured.
At least that’s how things normally work. But Dewey is far from a normal situation. So stay tuned.
Ex-Dewey Partner Bunsow Sues Former Leaders For Misrepresenting Firm’s Finances [American Lawyer]
The Dewey Bankruptcy: Pot Shots and Finger-Wagging [WSJ Law Blog]
Is Dewey partner Henry Bunsow the Angel of Death? [Thomson Reuters News & Insight]
Dewey & LeBoeuf Used $43 Million in Recovery Attempt [Bloomberg]