Bankruptcy, Biglaw, Dewey & LeBoeuf, Dissolution, ERISA, Money, Partner Issues, Vicious Infighting

What Dewey Do With Thousands of Boxes of Client Files?
(And bad news for D&L 401(k) participants.)

As we noted in Morning Docket, many former partners of Dewey & LeBoeuf are less than pleased with the proposed settlement between the D&L bankruptcy estate and ex-partners of the firm. Preliminary reactions “rang[e] from skepticism to anger,” according to Am Law Daily.

In the words of Mark Zauderer, counsel to almost 60 former Dewey partners, “I’m not seeing overwhelming enthusiasm for the proposal.” A former D&L partner was even more blunt: “I think this is destined to fail. Let the trustee [of a Chapter 7 liquidation] go for it.”

But not everyone holds such negative views. One ex-partner — who claims that he’s being asked to pay more than he thought he owed, and that he’ll have to postpone his retirement by several years due to Dewey’s downfall — told Thomson Reuters that he will vote for the deal anyway. “My view is there’s nothing less desirable than having this drag out for years,” he said. “I’m willing to pay a lot of money to have this go away.”

Dewey have other issues besides how to deal with former partners? Most certainly. There are pressing problems regarding the disposition of client files, as well as issues regarding retirement benefits for former Dewey & LeBoeuf employees….

How many client files are we talking about? The exact number isn’t known, but it’s apparently huge. From Thomson Reuters News & Insight:

Dewey estimates it has “hundreds of thousands of boxes” of documents, some in its own possession, many housed at third-party warehouses, including more than 100,000 at a facility in Brooklyn, New York.

The firm, which can trace its roots back more than a century, also said in court filings it is not sure where all its old files are or who they belong to. The firm had offices in 12 countries, including Italy, Russia and Poland.

A Dewey lawyer said at a bankruptcy court hearing this week that the firm already is about $500,000 behind on fees to warehouses and desperately needs to shed storage costs to help repay creditors. Dewey has proposed giving some 4,500 former clients about 75 days to collect their files and then destroying records that go unclaimed.

How about taking all the boxes and building a giant fort? It could be a new home for the Steves. Former chairman Steven Davis, under criminal investigation by the New York District Attorney’s office, would surely prefer a box fort to a prison cell.

U.S. Bankruptcy Judge Martin Glenn, who is overseeing Dewey’s wind-down, echoed concerns that financial data, transaction records, contracts, closing documents and other private data could be stolen, misused or made public.

“There’d be nothing stopping anybody from sending these files to The New York Times,” Glenn said at Monday’s hearing. “That really bothers me.”

Yeah, that idea bothers us too. Why not send the files to Above the Law?

To avoid the Biglaw version of Hoarders, Dewey wants to destroy any files that clients don’t claim. But there’s an issue as to who should have to pay for document destruction:

Document destruction also doesn’t come cheap, and no one is volunteering to foot the bill. Solvent firms, which eventually need to dispose of mountains of paper documents accumulated from clients, normally pay for the process themselves. But Lara Sheikh, an attorney representing Dewey, said at the hearing that the firm likely could not afford the shredding costs.

Two storage facilities want to make sure they won’t be on the hook. One of the firms, Boston-based Iron Mountain Information Management, estimated in court papers it would cost $400,000 to shred its 31,000 boxes of Dewey records…. Iron Mountain has sought a guarantee that if warehouses foot the bill, they will get administrative bankruptcy claims against Dewey, allowing them to be paid ahead of other creditors.

Think of the Dewey debacle as a concrete argument in favor of things like electronic document storage, paperless offices, and cloud computing. As law firms move towards electronic data storage, hopefully future Biglaw collapses won’t trigger such big problems with document disposal.

These challenges have been significant in the past, as Thomson Reuters explains:

Document disposal has triggered court battles in previous law firm bankruptcies. In the ongoing liquidation of law firm Thelen, which filed for bankruptcy in 2009, the company argued that destruction costs should fall to the clients who own the files.

But [Bill] Brandt, the consultant assisting on Dewey who also oversaw the 2006 bankruptcy of Coudert Brothers, disagrees. He said clients have leverage to refuse to pay for shredding. Warehouses, he added, will still destroy files, for fear of being held liable if unshredded records fall into the wrong hands.

After Dreier’s 2008 bankruptcy, the firm took on some of the cost, paying warehouses $5 per box to destroy records.

You know you’re in a good place when you’re looking to Dreier for possible solutions to your problems.

And that’s not the end of Dewey & LeBoeuf’s troubles. On to the bad news about the D&L 401(k) plan….

(hidden for your protection)

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