Dewey Have A Confirmed Chapter 11 Plan? Yes We Do!
What happened at this morning's hearing to confirm Dewey's bankruptcy plan? Detailed commentary, plus photos.
This morning I attended the confirmation hearing for the Chapter 11 bankruptcy plan of Dewey & LeBoeuf. As I mentioned on Twitter a few minutes after leaving the hearing, Judge Martin Glenn confirmed the plan.
Under the plan, secured creditors will recover between 47 to 77 cents on the dollar, while unsecured creditors will wind up with 5 to 14 cents on the dollar. Secured creditors hold about $262 million in claims; total creditor claims, secured and unsecured, amount to about $550 million.
So that’s the bottom line. But what was the hearing itself like? Here are my observations, including a few photos — because bankruptcy court coverage is totally WWOP….
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(By the way, apologies for this delayed write-up. Right after the Dewey hearing concluded, I had to run up to the Second Circuit for the latest round in Ted Olson v. David Boies, aka Clash of the Biglaw Titans. Here’s my post-argument photo of Boies and Olson; write-up of that hearing to follow, probably tomorrow.)
The U.S. Bankruptcy Court for the Southern District of New York is based out of the Alexander Hamilton U.S. Custom House, located at One Bowling Green. It’s a beautiful old Beaux-Arts building:
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The interior isn’t as grand as the exterior. Judge Glenn’s fifth-floor courtroom is blandly modern, done up in the standard GSA style, with unfortunately low ceilings and barely any windows. There are three tiny square windows, which admit hardly any light because they’re behind exterior latticework.
Perhaps it’s appropriate for bankruptcy court, but the room is a little sad. You look around and think, “So this is where law firms go to die.”
When I arrived at around 9:30 a.m., the room was already almost full, packed with older white men in dark suits. But one figure didn’t blend in with the crowd: former Dewey partner Janis Meyer, her blond hair standing out like a beacon amid a sea of grey, white, and balding pates. I also admired her stylish red eyeglasses.
I scanned the room for Agent Orange — aka Steve DiCarmine, the former executive director of Dewey with the famously Boehner-esque tan. I couldn’t find him. I noticed one handsome, well-tanned man in the well of court, but he was far too tall to be DiCarmine (more on this mystery man later).
I quickly spotted and said hello to my fellow legal journalists — easy to recognize as the most casually dressed people in the room (although Sara Randazzo of Am Law Daily was sporting a lovely ruffled blouse). In attendance, in addition to Randazzo, were Peter Lattman of DealBook, Jennifer Smith of the WSJ Law Blog, and Casey Sullivan of Thomson Reuters. (Click on each publication’s name for its write-up of the hearing, or check out the links collected at the end of this post.)
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The room buzzed with a chummy excitement. Lawyers circulated, shaking hands and slapping backs; it felt almost jovial, certainly far from funereal. Perhaps everyone was excited to put the Dewey debacle in the rearview mirror. And for the Dewey refugees in the room, the hearing served as a reunion of sorts, even if under less-than-ideal circumstances.
I grabbed the last free seat in the front row of the gallery and surveyed the courtroom. It’s not very imposing. Judge Glenn’s “bench,” such as it is — it’s barely raised above the floor — is stuck in a corner. The courtroom deputy’s desk actually occupies the most central location in the room.
Judge Glenn’s entrance was… odd. After he was announced, five other people walked into the courtroom right before him. This stream of people made me think of an appellate panel, until the five other people, who looked like law clerks or externs, seated themselves in what looked like a mini-jury box (with about six seats).
In the future, these people should seat themselves in the jury box well in advance of Judge Glenn, so he can enter the courtroom by himself and with proper pomp and circumstance. Having non-judicial personnel enter at the same time as the judge diminishes the judge’s stature. Bankruptcy court isn’t an Article III tribunal, but it’s not chopped liver either.
His courtroom might not dazzle, but Judge Glenn himself looks impressively judicial. He’s a slender, elegant man, with a well-trimmed white beard and full head of hair. He looks as distinguished as his résumé (which includes a clerkship for the legendary Judge Henry Friendly and partnership at O’Melveny & Myers before his appointment to the bench).
The hearing started when Albert Togut, the lead lawyer for Dewey as debtor, took the podium. He did so, with a grin.
“Why are you smiling?” asked Judge Glenn.
“You know why I’m smiling,” said Al Togut, to laughter. The exchange sounded vaguely flirtatious — Brokeback Bankruptcy?
Alas, that was one of the highlights of the two-hour hearing. A handful of objections to Dewey’s Chapter 11 plan had been filed, but as Togut announced to the court, he and his colleagues had managed to get them withdrawn in advance of the hearing.
The withdrawal of all objections to the plan was good news for Dewey, but bad news for anyone in the courtroom hoping for fun or interesting proceedings. We instead wound up with an undramatic and anticlimactic slog towards confirmation, sadly deprived of any sightings of Steve DiCarmine (whose testimony, required for purposes of resolving an objection, was no longer needed).
Togut began by describing Dewey’s settlements with two major groups: about 450 former partners of the firm, who agreed to pay about $71.5 million into the bankruptcy estate pursuant to the Partner Contribution Plan (PCP), and a group of former retired partners, who agreed to pay about $500,000 to the Dewey estate. These settlements amounted to major achievements for Dewey and its restructuring team, considering that many former partners and retired partners came into the case saying that Dewey owed them money, and many doubts had been expressed about the viability of the PCP.
Annette Jarvis of Dorsey & Whitney spoke on behalf of the retired partners, and her remarks were depressing. She talked about how retired partners and their widows have had to sell houses and cut back on their living expenses as a result of losing their Dewey retirement benefits. The retirees originally hoped to be treated as unsecured creditors of Dewey, like retirees in the Heller bankruptcy, and were “disappointed” when Dewey as debtor “attacked” them, calling on them to pay back their most recent retirement benefits.
Jarvis said it was a “difficult decision,” but after getting some concessions from Dewey, the retirees made an “economic decision” to settle. Although they “continue to believe [they] have legitimate claims and valid defenses” to liability, the retirees decided that it just wasn’t worth the continued cost to keep fighting.
Togut asked Judge Glenn to approve the settlements with the former partners and retired partners. Noting the absence of objections, the judge did. Togut turned the podium over to one of his partners, Scott Ratner, who described and requested the court’s approval of various other settlements and agreements:
- a settlement with the Pension Benefit Guaranty Corporation, which gave the PBGC a $120 million unsecured claim;
- a $900,000 settlement with 15 of Dewey’s former partners in the United Kingdom, which is expected to send about $650,000 into the U.S. bankruptcy estate (the rest will stay in the U.K.); and
- a settlement with German malpractice claimants, arising out tax shelter work that Dewey did for them — hmm, German tax shelters done by Dewey, that sounds savory — who will be allowed to seek recovery from insurance proceeds.
Lawyers for the different parties popped up to the podium, put their support for the settlement on the record, and returned to the audience. Judge Glenn approved the settlements. Then Ratner ran through the nine objections, all of which had been withdrawn prior the hearing. Once again, Ratner’s remarks were punctuated by lawyers for the various constituencies coming up to the podium, putting their withdrawals on the record, and sitting down again.
Considering that most of the lawyers in the room spoke for about a minute but stayed for the entire two-hour hearing, I couldn’t help wondering how much the whole hearing would end up costing clients in aggregate attorneys’ fees. Well, at least this whole bankruptcy case won’t cost $755 million.
As one lawyer after another withdrew their clients’ objections to the plan, I also wondered how Team Togut had gotten everyone to fold like the proverbial cheap card tables. My best guess is that most objectors came to the conclusion reached by two former LeBoeuf bankruptcy lawyers, John Campo and John Kinzey, who represented themselves pro se. As Campo told the court, “We don’t necessarily like the plan, Your Honor, and have voted against it. But it’s more important to see administrative expenses be curtailed going forward so the liquidating trustee can … maximize distributions” to creditors.
During this lengthy process, I looked around the courtroom. The pre-hearing energy had clearly dissipated; people were bored. Some were checking their smartphones, and a few were even dozing off. Given the oppressively warm temperature in the room, I can’t say I blame them. (President Obama’s State of the Union address was far more interesting and yet still sent Justice Ginsburg to dreamland.)
Scott Ratner then yielded the floor to his colleague at Togut Segal & Segal, Steven Flores, who had the task of introducing the evidence needed to support confirmation of the plan. Flores began by asking Judge Glenn to take judicial notice of the record in the case, but Judge Glenn said, with a touch of pique, “I don’t do that.” He told Flores, in a somewhat lecturing tone, to identify specific documents by ECF number and move them into evidence, which Flores proceeded to do.
Flores then conducted a smooth, efficient direct examination of the hearing’s one live witness: Dewey’s chief restructuring officer, Joff Mitchell of Zolfo Cooper. Mitchell, who has a shaved head and a wonderfully plummy British accent, opined that Dewey’s Chapter 11 case, built around the Partner Contribution Plan, will yield a much better recovery for creditors than a straight-up Chapter 7 liquidation would have.
UPDATE (2/27/2013): Looks like I need to work on my accent recognition; Joff Mitchell is from New Zealand, not Britain.
After Flores’s presentation, Judge Glenn heard from the creditors’ constituencies. The handsome, well-tanned man I had noticed at the start of the hearing turned out to be Howard Steel of Brown Rudnick, counsel to the unsecured creditors’ committee. With his boyish good looks, Steel could pass for an associate, but he’s actually a young partner (a 2004 Columbia Law grad). Steel expressed his committee’s support for Dewey’s Chapter 11 plan and sat down. (Howard Steel could talk to me all day about bankruptcy law. Please tell me more about cramdowns….)
Then Kenneth Eckstein of Kramer Levin, representing lead lender JPMorgan Chase, spoke. Eckstein was quite enthusiastic, describing his client as very pleased with the resolution of this extremely challenging and complex matter: “This case came to the court without an organized plan, without a way out. The fact that we’re here today, nine months later … I think is a testament to what an extremely successful plan this is.”
Finally, Judge Glenn welcomed Al Togut back to center stage: “This is your time in the sun, Mr. Togut.”
And boy did Togut bask in it. I agree with Sara Randazzo: Togut delivered an Oscars acceptance speech, in the category of “Best Law Firm Bankruptcy.”
Looking back on the first hearing in the case, on May 28 of last year, Togut recalled his promise that this case would be different — and not just because of its status as the largest law firm bankruptcy in history. He said it would be different because it would be resolved through a consensual partner contribution plan. No one believed him at the time, but now, nine months later, “here we are about to make history.”
Togut compared the relatively quick and smooth Dewey bankruptcy case with those of other law firms. Finley Kumble’s dragged on for twenty years, Shea & Gould’s went on for nine years, and the Coudert Brothers matter is still pending.
What was the secret to Dewey’s success, according to Togut? “You had to be a believer…. What got us to today is that people, one by one, became believers.”
I confess to an occasional sentimental streak, but this was a bit much for me; it just made me think of that great Journey song and rabid Justice Bieber fans. I also couldn’t help rewriting Togut’s statement in my head: “What got us to today is that people, one by one, got sick and tired of dealing with the Dewey disaster — and just wanted to get on with their lives.”
Togut also made a few unsuccessful attempts at humor. “A good settlement is one where no one is happy,” he said. “Well, I can assure you, no one is happy.” He delivered it like a laugh line, but it got scattered chuckles at most. Then he doubled down by making a joke about the U.S. Trustee never being happy, which got zero laughs — a total bomb. Oh, bankruptcy humor.
He then started thanking different people — such as Stephen Horvath, Janis Meyers, and Joff Mitchell — as well as the former partners of Dewey, who showed “a great deal of class and professionalism.” Well, better late than never.
(Sorry, I should stop being such a cynic and grouch. I’m putting on my happy cap now.)
“I predict, Your Honor, that we’ve created a new template for future cases,” said Togut. “Never again will such cases descend into endless litigation…. [This Chapter 11 plan is] good for the legal profession. It will raise the reputation of lawyers.”
Togut thanked Judge Glenn, for calling upon the lawyers before him to practice at the highest levels, and his colleagues on the Dewey matter, the best team he’s ever worked with in all his years in practice.
“And with that, Your Honor, the Debtor requests that you confirm this Chapter 11 plan.”
(Given the huge wind-up by Al Togut, it would have been funny if Judge Glenn had said no.)
Judge Glenn began by noting that the judge for whom he clerked, the great Henry Friendly, started his legal career at Root Clark, a predecessor firm to Dewey Ballantine. It was an historic firm, and its demise was “very painful for the lawyers and staff.”
After running through a quick chronology of the Dewey bankruptcy and the various statutory requirements for confirmation of a bankruptcy plan, Judge Glenn set forth his conclusion that Dewey’s Chapter 11 plan is “feasible and has a reasonable likelihood of success.” Accordingly, “for all the foregoing reasons, the Court is very pleased to confirm the Debtor’s plan.”
I waited for possible applause, but there was none. People might have been pleased in a relative sense with how the Dewey bankruptcy case unfolded — fairly quickly, over nine months, with less strife than many expected — but nobody was jumping for joy at the case’s conclusion.
And it’s worth noting that the Dewey saga isn’t completely over. Various Dewey-related lawsuits continue to rattle around the state and federal courts. And more litigation may arise in the course of the liquidation process that will now begin, overseen by two trustees who will collect funds for the benefit of creditors.
I chatted briefly with Al Togut after the hearing was over. His parting words to me were a fitting conclusion to L’Affaire Dewey: “I hope you enjoyed the show.”
(Flip to the next page for a few photos from the hearing.)
