The hits keep coming for disgruntled former partners of the soon-to-be-defunct New York law firm Dewey & LeBoeuf. The firm’s bankruptcy team reportedly will present its former partners, whose earnings are subject to clawbacks, with an outline for how to settle claims with more than 5,000 creditors anxious to draw the remaining blood from the stone. The plan seeks to settle all of those claims in the next two weeks.
The firm finally announced that it had filed for bankruptcy on May 28 after months of assertions to the contrary.
Dewey’s former partners had a conference call yesterday with the firm’s bankruptcy advisers and the two partners left overseeing the wind down, who detailed the settlement progress. The expedited settlement timetable is intended to secure an agreement prior to the end of July, when a six-week plan to fund the bankruptcy process using lenders’ cash collateral expires, the Wall Street Journal reports.
The firm’s many creditors include banks, bondholders, pension regulators and trade creditors from car services to staffing agencies.
As part of the plan, partners who agree to the settlement may be released from any future claims by Dewey’s estate and creditors, as well as from other partners. The intent of the latter clause is to promote participation from some of Dewey’s former rainmakers, many of whom had lucrative compensation packages or were in prominent positions within the firm and could be in the crosshairs of angry partners who blame them for the firm’s failure.
This provision is particularly noteworthy given that last week former Dewey IP litigation specialist Henry Bunsow leveled the first publicly filed lawsuit from a former partner at five former members of the firm’s management team and a slew of people to be named later.
In the suit, Bunsow claims they misrepresented Dewey's financial performance and stability in an effort to recruit partners at other firms. He also asserts that the defendants then used the capital brought in by the new talent to pay favored partners and not run the firm. In a particularly scathing section of the complaint, Bunsow says that the firm’s management was "running a Ponzi scheme in order to enrich themselves and select partner of the Firm."
The much-maligned former Dewey chairman Steven Davis, who was named in Bunsow’s suit, will be excluded from the clawback settlement and the provisions releasing him from claims. Davis was let go in April after New York prosecutors began investigating his actions for wrongdoing after a number of Dewey partners tipped District Attorney Cyrus Vance off to “financial irregularities” at the firm.
Dewey’s bankruptcy team did not indicate a total settlement number or any detailed figures on how much individual partners would be asked to ante up.
“There were a lot of angry people on the phone,” an ex-partner told the Journal. “People felt that they should ask for higher contributions from the more highly compensated people.”
The firm had a significant compensation disparity between partners, with some making in excess of $6 million per year while others made less than $500,000. Additionally, the Journal says as many as 100 partners had special pay deals that guaranteed them a certain amount of money per year.
For more on the clawback settlement, read the Wall Street Journal.
And for more from InsideCounsel on Dewey, read: