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Dewey creditors can pursue claims against firm execs, judge rules

The creditors claim that former executives Steven Davis, Stephen DiCarmine and Joel Sanders mismanaged the firm by “recklessly doling out individual partner contracts”

By Alanna Byrne

November 30, 2012 • Reprints

Many of Dewey & LeBoeuf’s ex-partners are safe from lawsuits connected to the firm’s demise. But that protection won’t extend to three of the firm’s former executives, after U.S. Bankruptcy Judge Martin Glenn ruled Thursday that Dewey’s unsecured creditors have the standing to sue the trio for damages.

A creditors committee is seeking to pursue mismanagement claims against former chairman Steven Davis, former executive director Stephen DiCarmine and former chief financial officer Joel Sanders, arguing that they “breached their fiduciary duties of care, loyalty and candor by recklessly doling out individual partner contracts that guaranteed compensation without regard to future performance,” Thomson Reuters reports.

Pursuant to Glenn’s ruling, the committee now has the right to bring their claims. Eventually the firm plans to establish a trust to handle all future lawsuits or settlements, according to a liquidation plan filed by Dewey.

Complicating matters is the question of who will pay up in the event of a successful claim. The firm has a $50 million management liability policy, but the insurers are reportedly disputing the coverage, arguing that it contains an exclusion provision in the event that the insured, Dewey, sues the insured, the executives. Glenn said that questions about the potential exclusion could not be immediately resolved.

Davis, DiCarmine and Sanders have denied the mismanagement allegations in court documents. In October, Glenn approved a clawback settlement with roughly 400 of the firm’s former partners, under which returned a portion of their compensation in exchange for immunity against future lawsuits related to Dewey’s bankruptcy.

Read more InsideCounsel coverage of the Dewey & LeBoeuf bankruptcy:

Dewey & LeBoeuf seeks $13 million for LA Dodgers bankruptcy case

Dewey trustee objects to proposed $165,000 bonus

Former Dewey partner accuses Citibank of concealing firm’s financial troubles

Analyzing Dewey’s latest operating report

Infographic: The timeline of Dewey’s downfall

Former Dewey partner sues management, claims they were “running a Ponzi scheme”