THE $71.5m (£45m) SETTLEMENT between Dewey & LeBoeuf’s former partners and the defunct firm’s estate has been approved by the bankruptcy judge overseeing the case, less than five months after the US firm’s high-profile collapse.
About 450 of 670 former Dewey partners have so far opted to participate in the settlement, which requires partners to pay portions of their earnings from 2011 and 2012 in exchange for a waiver from future liability over the firm’s debts, with individual payments ranging from $5,000 (£3,100) to $3.37m (£2.1m), Accountancy Age’s sister publication LegalWeek reports.
In approving the settlement, bankruptcy court judge Martin Glenn of the Southern District of New York rejected a request from two groups of partners from legacy firm LeBoeuf Lamb Greene & MacRae for the court to appoint an examiner to review the deal, calling the move “a litigation tactic to try to derail approval”.
In light of the potentially lengthy and costly litigation resulting from bankruptcy proceedings, Glenn welcomed the plan, saying it “will lead to a quicker wind-down in Chapter 11, and – more importantly – a quicker and more certain distribution to creditors”.
The decision, which comes after Dewey filed for Chapter 11 bankruptcy protection at the end of May, marks the first major recovery for creditors, who say they are owed more than $500m (£312m).
One former UK partner at Dewey told Legal Week: “I am very pleased that it has been approved. With regard to those who haven’t yet settled, they fall into different categories. I think there will be some people who didn’t sign who will now.
“But there were some UK partners who didn’t participate and are of the view that they are not liable for future litigation, which is not true. I think that all of them would have attended meetings and participated through New York, and have left themselves open to proceedings further down the line.”
Former Dewey chairman Steven Davis, former executive director Stephen DiCarmine and former chief financial officer Joel Sanders were not allowed to participate in the settlement, though Dewey’s estate has repeatedly said it intends to pursue claims against them.
In his ruling, Glenn stated: “The court has no basis to conclude – and does not conclude – that there are any viable claims that can be pursued against Davis, DiCarmine and Sanders, or what defenses they may be able to assert.”
Another ex-Dewey UK partner told Legal Week: “Taking the decision to settle seemed a no-brainer to me, and this is the view of most people I’ve spoken to. It is difficult when you feel the threat of further action; it is hard to concentrate, particularly when litigation could easily move to London. I suppose if you were based in one of the more exotic places in the world Dewey had bases in, you might be able to take a different view on the risks of enforcement against the cost risks.
“I have lost a bit of money, but I actually think in the long run it will be a blessing in disguise. The impression I got when I was there was it was a fairly bonkers law firm.”
US prosecutors are currently trying to establish whether Davis and other members of the firm’s management purposely misled lenders about Dewey’s financial health before the firm’s collapse, with The Wall Street Journal yesterday reporting that the criminal probe is ‘intensifying’.
The final details of Dewey’s Chapter 11 reorganisation are scheduled to be decided in November. Before that point, Dewey’s chief restructuring officer Joff Mitchell said he expects some of the partners who have not yet settled to reconsider following this week’s ruling.
Former Dewey partner Brian Zimbler, now Moscow managing partner at Morgan Lewis & Bockius, added: “We are now fully focused on current client matters and our new firm. It is nice to hear that the Dewey saga is winding to a close.”
The firm’s UK limited liability partnership, which also includes the Paris office, was placed into administration in May, with BDO business restructuring partners Mark Shaw and Shay Bannon appointed as joint administrators.
Click here for US bankruptcy court judge Martin Glenn’s full ruling.
Colin sums up some people's attitude towards the result of the EU referendum using just two cups
Head of editorial Kevin Reed discusses the result of the EU referendum, and explores it means for accountants
Discover what the national newspapers are saying about Brexit
What questions should the profession be asking now the UK has decided to leave the EU?