Dewey & LeBoeuf offered on Wednesday to drop potential claims against former partners if they collectively shell out up to $103.6 million to the estate of the largest U.S. law firm ever to declare bankruptcy.
Joff Mitchell, the chief restructuring officer for the bankruptcy, told a New York hotel conference room packed with former partners of the defunct firm they could avoid years of costly litigation by accepting the offer.
If the former partners accept the deal, it would provide the first big recovery for Dewey’s creditors, who are owed $315 million. A settlement with the former partners, including the major “rainmakers”, would avert lawsuits against them.
It calls for the former partners, who left as the firm teetered on the brink of collapse, to chip in varying amounts depending on how much they were paid, among other factors.
“I think the plan is fair,” Mitchell said. “Those that made the least will contribute the least. The plan does not favor those who are on the top.”
Dewey once employed more than 1,000 lawyers in 26 offices worldwide but declared bankruptcy in May.
Its downfall was spurred in part by hefty guarantees the firm paid to certain partners. A key challenge for the estate is to recoup, or claw back, some of those funds.
However, a deal wouldn’t end the bankruptcy proceedings, since the estate would also seek to recover money from former clients and others to pay off its remaining debt.
Wednesday’s meeting was held in a conference room in the lower lobby of the Sheraton Hotel in midtown Manhattan, on the same block as Dewey’s former headquarters.
An estimated 60 former partners and their counsel filled the room, while some 70 others joined by conference call. The meeting lasted about four hours.
A Reuters reporter obtained details of the meeting.
Mitchell declined to comment when he was asked later about the day’s developments, as did Al Togut, the firm’s primary bankruptcy counsel.
When Mitchell made the settlement offer in a PowerPoint presentation, the reaction among the former partners was muted. Many were taking notes and quietly chatting among themselves.
In interviews outside the conference room, several former partners, all of whom asked to not be identified, said they would give the offer serious consideration.
One described it as “rough justice.” Said another: “The prospect of litigation is worrisome to multiple groups of partners.”
Partners have until July 24 to accept the settlement, Mitchell told the group. The proposed deal would cover claims the estate has against hundreds of former Dewey partners, dating back to January 2011.
Partners are being asked to pay anywhere from $25,000 to $3 million.
Mitchell cautioned during the presentation that if the offer was rejected, the matter would likely escalate from a Chapter 11 to a Chapter 7 bankruptcy — in which case a trustee would be appointed who would be empowered to seek clawbacks from the former partners aggressively as part of a liquidation.
“There’s only one opportunity to do this and that’s now,” said Mitchell, a managing director at restructuring firm Zolfo Cooper.
Complicating the settlement talks are clashing interests among the former partners. Some of those who were offered lucrative salary guarantees claim they are owed money and want that factored into the deal, two former partners said.
Partners without those guarantees, however, contend that those contracts aren’t valid, the two ex-partners said.
It is far from certain the Dewey partners will agree to the plan.
“It would not be a safe bet to assume that our clients will agree to it,” said Mark Zauderer, a lawyer for 57 former Dewey partners. “But they will certainly look at it.”
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