The three former top executives at Dewey & LeBoeuf LLP, indicted by the Manhattan district attorney for falsely portraying the failing law firm’s financial condition, are using the criminal proceedings to halt a lawsuit by an insurance company that bought $35 million in notes.
Aviva Life & Annuity Co., based in Des Moines, Iowa, alleged in a complaint filed in December that it was induced to buy the secured notes in April 2010 by Steven Davis, Dewey’s former chairman; Stephen DiCarmine, its former executive director; and Joel Sanders, the ex-finance chief. According to Aviva, the men represented Dewey as “financially sound” when there was $100 million in “undisclosed debt to certain highly compensated partners.”
A federal judge in Des Moines refused to dismiss the suit last month, saying Aviva made a sufficient case. Meanwhile, the three ex-Dewey managers were indicted in New York.
In papers filed in federal court in Des Moines last week, the three asked the judge to halt the civil case until the criminal proceedings are concluded. They cite the New York judge as saying that the trial will begin in January and last as long as six months.
The former firm managers say they shouldn’t be obliged to choose between testifying and protecting their constitutional rights. Although they could cite the Fifth Amendment’s self- incrimination privilege to refrain from answering questions in the lawsuit, invoking the privilege in a civil case allows the court or jury to make inferences against the person who uses it.
The defendants say Aviva’s suit and the indictment rely on some of the same facts. The three were indicted by a Manhattan grand jury and charged with a “blatant” $200 million fraud that spurred the largest law firm bankruptcy in history. They pleaded not guilty.
Dewey, which once had 1,300 lawyers, filed for Chapter 11 protection in May 2012 and implemented a liquidating plan in March 2013. The plan created a trust to bring lawsuits and eliminate claims. The firm estimated that midpoint recoveries under the plan would be 58.4 percent for secured creditors and 9.1 percent for unsecured creditors.
The bankruptcy petition listed assets of $193 million and liabilities of $245.4 million.
The Iowa lawsuit is Aviva Life & Annuity Co. v. Davis, 12- cv-00603, U.S. District Court, Southern District of Iowa (Des Moines). The bankruptcy case is In re Dewey & LeBoeuf LLP, 12- bk-12321, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
- Guilty Pleas Unsealed in Dewey Law Firm Fraud
- Top Executives of Failed Dewey Law Firm Facing Fraud Charges
- The Dewey Chronicles: Rise and Fall of a Legal Titan
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