By Jennifer Smith
- Reuters
A former Dewey & LeBoeuf LLP partner on the hook to repay a $ 209,000 capital loan has accused Citibank N.A. of fraud, saying the bank colluded with Dewey’s leadership in a scheme to help shore up the firm’s ailing finances with loans from newly-hired partners.
The allegations came in an August court filing (first spotted by Reuters) from lawyers for Steven Otillar, who was sued by Citibank in May over repayment of the loan he took out in August 2011.
The filing called the capital loan program “a fraudulent scheme… designed to directly benefit Citibank and DL and its management at Mr. and Mrs. Ottilar’s expense.” It said the bank used capital loans from “countless other unsuspecting lateral hires” to offset money that Dewey owed the bank and was unlikely to repay.
Citibank’s Citi Private Bank is one of the largest law firm lenders. Dewey had been negotiating to extend a $ 100 million credit line with a syndicate of banks that included Citi before the firm sought Chapter 11 protection on May 28.
Citi also provides loans to help partners finance capital contributions. When law firms go under, partners are generally liable for repayment of the loan, as WSJ has previously reported.
Here’s the gist of Mr. Otillar’s argument:
DL and its management had a fiduciary duty to Mr. Otillar to disclose DL’s true financial condition and to deal with him honestly and in good faith. Instead, DL and its management team conspired with Citibank to devise the Program as a means to entice new hires to make capital contributions as soon as possible after joining the firm. Citibank and DL and its management knew or should have known that DL would never be able to pay the interest on the Loan and that DL would never be able to repay the capital contributions that they fraudulently induced Otillar and other new partners to borrow from Citibank.
A spokeswoman for Citi Private Bank declined to comment.
Mr. Otillar, now a partner at Akin Gump Strauss Hauer & Feld LLP, couldn’t be reached for comment. An Akin Gump spokesman said the firm doesn’t comment on pending litigation related to the firm or its partners.
Mr. Otillar’s lawyers asked the court to dismiss Citibank’s motion for summary judgment and allow him and his wife, who is also named in the suit, to pursue a counterclaim.
Had the Otillars known that DL was teetering on the verge of bankruptcy, or that at least the firm was not likely to pay his guaranteed compensation for 2011, they would not have executed the Note. Citi-bank knew that the Otillars were unaware of DL’s dire financial condition.
The allegations in the filing are similar to those made in a separate lawsuit that another ex-partner filed against the firm’s former leaders in June. That lawsuit accused the firm of running “a Ponzi scheme.”