By Jennifer Smith
- Reuters
No decision today, LBers, on the fate of a proposed $ 70 million “clawback” settlement with ex-partners of failed law firm Dewey & LeBoeuf LLP.
The plan, if approved, would mark the first big recovery for creditors in the largest law firm failure in U.S. history.
The clock is ticking. The firm’s bankruptcy advisers are pushing to get a deal approved by the court before the end of the month, when funding runs out for this stage of Chapter 11 proceedings.
But a hearing on the matter Thursday did reveal some interesting nuggets surrounding the plan, which would grant participants immunity from future lawsuits in exchange for a portion of their 2011 and 2012 earnings.
Among the tidbits: a testy July 12 email from the firm’s former bankruptcy chair, Martin Bienenstock, to the estate’s bankruptcy advisers. Mr. Bienenstock is widely credited with mapping out the firm’s basic liquidation strategy before he left in May to join Proskauer Rose LLP.
His email was entered into evidence by lawyers for one of two groups of retired Dewey partners who oppose the partner contribution plan, or PCP.
The retirees say they are owed tens of millions in promised pension benefits. They call the proposed settlement a lowball deal that favors Dewey insiders and fails to maximize the estate’s value because it shields former partners who could be sued over their role in the firm’s demise. (However, about half of the retirees have signed on to the PCP “out of fear” that they will be sued, according to court filings).
David Friedman, a lawyer for the official committee of former partners, brought up Mr. Bienenstock’s email during a cross-examination of Joff Mitchell, Dewey’s chief restructuring officer.
In the email, Mr. Bienenstock said he would sign on to the proposed plan even though “DL owes me over $ 5.5 million” and “I have zero liability and can prove it.”
Mr. Bienenstock also dispenses some free advice—including legal citations —and urged Dewey’s team to seek swift approval of the plan.
I have zero patience to await a chapter 11 plan and all its opportunities for shenanigans and delays. . . I doubt the lenders will fund chapter 11 too much longer. But, even if they do, I hope you will promptly move for approval of the settlement while DL controls the estate’s causes of action. That is the only way it can work and the only way it can be done soon… You can prove with examples like mine that the settlement is more than reasonable.
Mr. Bienenstock concluded by dismissing the idea that Dewey’s estate has any claim to profits from unfinished legal business that ex-partners brought with them to their new firms. The estate has said it plans to pursue an estimated $ 60 million in such claims.
“Finally, please get real about the unfinished business claims,” he said.
A common source of recovery in law firm bankruptcies, such claims stem from a California court ruling that essentially said profits from a dissolved law firm’s unfinished legal matters belong to the original firm. Mr. Bienenstock pointed out that Dewey did not dissolve until it sought Chapter 11 protection—at which point it had no legal business of any consequence left for partners to take to their new firms. “Based on the state of the law in New York, these unfinished business claims are simply not credible.”
Mr. Mitchell did not respond to the email, he said at the hearing.
Mr. Bienenstock, reached Thursday afternoon, declined to comment on the email.
The fun resumes on Friday!