Nine months ago, when it filed the largest law firm bankruptcy case in United States history, Dewey & LeBoeuf effectively ceased to exist. But its carcass has languished in court, as restructuring experts handled the messy task of unwinding the firm and negotiating a plan to pay back its creditors.
On Wednesday, a federal bankruptcy judge confirmed that plan, a decision that officially dissolved Dewey, the once-venerable law firm that collapsed after financial problems led to an exodus of its partners.
“The court is very pleased,” said Judge Martin Glenn at the end of a three-hour hearing before a packed courtroom. “I want to congratulate all the professionals.”
Dewey’s liquidation plan lays out how its estate will compensate creditors, which have claims totaling about $550 million. At the heart of the proposal is an innovative arrangement under which about 450 former Dewey partners agreed to return a portion of their pay, raising about $72 million for creditors.
By accepting the deal, former Dewey partners insulate themselves from future lawsuits connected to the firm’s demise.
Al Togut, Dewey’s lead bankruptcy lawyer, who has been involved in a number of law firm bankruptcies, said that the winding down of Dewey had moved far more swiftly — and less contentiously — than previous liquidations of other large law firms.
“Here we are about to make history,” said Mr. Togut, just before Judge Glenn approved the plan. “This the diametric opposite of Finley Kumble, which took 20 years, or Shea & Gould, which took nine years, and even the modern-day Coudert Brothers case, which still isn’t done.”
Also not done is a criminal investigation into possible financial misconduct at Dewey. Steven H. Davis, the firm’s former chairman, and Stephen DiCarmine, the former executive director, are the focus of an investigation by the Manhattan district attorney’s office.
Prosecutors recently indicated that the inquiry was still active when it raised the issue that Mr. Davis’s criminal lawyer, Barry A. Bohrer, had a conflict of interest in representing him, according to a person with direct knowledge of the investigation.
The unusual situation arose earlier this month after Mr. Bohrer left his law firm, Morvillo, Abramowitz, Grand, Iason, Anello & Bohrer, for another firm, Schulte Roth & Zabel. That posed a conflict of interest, the district attorney’s office advised, because Schulte Roth represented JPMorgan Chase, a Dewey lender and possible victim, in the criminal inquiry, this person said.
Mr. Bohrer declined to comment, and Mr. Davis has previously denied any wrongdoing. Ned Bassen, a lawyer for Mr. DiCarmine, said that his client had done nothing wrong, either criminally or civilly.
While the government investigation continues, the judge’s ruling is the coda of the Chapter 11 case.
Trustees will now begin the process of returning money to Dewey’s creditors, which include the firm’s lenders Citigroup and JPMorgan, as well as a car service company and an executive recruiter. A large portion of the recovery, in addition to the former Dewey partners’ contributions, will come from collecting Dewey’s outstanding legal invoices.
The hearing lacked the drama that many participants had expected after a number of onetime Dewey partners filed protests to the plan this month. Two former Dewey partners accused Martin J. Bienenstock, the former head of Dewey’s bankruptcy practice, of devising a plan that paid him $6 million in 2010 while the pay of rank-and-file partners was deferred and ultimately was subject to being clawed back.
That objection, along with a handful of others, was withdrawn just hours before the session, allowing for a smooth confirmation hearing.
In an e-mail, Mr. Bienenstock, now a partner at the law firm Proskauer Rose, congratulated the advisers on what he called “the most successful and fastest law firm bankruptcy case.” But he criticized those who tried to block the plan.
“A small number of former partners tried to get special deals for themselves by making vicious accusations of fraud against the executive committee that structured the bankruptcy, having zero basis in fact, and predictably no wrongful conduct was proven,” Mr. Bienenstock said.
During the court session, Mr. Togut praised the former Dewey lawyers who signed on to the so-called partnership contribution plan, which he called “a template for future cases.”
The deal forced them to return a portion of their pay, in amounts based on a complex formula tied to their compensation. Those payments range from a minimum of $5,000 for retired partners to $3.5 million for the firm’s highest-paid lawyers.
“What makes this case so important is that this is the first time that such a large and diverse group of law partners accepted responsibility for their failed firm,” Mr. Togut said. “And they did it while they were still hurting, just after the firm failed, while they were trying to start their career and soothe unhappy spouses.”
Most former partners of Dewey, a firm that at its peak had nearly 1,400 lawyers across 26 offices globally, have landed on their feet. About 300 Dewey partners sought new employment as the firm failed; nearly all of them found homes at other large corporate firms. Winston & Strawn hired 23, led by the sports-industry litigator Jeffrey Kessler. Proskauer brought on 13 former Dewey partners.
Though the formal bankruptcy process has ended, the legal fallout from Dewey’s implosion is not over. In addition to the criminal investigation, several Dewey-related civil lawsuits are wending their way through the courts. One former partner has sued Citigroup, accusing the bank of conspiring with Dewey to hide the law firm’s true financial condition in the months before its collapse. A Citigroup spokeswoman declined to comment.
While most of the firm’s lawyers have found other employment and the bankruptcy process was declared a success, Mr. Togut on Wednesday acknowledged the sadness of Dewey’s demise.
“They say that a good settlement is where no one is happy,” Mr. Togut said. “Well, I can assure you, no one is happy.”
DealBook: Court Approves Dewey Bankruptcy Plan, Officially Dissolving Firm
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DealBook: Court Approves Dewey Bankruptcy Plan, Officially Dissolving Firm
