Dewey & LeBoeuf partners pledge $71 million in settlement payments

By Caroline Salls

Pittsburgh, Aug. 29 - Dewey & LeBoeuf LLP requested court approval of partner contribution settlement agreements that resolve "partner issues arising from the failure of the largest law firm ever to file for bankruptcy," according to a Wednesday filing with the U.S. Bankruptcy Court for the Southern District of New York.

The company said its former partners had to relocate to numerous firms, revive their careers, rebuild their practices and deal with the trauma of failed firms and were "called upon to reach into their pockets and agree to pay towards a settlement with creditors."

In addition, Dewey said many of the partners were being asked to pay off personal loans they had to take to finance their capital contributions to the company, which had to be repaid despite the fact that their capital was lost in Dewey's collapse.

According to the motion, the partners also could potentially be saddled with adverse tax consequences to the extent they were to realize "phantom income" as a result of the cancellation of debt if or when the company's debt is not repaid in full.

Creditor appeal

Dewey & LeBoeuf said it asked creditors to allow for partners to compromise the maximum amount that might be collected from them if the partners would agree to pay the creditors upfront, rather than at the end of the case.

And, the company said it committed that, if creditors would accept this approach, it would conduct the bankruptcy case in record time, proposing a plan as soon as the PCPs were approved and moving as fast as possible to a plan confirmation, hopefully before the end of 2012.

The company said it set a $50 million target to bring the PCPs to court for approval and asked the partners to sign up if they would support this approach.

Partner response

Dewey said more than 400 of the partners signed on, exceeding the goal by more than $20 million.

"The PCP has not only been accepted, it has overwhelming support," the company said in the motion.

As of Wednesday, the company said more than 400 participating partners had committed to make about $71 million in settlement payments, constituting roughly 80% of the total of all partner contribution amounts sought from former partners under the PCPs.

The company said implementation of the PCP will avoid years of costly and uncertain litigation, and millions of dollars in administrative expenses.

"It provides certainty. It allows partners to go on with their lives and for creditors to get a quick return on their claims," Dewey & LeBoeuf said in the motion.

Implementation

The company said it is seeking court approval of the forms of PCPs entered into with the participating partners as a necessary step for the implementation of each PCP, as well as approval of the form of injunction provided for in the PCPs.

The agreements will ultimately be implemented through a Chapter 11 plan, which Dewey said would be filed "within the next month or so."

"The more than $70 million in settlement payments pledged by participating partners through the PCPs represents an unprecedented success that far exceeds the 'lowest point in the range of reasonableness,' which is the principal legal hurdle that must be satisfied," the motion said.

A hearing is scheduled for Sept. 20.

Dewey & LeBoeuf, a New York-based international law firm, filed for bankruptcy on May 28. Its Chapter 11 case number is 12-12321.

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