Less than a week after a group of retired Dewey & LeBoeuf partners appeared to pave the way for the swift approval of the defunct firm's proposed Chapter 11 liquidation plan by settling a dispute with the Dewey estate, fresh resistance to a key component of that plan has emerged in the form of objections raised by six former Dewey partners.
In a series of filings made ahead of a Wednesday deadline, the former partners in questiontwo individuals and a pair of two-person teamsargue that U.S. Bankruptcy Judge Martin Glenn should not approve the Chapter 11 plan, which serves as a blueprint for how the Dewey estate expects to dispose of its assets in order to pay off creditors who say they are owed a combined total of some $600 million.
Many of the objections raised in the filings focus on the so-called partner contribution plan, which is in many ways the linchpin of the larger liquidation plan and offers those who have agreed to pay the estate a portion of their 2011 and 2012 Dewey earnings a waiver from future liability related to the firm. A majority of Dewey's former partners have signed on to the deal, which, according to court filings, is expected to raise at least $70 million in amounts ranging from $5,000 to $3.37 million.
Former partner Michael Fitzgerald, who joined Dewey in 2011 from Milbank, Tweed, Hadley & McCloy, is among the fiercest of the new dissenters. In a 17-page filing, Fitzgerald contends that, together, the partner settlement and Chapter 11 plans "represent an ill-conceived attempt to push through an oversimplified, one-size-fits-all resolution" to the Dewey bankruptcy.
He and his fellow objectorsincluding former partners Andrew Fawbush and Elizabeth Sandza, who filed their joint challenge late Tuesdayalso raise an argument that has been simmering privately and publicly for months: that the plan benefits partners who strong-armed Dewey management into paying them their full compensation in 2010 at the expense of those who were told a portion of that year's earnings would be deferred until 2011. Those in the latter group, the objectors maintain, are now being asked to return money that should be out of the estate's reach.
In his filing, Fitzgerald also lays out in stunning detail the terms of the extremely lucrative contract he says he negotiated in a months-long process before joining Dewey in July 2011a pact that he claims obligates Dewey to pay him nearly $38 million.
According to Fitzgerald's filing, the contract called for Dewey to compensate him with fixed monthly and yearly payments of an unspecified amount "not tied to the profits or losses of the Firm" and payable "even if Fitzgerald was terminated for any reason other than Cause." Fitzgerald claims the contract also required Dewey to pay him a total of $9 million split into equal monthly installments spread over seven years to compensate him for pension benefits he gave up upon leaving Milbank. The firm, according to Fitzgerald, was to make those payments "regardless of whether Fitzgerald was terminated for Cause or even in the event of his death." In the latter instance, the money was to go to his spouse. On top of that, he maintains, the contract specified that he wouldn't be asked to contribute capital to the firm until the end of 2014, though he says he ended up putting $500,000 into the partnership "based on false representations" made by the firm.
Fitzgerald, a Latin Americafocused corporate partner now at Paul Hastings, said via email from Mexico City Wednesday that he does not comment on Dewey-related matters. Though not directly applicable to the partner contribution plan, Fitzgerald also argues in his objection that he was "fraudulently induced" into joining Dewey by managers who must have known the firm was in trouble less than a year before it imploded.
In their filing, Fawbush, now at Smith, Gambrell & Russell, and Sandza, a partner with Wilson Elser Moskowitz Edelman & Dicker, argue that the partner contribution plan "was designed and conceived to perpetrate a fraud on the firm's former partners." The pair's three-page objection claims bankruptcy lawyer Martin Bienenstock, along with other unnamed members of Dewey's executive committee, were the "mastermind[s]" of the plan and that Bienenstock came up with the idea of insulating all compensation received in 2010, including the $6 million he received that year. (Neither Sandza nor Fawbushboth of whom left Dewey well before its death spiral began in early 2012agreed to sign on to the partner contribution plan, according to a September filing. Both have also filed proofs of claim in the bankruptcy in which they seek nearly $2 million apiece).
Bienenstock, now chair of the business solutions, governance, restructuring and bankruptcy group at Proskauer Rose, said Thursday that he could not comment because it is a part of ongoing litigation.
Dewey's lead bankruptcy lawyer, Al Togut, has repeatedly denied allegations that Bienenstock, whom Togut has known professionally for years, helped construct the plan. In a December interview with The Am Law Daily, Togut described his interactions with Bienenstock this way: "He very often sent me emails saying, 'Youre doing this wrong,' and 'You should do this and you should do that,' " Togut said. "You can look at them all, and you won't find a reply. And in just about every instance, I did something different."
One such email was produced during a two-day September hearing held to consider objections raised about the partner contribution plan by two groups of Dewey retirees. Bienenstock says in the July 12 message that he will agree to the plan even though he believes Dewey owes him $5.5 million (He has agreed to pay the estate $643,011, according to court filings). In the email, which Bienenstock sent to Togut and others, he writes: "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 [Dewey & LeBoeuf] controls the estate's causes of action. This is the only way it can work and the only way it can be done soon."
In a separate objection, former partners John Campo and John Kinzey insist the Chapter 11 plan is not in the "best interest" of creditors, a necessary factor to win a judge's approval. "The Debtor must prove that Campo and Kinzey would receive at least as much as they would receive in a Chapter 7 liquidation before the Plan can be 'crammed down' on them," they write. The pair, both bankruptcy lawyers who are now with Troutman Sanders, left Dewey predecessor firm LeBoeuf, Lamb, Greene & MacRae ahead of its 2007 merger with Dewey Ballantine, and say in the filing they are owed $5 million as part of a severance agreement struck when they left. Campo and Kinzey initially served on an official committee of former partners given a voice in the bankruptcy proceedingsone of the two groups that challenged the partner contribution plan last fallbut stepped down in October over disagreements with other committee members over how the group was proceeding.
Another former partner who chose not to sign on to the settlement, Doha-based Kenneth Freeling, took issue in his own objection to vague language in the plan that he argues could prevent third parties, including him, from bringing claims against participating partners.
Dewey's chief restructuring officer Joff Mitchell said Wednesday the firm had no comment on the flurry of deadline objections, including some filed by former clients attempting to preserve their claims and one of the firm's malpractice insurers.
A hearing on the confirmation of the plan is scheduled for February 27.