As of next year, former Dewey & LeBoeuf chairman Steven Davis—faulted by many both inside and outside the firm as the chief culprit in its collapse—is to begin chipping away at the $511,145 he has agreed to give the Dewey estate to help satisfy creditors under a broader settlement that protects him against potential mismanagement claims.
Unlike more than 500 other former partners who were required to make payments to the defunct firm’s estate by early April in exchange for a release from Dewey-related liability, Davis has considerably more time to meet his obligations. Starting on March 22, 2014, court filings show, he must pay the estate a sum equal to 8 percent of his annual earnings each year for the next six years. Any outstanding balance will accrue interest at a rate of 9 percent annually.
Once that March 2019 payment is made, though, whatever debt Davis still owes will be wiped away, according to a promissory note filed in U.S. bankruptcy court in Manhattan on April 22 as part of the proposed settlement between Davis, the Dewey estate, and XL Specialty Insurance. For its part, XL, which issued Dewey’s $25 million management liability policy, has pledged to pay the estate the $19 million not yet spent covering legal defense costs. XL has 10 days from when the settlement, which requires court approval, becomes final to make its payment to the estate.
That Davis—who has been unemployed since being forced out of Dewey in the firm’s waning days—must earn at least $6 million over the next six years in order to pay off the settlement in full, and can walk away debt-free even if he doesn’t, is stirring outrage among some of his former colleagues.
“The retirees and former partners with whom I have spoken feel shocked and betrayed,” says David Bicks, a retired Dewey & LeBoeuf partner who, along with other disgruntled retirees, fought with the estate over how much they were being asked to contribute before settling the dispute in February. “It’s very hard to reconcile the principal architect of the debacle paying nothing at this time while the retirees and innocent partner victims have had to pay back money to the firm. Davis’s note is regarded as a sham.”
Lawyers at Brown Rudnick who represent Dewey’s new liquidation trustee, Alan Jacobs, declined to comment on the terms of the Davis settlement, as did Jacobs. In a declaration filed with the court Monday, Jacobs stated that “the benefits of the proposed settlement decisively outweigh the benefits of proceeding with litigation” given Davis’s position that he would “vigorously” defend himself against any mismanagement claims. Jacobs also said in the filing that Davis’s status as a “collection risk” based on a review of his tax returns, bank statements, and other financial records was “a leading factor” in how the note was structured.
The advisers who preceded Jacobs in the Dewey bankruptcy did not subject any other lawyers’ personal finances to similar scrutiny in putting together the so-called partner contribution plan that required former partners to pay the estate between $5,000 and $3.37 million based on how much money they received from the firm in 2011 and 2012. Those who signed on to that plan had to make their payments by April 5. The settlement was the linchpin of a Chapter 11 liquidation plan approved February 27, eight months after the firm went bankrupt.
Throughout the months of negotiations that ultimately produced the more than $72 million partner contribution plan, Dewey’s advisers routinely referred to it as a form of “rough justice.” Davis, onetime Dewey executive director Stephen DiCarmine, and the firm’s former chief financial officer, Joel Sanders, were not allowed to take part in that deal on the basis that the estate was likely to sue them for mismanagement.
Taken together, Davis’s personal contribution and XL’s payment insulate Davis from any future claims brought by the Dewey estate, though he could still be sued by third parties. And though he denies wrongdoing, his stewardship of the firm remains the subject of an investigation launched by the Manhattan district attorney’s office.
Davis did not immediately respond to a request for comment about the settlement. His lawyer, Kirkland & Ellis partner Kevin Van Wart, was in court for a trial Tuesday and could not be reached for comment. He said last week that Davis was “happy to have this issue resolved.”
Objections to the proposed Davis/XL settlement are due Thursday, and a hearing on the matter is scheduled for May 13. Ned Bassen, a Hughes Hubbard & Reed partner who represents DiCarmine and Sanders, said Tuesday that his clients plan to file a limited objection. While the two men have not yet settled with the estate over their personal liability, they will receive the same protections against mismanagement claims that would have been covered by XL as Davis.
DiCarmine and Sanders, meanwhile, face litigation on another front. On Tuesday, equipment leasing and finance company EPlus Group sued the pair in New York federal court, alleging that they filed “false and misleading financial statements” upon which the company relied when leasing Dewey equipment and related software and services worth more than $5 million.
