Dewey's New York Landlord Sues 450 Former Partners
UPDATE, 9/27/13, 3:15 p.m. EDT: Information on an effort by former Dewey & LeBoeuf partners to jointly defend against the lawsuit has been added to the ninth paragraph below.
Dewey & LeBoeuf's former New York landlord sued 450 former partners of the now-bankrupt firm in New York state court Thursday, claiming the lawyers should be held responsible for debts left behind when Dewey collapsed in May 2012.
In its 17-page complaint—10 pages of which are filled with the defendants' names—the landlord, 1301 Properties Owner, claims the former Dewey partners "are jointly and severally liable for all amounts that are due and will become due" under a lease for the firm's midtown Manhattan headquarters at 1301 Avenue of the Americas that was initially intended to run until 2020. In making its argument, the landlord points to a clause in the lease, originally entered into by Dewey predecessor firm Dewey, Ballantine, Bushby, Palmer & Wood in 1989, that holds each Dewey partner personally liable in the event of default.
The Am Law Daily first wrote about former Dewey partners' potential exposure to the lease provision last October, citing filings made by 1301 Properties at that time in which the landlord claimed Dewey still owed $45.45 million over the life of the lease and said it planned to pursue former partners for the money.
Beyond saying it is owed "the amounts due under the Lease that have not been paid," with interest—as well as attorney's fees—the suit does not specify the damages being sought, aside from $1.6 million in unpaid rent that had accumulated as of April 2012. The landlord, which does business as Paramount Group but is referenced in court filings as 1301 Properties, terminated Dewey's lease on May 25, 2012.
Under real estate law, a landlord cannot recover money from a delinquent tenant if the space is leased out to a new tenant. Chadbourne & Parke is set to take over six floors of the space previously occupied by Dewey, once it is demolished and redesigned.
The lease provision at the heart of the suit has been contested by former Dewey partners—particularly those who joined the firm in 2007 when their firm, LeBoeuf, Lamb, Greene & MacRae, merged with what was then Dewey Ballantine—who say that they never agreed to be personally liable for the real estate. The clause appears to be a remnant from a bygone era, before law firms became limited liability partnerships and landlords began making concessions to woo them as reliable long-term tenants.
The suit [PDF] does not make clear how it chose the partners named as defendants, but says they are residents of Arizona, California, Colorado, Connecticut, Florida, Illinois, Maryland, Massachusetts, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Tennessee, Texas, Utah, Vermont, Virginia, and Washington, D.C. The list includes former partners from Dewey's predecessor firms who never joined the merged Dewey & LeBoeuf, as well as at least one widow of a deceased partner.
Rosenberg & Estis partner Howard Kingsley, who represents 1301 Properties in the suit, declined to comment Thursday. (The suit notes that Tishman Speyer Trammell Crow originally owned the building.)
Former Dewey partners began to coordinate a defense to the lawsuit Friday. In an email sent to many of the defendants and reviewed by The Am Law Daily, Richard Shutran, a onetime Dewey leader now at O'Melveny & Myers, said a steering committee was in the process of being formed to, among other things, hire counsel "to aggressively defend this action, which we believe is meritless." The email, signed by Shutran and former Dewey partner Harvey Kurzweil, now at Winston & Strawn, also said, "We believe it is in the interest of all concerned to defend this action in a coordinated and uniform manner." (Shutran and Kurzweil did not immediately respond to requests for comment Friday.)
Since the Dewey bankruptcy began, the firm's estate has paid 1301 Properties $78,913 as the result of an order issued by U.S. Bankruptcy Court Judge Martin Glenn in August 2012, according to the suit. The landlord hinted last year that it might wind up suing former Dewey partners around the time that Glenn was in the process of approving a $70 million settlement plan that insulated many of those partners from certain Dewey-related liability. Against that backdrop, the company filed papers to preserve its right to sue, and Glenn agreed that the partner settlement plan did not prohibit 1301 Properties and other third parties from bringing suits.