Clawback Claims Mount Against Ex-Dewey Partners
The advisers retained to liquidate the remains of Dewey & LeBoeuf have not forgotten the several dozen former Dewey partners who chose not to sign on to a $71 million settlement with the bankruptcy estate in 2012. It's just taking awhile to get around to suing all of them.
During a hearing Wednesday in U.S. bankruptcy court in lower Manhattan, lawyers representing Dewey's liquidation trust said they have so far sued 13 of the 45 former partners they plan to pursue claims against and intend to sue about 20 more by the end of February.
That update came as the Dewey advisers sought the court's permission for additional time to respond to proofs of claim in the Chapter 11 case.
The 13 suits filed by the estate to date, which are nearly identical in substance, demand that the defendants return amounts ranging from $395,000 to $12.9 million that they received between Jan. 1, 2009, and Dewey's bankruptcy filing in May 2012 in the form of either compensation or tax and capital payments made by the firm on their behalf.
For one of those targeted in the first wave of suits, the strain created by the firm's collapse contributed to financial woes that recently led him to file for personal bankruptcy protection.
On Dec. 31, banking finance specialist Gregory Owens filed a Chapter 7 bankruptcy petition in New York. In the filing, Owens lists $1.1 million in assets—the bulk of that sum held in his retirement plan—against $2.9 million in liabilities. The filing notes that "Debtor was a service-partner at Dewey Leboeuf. Virtually all of his debts result from creditor claims against the firm."
Those debts include the $1.05 million at issue in the clawback suit filed against him in the Dewey bankruptcy Dec. 5, another $204,926 owed to Barclays Bank in connection with a loan he took out to cover his capital contribution to the firm, and $1.63 million that Dewey's former New York landlord seeks from him in litigation it has initiated against hundreds of former firm partners.
Reached Wednesday, Owens declined to comment on his bankruptcy filing.
Owens did confirm that when Dewey failed, he followed mergers and acquisitions heavyweight Morton Pierce to White & Case along with six other partners. A longtime member of Pierce's deal team, Owens typically provides banking finance support on M&A transactions, among other work. A 1982 graduate of Vanderbilt University Law School, he joined Dewey predecessor firm Dewey Ballantine in 1986 from Reid & Priest, left in 1994 to go in-house for a few years and then returned to Dewey in 1998. He is now a nonequity partner at White & Case.
The circumstances sketched out in his Chapter 7 filing suggest that Owens leads a more modest life than what is associated with the typical Am Law 100 partner. A former tenant of New York's Stuyvesant Town complex—a development on Manhattan's East Side that was built to provide post–World War II housing for the city's emerging middle class in the 1940s—he now lives in an apartment building on the northern edge of Harlem.
Owens states in his Chapter 7 filing that despite receiving $31,250 in gross pay each month from White & Case, he takes home just $5,022 after deductions for retirement, insurance, estimated taxes and more than $10,000 in "domestic support." He estimates his monthly expenses at $5,074, roughly half of which go to rent and utilities.
Owens' personal possessions are minimal, according to the filing. They include: household furnishings and electronics worth $5,800, a penny and postcard collection valued at $1,500, and a broken Concord watch worth $300. (He also notes that he is in line for a potential payout of up to $30,000 in connection with the settlement of class action litigation between Stuyvesant Town residents and the complex's management.)
Owens is likely not the only former Dewey partner faced with dire financial consequences as a result of the clawback litigation. And as The Am Law Daily has previously reported, he is also not alone in being asked to repay a capital contribution loan taken out to fulfill his obligations as a partner to a firm that no longer exists.
Other partners being sued by the Dewey estate may have more of a financial cushion to fall back on. Among those potentially in that category: ex-Dewey rainmaker John Altorelli, whom the estate sued last week in search of $12.9 million he collected over the course of Dewey's final three-and-a-half years.
Soon after leaving Dewey for DLA Piper in April 2010, Altorelli spoke at length with The Am Law Daily about the reasons for his departure and the predicted fate of his former firm. The corporate and finance lawyer noted at the time that he had voluntarily gone without pay as the firm struggled, and that he never worried about being paid because "I produce every year." Altorelli did not return a call seeking comment Wednesday.
On a separate front, Brown Rudnick partner Howard Steel, who represents the Dewey trust, told the court during Wednesday's hearing that the estate has resolved 97 percent of the 1,322 proofs of claim filed in the bankruptcy seeking more than $1.2 billion.
Dewey's lawyers have said they will pursue another large pot of money by filing suits against firms that hired Dewey partners as the firm imploded. Based on the so-called unfinished business doctrine, such suits are often brought by bankruptcy estates hoping to reclaim a portion of the profits those lawyers earn after switching firms. Pending appeals in the Coudert Brothers and Thelen bankruptcies, both of which will be argued before the New York State Court of Appeals later this year, are likely to have an impact on the Dewey case.
Christopher Murray, a Diamond McCarthy partner who represents the Dewey liquidation trust, said in court Wednesday that in light of those appeals, "I do not have a prediction for you now" on when the estate will file any unfinished business suits. In the meantime, according to Murray, the firms that took on former Dewey partners have been subpoenaed for information related to those hires and have generally been cooperative about complying.
The next hearing in the Dewey bankruptcy is scheduled for Feb. 19.