By Nick Brown
NEW YORK, July 9 (Reuters) - Bankrupt law firm Dewey & LeBoeuf will present some of its former partners with a proposed settlement on Wednesday as it tries to recover money from lawyers who departed as the firm was near collapse, a Dewey lawyer said.
Al Togut, the lawyer leading Dewey through bankruptcy, said at a court hearing on Monday that the firm will offer dollar figures for proposed payments by former partners at a meeting with them on Wednesday.
Dewey could have claims against partners who received hefty salary guarantees, as well as partners perceived to have taken value from the firm when their clients followed them to new firms.
It is unclear exactly which partners would be asked to return money under Dewey’s proposal and how much each individual partner would be asked to return.
But the creditors’ committee of Dewey said Togut was over-selling the progress of settlement talks. None of Dewey’s creditor constituencies have signed off on a dollar figure for a settlement, said Ed Weisfelner, a lawyer for the committee.
“There are a lot of hours between now and Wednesday and hopefully we’ll reach some closure,” Weisfelner said. “I would have thought Dewey would seek approval, a thumbs-up, from its creditor constituencies.”
Most of Dewey’s 300 partners defected to other firms earlier this year as the firm struggled with high debt and ultimately filed for Chapter 11 protection in U.S. Bankruptcy Court in Manhattan on May 28.
The Manhattan District Attorney’s Office has launched a probe of the firm’s former chairman, Steven Davis, who has denied wrongdoing.
When Dewey filed for bankruptcy, Togut said the firm was close to a settlement with former partners. On Monday, he said the process has been held up, in part due to delays in document production.
Separately at Monday’s hearing, U.S. Bankruptcy Judge Martin Glenn ordered Dewey to tap an ethics expert to weigh in on how the firm should dispose of old client files scattered throughout the world.
The matter has become contentious, with Dewey seeking permission to implement procedures to dispose of “hundreds of thousands” of boxes of old files.
Glenn granted Dewey’s request that it give former clients notice of its intent to destroy the files, providing a window for them to claim the records if they wish.
But he criticized the firm’s proposal to destroy all records that were not claimed within the allotted window, citing a lack of specificity on how the files, which include client trade secrets and other private information, would be destroyed.
“There’d be nothing stopping anybody from sending these files to the New York Times,” Glenn said. “That really bothers me. You’re trying to wash your hands of files from a law firm that dates back over 100 years.”
But destroying documents costs money, which is why the issue has become thorny. Dewey’s proposal has drawn multiple objections, including from storage facilities that house many of Dewey’s files and which want to be sure they are not on the hook for the cost of shredding or otherwise destroying files.
Such costs are typically absorbed by law firms, but a lawyer for Dewey told the judge the firm may not be able to bear them as it liquidates.
Similar issues have played out in other law firm bankruptcies, including those of Thelen LLP, Dreier LLP and Coudert Brothers LLP.
There is no established law as to how bankrupt law firms can dispose of client records. Glenn said he would seek an opinion from “a recognized authority on professional ethics” over the disposition of client files at the Dewey estate’s expense.
Glenn also denied Dewey’s application to retain Proskauer Rose LLP to represent it on some employment law matters. The judge said Proskauer could have a conflict of interest because it had absorbed more than 60 former Dewey lawyers.
The case is In re Dewey & LeBoeuf LLP, U.S. Bankruptcy Court, Southern District of New York, No. 12-12321.