Several Ex-Partners Ask Judge to Reject Dewey\'s Bankruptcy Plan

Two weeks before a judge decides whether to confirm the bankruptcy plan of Dewey & LeBoeuf, several of the law firm’s former partners have objected to the proposal and accused Dewey’s former management of fraudulent conduct.

Six onetime Dewey partners have filed legal papers this week urging a judge to reject the plan, which delineates how the defunct firm plans to pay back its creditors. A hearing before Judge Martin Glenn, who sits in federal bankruptcy court in Manhattan, is scheduled for Feb. 27.

Two former partners said that the plan “was designed and conceived to perpetrate a fraud on the firm’s former partners.” A former partner who joined the firm just 10 months before its collapse, called its bankruptcy plan “ill-conceived.” Another pair said the plan is not in the “best interest” of creditors, who say they are owed some $600 million.

The partners’ complaints laid bare the acrimony that still exists among many of the former partners of Dewey, which entered Chpter 11 protection last May after financial mismanagement and a partner exodus doomed the firm. While nearly all of the partners have landed jobs elsewhere, Dewey’s bankruptcy has spawned a crush of lawsuits and much ill will.

In spite of the rancor, Dewey’s restructuring team, led by Joff Mitchell of the advisory firm Zolfo Cooper, has made substantial progress in winding down the law firm during its nine months in bankruptcy. “I am confident that Dewey’s plan of liquidation will be confirmed at the end of the month, despite the recent objections filed,” Mr. Mitchell said.

One objection, filed by a former Dewey partner, Michael L. Fitzgerald, also highlighted the outsized compensation packages that Dewey’s management used to poach star lawyers from other firms. It also raises questions about whether the leadership of Dewey misrepresented the firm’s perilous financial state in luring to recruits.

A corporate lawyer specializing in Latin American deals, Mr. Fitzgerald s! aid that the firm owed him $38 million in compensation. He detailed the extraordinary deal he received when he joined Dewey from Milbank, Tweed, Hadley & McCloy in July 2011. Dewey guaranteed Mr. Fitzgerald fixed monthly and annual sums in unspecified amounts for five years, but they were “not tied to the profits or losses of the firm.” In addition, Dewey agreed to compensate him for the $9 million pension he gave up when leaving Milbank, paying him that amount in installments over seven years.

Mr. Fitzgerald said that he was “fraudulently induced” into joining Dewey because of management’s “false representations” about the firm’s business and financial performance. Now a partner at Paul Hastings, Mr. Fitzgerald did not immediately return a request for comment. Mr. Fitzgerald’s filing, along with those filed by other partners, was first reported on The American Lawyer’s Web site.

At the heart of the partners’ complaints is a “partner contribution plan” that nearly two-thirds of the firm’s 672 former partners - active, former, and retired - agreed to. That plan requires the partners to return a portion of their pay from 2011 and 2012 to compensate creditors. The amount was based on a complex formula tied to their income, ranging from a minimum of $5,000 for retired partners to $3.5 million for Dewey’s highest-paid partners.

By agreeing to the deal, the partners protected themselves from future lawsuits connected to the firm’s demise. That portion of the overall plan, which has already been approved by Judge Glenn, is expected to return $71.5 million to the creditors of Dewey. At its peak, Dewey had 1,400 lawyers across 26 offices worldwide.

But Mr. Fitzgerald and others blasted that plan. Among its problems, they say, is that it benefits some of the members of Deweyâ€! ™s leader! ship at the expense of the rest of the partnership. One filing, made by former partners Elizabeth B. Sandza and Andrew J. Fawbush, accuses Martin J. Bienenstock, the former head of Dewey’s bankruptcy practice, of masterminding a plan that allowed him to get paid $6 million in 2010 while other partners had their pay deferred.

Mr. Bienenstock, now a partner at Proskauer Rose, declined to comment.

Last week, Zolfo Cooper’s Mr. Mitchell and the team winding down Dewey secured a victory when they reached a deal with a group of retirees fighting with the firm’s estate. The retirees agreed to make a payment to compensate the firm’s creditors. In an e-mail, Dan Bicks, a retired partner, said that they were pleased with the terms of the deal they received.

“The best course for both side was to lay down their arms and avoid the travail and cost of continued litigation,” said Mr. Bicks. “The retirees can now put behind them this difficult chapter in their lives.”