The former head of the law firm Dewey & LeBoeuf has agreed to pay more than half a million dollars to resolve claims that mismanagement led to the firm’s collapse, according to court papers filed in the Federal Bankruptcy Court in Manhattan late Monday.
Dewey, which at its peak had 1,400 lawyers, filed for bankruptcy last May after being crippled by financial miscues and a partner exodus. Many of the firm’s lawyers blamed Dewey’s stunning demise on the leadership failures of Steven H. Davis, the firm’s former chairman.
Under the terms of a deal reached by the former chairman, an insurance company and the trustee liquidating Dewey’s bankrupt estate, Mr. Davis will pay $511,145 to settle accusations that he caused the demise of the firm. The insurer, XL Specialty Insurance Company, which issued Dewey’s management-liability policy, agreed to pay $19 million as part of the settlement. Those proceeds will ultimately go to the firm’s creditors.
“Mr. Davis is pleased that this is a fair and reasonable settlement and a practical outcome for all concerned,†his lawyer, Kevin Van Wart of Kirkland & Ellis, said.
Edward Weisfelner, a lawyer for the trustee, said that the settlement was “a substantially more favorable result than litigation,†which, he added, “would require extensive discovery, including millions of pages of documents to review and over 100 depositions.â€
Mr. Davis was the visionary behind Dewey’s rapid expansion, which was fueled by heavy borrowing. He orchestrated a troubled merger in 2007 that created Dewey & LeBoeuf, which at its peak had 1,400 lawyers. He accelerated the firm’s growth by aggressively handing out lucrative guarantees to recruit star lawyers, and couldn’t meet those guarantees when the firm ran into financial difficulties.
The payment that Mr. Davis agreed to make is consistent with the formula used to determine the amount that about 450 former Dewey partners agreed to contribute under a “claw back†agreement struck last year. Because of the accusations of financial mismanagement leveled against him, Mr. Davis was excluded from that deal, which raised about $72 million for Dewey’s creditors. The firm’s creditors have said they are owed a total of about $550 million.
The “claw back†agreement forced former Dewey partners to return a portion of their 2011 and 2012 pay. The firm’s highest paid lawyers gave back as much as $3.5 million to repay creditors. Mr. Davis’s roughly $500,000 payment is far less than that because in he took a big pay reduction in the firm’s final years as its financial problems mounted.
Mr. Davis’s settlement with the trustee requires the approval of the bankruptcy court, which will hold a settlement hearing on May 13. Under the deal, the insurer would be released from any further claims against the estate.
While the agreement ends the mismanagement claims made in bankruptcy court against Mr. Davis and two others â€" former executive director Stephen DiCarmine and former chief financial officer Joel Sanders â€" there is an ongoing investigation by the Manhattan’s district attorney’s office into possible financial misconduct at Dewey. The three have maintained that they have done nothing wrong.
This settlement does not resolve all Dewey-related litigation and actions against Mr. Daivs. A former partner, Henry C. Bunsow, has filed a lawsuit against Dewey;s management team, including Mr. Davis, accusing them of fraud and deceiving the firm’s partners about the firm’s true financial condition.
