By Casey Sullivan
Oct 9 (Reuters) - A U.S. bankruptcy judge approved a $71.5million settlement on Tuesday between former partners of Dewey &LeBoeuf and the estate of the law firm whose demise in Mayconstituted the largest law-firm bankruptcy in U.S. history.
The settlement requires former Dewey partners to payportions of their compensation, ranging between $5,000 and $3.5million individually, in exchange for a release from potentiallawsuits over the firm's debts. As of Tuesday, roughly 400 of670 former Dewey partners had opted for the settlement.
U.S. Bankruptcy Judge Martin Glenn said the settlement is inthe "best interest" of the Dewey estate and creditors becausethe deal ultimately prevents years of costly litigation betweenDewey's estate and former partners. Glenn said the settlement"will lead to a quicker wind-down in Chapter 11, and - moreimportantly - a quicker and more certain distribution tocreditors."
The decision concludes less than five months ofback-and-forth negotiations between creditors, former Deweypartners and the defunct law firm's estate over the structure ofthe settlement. It also gives creditors who claim they are owedmore than $500 million their first and largest recovery in thebankruptcy.
A group of retirees and former partners opposed thesettlement, complaining the pact favored high earners. They tookissue with the fact the deal was crafted by consultants whoadvised the firm on business matters before the it folded inMay. They asked Judge Glenn to appoint an independent examinerto investigate the deal's fairness.
But Judge Glenn said on Tuesday he was satisfied with theDewey wind-down team's work. He said the settlement wasnegotiated with partners independently "at arm's length" andnoted that no evidence was brought to light that suggested anyone party was favored over another. As such, he said an examinerdid not need to be appointed to further investigate thesettlement.
Some objectors had argued that the deal's architects did notproperly investigate the value of particular claims by lawyers,questioning how much each settling partner actually sacrificed.They also said the wind-down team failed to establish accuratelywhen Dewey became insolvent - a fact that could determine howfar back the estate could go to claw back compensation fromformer partners.
Glenn accepted the Dewey wind-down team's estimate thatDewey became insolvent in 2012, but that insolvency would bemore difficult to prove for 2011 and even harder for 2010. Glennsaid finding the exact date of insolvency would be bothdifficult and expensive.
Joff Mitchell, Dewey's chief restructuring officer, said hehopes Judge Glenn's decision will prompt other Dewey partnerswho have not accepted the settlement to reconsider. Mitchellsaid he was prepared to waive a late penalty fee of 25 percentof their contribution for partners who decide to opt in.
The final plan for Dewey's Chapter 11 reorganization isscheduled to be filed in November, Mitchell said, months beforea hearing that will reveal how the payments will be distributedto creditors.
Top contributors to the settlement include Berge Setrakian,a corporate lawyer now at DLA Piper, who pledged $3.5 million;and white-collar defense lawyer Ralph Ferrara, the firm's formervice chairman now with Proskauer Rose, who agreed to pay $3.36million.
Morton Pierce, another former vice chairman of Dewey, nowwith White & Case, is slated to pay $1.02 million. Pierce, aprominent mergers and acquisitions lawyer, had been the chairmanof Dewey Ballantine, which merged in 2007 with LeBoeuf, Lamb,Greene & MacRae in 2007.
Other top lawyers at Dewey participating in the settlementinclude Martin Bienenstock, Dewey's former bankruptcy head nowalso at Proskauer, who agreed to pay $643,000. Richard Shutran,Dewey's former corporate head who moved to O'Melveny & Myers, isslated to contribute $665,000.
Pierce declined to comment on the settlement. Setrakian,Ferrara, Bienenstock and Shutran were not immediately availablefor comment.
One partner left out of the settlement was Dewey's formerchairman, Steven Davis, who the Manhattan District Attorney'soffice is investigating for possible financial improprieties,according to people familiar with the probe. Others who were notallowed to participate are former chief financial officer JoelSanders and former executive director Stephen DiCarmine, whosome former partners consider culpable in Dewey's collapse.
Ned Bassen, a lawyer representing Davis, DeCarmine andSanders said he was satisfied with Glenn's ruling since thejudge did not come to any conclusion on whether there is a basisfor claims against his clients.
The settlement does not exempt partners from an estimated$60 million of so-called unfinished business claims, in which atrustee of the Dewey estate can seek to recover profits on legalbusiness former partners took with them to other law firms.
David Friedman, a lawyer representing a committee of formerpartners who objected to the settlement, did not respond to arequest for comment. Neither did Annette Jarvis, a lawyerrepresenting a group of retirees who objected to the settlement.
Dewey once employed more than 1,000 lawyers in 26 officesworldwide, but in May it became the largest U.S. law firm tofile for bankruptcy. Its demise has been largely attributed tocompensation guarantees the firm made to a significant portionof its partners.
The case is In re Dewey & LeBoeuf, U.S. Bankruptcy Court,Southern District of New York, No. 12-12321.
For Dewey: Al Togut and Lara Sheikh of Togut Segal & Segal.
(Reporting by Casey Sullivan; editing by Eileen Daspin)
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Keywords: US BANKRUPTCY/DEWEY