Dewey Pay Guarantees May Be Worth a Dime on the Dollar
Dewey & LeBoeuf LLP partners whose guaranteed contracts undermined the firm may get about a dime on the dollar for what they’re owed, no better than the janitors who cleaned their offices, bankruptcy specialists said.
Vendor claims against Dewey, also known as trade paper, are currently quoted at 10 cents to 12 cents on the dollar, said Joseph Sarachek, managing director of claims trading at CRT Capital Group LLC, which buys and sells distressed debt. The firm’s partners may even rank below trade and other general unsecured creditors, said Stephen Lubben, a bankruptcy law professor at Seton Hall University in Newark, New Jersey.
Dewey is a shell of what was once the 11th largest U.S. law firm. More than 120 partners, including three out of four remaining co-chairmen, have bolted the firm, and 450 employees were fired this week. The guaranteed contracts, worth as much as $6 million a year for a few partners, might rank the same as equity does in most corporate bankruptcies: at zero.
“It could be argued by other creditors that partners’ pay is a return of equity,” said Chip Bowles, a bankruptcy lawyer with Bingham Greenebaum Doll LLP in Louisville, Kentucky. That would demote Dewey’s partners below trade creditors, he said.
Yesterday, the firm was sued by a unit of ABM Industries, the company that provided janitorial services at Dewey’s offices at 1301 Avenue of the Americas in Manhattan, for about $300,000 in unpaid bills, according to a complaint filed in New York State Supreme Court in Manhattan.
On May 10, the firm was sued by an employee over claims it was terminating workers without giving them the notice required by federal law. Workers received a termination notice on or about May 7, according to the complaint filed in federal court in Manhattan by Vittoria Conn. Workers should have been given 60 days notice, Conn Said.
Two spokesman for the firm, Angelo Kakolyris and Michael Sitrick, didn’t return messages seeking comment on those filings.
The firm’s lenders, including JPMorgan Chase & Co. and Citigroup Inc., and its bondholders might recover only about half their money in a liquidation, based on trading prices and estimates of how much the firm has to pay its debts. Dewey’s banks and bondholders rank equal in payment priority, according to a 2010 bond memorandum obtained by Bloomberg.
Dewey’s privately placed bonds, which trade sparsely, were quoted at 45 cents to 55 cents on the dollar earlier this month, according to a May 3 report by CRT, which trades Dewey debt. The law firm has drawn $75 million of its bank credit line and owes $125 million or more to bondholders after the 2010 refinancing of older bank debt.
The law firm’s bills to clients, which it has been collecting to pay lenders, might fetch only about $90 million, or 40 percent of their nominal value, estimated Bruce MacEwen, a lawyer and law-firm consultant through his company Adam Smith, Esq. LLC.
“On a reasonable estimate, they don’t have enough to pay their hard debts,” MacEwan said. Law firm receivables are never worth 100 cents on the dollar and take a “severe haircut” when a firm is failing, he said.
Law firms’ main assets are the bills that partners mail to clients, office leases and sometimes art on the walls. Dewey’s bills are security for its bank loans, according to a person familiar with the firm’s finances.
Dewey partners, who were getting less pay than expected as profit fell, learned at a partnership meeting in Manhattan that the firm had struck special deals with some partners who would have to be paid before others, according to a person familiar with those events.
Steven Davis, the law firm’s former chairman, said at the October meeting that the special deals -- requiring Dewey to defer pay for most partners -- involved about 100 lawyers, the person said. Pay at the firm ranged from about $300,000 for junior partners to as much as $6 million for a handful of top lawyers, the person said, declining to be named as he wasn’t authorized to comment on these matters.
Davis’s lawyer, Barry Bohrer, declined to comment on Davis’s handling of the information about pay.
Formerly sole chairman, Davis was ousted from a newly formed five-man chairman’s office on April 29 after Manhattan District Attorney Cyrus Vance Jr. started a probe into possible wrongdoing at Dewey, according to an internal Dewey memo on April 29 to partners that was obtained by Bloomberg.
Bohrer, a criminal defense lawyer at Morvillo, Abramowitz, Grand, Iason, Anello & Bohrer, has said Davis believes “fair-minded professionals will conclude that he engaged in no misconduct.”
The new chairman’s office, which announced March 26 that it would bring “hands-on” management to the firm, lasted six weeks. Yesterday, Proskauer Rose LLP said Dewey’s restructuring group head Martin Bienenstock would join the firm with five colleagues. Bienenstock was the third of the remaining four co-chairmen to leave, after Rich Shutran, head of the corporate department, was hired by O’Melveny & Myers LLP and Jeffrey Kessler, head of litigation, left for Winston & Strawn LLP.
“They’re voting with their feet,” Bowles said. “That tells you their plan didn’t work very well.”
The former Dewey Ballantine and LeBoeuf Lamb Greene & MacRae merged in October 2007 to form what was then the 11th-largest U.S. law firm, now ranked 28th by American Lawyer after revising revenue downward and losing more than 120 partners.
The vendor case is ABM Janitorial Services v. Dewey & LeBoeuf, 651645/2012, New York State Supreme Court (Manhattan).
To contact the reporter on this story: Linda Sandler in New York at email@example.com;