Dewey LeBoeuf Leaders Jury Weighs Fraud Claims: Business of Law

  • Uber driver's case doesn't have to go to arbitration
  • Bracewell's environmental group gets four new partners

The final chapter of Dewey & LeBoeuf LLP is coming to an end.

Three top executives of the once-formidable law firm charged with manipulating its finances to keep it afloat await a jury verdict on their roles in helping seal its fate.

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Steven Davis

Photographer: Robert Caplin/Bloomberg

Steven Davis, who was chairman of the now defunct firm, former executive director Stephen DiCarmine and ex-chief financial officer Joel Sanders are accused in the closely watched case of falsely portraying the failing firm’s condition in a $200 million fraud.

Before its demise, Dewey ranked 28th on American Lawyer’s list of largest law firms. In May 2012, as partners were fleeing the firm to work at competitors, the firm filed for bankruptcy, owing creditors $245 million.

The trial of the three men in New York state court in Manhattan comes at a pivotal time in prosecutions for corporate malfeasance. This month, the U.S. Department of Justice said that it will seek to prosecute individuals for corporate crimes in addition to pursuing their employers.

The charges against the three men, brought by Manhattan District Attorney Cyrus R. Vance Jr., were in part based on e-mails, cited in the complaint, in which the men referred to “fake income” and “accounting tricks.”

Vance alleged that Dewey cut costs by mischaracterizing payments to salaried lawyers, reversing disbursements that had been written off, double-booking income, encouraging clients to backdate checks and delaying expenses, according to court filings.

There’s also an allegation that a $150 million bond deal that Dewey sold to the public in 2010 was based on inflated revenue and hidden expenses. Prosecutors say the three men stole almost $200 million from 13 insurers and two financial firms.

The bond deal is the subject of a separate lawsuit by the U.S. Securities and Exchange Commission in federal court in Manhattan. That case has been suspended pending the outcome of the criminal trial.

Davis, DiCarmine and Sanders have maintained their innocence and pleaded not guilty to the charges.

Seven ex-employees agreed to plead guilty and cooperate with Vance’s probe. Former finance director Frank Canellas said in his plea agreement that he had helped decide “which appropriate and inappropriate accounting adjustments to make” to help Dewey meet its financial obligations once it became apparent the firm was failing.

Some of the e-mails introduced as evidence showed that there were some second thoughts about the accounting techniques. “I don’t want to cook the books anymore,” Sanders said in a Dec. 4, 2008, e-mail, according to the SEC. “We need to stop doing that.”

But in a June 27, 2009, e-mail, Sanders asked Canellas, “Can you find another clueless auditor?”

While the New York prosecutors had more than 40 witnesses, the defense lawyers presented none. The defense tried instead, through cross-examinations of government witnesses, to convince the jury that their clients didn’t know about the fraud, or that the accounting was more complicated than alleged. The defense pointed out that Ernst & Young, the firm’s lead auditor, wasn’t called by prosecutors to testify.

The criminal case is People v. Davis, 773-2014, New York State Supreme Court, New York County (Manhattan). The SEC case is Securities and Exchange Commission v. Davis, 14-cv-01528, U.S. District Court, Southern District of New York (Manhattan).

Sidley and Skadden Work on Starwood-Colony American Deal

Skadden, Arps, Slate, Meagher & Flom LLP represents Colony American Homes,
and Sidley Austin LLP is advising Starwood Waypoint Residential Trust in the merger announced Monday.

The companies -- two of the largest U.S. single-family home landlords -- when combined will create a company with $7.7 billion in assets.

The Skadden team includes M&A partners Howard Ellinand Kenneth Wolff, counsel Timothy Fesenmyer, corporate partner Jonathan Ko, banking partner David Kitchen, executive compensation and benefits partner Regina Olshan, labor and employment partner David Schwartzand associate Anne Villanueva, intellectual-property and technology counsel Jessica Cohen and real estate partner Evan Levy and counsel George Fatheree III.

The Sidley attorneys representing Starwood are led by partner Michael Gordon and include partnersRichard Astle, Gabe Saltarelli, Jason Friedhoff, Christian Brause, David Miller and Edward Prokop and counsel Neil Horner and Robert Hardy.

Under the terms of the deal, Colony America’s stockholders will receive 64.9 million shares of Starwood Waypoint in exchange for all shares of closely held Colony. Starwood Waypoint shareholders will own 41 percent of the combined business and Colony American investors will hold the rest, the companies said in a statement Monday.

The new company, which will have more than 30,000 homes, will take advantage of the demand for rental properties as tight mortgage standards and rising prices hold back home purchases.

For more on the deal, click here.

Lawsuit News

A former Uber Technologies Inc. driver has won another victory against the ride-sharing company.

In June, the California labor commissioner ruled that the driver should be considered an employee, not an independent contractor. And on Monday, a San Francisco state court judge also sided with the driver, and rejected the company’s bid to force the driver into arbitration.

The judge held that the company’s arbitration clause is unenforceable, echoing a federal judge in the same city who blocked Uber’s bid to derail a group lawsuit on behalf of thousands of drivers and force them to fight the company individually in arbitration proceedings. Uber is appealing the federal court decision.

Superior Court Judge Ernest Goldsmith in San Francisco said Uber’s contract with drivers is “flatly inconsistent” because one provision states that a private arbitrator should decide whether the dispute belongs in arbitration while another states that the choice is to made by a judge.

“I’m not going to fly in the face of a stark inconsistency in order to massage this into arbitrability,” the judge told lawyers during a hearing Monday. Goldsmith issued a tentative ruling before the hearing, then made it final in court.

Uber will will ask a state appeals court to review the ruling, Jessica Santillo, a company spokeswoman, said in an e-mail.

“The Uber partner in this case agreed to resolve disputes of this nature through arbitration when she joined the platform last year,” Santillo said. “The right to arbitrate disputes has been confirmed multiple times by the Supreme Court.”

The case is Uber Technologies Inc. v. Berwick, 15-546378, California Superior Court, San Francisco County. The federal case is O’Connor v. Uber Technologies Inc., 13-cv-03826, U.S. District Court, Northern District of California (San Francisco).

For more, click here.

Comings and Goings

Bracewell & Giuliani LLP is adding four partners from Katten Muchin Rosenman LLP to its environment and natural resources practice.

Sara Burgin, Kevin Collins, Matt Paulsonand Whit Swift, who are all joining as partners, will work primarily from Bracewell’s Austin office.

Burginadvises industrial and municipal clients on water quality, including permitting, compliance and enforcement matters. Collins, a former assistant U.S. attorney, advises on workplace safety and environmental issues. Paulson focuses on environmental issues includingstrategic permitting, enforcement and compliance, investigations, litigation, and crisis response. Swift concentrates on state and federal air-quality permitting and regulations.

Dorsey & Whitney LLP hired John Marti as a partner in its government enforcement and corporate investigations practice group in Minneapolis. Marti previously served for 15 years as a federal prosecutor in the U.S. Attorney’s Office in Minnesota. He was acting U.S. attorney from 2013 to 2014.

Jones Day announced that Martin Schmelkin has joined as a partner in the labor and employment practice in the New York office. Martin was previously a managing director and associate general counsel in the employment law group at Goldman Sachs.