The former chairman of Dewey & LeBoeuf has agreed to pay more than half a million dollars in a proposed settlement with Dewey's trustee and insurer to resolve claims that bad management led to the law firm's demise, according to papers filed in federal bankruptcy court.
Former Dewey Chairman Steve Davis has agreed to pay $511,145 to settle claims that he mismanaged Dewey & LeBoeuf, which last May became the largest law firm in U.S. history to file for Chapter 11 bankruptcy. XL Specialty Insurance Co, which issued Dewey's management liability insurance policy, has agreed to pay $19 million in the proposed settlement, according to court documents.
If the settlement is approved, Davis would pay less than other former Dewey partners to be released from claims related to the firm's demise.
"He got off easy," said John Altorelli, a former Dewey partner who is now co-chair of DLA Piper's U.S. Finance practice.
Under a liquidation plan for the firm approved by U.S. Bankruptcy Judge Martin Glenn in February, former Dewey partners agreed to pay $71.5 million to the firm's estate in exchange for a release from litigation. The deal required partners to contribute between $5,000 and $3.5 million each. More than 450 former Dewey partners opted into the settlement, though a handful, including Altorelli, declined to participate.
Berge Setrakian, a corporate lawyer now at DLA Piper, pledged $3.5 million and Ralph Ferrara, the firm's former vice chairman now at Proskauer Rose, agreed to pay $3.36 million, court documents showed. Those lawyers did not immediately respond to requests for comment about the Davis settlement.
"Mr. Davis is pleased with the settlement, which is a practical resolution for all concerned," said Davis's lawyer Kevin Van Wart in a statement.
The Manhattan district attorney's office is investigating alleged financial improprieties at the firm, according to sources. The sources declined to comment publicly because they were not authorized to do so.
Davis's half a million dollar settlement with the estate was negotiated during mediation between creditors, XL Insurance and Davis that was conducted by Jed Melnick of JAMS earlier this year, according to court papers. Melnick declined comment.
"The Settlement Agreement is a substantially more favorable result than litigation," said Edward Weisfelner, speaking on behalf of the liquidation trustee Alan Jacobs, in court papers.
Without a settlement, Weisfelner said, Dewey's estate would face large litigation expenses to go after Davis and the insurance company in court, as well as the risk of not collecting a full recovery from the parties.
"Litigation of the Management Claims would require extensive discovery, including millions of pages of documents to review and over 100 depositions," he said.
The settlement agreement still needs a judge's approval. A hearing on the proposed deal is scheduled for May 13.
Two other former Dewey leaders, Chief Financial Officer Joel Sanders and Executive Director Stephen DiCarmine, were not included in the proposed settlement. The trustee reserved the right to pursue non-covered claims against the two men, according to court papers.
Any mismanagement claims against Sanders and DiCarmine would be released by the XL Insurance settlement, said their lawyer, Ned Bassen.
Requests for comment from Weisfelner were not returned. A phone message placed with Jacobs, the trustee, was not immediately returned.
A spokeswoman for XL Specialty Insurance Co declined comment because the proposed settlement hadn't received approval.
The case is: In re: Dewey & LeBoeuf LLP, Debtor, United States Bankruptcy Court for the Southern District of New York, Case No. 12-12321 (MG)
For Dewey's liquidation trust: Edward Weisfelner
For Davis: Kevin Van Wart of Kirkland & Ellis
For XL: NA
(Reporting by Casey Sullivan, additional reporting by Nicholas Brown and Karen Freifeld; Editing by Alden Bentley and Phil Berlowitz)