Large law firm failures typically produce lengthy and litigious bankruptcy cases. A frustrated lawyer in one such case succinctly described the essential problem: “the assets walk, talk and, worst of all, have their own counsel.” To the inherent tensions and creditor demands of any large chapter 11 case are added the raw pain, similar to divorce, that many partners feel at the downfall of an institution to which many have devoted long years. Others genuinely believe that they were betrayed or misled by firm management, or that they have strong legal arguments for avoiding liability.
This makes the recently approved settlement in the Dewey LeBoeuf bankruptcy case all the more remarkable. Given the size of the firm, the complexity of the international partnership structure, and the alacrity with which it spiraled down into dissolution, it looked to be a natural candidate to follow the well-worn path of law firm flameouts, from Finley Kumble on through to more recent cases such as Coudert Brothers and Howrey. Instead, however, a vast majority of the former partners of the firm have agreed to contribute $71.5 million towards payment of claims against the firm in exchange for being released from further litigation. The settlement has the support of the firm’s major secured creditors and the unsecured creditors’ committee. Individual former partners will make contributions ranging from $5,000 to $3.5 million.
Substantial credit likely goes to Al Togut, Dewey LeBoeuf’s bankruptcy counsel. As it happens, Mr. Togut represented the unsecured creditors’ committee in Finley Kumble, the first major professional partnership bankruptcy, and played an integral role in the tortuous negotiations that it took to reach a resolution that case. It appears that Mr. Togut was able to bring the lessons of Finley Kumble and its progeny to bear in Dewey LeBoeuf, and succeeded in leading former partners and creditors to a settlement in the span of a few months that will avoid what otherwise would have been a morass of litigation over several years.
While the facts of each law firm failure are unique, it is likely that the Dewey LeBoeuf case has provided a template that will be the starting point in such future cases.