(Reuters) - Former partners of the defunct law firm Dewey & LeBoeuf agreed on Thursday to pay at least $50 million toward a settlement agreement, the minimum amount the firm’s advisers had been seeking in order to submit the proposal to bankruptcy court.
The settlement, if approved, could mark the first major recovery for Dewey’s creditors, who are owed at least $315 million, according to court filings.
Under the final settlement offer, former Dewey partners had to contribute a minimum of $50 million by 5 p.m., August 16, a condition that was met by 2:45 p.m. Thursday, according to an e-mail sent to former Dewey partners and obtained by Reuters. The e-mail did not specify how much money had been raised collectively.
At least 300 partners out of a possible 672 signed the accord, according to a person close to the matter.
The parties to the bankruptcy have been tangling for several months over the terms of the settlement. The estate, under the guidance of restructuring officer Joff Mitchell, has been trying to compel former partners to return a portion of their compensation to pay back creditors such as banks and bondholders. Former partners, however, have argued that the estate’s conditions were unfair.
Some of Dewey’s lower-earning partners, for example, said they were being asked to return too much, while higher earners and members of management were not required to return enough.
The deal, however, might not bring to an end to negotiations. A committee representing former Dewey partners on Thursday asked a federal bankruptcy judge to appoint an independent examiner to investigate the settlement before it gets court approval.
“Without such an investigation having been undertaken, there is no way that the Debtor - nor anyone else, including the Court - can formulate an informed view as to whether the PCP (settlement) is within the realm of reasonableness,” said David Friedman, a lawyer representing the former partners committee, in court records.
Friedman, in court documents, objected to the composition of the Dewey wind-down team. He said the team was being managed by lawyers who had advised the firm before its collapse and that they gave high earners at Dewey preferential treatment when devising the settlement.
Mitchell, Dewey’s chief restructuring officer and a senior managing director at Zolfo Cooper, praised the accord.
“This is a key milestone we are pleased to have reached: an early settlement that can deliver meaningful recoveries to creditors and let former partners put this behind them,” Mitchell said in a statement.
Dewey once employed more than 1,000 lawyers in 26 offices worldwide, but in May it became the largest U.S. law firm to file for bankruptcy. Its demise has been attributed to compensation guarantees the firm made to a significant portion of its partners.
The Dewey estate may still go after an additional estimated $60 million from former Dewey partners in so-called unfinished business claims, in which the trustee seeks to recover profits on legal business former partners took with them to other firms.
Partners who did not sign the deal also could be vulnerable to claw-back litigation unless they accept the deal after the August 16 deadline and agree to pay a 25 percent penalty.
Some former partners said they accepted the settlement simply to put the matter in the past. “I‘m holding my nose but I‘m doing this,” said one.
Another former partner said he was “optimistic” about Thursday’s announcement, despite having to pay a significant amount of money.
“I would have been extraordinarily depressed if this threshold hadn’t been reached,” he said.
(This version of the story has been corrected to fix attribution of quote in paragraph 11)
Reporting by Casey Sullivan and Nate Raymond; Editing by Dan Grebler, Bernard Orr