(Reuters) - An attorney for bankrupt law firm Dewey & LeBoeuf on Tuesday said the firm was “close” to a deal that would allow it to recover money from some of its former partners.
Attorney Albert Togut, speaking at the first bankruptcy hearing since Dewey filing for Chapter 11 on Monday, gave no details on the scope of a potential deal, other than to say it would cost ex-partners a “significant” amount of money.
Togut said the firm would like to achieve a quick and orderly settlement of potential claims against ex-partners who left the firm this year en masse, possibly costing Dewey money that it was owed.
Dewey, troubled by a large debt load and a high-cost compensation structure, filed for bankruptcy after losing the lion’s share of its roughly 300 partners to mass defections. It may have legal claims against the partners who left and took clients with them, as well as against the firms where those lawyers ended up.
“Our goal is to get to a negotiated settlement, and bring in money without the staggering fees that you see in case after case in these law firm bankruptcies,” Togut said.
It was unclear how far along talks were. Mark Zauderer, a lawyer representing more than 50 former Dewey partners, said after the hearing that talks with his group were only preliminary. During the hearing, Zauderer told the court his clients had “not heard the basis” for any claims against them from Dewey, and pointed out that former partners might have offsetting claims against the firm.
Another lawyer representing ex-partners said Togut’s announcement at the hearing was the first he’d heard about a potential deal.
Togut after the hearing declined to expound on the status of negotiations.
The hearing grew contentious when U.S. bankruptcy Judge Martin Glenn refused to grant Dewey’s lenders a lien on the proceeds of certain future litigation in exchange for the lenders’ allowing Dewey to fund its bankruptcy using their cash collateral.
Cash collateral is money that belongs to a bankruptcy debtor but has been pledged as collateral to lenders.
Dewey owes about $75 million in loan debt to a lender group led by JPMorgan Chase & Co (JPM.N).
The lenders had said they would allow Dewey to use its cash collateral to fund it while in bankruptcy, but in exchange demanded a lien on so-called avoidance actions, or litigation undertaken by a bankruptcy debtor to claw back payments it may have made when already insolvent.
The demand underscores an aggressive approach taken by lenders as Dewey’s debt has been bought and sold on the secondary market. A person close to Dewey earlier this month told Reuters the firm’s debt is mainly in the hands of investors who acquired it at a discount and are hoping to make a profit through the bankruptcy process.
Glenn said the demand for the lien was unreasonable, and ordered the parties to try to negotiate new terms.
The case is In re Dewey & LeBoeuf LLP, U.S. Bankruptcy Court, Southern District of New York, No. 12-12321.
Reporting By Nick Brown in New York; Editing by Matthew Lewis and Steve Orlofsky