By Nick Brown
NEW YORK, Jan 9 (Reuters) - Bankrupt law firm Dewey & LeBoeuf has agreed to foot some of the cost of destroying about
345,000 boxes of old client files, a bill that could ultimately
reach $1.4 million.
After months of negotiations with creditors and storage
facilities, Dewey will pay the facilities $4 a box to shred old
files beyond readability, according to court papers filed on
The proposal will go before Judge Martin Glenn in U.S.
Bankruptcy Court in Manhattan on Jan. 24.
The fate of Dewey's old files has become an intriguing
sub-plot in the unwinding of a once-proud firm that employed
1,000 lawyers in 26 worldwide offices at its height.
Dewey, now liquidating, filed the largest-ever bankruptcy by
a U.S. law firm in May, and in October it reached a $71.5
million settlement with former partners to help pay back about
$260 million owed to secured creditors.
Shredding Dewey's old client files, some of which date back
to the 1930s, doesn't come cheap. The question of how to destroy
those files that go unclaimed by clients has framed a difficult
legal issue, pitting Dewey's fiduciary responsibility to
creditors against its ethical duty to clients.
Bankrupt entities have an obligation to creditors to save as
much money as possible to maximize payouts. But law firms also
owe it to clients to preserve the privacy of their information.
Dewey in June raised the ire of some of its storage
companies when it filed court papers proposing to destroy the
files but keeping mum on how the process would be paid for.
In a contentious court hearing in July, Dewey said it would
not likely be able to afford eventual destruction costs, while
storage facilities, including Citistorage LLC and Iron Mountain
Inc, voiced concern that they would be left on the hook.
At the time, Dewey had about 430,000 boxes of files
scattered between 24 facilities in 14 states. Some have since
been claimed by partners or clients, leaving about 345,000,
according to Friday's filing.
Under the proposed agreement, the warehouses will destroy
the remaining boxes and present Dewey with a certificate of
destruction, earning them reimbursements of $4 per box. The
total cost would come to $1.38 million if all 345,000 boxes were
Dewey said the plan has the support of its secured lenders,
whose cash collateral Dewey must use to fund the process.
The "procedures strike an appropriate balance between
(Dewey's) obligations to the estate and the potentially
applicable ethical and professional obligations," the firm said
in court papers.
There is no law governing the destruction of client files
for liquidating firms, which has made the issue controversial in
many law firm bankruptcies. The deal hammered out in Dewey's
case appears consistent with others in the past, including the
$5-per-box price law firm Dreier agreed to pay warehouses after
its 2008 bankruptcy.
The case is In re Dewey & LeBoeuf, U.S. Bankruptcy Court,
Southern District of New York, No. 12-12321.
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