NEW YORK, June 13 (Reuters) - A former partner at Dewey & LeBoeuf sued members of its management on Tuesday, claiming that
they misrepresented the law firm's finances prior to its
bankruptcy filing last month.
Henry Bunsow, an intellectual-property lawyer in San
Francisco, said members of Dewey management that included former
chairman Steven Davis sought to misrepresent Dewey's financial
performance and stability in support of efforts to recruit
partners at other firms. Management was "running a Ponzi scheme
in order to enrich themselves and select members" of Dewey,
Bunsow said in his complaint.
Bunsow's case, filed in California Superior Court in San
Francisco, marks the first publicly filed lawsuit by a former
partner against Dewey or its management in the wake of the
firm's collapse. Formerly one of the largest law firms in the
United States, Dewey filed for bankruptcy last month amid a high
debt load and a raft of partner defections.
Several Dewey partners have retained lawyers both in
anticipation of being sued by the firm's bankruptcy estate and
to consider bringing their own claims against Dewey and its
News of Bunsow's suit came as Dewey & LeBoeuf separately
reached a deal on Wednesday with lenders on a budget to fund the
law firm's bankruptcy through July. Dewey's lead restructuring
lawyer, Albert Togut, said the primary task now for the parties
was to seek a global settlement under which hundreds of former
partners would pay Dewey varying amounts to contribute to
Dewey can spend as much as $10.5 million of its cash through
July 31 on administrative tasks like recovering accounts
receivable, Togut said at a hearing on Wednesday in U.S.
Bankruptcy Court in Manhattan. The budget also reserves $8.3
million for fees for lawyers and other professionals
representing Dewey, its creditors' committee and a committee of
former partners, Togut said.
The defendants named in Bunsow's suit include Davis; Jeffrey
Kessler, the head of litigation and a member of Dewey's top
leadership team in its last months; Joel Sanders, the firm's
chief financial officer; Stephen DiCarmine, its former executive
director; and James Woods, a one-time executive committee member
who helped recruit Bunsow.
Kessler, who is now a partner at Winston & Strawn, said in
an email that the allegations in the lawsuit about himself were
"outrageous, untrue and without the slightest bit of merit."
"It is sad that Mr. Bunsow, who received more of his
compensation for 2011 than I did, would lash out with such false
allegations against me," Kessler said in the email.
Most of the allegations in the lawsuit were directed at
others, Kessler said, and were about alleged events which he had
no knowledge of or involvement in.
Ronald Souza, a lawyer for Bunsow at Lynch, Gilardi &
Grummer, did not respond to a request for comment.
Ned Bassen, a lawyer for DiCarmine, declined comment. The
other defendants or their representatives, including Davis, did
not respond to requests for comment.
The lawsuit was first reported by The American Lawyer.
Davis is separately the focus of an ongoing investigation by
the office of Manhattan District Attorney Cyrus Vance into
allegations of wrongdoing related to his management of Dewey.
Davis has denied wrongdoing.
Bunsow had been vice chairman at Howrey, a law firm that
filed for bankruptcy in 2011. In his complaint, he said Dewey's
management lured him to join their firm in January 2011 with a
promise of $5 million a year in guaranteed compensation.
But he said Davis and others in leadership positions at
Dewey "knew they would be unable to keep that promised guarantee
in view of the huge debt of guaranteed income then owed to prior
Bunsow said that during conversations before joining Dewey,
members of Dewey's management assured him about the firm's
financial condition, with Davis stating he expected its profits
per partner to hit $2 million for 2011. But he said the
defendants misrepresented Dewey's financial picture.
Among other facts, Bunsow said Davis did not disclose that
financial numbers for Dewey & LeBoeuf published in an annual
survey of law firm financials by the trade magazine The American
Lawyer were false. Bunsow said Davis had told him that the
magazine's reports were accurate and that he expected Dewey to
have $2 million in profits per partner in 2011.
The American Lawyer said in April it would revise its
published financial results for Dewey, following news reports
that contradicted the magazine's prior reporting. While Dewey
had initially told The American Lawyer it had grossed $935
million in 2011, the magazine said it had grossed only $782
million. Profits per partner were about $1 million, $700,000
less than initially reported, the magazine said.
The lawsuit describes a Jan 27 meeting where Davis told
partners Dewey earned only $280 million in profit in 2011 and
that about half of those funds had been used to pay debts to
partners for prior years.
At a meeting in April, Dewey's management told partners that
it had hired PricewaterhouseCoopers to review its compensation
distributions in 2011 and 2012. According to the lawsuit, PwC
said Dewey had not been making distributions in accordance with
its partnership agreement and that 83 percent of its profits had
been used "for fraudulent and improper payments" to various
Bunsow said he suffered $7.55 million in damages as a result
of losing capital he invested in the firm and not being paid
owed guaranteed compensation and other benefits.
Bunsow's case is Bunsow v. Davis, Superior Court of the
State of California, County of San Francisco, No CHC-12-521540.
The bankruptcy case is In re Dewey & LeBoeuf LLP, U.S.
Bankruptcy Court, Southern District of New York, No 12-12321.
For Bunsow: Ronald Souza and Arif Virji of Lynch, Gilardi &
(Reporting by Nate Raymond and Nick Brown)
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