By Nate Raymond
NEW YORK, Nov 29 (Reuters) - A U.S. bankruptcy judge on
Thursday gave Dewey & LeBoeuf's creditors the authority to sue
three former top executives at the fallen law firm, including
former chairman Steven Davis.
The ruling, issued by U.S. Bankruptcy Judge Martin Glenn in
Manhattan, followed a hearing earlier in the day. It will allow
the creditors to pursue damages from the executives for
allegedly breaching their fiduciary duties prior to Dewey's
failure in May.
The former executives include Davis, former executive
director Stephen DiCarmine and former chief financial officer
A hearing on the confirmation of the liquidation plan is
scheduled for February. Once the plan is approved, a litigation
trust would take charge of any lawsuits or settlements, said
Edward Weisfelner of Brown Rudnick, the lawyer representing the
In the meantime, the creditors committee would act as a
"place holder" for the litigation trust, said Weisfelner.
But how much the creditors could recover in litigation is
uncertain. Insurers are disputing coverage under Dewey's $50
million management liability policies to the trio, said Ned
Bassen, a Hughes Hubbard & Reed lawyer for DiCarmine and
The executives contend that the creditors' potential claims
would be covered by the policies. But according to Bassen, the
insurers disagree, saying the policies contain an exclusion
provision that prevents payment in cases where the insured,
Dewey, sues the insured, the executives.
Given the insurers stance, Bassen in court papers objecting
to the creditors' request questioned if it was in the best
interest of the estate to pursue a lawsuit against the
Without the insurance policies, any recovery would likely
come from the assets of Davis, DiCarmine and Sanders.
"It seems to be in everybody's interest except for the
insurance companies for there to be coverage," Bassen said
SEEKING TO RECOUP CLAIMS
Dewey & LeBoeuf in May became the largest law firm in U.S.
history to file for Chapter 11. Since the collapse, the firm's
estate and creditors have been working to recoup money for
secured and unsecured creditors who have an estimated $700
million in claims.
In October, Glenn approved a $71.5 million settlement in
which 400 partners agreed to return between $3,000 and $3.5
million each in exchange for being released from further claims.
The settlement excluded Davis, who was also a partner, and
DiCarmine and Sanders, who were not, leaving them open to
On Nov. 12, the creditors committee, with the support of the
Dewey estate, sought an order allowing it to bring lawsuits and
settle claims against the three individuals.
The committee said the executives "breached their fiduciary
duties of care, loyalty and candor by recklessly doling out
individual partner contracts that guaranteed compensation
without regard to future performance."
In court documents, Davis, DiCarmine and Sanders disputed
the charges and said they acted responsibility while heading up
Glenn acknowledged that the exclusion provision of the
insurance policies was "important" but in his written decision
said questions surrounding it could not immediately be resolved
and, in any event, would not be "determinative."
"The three proposed defendants all appear to be solvent
potential defendants; in the event litigation of the claims
results in a settlement of judgment, a substantial recovery is
possible whether or not insurance coverage is available," Glenn
Representatives for the insurance companies -- XL Insurance,
OneBeacon Insurance Group and Iron-Starr Excess -- either didn't
respond to requests for comment or declined comment.
Bassen in an email following the decision noted that the
judge in the opinion signaled that the creditors committee's
allegations "would likely be paid from the $50 million insurance
Paul Basta, a lawyer for Davis at Kirkland & Ellis, did not
respond to a request for comment.
A spokeswoman for Dewey's advisors at restructuring firm
Zolfo Cooper declined to comment.
The case is In re Dewey & LeBoeuf, U.S. Bankruptcy Court,
Southern District of New York, No. 12-12321.
For Dewey: Al Togut of Togut Segal & Segal.
For Unsecured Creditors Committee: Edward Weisfelner of
For Stephen DiCarmine and Joseph Sanders: Ned Bassen, Hughes
Hubbard & Reed
For Steven Davis: Kevin Van Wart, Kirkland & Ellis
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