In Dewey talks, a surprise $50 million insurance policy emerges
NEW YORK (Reuters) - A $50 million insurance policy is emerging as a key factor in efforts to resolve the bankruptcy of defunct law firm Dewey & LeBoeuf and avoid years of costly litigation.
The policy, taken out by Dewey in October 2011, covers claims of misconduct against former chairman Steven Davis and a handful of other former top executives at the firm, according to three former Dewey partners, who spoke on condition of anonymity.
As bankruptcy negotiations proceed, the estate, former partners and creditors are sorting out how the policy affects their different interests.
In a proposal put forward last week by the firm's estate, former partners were asked to contribute between $25,000 and $3 million each toward a $103.6 settlement pot and to forfeit any legal claims against the defunct firm and its officers. In exchange, the partners would be released from liability for the firm's $315 million debt.
Davis was pointedly left out of the deal, an arrangement which frees creditors to sue him in his capacity as the former chairman, and also personally. The $50 million insurance policy provides an incentive for creditors to go along with the proposal.
For former partners, on the other hand, the policy could be a disincentive because anyone who signs on is relinquishing the right to sue Davis or other executives covered by it, as well as the recovery of back compensation that some former partners say they are owed.
Settlement talks involving the creditors, the estate and former partners have been under way since late May, when Dewey filed for Chapter 11. The existence of the $50 million policy was acknowledged by Joff Mitchell, the chief restructuring officer for the Dewey estate, at a July 3 settlement meeting with lawyers for former Dewey partners.
Dewey & LeBoeuf, which once housed more than 1,000 lawyers in 26 offices worldwide, began unraveling earlier this year as the firm struggled with debt. Davis was removed from his post on April 29 amid an investigation by the Manhattan district attorney into allegations related to his management of Dewey. Davis has denied wrongdoing.
A lawyer and a spokeswoman for Davis did not respond to requests for comment. Continued...