Ex-Dewey partner sues firm's former leadership for fraud and deceit

Former Dewey & LeBoeuf partner Henry Bunsow has accused the firm’s leadership – including former chairman Steven Davis – of committing fraud by lying about the true state of the now-bankrupt firm’s finances, reports The Am Law Daily.

In a 14-page lawsuit filed in San Francisco Superior Court, patent litigator Bunsow claims that Davis and other former Dewey leaders engaged in a years-long pattern of deceit aimed at portraying the firm as stronger financially than it actually was in order to pursue a lateral hiring spree that the complaint likens to “running a Ponzi scheme.”

The suit comes less than a month after Dewey filed for Chapter 11 bankruptcy protection, confirming the the world’s largest ever legal failure.

Along with Davis, the other defendants named by Bunsow include former Dewey partner Jeffrey Kessler, a member of the firm’s office of the chairman in its final months; former executive committee member James Woods; former chief financial officer Joel Sanders; and former executive director Stephen DiCarmine. The suit seeks unspecified damages for claims including fraud and deceit, negligent misrepresentation, breach of fiduciary duties, and unjust enrichment.

From 2008 onward, the suit alleges, the defendants “concocted and participated in a scheme and conspiracy intended to misrepresent the financial performance of Dewey,” and “conspired to publicly and privately misrepresent the financial performance, history and stability of Dewey in order to attract successful partners from other law firms to join Dewey.”

In wooing new partners, Dewey relied in large part on the financial numbers reported to The American Lawyer, according to the complaint. Earlier this year, The American Lawyer revised two years of Dewey financial data based on audited financial statements obtained by the magazine that showed Dewey significantly overstating what had been initially reported.

Bunsow says in his complaint that he relied on financial data provided to the magazine, as well as the firm’s promises that profits per equity partner were expected to reach $2m (£1.3m) in 2011, in deciding to join Dewey. What the firm’s leaders failed to tell him was that they in fact owed partners $300m (£193m) at the time “as a result of promises of compensation and bonuses awarded to select partners in prior years,” the complaint states.

Bunsow received a guarantee of $5m (£3.2m) a year when he joined the firm, according to the suit, which also says he was underpaid by $3.6m (£2.3m) in 2011 and $1.65m (£1.1m) for the first few months of 2012.

In the complaint, Bunsow also takes issue with the policy of taking capital contributions from partners, in the amount of 36% of estimated annual income, that they “never intended to return,” despite a firm policy to return capital in three yearly installments upon a partner’s departure. Bunsow says he was told to hand over $1.8m (£1.2m) in capital and that he could borrow the amount from Citibank, with the firm paying interest on the loan, if he was unable to put up the money himself. Bunsow says in the complaint that he did take out such a loan.

At the time this suggestion was made, however, Davis, Kessler, Sanders, and DiCarmine “knew that Dewey was in trouble financially and that [Bunsow] would lose the money that they were inducing him to borrow,” the suit alleges, adding that capital was not used to “run the Firm as an ongoing business” but rather to pay select partners.

One parter Bunsow says did get his capital back was Davis, who, according to the complaint, withdrew his contribution upon being ousted as chairman.

Bunsow, who now runs a San Francisco intellectual property boutique with other 10 Dewey refugees, declined to comment. He is being represented by San Francisco law firm Lynch Gilardi & Grummer. His suit is thought to be the first filed by a former Dewey partner accusing firm leaders of fraud.

He joined the firm in January 2011 from Howrey, ahead of that firm’s eventual dissolution in March that year, and is also a former partner at a third now-defunct US firm – Brobeck Phleger & Harrison.

DiCarmine declined to comment through his lawyer, Ned Bassen at Hughes Hubbard & Reed. Woods, now at Mayer Brown, and Kessler, now at Winston & Strawn, did not immediately respond to requests for comment, nor did a lawyer for Sanders or a public relations contact for Davis.

Click here to read the full lawsuit.

The Am Law Daily is a US affiliate title of Legal Week. Click here to follow Sara Randazzo on Twitter.