Ex-Dewey partners pursued by banks over professional practice loans

Former partners of bankrupt firm Dewey & LeBoeuf are being pursued by banks trying to reclaim money they lent through professional practice loans.

Citi is among the lenders attempting to claw back loans made to both lateral hires and internal partner promotions at Dewey to fund their capital contributions to the firm, according to ex-partners.

It is unclear exactly what period of lending the banks are pursuing; however, partners told Legal Week that some of those joining the partnership in 2010 and 2011 have been contacted in an attempt by the banks to reclaim the loans.

Capital contributions were calculated based on each partner’s annual target compensation, with those joining required to pay in 36% of this annual target. The initial contribution was funded over a one-year period, according to Dewey’s 2010 bond memorandum.

Dewey had arrangements with several banks to provide loans to individual partners joining the equity, with Barclays understood to have provided many loans in the early 2000s, and Coutts and Citi providing many of those issued from 2007.

According to former partners, those who took loans from Citi over the last two years are considering grouping together to instruct legal counsel in an attempt to reach an agreement with the bank.

Steven Otillar, an oil and gas partner who joined Dewey’s Houston office in January 2011 from Baker & McKenzie and is now at Akin Gump, confirmed to former partners during a conference call last Monday (19 June) that Citibank was pursuing legal action against him for not repaying the loan.

One partner commented: “A small minority of partners have opted to pay back the banks out of personal savings, but the majority are unable to do so and are disputing the claim. It would be sensible for partners with similar interests to jointly instruct a law firm to negotiate with Citibank – watch this space.”

News of the banks’ attempts to reclaim funding comes after Dewey’s bankruptcy team outlined details of a proposed plan that could see a settlement with former partners reached within the next six weeks, bringing in much-needed money to the estate.

On last week’s conference call, the team proposed a settlement that would absolve former partners – with the exception of former chairman Steven Davis – of any future liability in relation to the firm, according to a person on the call.

A “critical mass of partners” will have to agree to the settlement in order for it to be approved, although the bankruptcy team did not specify what the number would be.

Partners on the conference call stated that the team had been given an end-of-July deadline from the banks to come up with proposals on claiming contributions from partners, at which point the bankruptcy could be converted to a Chapter 7.

Former executive partner Steve Horvath, who oversaw the conference call, confirmed to partners that their capital contributions would be taken into account when calculating what each partner owes the estate.