On Thursday, U.S. Bankruptcy Judge Martin Glenn in Manhattan ruled that creditors of Dewey & LeBoeuf can pursue claims of damages from the three former top executives of Dewey, for any breach of fiduciary duties committed by them, before Dewey had filed for bankruptcy.
The three top executives are former chairman Steven Davis, former executive director Stephen DiCarmine and former chief financial officer of Dewey, Joel Sanders.
The impending lawsuit is bound to be interesting as the executives hold their insurance policies cover any potential claims by creditors, but insurers are claiming they have an exclusion provision in place that absolves them of the liability to pay anything, if the firm Dewey sued the executives.
In the present case, the creditor’s committee would be acting principally as a ‘placeholder’ for Dewey’s litigation trust, that would be set up once the liquidation plan before the court is approved in February. After that, the litigation trust would become the party in place of the creditor’s committee.
If all those interpretations and convolutions can be straightened out, then the executives might have to pay claims of creditors from their own pockets, provided the insurance companies can assert their exclusion provision.
Previously, the creditors committee had sought an order to allow it to bring lawsuits and settle claims against the three top executives of Dewey on November 12. Their petition had support of the Dewey estate. Judge Glenn granted their request on Thursday.
The creditor’s committee holds that the three named executives had “breached their fiduciary duties of care, loyalty and candor by recklessly doling out individual partner contracts that guaranteed compensation without regard to future performance.”
The executives have disputed the charges and said that they had always acted responsibly while they were in charge of leading Dewey.
Taking note of the fact that the exclusion provision mentioned by the insurance companies was important, Judge Glenn held the question over insurance coverage to be immaterial at present.
He said, “The three proposed defendants all appear to be solvent potential defendants; in the event of litigation of the claims results in a settlement of judgment, a substantial recovery is possible whether or not insurance coverage is available.”
The case is In re Dewey & LeBoeuf, U.S. Bankruptcy Court, Southern District of New York, No. 12-12321.