Summary: A New York bankruptcy judge will allow claims against former Dewey & LeBouef partners to go forward.

According to the Wall Street Journal, a bankruptcy judge refused to dismiss lawsuits against seven former Dewey & LeBoeuf partners this week. The suit seeks close to $16 million for the obsolete firm’s creditors. The judge ruled that under New York state law, money that the law firm partners were paid during the firm’s insolvency can be clawed back.

  

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Read more about Dewey & LeBoeuf’s downfall here.

The firm collapsed two and a half years ago, with most of the partners removing themselves from Dewey-related liability. After the firm entered bankruptcy protection, 475 of Dewey’s former partners agreed to be a part of a $70.4 million settlement that was the center of a creditor repayment plan. Other partners have settled their cases individually.

Read more about the other settlements involved in this case here.

U.S. Bankruptcy Judge Martin Glenn handed down the decision. In his ruling, he found that under New York’s debtor and creditor laws, the partners cannot argue that the value of the work they did for the firm offsets the money that they earned. Sometimes, this defense can be used in clawback suits. For example, if a partner brought a firm $2 million in fees, and earned $1 million in compensation, that partner could argue that he owes nothing to the bankrupt firm.

Paul Jasper is ex-Dewey partner John Altorelli’s attorney. In a statement Thursday, Jasper said that the defendants “devoted their legal careers to Dewey and its clients” and that their work “generated fees that increased the assets available to satisfy claims.” According to Jasper, the decision “creates a windfall for creditors,” who are now able to retain both the value of the fees the partners created, as well as the compensation paid to them.

Altorelli left Dewey for DLA Piper, but defended Dewey’s leadership. He now faces a $12.9 million suit, which is the largest of the pending suits. The next step in the case will be to determine if the firm was insolvent or unable to pay its debts as they became due. Currently, a date of January 1, 2009 is being used, although the validity of that date has not been ruled upon by Judge Glenn.

Interested in bankruptcy law? Read about it here.

Photo credit: lexpertblog.com