Former partners from defunct law firm Dewey & LeBoeuf LLP have agreed to give back at least $50 million in past earnings in exchange for immunity from lawsuits relating to the New York firm's demise.
If approved, the deal would mark an unusually early resolution of such "clawback" claims, which typically take years to resolve following a law firm's failure.
The firm sought Chapter 11 protection on May 28 following a difficult six months of partner exits amid disagreements over compensation and the firm's inability to extend credit agreement with lenders.
Dewey's bankruptcy advisers have told ex-partners that settling up now will save them money and avoid the hassle of years of litigation by creditors.
Banks, bondholders and hundreds of trade creditors have potential claims against Dewey that total $560 million, according to ex-partners who were briefed last week by the firm's estate.
"It's unusual that they attempted to do this in the first two months of a case," said Tracy Klestadt, a bankruptcy lawyer who represents more than a dozen former Dewey partners, most of whom he said had signed on to the plan.
It became clear Thursday that enough partners would sign on to move the deal forward. A number of partners have complained in recent weeks that the terms of the proposal favored Dewey's former leaders and high earners at the expense of rank-and-file partners.
The most recent version of the proposed deal, which had Thursday afternoon as a deadline, targeted 672 former partners, including a number of retirees, and sought $90.4 million in past compensation and benefits paid out to them in 2011 and 2012.
According to Dewey's bankruptcy advisers, more than 300 ex-partners signed on to the deal as of 2:45 p.m., enough to hit a $50 million minimum threshold to move the plan forward, and present the agreement in bankruptcy court.
"I debated with myself until the last minute," said one former partner, who said the terms were unfair to those lawyers who bore no responsibility for Dewey's failure.
But that partner and another former Dewey lawyer both said it was time to move on.
"While I think I'm paying too much, and several very highly compensated people are paying too little, no one held a gun to my head," the second former partner said. "I just want to put this sorry episode behind me and move on with my career."