Ex Partner Sues Former Dewey Leaders

Dewey & LeBoeufAn ex-partner of Dewey & LeBoeuf LLP has accused the former leaders of the bankrupt law firm, once one of New York's largest, of running a "Ponzi scheme" that used money invested by new partners to enrich themselves and others.

Source: Source: Dow Jones | Published on June 14, 2012

In a lawsuit, former partner Henry Bunsow, a litigator who joined the firm's San Francisco office in 2011, alleges that former chairman Steven Davis and other leaders of the firm misrepresented Dewey's troubled finances to get him and other "successful partners" to join the firm, and then used the capital they invested -- $1.8 million in Mr. Bunsow's case -- to pay themselves and other partners.

Mr. Bunsow's lawsuit is the first to target Dewey's former leadership. Such lawsuits have been expected for months, ever since a wave of partners began to leave the firm amid disputes over compensation and concerns about its financial condition. Recent lawsuits by vendors and a former Dewey employee have named the firm itself, not individual partners or executives.

Dewey filed a bankruptcy petition May 28, after most of its roughly 300 partners had left and lenders balked at extending credit the firm needed to keep functioning. The firm owes more than $315 million to a wide-ranging group of creditors that includes banks, bondholders, landlords and vendors such as car services and staffing agencies.

Dewey promised Mr. Bunsow, now a partner at Bunsow De Mory Smith & Allison LLP in San Francisco, annual compensation of $5 million in 2011 and 2012, and told him the firm "was doing very well financially," according to the lawsuit. His complaint accuses Mr. Davis, former Dewey executives Stephen DiCarmine and Joel Sanders, as well as former partners Jeffrey Kessler and James Woods, of painting a misleadingly rosy picture of Dewey's finances, and failing to disclose it owed its partners millions in deferred compensation.

The suit also alleged that Mr. Davis withdrew his own capital investment after he was stripped of his leadership role in late April, "and took those funds personally to the disadvantage of the firm and his fellow partners," according to the lawsuit, which was filed Tuesday in California state court in San Francisco.

Mr. Woods, Mr. Sanders and lawyers for Messrs. Davis and DiCarmine didn't respond to requests for comment.

"The allegations in this lawsuit about me are outrageous, false and without any merit," said Mr. Kessler, a prominent sports litigator who is now a partner at Winston & Strawn LLP. "Most of the allegations in the complaint are about others and about alleged events about which I have no knowledge and had no involvement."

Mr. Bunsow, who declined to comment, said in the lawsuit that he is seeking, among other things, unspecified damages, an accounting of Dewey finances over the past five years and the return of his capital stake, as well as an estimated $ 5.25 million in compensation that he was promised but not paid.

Dewey is working to unwind its affairs under judicial supervision in Chapter 11 bankruptcy proceedings. On Wednesday, U.S. Bankruptcy Judge Martin Glenn approved the next phase of the task, which will be funded by $18.8 million in cash collateral held by Dewey's lenders. The money will pay for overhead, lawyers and financial advisers as the firm's two remaining partners and 90 employees collect unpaid bills and weigh claims against former partners and their new firms.