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Eric Lopez Schnabel, Esq. (ES5553) Jessica D. Mikhailevich (JM1043) DORSEY & WHITNEY LLP 51 W. 52nd Street New York, New York 10019 Telephone: (212) 415-9200 Facsimile: (212) 953-7201 -andAnnette Jarvis (Utah Bar No. 01649) Peggy Hunt (Utah Bar No. 06060) DORSEY & WHITNEY LLP Kearns Building 136 South Main Street, Suite 1000 Salt Lake City, UT 84101 Telephone: (801) 933-7360 Facsimile: (801) 933-7373 Counsel to Ad Hoc Committee of Retired Partners of LeBoeuf, Lamb, Leiby & MacRae UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF NEW YORK

In re: DEWEY & LEBOEUF LLP, Debtor.

Chapter 11 Case No. 12-12321-mg

OBJECTION OF THE AD HOC COMMITTEE OF RETIRED PARTNERS OF LEBOEUF, LAMB, LEIBY & MACRAE TO DEBTORS MOTION FOR ENTRY OF AN ORDER PURSUANT TO BANKRUPTCY RULE 9019 AND 11 U.S.C. 105(a) AND 362, APPROVING PARTNER CONTRIBUTION SETTLEMENT AGREEMENTS AND MUTUAL RELEASES FOR PARTICIPATING PARTNERS

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TABLE OF CONTENTS TABLE OF AUTHORITIES ..................................................................................................... II INTRODUCTION ...................................................................................................................... 1 BACKGROUND ........................................................................................................................ 2 OBJECTION............................................................................................................................... 7 I. II. III. The Motion is Premature Because it Asks the Court to Make an Advisory Ruling............................................................................................... 7 The PCP is an Impermissible Sub Rosa Plan and Violates the Absolute Priority Rule ................................................................................... 12 The PCP Does Not Meet the Standard for Settlement Under Rule 9019 ............................................................................................................... 14 A. B. C. The Litigations Probability of Success and the Settlements Future Benefits are Impossible to Ascertain................. 16 The Alternative to the PCP Remains Unknown ................................ 17 The Nature and Breadth of Releases Under the PCP Extends Beyond Claims That are Property of the Debtors Estate.................................................................................................. 17 The PCP is Not a Product of Arms Length Bargaining.................... 18

D. IV. V.

The Confidential Nature of the PCP Precludes Approval ............................. 20 There is no Need to Rush Approval of the PCP ............................................ 22

CONCLUSION......................................................................................................................... 24

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TABLE OF AUTHORITIES Page(s) CASES Aaronson v. Lewis, 473 A.2d 805 (Del. 1984) ........................................................................................................20 Committee of Security Holders v. Lionel Corp., 722 F.2d 1063 (2d Cir. 1983).......................................................................................1, 4, 5, 12 Development Specialists, Inc. v. Akin Gump Strauss Hauer & Feld LLP, 2012 U.S. Dist. LEXIS 73994 (S.D.N.Y. May 24, 2012) .........................................................8 Flast v. Cohen, 392 U.S. 83 (1968)...................................................................................................................11 Geron v. Seyfarth Shaw LLP, Case No. 1:12-cv-01364-WHP [Docket No. 23] (S.D.N.Y. September 4, 2012) .....................8 In re Coudert Brothers, LLP, Case No. 06-12226 (Bankr. S.D.N.Y.) [Docket No. 3] .......................................................4, 21 In re Exide Techs., 303 B.R. 48 (Bankr. D. Del. 2003) ....................................................................................18, 19 In re Howrey LLP, Case No. 11-31376 (Bankr. N.D. Ca.) [Docket No. 132]....................................................4, 21 In re Lion Capital Group, 49 B.R. 163 (Bankr. S.D.N.Y. 1985).......................................................................................15 In re Oldco M Corp., 466 B.R. 234 (Bankr. S.D.N.Y. 2012).....................................................................................21 In re Smith, 409 B.R. 1 (Bankr. D. N.H. 2009) ...........................................................................................11 Jewel v. Boxer, 156 Cal. App. 3d 171 (Cal. App. 1 Dist. 1984) .........................................................................7 Motorola Inc. v. Official Comm. of Unsecured Creditors (In re Iridium Operating LLC), 478 F.3d 452 (2d Cir. 2007).........................................................................................13, 15, 16 Nixon v. Warner Commc'ns, Inc., 435 U.S. 589, 98 S. Ct. 1306, 55 L. Ed. 2d 570 (1978)...........................................................21 Pension Benefit Guarantee Corp. v. Braniff Airways Inc. (In re Braniff Airways, Inc.), 700 F.2d 935 (5th Cir. 1983) ..............................................................................................12, 13

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Protective Comm. For Indep. Stockholders of TMT Trailer Ferry, Inc. v. Anderson, 390 U.S. 414 (1968)...........................................................................................................14, 16 United States v. Amodeo, 71 F.3d 1044 (2d. Cir. 1995)....................................................................................................21 Video Software Dealers Assn v. Orion Pictures Corp. (In re Orion Pictures Corp.), 21 F.3d 24 (2d Cir. 1994) ........................................................................................................21 Weinberger v. UoP, 457 A.2d 701 (Del. 1983) ........................................................................................................20

STATUTES 11 U.S.C. 105(a) and 362............................................................................................................1 11 U.S.C. 107(b) .........................................................................................................................21 11 U.S.C. 341................................................................................................................................6 11 U.S.C. 548(a)(1)(B)(ii)(IV)..............................................................................................12, 16 11 U.S.C. 548(a)(1)(B)(IV) ..................................................................................................21, 22 11 U.S.C. 1104(c) .......................................................................................................................22 11 U.S.C. 1129(b)(2) ........................................................................................................2, 12, 13 Chapter 5 of the Bankruptcy Code.................................................................................................12 Chapter 11 of the Bankruptcy Code.................................................................................................4 Section 362 of the Bankruptcy Code .......................................................................................10, 11 Section 1121(d) of the Bankruptcy Code.......................................................................................22

OTHER AUTHORITIES Erwin Chemerinsky, Federal Jurisdiction 2.2, at 49 (5th ed. 2007) ............................................11 Fed. R. Bankr. P. 3016(c) ..............................................................................................................10 Fed. R. Bankr. P. 9019........................................................................................................... passim Local Bankruptcy Rule 1007-2........................................................................................................2

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The Ad Hoc Committee of Retired Partners of LeBoeuf, Lamb, Leiby & MacRae (the Ad Hoc Committee), by and through its undersigned counsel, hereby submits this objection (the Objection) to the Debtors Motion for Entry of an Order Pursuant to Bankruptcy Rule 9019 and 11 U.S.C. 105(a) and 362, Approving Partner Contribution Settlement Agreements and Mutual Releases for Participating Partners [Docket No. 399] (the Motion) filed by Dewey & LeBoeuf, LLP (the Debtor or Firm). A. INTRODUCTION

Without appropriate disclosure and evaluation, no party can gauge the fairness or merit of the Debtors Partner Contribution Plan (the PCP).1 The Debtor has admittedly failed to investigate or value the insider claims sought to be released through the PCP. Instead,

eschewing such rigor for rough justice, the Debtor has filed the Motion seeking to release all estate claims against (and obtain pre-approval of the form of a third party injunction in favor of) any partner who participates in the PCP. However, the PCP fails to comply with the most fundamental concepts of disclosure to the Court and the Debtors constituents, fails to even identify, much less accurately describe the claims it seeks to release or the value of those claims, and fails to even identify with precision the monetary benefit the Debtor will receive from the Participating Partners.2 While the Debtor extols the virtues of an unprecedented settlement,3 the plain reason a settlement of this sort is unprecedented is that it does not comply with the settlement standards imposed by Rule 9019 of the Federal Rules of Bankruptcy Procedure (the Rules) and because it asks this Court to render a premature, impermissible advisory opinion.

1 2

Capitalized terms used herein but not defined shall have the meanings ascribed to them in the PCPs. It should be noted that the Debtors definition of Participating Partners improperly includes persons who were not partners of the Firm from 2011 through the Petition Date. See Motion at p. 6.

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As stated more fully below, the Motion should not be approved by this Court for the following reasons, among others: (a) the Motion is premature; (b) the PCP is a sub rosa plan which also violates the absolute priority rule as codified in 11 U.S.C. 1129(b)(2); (c) the PCP cannot meet the Rule 9019 standards; (d) the Debtors inherently conflicted fiduciaries are not entitled to deference under the business judgment rule; (e) the information comprising the PCP was not and has not been disclosed to all constituents; (f) the PCP seeks to improperly release third-party claims; and (g) no exigent circumstances exist to justify approving the PCP before a thorough investigation is completed. B. 1. BACKGROUND

In 2007, Dewey Ballantine LLP merged with LeBoeuf, Lamb, Greene &

MacRae LLP (the Merger).4 2. During all or most of this period, Janis M. Meyer (Meyer), an equity partner of

the Firm, served as the Firms General Counsel.5 3. The Debtor experienced a steady defection of equity partners, but the pace of

defections accelerated toward the end of 2011 and into early 2012, after the revelation of the number of guarantees that favored partners had obtained. Thereafter, between January 1, 2012 and March 30, 2012 approximately 20% of the Debtors equity partners resigned or left the Firm.6 4. On or about May 4, 2012, the losses in the partner ranks was such that the Firm

sent a so-called WARN (federal Worker Adjustment Retraining and Notification Act) notice to

See Declaration of Jonathan A. Mitchell Pursuant to Local Bankruptcy Rule 1007-2 and in Support of Chapter 11 Petition and First Day Motions [Docket No. 2] (the Mitchell Declaration) at 17. See Mitchell Declaration at 12. Mitchell Declaration at 59.

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staff, associates and other employees, including Of Counsel.7 On May 28, 2012, the Firm filed its bankruptcy petition.8 5. Despite financial infirmities from at least 2010, the Firm made large distributions Later, insiders also took very large

to those with guaranteed compensation packages.9 payments from the Firm just prior to the Petition Date.10 6.

On or about March 27, 2012, , the Firm announced the creation of the Office of

the Chairman, to replace the hitherto sole Chairman Steven H. Davis (Davis).11 According to the Firms announcement, the Office of the Chairman was comprised of Davis, Martin Bienenstock, Rich Shutran, Jeffrey Kessler, Charles Landgraf, and with Stephen J. Horvath, III (Horvath) serving as Executive Partner.12 7. On April 1, 2012, the Firm retained Togut, Segal & Segal LLP as bankruptcy

counsel (the Togut Firm), with Albert Togut (Togut) serving as lead counsel.13 8. On or about April 27, 2012, the Office of the Chairman informed the Firm

partnership that it had learned that the Manhattan District Attorneys Office was investigating

7 8 9

Id. at 69. See Docket No. 1. See generally, Statement of Financial Affairs [Docket No. 294] (SOFA) at pp. 118, 175, 186, 190, 214, 229, 232, 233, 245, 260, 278, 295, 333, 352, and 353.

10 See SOFA at pp. 141, 154, 175, 186, 245, 262, & 316 (detailing numerous payments made to partners ranging from $264,166.67 to $2,000,000 in the months and even the days prior to the Petition Date); see infra 29-38 (discussing the SOFA and pre-petition transfers in greater detail). 11 Mitchell Declaration at 61. 12 See Docket No. 330, Exhibit G-2. 13 See Docket No. 98 (Employment Application); Declaration of Albert Togut [Docket No. 98-2] (the Togut Declaration).

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allegations of wrongdoing by Davis.14 9. On or about May 11, 2012, the Firm appointed a two-person Committee to

oversee its wind-down comprised of its General Counsel and equity partner Meyer and Executive Partner Horvath (the Wind-Down Committee).15 10. Jonathan A. Mitchell and his firm, Zolfo Cooper Management, LLC (ZC) were

employed as the Debtors Chief Restructuring Officer (the CRO) under the terms of a Services Agreement dated as of May 16, 2012 [Docket No. 99-2] (the CRO Services Agreement). 11. 12. Prior to the employment of the CRO, the Debtor began formulating the PCP.16 On May 28, 2012 (the Petition Date), the Debtor filed its petition seeking relief

under chapter 11 of the Bankruptcy Code in this Court. 13. It was not until July 26, 2012, that the Debtor filed its Statement of Financial

Affairs (SOFA), which only details payments made to unnamed partners in the one-year period prior to the Petition Date.17 Thus, it is impossible to ascertain the exact amount of distributions to partners from May 28, 2010 through the Petition Date (the Two-Year Avoidance Period).

14 Mitchell Declaration at 65. 15 See Mitchell Declaration. at 13. 16 Declaration of David Pauker [Docket No. 401] (the Pauker Declaration) at 11 (Our work on the PCP began before the commencement of the Chapter 11 case. Together with the Togut Firm, we developed a general strategy for the basic concept of a PCP and spent nearly all of our pre-petition time gathering information for a database that would be needed to develop proposals for a PCP. This information gathering continued after the CRO was hired . . . .). 17 See SOFA at p. 11 (SOFA 3(c) Payments Made Within One Year To Or For The Benefit Of Creditors Who Were Insiders.). Inconsistent with other law firm bankruptcies (and indeed virtually any bankruptcy case), the distributions made within one year to insiders does not identify the insider recipients so creditors cannot tell which partners, whether involved in management or not, received what, when. See In re Coudert Brothers, LLP, Case No. 06-12226 (Bankr. S.D.N.Y.) [Docket No. 3]; In re Howrey LLP, Case No. 11-31376 (Bankr. N.D. Ca.) [Docket No. 132].

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14.

On June 26, 2012, the Debtor presented the concept of the PCP to its secured

creditors and to Official Committee of Unsecured Creditors (the Creditors Committee) where the CRO described his rough justice methodology of claim valuation.18 15. On August 1, 2012, the Debtor made its first iteration of the PCP available to

partners and set an August 7, 2012 acceptance deadline, which was subsequently amended to August 16, 2012.19 16. In determining each partners allocated contribution amount under the PCP, the

CRO only analyzed payments to partners in 2011 and 2012.20 17. During the negotiations that took place between the initial disclosure of the PCPs

to partners and August 16, 2012, the Debtor modified the PCP to obligate the Debtor to obtain an injunction to be implemented in connection with the confirmation of a Chapter 11 plan.21 The Debtor also reduced the aggregate amounts sought under the PCPs to approximately $89 million.22 The current amount targeted for recovery under the PCP is a minimum of $50 million out of the approximately $71 million currently committed by Participating Partners.23 18. If the PCP is approved, Horvath and Meyer will receive a release on the bases

provided to Participating Partners in the PCP without the requirement of any financial

18 Declaration of Jonathan A. Mitchell [Docket No. 400] (the Second Mitchell Declaration) at 16. 19 Id. at 17. 20 Id. at 20. 21 Id. at 23. 22 Pauker Declaration at 12, n. 2. 23 See Motion at p. 3.

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contribution.24 19. The PCPs with former partners with Unfinished Business Claims are

contingent on a settlement of the Unfinished Business Claims by September 30, 2012. If no mutually agreeable settlement is reached by September 30, 2012, the partner has until October 5, 2012 to opt out of the PCP. If a sufficient number of Participating Partners opt out of the PCP by October 5, 2012, such that the Debtor no longer has at least $50 million in aggregate commitments from Participating Partners, the Debtor, after consultation with the Creditors Committee and JPMorgan Chase Bank, N.A., in its capacity as collateral agent under that certain Intercreditor Agreement dated as of April 16, 2010 (the Collateral Agent), may terminate and abandon the PCP by October 12, 2012.25 20. On August 15, 2012, pursuant to 11 U.S.C. 341, a meeting of the Debtors

creditors was held (the 341 Meeting). A partial transcript of the meeting is attached hereto as Exhibit A. (the 341 Meeting Transcript). At the 341 Meeting the CRO acknowledged that the Debtor had not examined or valued any potential estate claims prior to 2011.26

24 Id. at 25. 25 Settlement Agreement and Mutual Release [Docket No. 402-2] (the Non-Jewel Form PCP) at 11(b). 26 See 341 Meeting Transcript at pp. 3:214:4; 4:17-23: Ms. Jarvis: And then can you tell me the approximate or give me an approximate value of the claims that are being released, so fraudulent transfer claims [before] 2011, fraud tort claim, claims being released to third parties? Mr. Mitchell: No. Ms. Jarvis: Whats the approximate value? Mr. Mitchell: We havent examined or valued what those what those claims would be. . . . Ms. Jarvis: And I was thinking but my understanding is you havent examined [them] so you dont have an approximate value of these claims that are being released. Mr. Mitchell: I mean we have we have a view that weve discussed internally, but we have not examined or valued the claims.

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21.

Also at the 341 Meeting, the CRO estimated that the value of potential Jewel v.

Boxer,27 or Unfinished Business Claims, to be in the range of $60 to $70 million.28 22. All of the PCPs contain an Outside Date, which requires that if certain

conditions to effectiveness of the PCPs fail to occur by March 31, 2013, the PCPs terminate, but the Outside Date can be extended to June 30, 2013, with the consent of the Creditors Committee and the Collateral Agent.29 C. A. OBJECTION

The Motion is Premature Because it Asks the Court to Make an Advisory Ruling The Motion seeks an impermissible advisory ruling on the fairness and approvability of

the PCP. Although the Debtor states that over $70 million has been committed by former partners of the Firm,30 the Motion itself describe contingencies that undermine such calculations and make it clear that the Motion is nothing more than the Debtors request for this Court to issue a prohibited advisory opinion. For instance, note 3 states: a portion of the settlement funds pledged are contingent on future conditions described in the Motion and related declarations.31 The Motion then reveals the contingency, stating that the Parties shall agree to a settlement of all Unfinished Business Claims asserted against a Participating Partner, if any, in the coming weeks.32 Further, the Debtor states:

27 156 Cal. App. 3d 171, 179 (Cal. App. 1 Dist. 1984). 28 341 Meeting Transcript at p. 6:5-15. 29 Id. at 27. 30 Motion at p. 3. 31 Id. at n. 3. 32 Id. at p. 14.

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The failure to satisfy [the settlement of Unfinished Business Claims] does not prevent the PCP from becoming binding and effective; provided however, if this condition has not been satisfied by September 30, 2012, the Participating Partner against whom Unfinished Business Claims could be asserted can terminate his or her PCP by written notice to be received by the Debtor no later than October 5, 2012.33 Thus, if the Motion is granted, the above-described contingency would allow the Firms largest rainmakers34 and presumably the Participating Partners with the largest PCP settlement amounts, to opt out of the PCP after it is approved by the Court. Therefore, the Debtor cannot accurately represent the amount committed by the partners participating in the PCP or represent that the PCP has overwhelming support35 until some time after approval of the Motion has been decided. Furthermore, based on In re Thelen LLP,36 a recent decision by the United States District Court for the Southern District of New York regarding unfinished business claims stemming from that law firms bankruptcy it would appear that the likelihood of settlement by September 30, 2012, given the unsettled nature of the law on unfinished business claims,37 creates a significant current contingency, putting the entire PCP at risk of termination inasmuch as the entire PCP may be withdrawn on or before October 12, 2012.

33 Id. at n. 16. 34 Id. at p. 13. 35 Id. at p. 3. 36 Geron v. Seyfarth Shaw LLP, Case No. 1:12-cv-01364-WHP [Docket No. 23] (S.D.N.Y. September 4, 2012) (holding that New York law does not recognize a debtor law firms property interest in pending hourly fee matters). 37 See Development Specialists, Inc. v. Akin Gump Strauss Hauer & Feld LLP, 2012 U.S. Dist. LEXIS 73994 (S.D.N.Y. May 24, 2012) (holding that law firms must account for profits made from former Coudert Brothers partners, who brought work that began at Coudert to their new firm).

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These factual and legal contingencies as well as the fact that the Debtor cannot presently identify the claims it seeks to release with precision or what it will receive in exchange for releasing such claims, makes its Motion in fact a request for an impermissible advisory opinion on the merits of the PCP. In light of the numerous unresolved contingencies, the Debtor appears to be requesting approval of the PCP in the event that: (a) no Participating Partners opt out before October 5, 2012, (b) the aggregate commitments received by the Debtor after any opt outs have been exercised exceeds $50 million and the Debtor chooses not to terminate the PCPs by October 12, 2012;38 and (c) a plan of reorganization containing an injunction can be confirmed and become effective by March 31, 2013 (or, if the outside date is extended, by June 30, 2013). In addition, the contingency of the Motion is apparent from the Debtors request for approval of an injunction detailed in paragraph 3 of the PCP,39 that will not become operative until numerous conditions to the Settlement Agreement are each fulfilled including: a. b. The Courts approval of the Motion; the aggregate amount of all commitments from Participating Partners exceeds $50 million and the Debtor does not terminate the PCPs by October 12, 2012; the Court confirms a chapter 11 plan that implements the PCPs and provides that no holder of a claim under the Debtors Credit Agreement or Note Agreement shall be entitled to a distribution of any amounts paid to the Debtors estate by the Partner Parties unless such holder releases any and all claims such holder may hold against such Partner Parties; the effective date of the confirmed plan occurs prior to March 31, 2013 (or, if the outside date is extended, by June 30, 2013); and

c.

d.

38 It is significant here that the Debtor values its unfinished business claims at between $60-$70 million. See 341 Meeting Transcript at p. 5: 24 6:15.

39 See Order, Findings of Fact, and Conclusions of Law Approving Partner Contribution Settlement Agreements and Releases [Docket No. 399-1] at 10.

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e.

the Debtor certifies that each Participating Partner has complied with his or her obligations under the PCP to bill any unbilled time and collect accounts receivable.40

With so many contingencies to be met before the proposed injunction can take effect, and more importantly, since the injunction cannot be implemented outside of a Chapter 11 plan, it cannot fairly be asserted that the Debtor is requesting any relief on a matter that is presently before the Court. Indeed, since the injunction must be specifically and conspicuously included in a Chapter 11 plan identifying all acts to be and persons enjoined,41 the present request is improper. In short, the Court should not rule on an injunction that might possibly be before the Court in a proper context sometime in the future without first affording parties in interest the appropriate due process protections afforded in the Rules. Similarly, the Debtor asks the Court to issue an advisory opinion to provide that the stay provisions of section 362 of the Bankruptcy Code apply to all claims of the Debtor and the Debtors Chapter 11 estate that are the subject of the Debtor Released Claims.42 The Debtor Released Claims are not even clearly identified and include claims or causes of action arising from or relating to, among others, any liability to any holder of a claim in the Bankruptcy Case arising from or related to the Debtor or its affairs or any of the Professional Entities or a Related Entity or its affairs.43 The PCP further requires the Debtor to obtain an injunction that bars all persons and entities from pursuing claims based on, relating to, or arising from the Debtor Released Claims, including any claim that is derivative of any claim of the Debtor or any

40 See Non-Jewel Form PCP at 11. 41 See Fed. R. Bankr. P. 3016(c) (If a plan provides for an injunction against conduct not otherwise enjoined under the Code, the plan and disclosure statement shall describe in specific and conspicuous language (bold, italic, or underlined text) all acts to be enjoined and identify the entities that would be subject to such limitation.). 42 Id. at 10. 43 Non-Jewel Form PCP at 2(iii).

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claims based on the contention that the former partners of DL or its Predecessor Entities or Related Entities are liable for the debts of DL . . . .44 Despite these vague definitions, the plain language of these releases extends beyond claims and causes of action that are property of the Debtors estate. However, no case or controversy is before the Court to allow it to opine on such issues. And, the mere fact that Participating Partners can withdraw their participation in the PCP if the Court does not approve the substance of the form of injunction does not sanction this Courts judgment on the merits of the proposed injunction, which must be included for approval in a Chapter 11 plan that has not yet been filed and is not yet before the Court. The Debtors request for such an order harkens back to the core of Article IIIs limitation on federal judicial power, namely, that federal courts cannot issue advisory opinions.45 Indeed, the oldest and most consistent thread in the federal law of justiciability is that the federal courts will not give advisory opinions.46 This prohibition against advisory opinions serves the policies of preserving the separation of powers by keeping courts out of the legislative process, conserving judicial resources by avoiding unnecessary judicial review, and ensuring that cases are presented to courts as specific disputes with precisely framed issues and arguments, not hypothetical legal questions.47 Here, unless and until the contours of the PCP are more adequately defined, until the injunction is actually presented to the Court for approval after appropriate notice of its terms, and until an action is commenced defining why the Debtor Released Claims are not part of the

44 Id. at 3. 45 ERWIN CHEMERINSKY, FEDERAL JURISDICTION 2.2, at 49 (5th ed. 2007). 46 Flast v. Cohen, 392 U.S. 83, 96 (1968). 47 In re Smith, 409 B.R. 1, 3 (Bankr. D. N.H. 2009).

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Debtors estate, the Debtor is only asking for an advisory opinion. Under all applicable law, the Court cannot provide such an opinion and it is respectfully submitted that it should decline to do so. B. The PCP is an Impermissible Sub Rosa Plan and Violates the Absolute Priority Rule The PCP improperly establishes the contours of a yet to be filed plan of liquidation in violation of the prohibition on sub rosa plans and further conveys value to equity in violation of the absolute priority rule as set forth in 11 U.S.C. 1129(b)(2). First, the potential claims held by the Debtor against former partners comprise the Debtors most important asset.48 Such claims entail more than the $432 million that could potentially be recovered under Chapter 5 of the Bankruptcy Code based on payments received by partners in 2011 and 2012,49 but also additional amounts received by partners during the TwoYear Avoidance Period Year Avoidance Period (and most importantly any claims under 11 U.S.C. 548(a)(1)(B)(ii)(IV) which does not require a finding of insolvency),50 any tort claims based on mismanagement or worse, and other clawback claims. In Pension Benefit Guarantee Corp. v. Braniff Airways Inc. (In re Braniff Airways, Inc.),51 the United States Court of Appeals for the Fifth Circuit analyzed the propriety of a sub rosa plan where the debtor entered into an agreement to sell its assets, which released claims against the debtor and against the debtors

48 Committee of Security Holders v. Lionel Corp., 722 F.2d 1063, 1071 (2d Cir. 1983) (holding that any proposed sale outside the ordinary course of business must have a sound business purpose and must not dictate the terms of any future reorganization plan). 49 Pauker Declaration at 31. 50 Potential claims under 11 U.S.C. 548(a)(1)(B)(ii)(IV) are especially prescient in this case where the Debtor entered into numerous guaranteed employment contracts with partners. If those partners with guaranteed contracts failed to provide reasonably equivalent value for their compensation, under 548(a)(1)(B)(ii)(IV) this Court would not be required to make any determination on the Debtors solvency to avoid any such fraudulent transfers. 51 700 F.2d 935 (5th Cir. 1983).

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secured creditors and provided that the secured creditors would vote their claims in favor of any plan approved by the unsecured creditors committee.52 The Braniff Court stated: The debtor and the Bankruptcy Court should not be able to short circuit the requirements of Chapter 11 for confirmation of a reorganization plan by establishing the terms of the plan sub rosa in connection with a sale of assets. In any future attempts to specify the terms whereby a reorganization plan is to be adopted, the parties and the district court must scale the hurdles erected in Chapter 11.53 Adopting the Braniff rationale, the United States Court of Appeals for the Second Circuit in Motorola Inc. v. Official Comm. of Unsecured Creditors (In re Iridium Operating LLC)54 stated: [t]he reason sub rosa plans are prohibited is based on a fear that a debtor-in-possession will enter into transactions that will, in effect, short circuit the requirements of chapter 11 for confirmation of a plan.55 Although, 1129(b)(2) applies by its terms only to plans, the Iridium Court held that whether a particular settlements distribution scheme complies with the Bankruptcy Codes priority scheme must be the bankruptcy courts most important consideration when determining if a settlement is fair and equitable under Rule 9019.56 Here, the very Participating Partners who were equity holders in the Firm, and in many cases who received outsized financial benefits from the Firm, would receive further valuable legal benefits in the form of broad releases and a pre-approved injunction. The Participating Partners who were not equity holders in the Debtor are being offered a release against claims that are not likely to be brought, and even less likely to

52 Id. at 939-40. 53 Id. at 940. 54 478 F.3d 452 (2d Cir. 2007) 55 Id. at 466. 56 Id. at 464.

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be sustained, which makes the release of little economic value, in exchange for payments that in many cases are substantial. Although the goal should be to increase the assets of the Debtors estate, seeking contributions from persons who were not partners in Debtor in any sense of the term, and thus had no equity interest in the Firm, fails the fundamental test of fairness for the settlement discussed infra. Based on the incomplete calculations submitted by the Debtor, the potential claims released by the Debtor are in excess of $430 million.57 Although the Debtor alleges that numerous hurdles would have to be met to claw back such amounts from former partners, the Debtor wholly fails to substantiate such assertions with any data other than conjecture and speculation. Thus, the Debtors brazen attempt to give equity holders a benefit outside of a confirmed plan should not be countenanced by this Court. Elevating substance over form, it is apparent that if the Motion is approved, and the proposed injunction, pre-approved, any proposed plan of liquidation becomes preordained. Given that the settlement would release the major assets of the Debtors estate and the injunction would prevent the recovery of potentially millions of dollars in other assets, the Court would be in the position of rubber stamping the Debtors plan because all of the heavy lifting would have been accomplished without the protections afforded by the confirmation process. Thus, the approval of the PCP operates as a sub rosa plan because if approved, nothing substantive would remain for the Court to decide. C. The PCP Does Not Meet the Standard for Settlement Under Rule 9019 Rule 9019 requires the Court to determine that a settlement is fair, equitable, and in the best interests of the estate before it may approve it.58 In the exercise of its discretion, the Court:

57 Pauker Declaration at 31. 58 Protective Comm. For Indep. Stockholders of TMT Trailer Ferry, Inc. v. Anderson, 390 U.S. 414, 424-25 (1968).

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upon being presented with an adequate record, [may] approve a settlement above the lowest level of reasonableness. Approval at that level, however, is not required.59 Here, because the Debtor has self-admittedly failed to evaluate, disclose, and identify numerous claims to be released under the PCP, the Court cannot accurately evaluate the merits of the PCP. The purpose of Rule 9019 is to prevent the making of concealed agreements which are unknown to creditors and unevaluated by the court.60 The United States Court of Appeals for the Second Circuit established the following factors, which courts analyze when determining the propriety of a settlement under Rule 9019: a. the balance between the litigation's possibility of success and the settlement's future benefits; b. the likelihood of complex and protracted litigation, with its attendant expense, inconvenience, and delay, including the difficulty in collecting on the judgment; c. the paramount interests of the creditors, including each affected class's relative benefits and the degree to which creditors either do not object to or affirmatively support the proposed settlement; d. whether other parties in interest support the settlement; e. the competency and experience of counsel supporting, and the experience and knowledge of the bankruptcy court judge reviewing, the settlement; f. the nature and breadth of releases to be obtained by officers and directors; and g. the extent to which the settlement is the product of arm's length bargaining.61

59 In re Lion Capital Group, 49 B.R. 163, 176 (Bankr. S.D.N.Y. 1985). 60 Iridium, 478 F.3d at 461. 61 Iridium, 478 F.3d at 462.

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While Rule 9019 does not require an exact science, nowhere does it sanction rough justice, particularly rough justice based on an uninformed opinion. Here, the PCP does not comply with the Iridium factors in each of the following respects: 1. The Litigations Probability of Success and the Settlements Future Benefits are Impossible to Ascertain

Under TMT Trailer,62 this Court must form an intelligent and objective opinion of the probability of success in litigation and the inherent costs of such litigation. Obviously, in order to form an intelligent opinion on the merits of a settlement, the Court must be appraised of the identity, merit and value of the claims released and the corresponding benefit to the debtors estate. Here, the PCP fails to provide such necessary information. The CRO has admitted that he has not conducted an independent evaluation of the claims to be released and the conflicted, personally benefited Wind Down Committee governing the CRO has no incentive to, nor can they credibly, do so.63 Further, the Debtor has provided no analysis of or disclosure to this Court of any payments made to partners during of the Two-Year Avoidance Period, from May 28, 2010 through December 31, 2010, any state law fraudulent conveyance claims, any claims under 11 U.S.C. 548(a)(1)(B)(ii)(IV), or tort claims, and the PCP settlement values do not reflect any such payments or values. Also, because certain Participating Partners can opt out of the PCP after the Court could potentially approve the settlement and release of claims thereunder, it is impossible to ascertain the value to be contributed by the Participating Partners. Finally, the future benefits of the settlements are impossible to ascertain because the effectiveness of the

62 390 U.S. at 424. 63 See 341 Meeting Transcript at p. 5:2-9.

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PCPs is conditioned on the Debtors confirmation of a Chapter 11 plan, which is obligated to include a release of claims apart from claims that are property of the Debtors estate. 2. The Alternative to the PCP Remains Unknown

The Debtor puts the PCP settlement before the Court as a take it or leave it proposition and argues that if the PCP is not approved, the alternative would be years of protracted litigation and the institution of more than 400 adversary proceedings.64 However, another alternative exists, which is neglected to be mentioned by the Debtor the appointment of an independent fiduciary who will actually take the time to evaluate the estates claims and use such evaluation to guide a fair and complete settlement. Thus, the Debtors scare tactics should fall on deaf ears when a reasonable alternative exists and is being sought by the Ad Hoc Committee. 3. The Nature and Breadth of Releases Under the PCP Extends Beyond Claims That are Property of the Debtors Estate

It is difficult to discern the extent of the issues raised by the proposed releases in the PCP, given that the Bar Order proposed in the PCP releases the participant from any claim that arises from the Debtor Released Claims,65 which include claims or causes of action arising from or relating to, among others, any liability to any holder of a claim in the Bankruptcy Case arising from or related to the Debtor or its affairs or any of the Professional Entities or a Related Entity or its affairs.66 The PCP further requires the Debtor to obtain an injunction that bars all persons and entities from pursuing claims based on, relating to, or arising from the Debtor Released Claims, including any claim that is derivative of any claim of the Debtor or any claims based on the contention that the former partners of DL or its Predecessor Entities or

64 Motion at p. 20. 65 Non-Jewel Form PCP at 4. 66 Id. at 2(iii)

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Related Entities are liable for the debts of DL . . . .67 The Motion describes the claims being released as claims or causes of action that are either: (i) property of the Debtors estate, or (ii) derivative of a right assertable by, or belonging to, the Debtor.68 Thus, despite the Debtors protestations to the contrary, the plain language of these releases extends beyond claims and causes of action that are property of the Debtors estate. In the same vein it is unclear why the Debtor needs to obtain a third-party injunction if it is only releasing claims of its estate. Although the descriptions of the Debtor Released Claims are hardly a model of clarity, if, as the Debtor proclaims, the Debtor Released Claims are property of the estate, then no sweeping injunction is required. And certainly no injunction should be pre-approved unless and until it is properly before the Court. 4. The PCP is Not a Product of Arms Length Bargaining

When evaluating a proposed settlement courts consider the extent to which the settlement is truly the product of arms-length bargaining[.]69 Here, the initial decision to pursue the PCP was apparently made by pre-petition management of the Firm and Togut prior to the retention of the CRO.70 And based on the limited authority bestowed upon the CRO through the CRO Services Agreement, the CRO cannot be said to be an independent fiduciary of the Debtors estate untainted by any influence of the Wind-Down Committee. Under the CRO Services Agreement, the CRO: (1) is subject to

67 Id. at 3. 68 Motion at p. 6. 69 In re Exide Techs., 303 B.R. 48, 67 (Bankr. D. Del. 2003). 70 Pauker Declaration at 11 (Our work on the PCP began before the commencement of the Chapter 11 case. Together with the Togut Firm, we developed a general strategy for the basic concept of a PCP and spent nearly all of our pre-petition time gathering information for a database that would be needed to develop proposals for a PCP. This information gathering continued after the CRO was hired . . . .).

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corporate governance by the Wind-Down Committee;71 (2) lacks the authority to commit the Firm or its resources outside of the ordinary course of business without the approval of the Wind-Down Committee;72 and (3) can be terminated at any time on ten days notice by the WindDown Committee.73 Because the CRO answers to the Wind-Down Committee it cannot be said that he is an independent fiduciary of the estate. Further, the CRO is an independent contractor acting as an officer of the Firm, with limited liability for his actions,74 but has no explicit fiduciary duties to any creditor or other party in interest in this case, either under the law or by contract.75 Here, the only fiduciaries of the estate are Meyer and Horvath, both of whom are conflicted between their fiduciary duty to maximize the value of the Debtors estate and their personal desire to avoid paying any claims that the Debtor may hold against them individually or against any of their former partners. Not surprisingly, and despite the fact that Horvath was paid $1 million in 2012 prior to the Petition Date,76 both Horvath and Meyer will not pay any amount in exchange for the broad releases they would receive through the PCP if approved. Where, as here, there are no non-conflicted members of the governing body with fiduciary duties to the estate and its creditors, any decision made can not be given business

71 Services Agreement dated as of May 16, 2012 [Docket No. 99-2] (the CRO Services Agreement) at 2(b). 72 Id. 73 Id. at 3. 74 Id. at 8-9. 75 The CRO Services Agreement does not delegate any fiduciary duty to the CRO, nor does it vest any fiduciary duty in the CRO or ZC. 76 341 Meeting Transcript at p. 6: 19-20.

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judgment deference, but rather, the conflicted governance fiduciaries have the burden of establishing the entire fairness of the proposed settlement sufficient to pass the careful scrutiny of the Court.77 Further, the fiduciary duties of a governing body must be exercised and cannot be passed off to a retained consultant.78 Thus Mitchell, as a non-fiduciary consultant subject to the governance of conflicted estate fiduciaries, cannot benefit from the business judgment rule deference given to non-conflicted governing fiduciaries, but can only present evidence to try to prove the absolute fairness of settlement proposed.79 D. The Confidential Nature of the PCP Precludes Approval While the Debtor has disclosed the collective economic terms of the roughly 400 individual PCPs, this view from 30,000 does not sufficiently apprise this Court or any partiesin-interest of the merits of each individual settlement. The Debtor has not revealed the

compensation paid to any partner during 2011 and 2012, has not disclosed the members and service dates of the partners subject to the Executive Committee premium, has not identified the tort claims sought to be released against individual partners, and has not disclosed the PCP settlement amounts for any individual partner.80 The Debtor has previously justified this

77 See, Weinberger v. UoP, 457 A.2d 701, 710 (Del. 1983). 78 See Aaronson v. Lewis, 473 A.2d 805, 813 (Del. 1984). 79 Note, in addition, that the CRO has admitted that the PCP was principally formulated prior to his retention by the very persons who will receive disproportionate releases under the PCP. See Declaration of Jonathan A. Mitchell [Docket No. 397] at 13. Declaration of David Pauker [Docket No. 401] at 11. He has also admitted that he did not identify, investigate, evaluate or value a significant portion of the Two-Year Avoidance Actions. See 341 Meeting Transcript at pp: 3:21 4:4; 4:17 23. 80 The potential tort claims are of paramount importance considering the obvious implication that one of the largest and most prominent global law firms would not fall into bankruptcy absent rampant mismanagement (or worse) on the part of those entrusted to manage the Firm.

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absence of disclosure due to its concern for the privacy of individuals.81 Now that the Debtor seeks approval of the PCP, its concern for the privacy of the amounts it paid to its insiders needs to yield to the strong presumption and public policy in favor of public access to court records.82 Each of the individual PCPs releases the claims the Debtor may hold against the Participating Partner and is, in essence, a settlement agreement between the estate and each such partner. Thus, the cursory summaries provided by the Debtor are insufficient. As stated by this Court in Oldco: when a trustee seeks to settle a claim on behalf of a bankruptcy estate, the public policy of open access to court records comes fully into plan, and a searching judicial inquiry is required before approving the settlement.83 The Debtor has not filed a motion under 11 U.S.C. 107(b) to seal the individual PCP settlement agreements, and it has not demonstrated any compelling or extraordinary circumstances justifying its failure to disclose the material terms of each Participating Partners PCP.84 Accordingly, the Court should not approve the Motion and the 400 settlements it seeks to approve without disclosure and allowed scrutiny by all parties of interest and the Court of the terms of each such settlement including the compensation received by each Participating Partner during 2011 and 2012, compensation received by each Participating Partner within the Two Year Avoidance Period (including out of

81 SOFA at p. 4. It should be noted, however, that the Debtors decision not to disclose individual partner compensation is inconsistent with the way this information has been treated in other law firm bankruptcies (see In re Coudert Brothers, LLP, Case No. 06-12226 (Bankr. S.D.N.Y.) [Docket No. 3]; In re Howrey LLP, Case No. 11-31376 (Bankr. N.D. Ca.) [Docket No. 132]). 82 In re Oldco M Corp., 466 B.R. 234 (Bankr. S.D.N.Y. 2012) (citing Nixon v. Warner Commc'ns, Inc., 435 U.S. 589, 597-98, 98 S. Ct. 1306, 55 L. Ed. 2d 570 (1978); United States v. Amodeo, 71 F.3d 1044, 1048 (2d. Cir. 1995). 83 Oldco, 434 B.R. at 238. 84 Video Software Dealers Assn v. Orion Pictures Corp. (In re Orion Pictures Corp.), 21 F.3d 24, 27 (2d Cir. 1994).

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the ordinary payments under employment contracts avoidable under 11 U.S.C. 548(a)(1)(B)(IV) without the need for demonstrating insolvency), the other claims (including tort claims, which are likely substantial) sought to be released against each Participating Partner, and the PCP settlement amount paid by each such partner. E. There is no Need to Rush Approval of the PCP As described above, Participating Partners against whom Unfinished Business Claims can be asserted may opt out of the PCP at any time prior to October 5, 2012.85 The Debtor can then opt out of the PCP prior to October 12, 2012 if a sufficient number of Participating Partners withdraw their pledges to fund the PCP.86 The Debtor also seeks approval of a form injunction that will only be ripe for ruling by this Court when it is embedded in a plan of liquidation.87 A plan which based on the Debtors concurrently filed motion to extend its exclusivity, would not have to be filed until December 31, 2012.88 Thus, forcing a rush to judgment on a settlement based on inadequate investigation and disclosure, is inappropriate and contrary to the law. There are no exigent reasons to approve the PCP at this time. This proposed settlement should be subjected to the investigation, evaluation and report of a Court-appointed examiner under 11 U.S.C. 1104(c), which the Ad Hoc Committee believes is required in these circumstances. Given all the facts and circumstances, there is no reason not to allow an examiner to be appointed and to scrutinize the PCP, including identifying, examining, valuing, and reporting on

85 See supra at pp. 8-9. 86 Id. 87 See supra at p. 11. 88 See Debtors Motion for an Order Pursuant to Section 1121(d) of the Bankruptcy Code Extending its Exclusive Periods to File a Chapter 11 Plan and to Solicit Acceptances Thereof [Docket No. 404].

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all claims proposed to be released under the PCP, before the PCP, which ultimately can only be approved in the context of a Chapter 11 plan, can proceed forward.

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D.

CONCLUSION

WHEREFORE, based on the foregoing, the Ad Hoc Committee respectfully requests that this Court deny the Motion. DORSEY & WHITNEY LLP

Dated: September 13, 2012

/s/ Eric Lopez Schnabel ___________________ Eric Lopez Schnabel, Esq. (ES5553) Jessica D. Mikhailevich (JM1043) DORSEY & WHITNEY LLP 51 W. 52nd Street New York, New York 10019 Telephone: (212) 415-9200 Facsimile: (212) 953-7201 -andAnnette Jarvis (Utah Bar No. 01649) Peggy Hunt (Utah Bar No. 06060) DORSEY & WHITNEY LLP Kearns Building 136 South Main Street, Suite 1000 Salt Lake City, UT 84101 Telephone: (801) 933-7360 Facsimile: (801) 933-7373 Counsel to Ad Hoc Committee of Retired Partners of LeBoeuf, Lamb, Leiby & MacRae

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