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BROWN RUDNICK LLP Edward S. Weisfelner Howard S. Steel 7 Times Square New York, New York 10036 Telephone: 212-209-4800 Facsimile: 212-209-4801 Counsel for the Official Committee of Unsecured Creditors UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK ---------------------------------------------------------------X : In re : : DEWEY & LEBOEUF LLP, : : Debtor. : : ---------------------------------------------------------------X

Chapter 11 Case No. 12-12321 (MG)

STATEMENT OF THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS IN SUPPORT OF 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 The Official Committee of Unsecured Creditors (the Committee) submits this statement (the Statement) in support of 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, dated August 29, 2012 [Docket No. 399] (the Motion).1 With respect to the Motion, the Committee respectfully represents as follows:

The Court and parties in interest are respectfully referred to the Declaration of Paul Gendler, dated September 13, 2012 (the Gendler Decl.) and filed contemporaneously with this Statement. The Statement will refer to the Gendler Declaration at various points to provide evidentiary support for the arguments made herein.

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INTRODUCTION 1. The Committee supports the majority of the relief sought in the Motion.2

The Committees position was arrived at following extensive analysis and deliberation, and its conclusion that the Partner Contribution Settlement Agreements and Mutual Releases (each a PCP and, collectively, the PCPs), are in the Debtors best interest was a fairly close call. It is the considered view of the Committee that the overall settlement exceeds the lowest point in the range of reasonableness, and is likely to generate a larger and quicker net return for the Debtors unsecured creditors than would otherwise be attainable through prolonged, expensive and uncertain litigation. The PCPs are an effort to break the mold of prior law firm bankruptcies and required significant compromises to achieve an unprecedented result. Significantly, it was only in the context of the PCPs that the Committee was able to reach an agreement in principle with the Secured Lenders on an allocation of value to unsecured creditors from the Debtors assets and causes of action, including PCP Contributions, under a chapter 11 plan of liquidation that is on the verge of being filed.3 Gendler Decl., 24 at 7. Approval of the Motion is a first and important step in formulating and effectuating a consensual chapter 11 plan that the Committee believes is the best and only way to achieve a reasonably prompt, albeit meager, recovery for unsecured creditors. 2. In this context, and considering the alternatives, the Committee believes

that approval of the majority of the relief sought in the Motion is in the best interests of the Debtors estate and its creditors.
2

The Committee is not supportive of PCPs for Stephen Horvath (Horvath) and Janis Meyer (Meyer). Also, at this time, the Committee is not supportive of the UK Rider/Amendment to the PCP or the PCPs of Grimaldi and the Grimaldi Participating Partners, absent resolution of contingencies tied to those PCPs on terms acceptable to the Committee.
3

Capitalized terms used herein and not otherwise defined shall have the meanings ascribed to them in the

Motion.

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APPLICABLE LEGAL STANDARDS 3. Approval under Bankruptcy Rule 9019(a) is appropriate when the

compromise is fair and equitable and is in the best interests of a debtors estate and creditors. See Protective Comm. for Indep. Stockholders of TMT Trailer Ferry, Inc. v. Anderson, 390 U.S. 414, 424 (1968) (quoting Case v. L.A. Lumber Prods. Co., 308 U.S. 106, 130 (1939)). Settlements and compromises are favored in bankruptcy as they minimize costly litigation and further parties interests in expediting the administration of the bankruptcy estate. See In re MF Global Inc., 2012 WL 3242533, at *5 (Bankr. S.D.N.Y. Aug. 10, 2012) (citing, Myers v. Martin (In re Martin), 91 F.3d 389, 393 (3d Cir. 1996)). 4. The factors considered by the Court under Bankruptcy Rule 9019 include:

(1) the balance between the litigations possibility of success and the settlements future benefits; (2) the likelihood of complex and protracted litigation, with its attendant expense, inconvenience and delay, including the difficulty in collecting on the judgment; (3) the paramount interest of the creditors, including each affected classs relative benefits and the degree to which creditors either do not object to or affirmatively support the proposed settlement; (4) whether other parties in interest support the settlement; (5) the competency and experience of counsel supporting, and the experience and knowledge of the bankruptcy court judge reviewing, the settlement; (6) the nature and breadth of releases to be obtained by officers and directors; and (7) the extent to which the settlement is the product of arms length bargaining. Motorola Inc. v. Official Comm. of Unsecured Creditors (In re Iridium Operating LLC), 478 F.3d 452, 462 (2d Cir. 2007). Recognizing that no settlement is perfect, the PCPs fall within the range of reasonableness detailed by Iridium.

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STATEMENT 5. The Committee fully supports the goal of the PCPs: to create value for

the estate earlier in the case and to minimize administrative costs by avoiding costly and timeconsuming litigation. Motion, 4 at 8. If the PCPs are not approved, the Committee fears that recoveries from affected partners will be significantly delayed by lengthy and arduous litigation and largely consumed by costs of that and related litigation. Gendler Decl., 30-31 at 9. The PCPs provide real near-term value to unsecured creditors and a path forward to conclude this case efficiently and avoid years of litigation between the estate and former partners. 6. Approval of the Motion does not impair the estates ability to pursue

claims against Non-Participating Partners. Furthermore, mismanagement claims against the firms former management team are excluded from the PCPs and enhanced by virtue of the assignment feature of the PCPs. These claims will be fully preserved and prosecuted for the benefit of creditors. 7. The PCPs have widespread support. The Secured Lenders support

approval of the Motion with certain modifications. The vast majority of the Debtors former partners entered into PCPs. Four hundred and sixty Participating Partners have committed to approximately $71 million in settlement payments, almost 80% of all Partner Contribution Amounts sought. See Motion, 9 at 10. Approximately $5.4 million of Partner Contribution Amounts were committed from over half of the class of retired and departed partners, including close to 20% of the members of the Ad Hoc Committee of Former Partners. 8. The PCPs provide near-term, cognizable value to the estate whereas

litigation with 669 partners would be complex, expensive and provide no guarantee of success.

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Approval of the Motion and pursuit of a chapter 11 plan incorporating the Committees agreement in principle with the Secured Lenders on the allocation of recoveries to unsecured creditors will allow PCP Contributions to be distributed to creditors without unreasonable delay. 4 The PCPs will also inure to the benefit of all creditors by permitting the Debtor to focus on resolving other claims and generating additional value for distribution to creditors. 9. It is no secret that the PCP is an exercise in rough justice that was the

subject of extensive arms length negotiations and represents significant compromises of potential estate claims and defenses. The PCP program contemplates Partner Contribution

Amounts solely for partners potential exposure for payments received in 2011 and 2012. Gendler Decl., 16 at 5. The Partner Contribution Amounts total approximately $89 million with 100% participation, consisting of: PCP Amounts totaling approximately $74.5 million; tax advance reimbursement amounts of $9.8 million; and unpaid capital contribution amounts of $4.8 million. Gendler Decl., 15 at 5. 10. Conversely, as the Committee is painfully aware, the Debtor paid

approximately $432 million to partners in 2011 and 2012: (i) approximately $84 million in 2012; and (ii) approximately $349 million in 2011. Gendler Decl., 19 at 6. All of these amounts are potentially subject to recovery by the estate as over-distributions or constructive fraudulent conveyances. Pursuant to the PCPs, the partners exposure for 2011 and 2012 overdistributions and fraudulent conveyances is discounted by over 80% to arrive at the PCP Amounts. Likewise, pursuant to the PCPs, amounts owed by partners to the Debtor for unpaid capital contributions and tax advances are discounted by 50% and 40%, respectively. Id.

Participating Partners have the option of making a lump-sum payment or executing an interest bearing note to be paid within three years.

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11.

The Committee is also aware of the fact that the PCPs incorporate an

assumption of January 2012 as the Debtors date of insolvency. Gendler Decl., 17 at 5. The Committee believes there are colorable arguments that the Debtor may have been insolvent prior to that date. Id. When comparing the Debtors obligations relative to its capital for 2008, 2009 and 2010, it appears that the Debtor may have been inadequately capitalized as early as 2008. Id. By excluding Participating Partners potential exposure for payments made by the Debtor to partners for 2008 2010, a period where the Debtor consistently distributed payments to partners well over its net income, the PCPs may provide Participating Partners with hundreds of millions of dollars in additional discounts.5 Id. 12. After the 2007 merger, the Debtors financial performance dropped

precipitously. From 2008 to 2011, the Debtors revenue fell 18% and net income declined by over 9%. Yet, despite the decline in financial performance, partner payouts remained high and exceeded total net income each year from 2008 2011. In response to its declining economic performance, the Debtor assumed both bank and bond debt to finance its existing loans and continue generous payments to partners in excess of the Debtors net income. The combination of rising debt and cash usage resulted in a substantial net debt increase for the Debtor from 2007 2012. 13. The aggressive discounts embedded in the PCPs brought the Committee to

the cusp of its inflection point, where the estate was giving up too much potential litigation value. Gendler Decl., 28 at 6. However, that inflection point was not reached as the

Committee carefully considered the myriad of defenses that the partners could assert to the possibility that insolvency occurred at a date before 2012, the individual defenses that each of the

All estate claims against Non-Participating Partners are fully preserved, including potential avoidance actions for recovery of payments by the Debtor to Non-Participating Partners from 2008 to the Petition Date.

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partners could have raised to their over-distributions, and that many of the partners are represented by prominent counsel with substantial experience in prior law firm bankruptcies. Id. 14. The Committee also considered whether the Partner Contribution

Amounts were fair and equitable. Gendler Decl., 29 at 8. The PCP program applies a progressive formula to ensure that the Partner Contribution Amounts are not disproportionate to prior payments to partners. Under the PCPs, highly compensated partners pay proportionately more than partners who received lower levels of compensation. In addition, those partners who received payments in excess of their partner draw during 2012 pay additional amounts under the PCP. Commensurately, partners who received limited payments during 2011 and 2012 face a minimum payment of $5,000 to obtain the benefits of the PCPs (a reduction from the Debtors initial proposed minimum payment of $30,000). Moreover, the PCP also takes into account partners management roles in the firm and accountability for the Debtors failure. Under the PCP, members of the Debtors Executive Committee are subject to an additional payment premium of up to 20% based on length of service on the Executive Committee. Therefore, the Committee believes the allocation of PCP settlement amounts among partners is closely tied to the total amount received by each partner during the PCP Period and the Contribution Amount formula is appropriate. 15. The benefits of the PCPs clearly outweigh the alternative of appointing a

trustee and converting the case to chapter 7. The alternative has played out in many previous law firm bankruptcies where creditor recoveries have been significantly delayed by time-consuming litigation over a wide array of potential disputes and consumed by costs of administration. In the absence of the PCPs, myriad issues relating to partner exposure would need to be litigated to

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conclusion. In the event of such full-blown litigation, there is no certainty that the estate and its creditors would fare better than they do under the PCPs. The path of litigation would be expensive, arduous and fraught with delay. Creditors would be forced to wait years to receive distributions while substantial professional fees accrued, reducing the amounts available for distribution. The Committee does not support this alternative path. Gendler Decl., 31 at 9. 16. There is also no need for an examiner to rehash the work done by the

Debtor, the Committee and the Secured Lenders. Gendler Decl., 32 at 9. There would be substantial costs and delay associated with yet another comprehensive examination of potential partner liability. The PCPs have been carefully examined and are supported by the key creditor constituencies and the case is now primed to move forward with a chapter 11 plan of liquidation to distribute significant value to creditors and minimize costs of administration. Approving the PCPs that form the cornerstone for such a chapter 11 plan is in the best interests of the estate and creditors and the Motion should be approved. 17. The Committee does not support the PCP in its entirety. In particular, the

Committee does not support the PCPs of Horvath and Meyer. Gendler Decl., 25 at 7-8. Rather, any release or exculpation which the Committee contemplates will be afforded to Horvath and Meyer should be accomplished in the context of the disclosure, voting and confirmation protections accorded by the contemplated plan process. The Committee believes that the contemplated releases and exculpations will be presented in the context of to-benegotiated terms and conditions reasonably acceptable to the Committee, including the continued good-faith service in the Debtors wind down. The Committee also does not support the UK Rider/Amendment to the PCP contemplating that a UK Partner may pay the Partner Contribution Amount to the UK LLP or the Liquidator in the UK Liquidation. See Mitchell Declaration, 26

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at 9; Gendler Decl., 26 at 8. There is no basis to provide the UK Partners the benefits of the PCP if their Contributions are diverted to the UK Liquidation and unavailable to the Debtors creditors. The Committee also reserves its rights with respect to the Grimaldi Agreement as it is conditioned upon approval of a separate Asset Settlement Agreement. See Mitchell

Declaration, 26 at 8; Gendler Decl., 27 at 8. The Committee is currently working with the Debtor and the Secured Lenders and the Grimaldi Partners on an acceptable Asset Settlement Agreement, but at this time no Agreement has been reached. Id. CONCLUSION For all of the foregoing reasons, the Committee respectfully requests that the Court: (i) grant the relief requested in the Motion as set forth herein; and (ii) grant the Committee such other relief as the Court deems just, equitable and proper. Dated: September 13, 2012 New York, New York By: /s/ Edward S. Weisfelner Edward S. Weisfelner Howard S. Steel BROWN RUDNICK LLP 7 Times Square New York, New York 10036 Telephone: (212) 209-4800 Facsimile: (212) 209-4801

Counsel for the Official Committee of Unsecured Creditors