[ by Melanie Gretchen ]

Day of Reckoning for Lawyers.

Dewey & LeBoeuf lawyers will learn whether they will indeed return $71 million in back compensation, proposed in a settlement between creditors and former partners of the defunct law firm.  Although more than 450 of 672 former Dewey partners, as well as creditors who claim they are owed more than $500 million, have supported the settlement, U.S. Bankruptcy Judge Martin Glenn will make the final determination.

The Settlement

If it goes through:

• Lawyers would pay in the settlement based on what they earned at the firm, in exchange from being released from clawback claims
• Individual partners would each have to pay anywhere between $5,000 and $3.5 million
• Years of costly litigation between Dewey's estate and its former partners could be averted, producing a modest recovery for Dewey's creditors.

If it doesn't:

• The bankruptcy would probably escalate from a Chapter 11 to a Chapter 7, and a trustee would be appointed by the court to aggressively seek clawbacks from former Dewey partners as part of a liquidation.

The Slow Drum of Progress. Either way, getting to Judge Glenn's decision has not been a walk in the park.  To date, numerous objections to the settlement plan have been filed in New York bankruptcy court by various groups of former partners.

• Lawyers retired from Dewey have complained that they didn't have anything to do with the firm's demise and shouldn't be forced to return compensation,  They have requested that the judge appoint an independent trustee to investigate the settlement before it gets court approval.

• A handful of former Dewey executives, including former chairman Steven Davis, say the terms of the deal could affect how they defend themselves in future litigation.  In addition, they object to the fact the estate has kept secret the names of settling partners and say they need the names in order to prepare for their defenses.

• In a motion filed as recently as Wednesday, Dewey restructuring lawyer Al Togut, said Davis and other top executives "misread" how terms of the settlement would impact future litigation; he also said that the names of settling partners would be made public after the settlement received court approval.

The End of an Empire. The New York law firm once employed more than 1,000 lawyers in 26 offices worldwide.  In May, it set a new record as the largest U.S. law firm to file for bankruptcy, due to compensation guarantees the firm made to a significant portion of its partners.

For further details, go to [Reuters, 9/19/12].