Fallout From Dewey Collapse Hits Clients

For eight years, hundreds of victims of militant attacks in Israel have pursued litigation against a Jordanian bank they claim provided financial services to Hamas and other militant groups. Now the plaintiffs have a new legal hurdle to overcome: the collapse of law firm Dewey & LeBoeuf.

A group of lawyers from the New York-based law firm represent Arab Bank Group, the defendant in the suit. Now, with Dewey on the verge of shuttering and those lawyers scattering, U.S. District Judge Nina Gershon of Brooklyn, New York, granted the bank a 60-day reprieve from several court deadlines.

Gershon cited the “extraordinary” events at Dewey, which Arab Bank said have “decimated” its defense team. Janis Meyer, Dewey’s general counsel, who is helping to oversee the wind-down of the firm, did not respond to requests for comment.

Dewey & LeBoeuf, until recently one of the largest law firms in the United States with at one time up to 1,300 lawyers around the world, has been saddled by debt and unable to make good on compensation promises to key partners. Just a handful of lawyers remain, and it is considering filing for bankruptcy.

When a law firm fails – and Dewey is the largest-ever U.S. firm to confront that fate – it obviously can be traumatic for the partners, associates, and support staff who called that firm home. But clients can be buffeted, too, whether they decide to move their legal work to their lawyer’s new firm, hunt for different counsel, or spread the work around.

Litigation and deals can be delayed as lawyers relocate and legal teams are dismantled and reconstituted. Massive amounts of client and case files – both the digital and physical varieties – must be transferred and merged into different systems.

It is not unusual for lawyers or groups of lawyers to defect to other firms and to take their clients with them. What is unusual in the Dewey situation is that this exodus has happened on a massive scale, and in a very short time frame.

THOUSANDS OF CLIENTS AFFECTED

“Thousands of former Dewey clients are now seeking new counsel, leaving hundreds of thousands of client records waiting to undergo this process,” a Dewey associate who has since left the firm, Douglas Mateyaschuk, said in a court filing.

Dewey’s major clients included Lloyd’s of London, Allstate Corp and eBay Inc. All of them declined to comment or else did not respond to inquiries about the demise of Dewey.

Among other clients, Oclaro Inc, an optical components maker, moved its proposed $177 million purchase of competitor Opnext Inc to Weil, Gotshal & Manges, after Silicon Valley dealmaker Keith Flaum defected to Weil, Gotshal from Dewey earlier this month. And when the NFL Players Association last week sued the league, claiming that teams colluded to set a secret salary cap, it relied on longtime counsel Jeffrey Kessler, who recently defected from Dewey to Winston & Strawn.

There are no indications that any of Dewey’s now-former clients have suffered any actual harm as a result of Dewey’s downfall. But at least one other matter has been delayed.

NewPage Corp, a paper producer, shifted its bankruptcy case to Proskauer Rose, sticking with its lawyer Martin Bienenstock, formerly a member of Dewey’s leadership team. As in the Arab Bank case, a judge has approved a delay in the NewPage proceedings, ruling that the “period of extraordinary difficulties” justified pushing back a key filing.

Bienenstock said in an email that court delays are routine and are granted for all sorts of reasons, “such as attorneys wanting to attend their kids’ graduations.”

LITIGATION INTERRUPTED

The Arab Bank case started in 2004, when dozens of victims of violence in Israel claimed that the bank bore some responsibility for a series of suicide bombings and other attacks carried out by Palestinian groups served by the bank. The plaintiffs are seeking an unspecified amount in monetary damages from the bank, one of the largest financial institutions in the Middle East. Many similar lawsuits have since been filed, and the cases were consolidated.

The bank has denied the claims, arguing that there is no proof that its actions could be linked to any attacks, or that senior bank officials were aware of any links between some of its clients and Hamas. A spokesman for Arab Bank declined comment.

Hamas leaders have offered a long-term truce with Israel in return for a viable Palestinian state in the occupied West Bank and the Gaza Strip. The Islamist group continues to say it will not formally recognise Israel and its 1988 founding charter calls for the destruction of the Jewish state.

The Arab Bank litigation now includes more than 1,000 claims, said Michael Elsner of Motley Rice, one of the lead plaintiff’s firms in the litigation. Elsner has generally gone along with the recent delays, though in a court filing he emphasized his clients’ interest in bringing the case to trial “as expeditiously as possible.”

Arab Bank has had to navigate a change in counsel before – when its lead lawyer on the case, Kevin Walsh, left Winston & Strawn in 2005 to join LeBoeuf, Lamb, Greene & MacRae, which later merged with another firm to form Dewey & LeBoeuf.

This time around it is more complicated, as Arab Bank’s legal team has fractured. Walsh, who left Dewey for DLA Piper, is still lead counsel on the matter. But Arab Bank said that 17 Dewey lawyers were working on the case, and only five of them are joining DLA Piper.

Several of those Dewey lawyers, according to an affidavit by former Dewey associate Mateyaschuk, now with DLA Piper, have been focused on “little more than administrative and organizational tasks” related to moving the case to DLA Piper.

Walsh must now assemble a new team, which according to an Arab Bank brief “will face the enormous task of mastering the sprawling factual record generated by over eight years of intensive discovery.” Walsh declined comment.

MILLIONS OF PAGES

That record, Arab Bank said in a court filing, includes nearly 1 million pages of documents, expert reports, and exhibits as well as 1,000 hours of depositions – some by victims, attack eyewitnesses, and emergency responders in the Middle East. Much of that is contained in electronic files and in hundreds of boxes housed at the firm’s New York headquarters.

Dewey, like all major firms, has an internal process designed for the careful transfer of files. Nevertheless, Dewey & LeBoeuf, confronted with this task for multiple cases at the same time, estimated it would take up to four weeks to hand over the material, Arab Bank said in the court filing.

It is not clear how long it will take until Arab Bank’s legal forces are ready to jump back into the case, but no one should be surprised by additional delays.

“Once the defendant’s legal team is in place,” Judge Gershon said in a May 15 order, “any further scheduling applications can be considered based on the then situation, as necessary.”