Loan programs orchestrated by Dewey & LeBoeuf to help incoming partners cover capital contributions are sparking more litigation, with a former Dewey partner claiming in a lawsuit filed in Manhattan federal district court Tuesday that Barclays Bank and the now-defunct firm entered into a $540,000 loan agreement in his name without his permission.
Entertainment lawyer L. Londell McMillan says in the suit that he initiated the action after being contacted in December by Barclays, which demanded repayment of money he says he never borrowed from the bank. McMillan says in his 13-page complaint that the suit is designed "to challenge a fraudulent scheme orchestrated and arranged" by Barclays and Dewey management. Dewey is not named as a defendant.
As The Am Law Daily has previously reported, at different times in the firm's history, Dewey leaders worked with Barclays and Citi Private Bank to arrange capital loans at little or no interest for new partners.
A Barclays spokesman declined to comment.
As he explains in his complaint [PDF], McMillan began his career at Dewey predecessor firm LeBoeuf, Lamb, Greene & MacRae in 1990, leaving three years later for an entertainment boutique and then founding his own firm in 1996. McMillan says he rejoined LeBoeuf Lamb In May 2007—a few months ahead of its merger with Dewey Ballantine—to head a newly launched media, entertainment, and sports division. In agreeing to return, McMillan says he executed a written contract that guaranteed him $1.5 million in compensation per year over the next three years.
Around the same time, he claims, Dewey's chief financial officer, Joel Sanders, asked McMillan to contribute $540,000 in capital—approximately 36 percent of the annual compensation he'd been promised—to the partnership. According to the suit, firm leaders presented the Barclays loan program to him as an easy way to meet the obligation, but McMillan maintains he "declined to enroll in the Barclays Program" and never paid his capital (the suit does not elaborate on the reasons behind his failure to pay).
Over the next several years, McMillan states in the complaint, Dewey failed to keep its promises to him, paying him $810,000 less than he was owed in 2008 and shortchanging him by $960,000 in 2009.
According to the suit, in March 2010, McMillan told former Dewey executive director Stephen DiCarmine, litigation chair Jeffrey Kessler, and an unnamed member of the firm's executive committee that he planned to withdraw from the partnership after winding down his work for the firm. McMillan claims Sanders emailed him three months later, on June 22, 2010, with an accounting of how much the firm believed it owed him for the period from 2008 through 2010. In the email, McMillan states, Sanders pegged that amount at $824,000, and noted that because McMillan had never made a capital contribution, that sum would be deducted from the balance he was owed. "Your capital has already been deducted and processed as it was way overdue and you never processed the loan documents," Sanders allegedly wrote at the time.
Fast forward to December 2012, seven months after Dewey filed for bankruptcy protection. According to McMillan, he received a claim form from Barclays saying he had defaulted on a loan he entered into on June 24, 2010—two days after McMillan alleges Sanders told him via email that the firm had deducted the capital Dewey said it was owed. (Neither the letter nor any of the other documents McMillan cites in the complaint are attached as exhibits.)
"Plaintiff has no recollection of signing any such Letter Agreement," McMillan claims in the suit, insisting that he never received any funds from Barclays. The bank also said in its December letter that it had filed a claim in the United Kingdom's High Court of Justice seeking the $550,000, according to McMillan's complaint.
McMillan is not the first ex-Dewey partner the firm's capital loan programs has come back to haunt, according to our past reports. Within a month of Dewey's Chapter 11 filing on May 28, 2012, both Citi and Barclays began pressing former partners to repay the loans under terms that were much less favorable than those the parties had initially agreed to.
Citi has sued one former Dewey partner, Houston-based energy lawyer Steven Otillar, over a $207,000 loan. Otillar, now with Akin Gump Strauss Hauer & Feld, is aggressively fighting Citi's claim, alleging that the bank should have told him what it knew about Dewey's dire financial state when it offered him the loan in 2011. For its part, Citi contends that Otillar should have done his own research into the firm's fiscal condition and that it wasn't the bank's job to warn him. (Otillar's response to Citi's most recent filing in the litigation is due next week in New York federal court.)
In his suit, McMillan asks the court to declare the Barclays loan invalid and unenforceable and to order the rescission of the loan for mutual mistake and fraud. In the event the loan is found valid, he asks that the court delay repayment until December 31, 2020.
In a statement, McMillan said, "For all the former law partners unfairly dealt a bad deal in the demise of Dewey & LeBoeuf, it is time to fight back and stand-up against injustice." McMillan recently joined 50-lawyer Meister Seelig & Fein as a partner, according to his lawyer, fellow Meister Seelig partner Kevin Fritz. Between leaving Dewey at the end of 2010 and joining Meister Seelig, Fritz says, McMillan focused his energies on The NorthStar Group, a media, management, and marketing-focused private equity group he founded. (His name was listed on Dewey's website until April 2012.)
In September, McMillan also filed an $850,000 claim in Dewey's bankruptcy. The details of that claim are not publicly available.
The Am Law Daily profiled McMillan and his practice in January 2009, shortly after he became a co-owner of struggling hip hop magazine The Source. Over the years, his music industry clients have included Prince, Stevie Wonder, Usher, Michael Jackson, Kanye West, and the estate of Sammy Davis Jr.
There is an interesting twist to McMillan's suit against Barclays. Several years ago, McMillan invested in a venture aimed at bringing the franchise then known as the New Jersey Nets to Brooklyn—an investment that, according to our past reports, gave him a minority stake in the team. The Nets, of course, now play their home games at the new arena in downtown Brooklyn known as the Barclays Center, where they were set to kick off the second half of their inaugural season Tuesday night.
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Ex-Dewey Partner Sues Barclays Over Allegedly Fraudulent Capital Loan
The Am Law Daily
February 19, 2013
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RJB
A modest comment on these related articles -- which are troubling, An ambitious and creative prosecutor might see the outlines of a capital contribution ponzi scheme on the part of Dewey management. Promise a chap millions in compensation, but induce him to front half of it and, if he is a bit slow getting around to it, take out a loan for the amount in his name at Barclays. (Then double-dip by withholding the same amount when he leaves?) Delay/Fail to pay him promised amounts. Then, in the meantime, enjoy the revenue from his book of business. Faust got an infinitely better deal than any of these rainmakers. The fact that they took the deals suggests to me that actual partner comp is far, far below PPP numbers bandied about at many firms. The Cleary ex-pat who was famously promised $8M FRONTED $4M,( then paid back $3.4M)? I don't mean to be unkind, but were crimes committed here?
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