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Now that the former power-firm of Dewey & LeBoeuf is Bankrupt, the aftermath is settling in. Creditors are pursuing the attorneys for payment of the firm’s debts, and learning the hard way how difficult it can be to pursue lawyers who know to work the system. Recently, a former Dewey & LeBoeuf partner who is being pursued by Citibank for one of the defaulted loans has raised an interesting counterclaim. He alleges that Citibank participated in a “fraudulent scheme” to assist the firm’s former leaders in hiding Dewey’s treacherous financial situation. The former Dewey partner argues that he and others were “fraudulently induced” into signing Citibank loan documents that financed capital contributions to the firm.
Legal experts acknowledge that this move could open a new chapter in the defunct firm’s ongoing legal battles. The lawyer’s allegations against Citibank are based on a novel legal argument that the bank had a fiduciary duty to alert him as a guarantor to Dewey’s questionable financial situation.
Interestingly, I have seen a similar argument raised in pending litigation locally. It is actually rare for a bank to sue a law firm, or vice versa, since both parties are masters of the legal system and can maneuver the litigation for months (if not years) before ever reaching the merits of a case. Typically, law firms and banks recognize this and work out a private compromise between them.
It will be interesting to see how the Dewey & LeBoeuf litigation and the local case get resolved. The issue is whether banks owe a fiduciary duty to a guarantor and, if so, to what degree. Historically under contract law, lenders may not be obligated to advise any guarantors on the soundness of the underlying loan. An exception could arise if “the lender is aware of information that it knows is material to the guarantor.” Certainly the former Dewey & LeBoeuf partners will be watching the New York case carefully. Local attorneys and banks should also pay close attention.
Welcome to our new website & to our legal blawg Poetic Justis! Formerly known as Peoria Legal Blawg, we have re-launched our website to better focus on our new blawg and the artwork of Mr. VanFleet’s children, which will be featured and periodically rotated as the background theme of our entire website. Please join us each month to follow our legal based blawg posts and a special poem written by Mr. VanFleet himself!