The High Court will examine whether banking giant Barclays colluded with the now defunct Dewey & LeBoeuf to induce partners to take out individual loans to keep the firm afloat.
The outing comes after Barclays failed to persuade the court to grant it summary judgment in a dispute with former Dewey partner Lester Charles Landgraf over the repayment of a $486,000 capital contributions loan (22 November 2013). The bank has been pursuing more than 100 former partners for repayment of capital loans it granted them ahead of the firm’s collapse in 2012.
In defending the application, Landgraf contended that the only reason he took out the loan was to to inject liquidity into the firm so it could meet its day-to-day debts, rather than help him pay his own debt. He also alleged that the bank had told him repayment of the loan would be the firm’s responsibility.
Mr Justice Popplewell gave the greenlight for trial to go ahead, stating in his judgment: “The defendent avers that the loan agreement was in reality and/or should be treated as an agreement for a loan between the firm and the bank, in respect of which the defendant has no liability.”
He continued: “It is a possible inference that the BCLP (the loan programme) was being used in order to enable the firm to obtain further capital in circumstances where such funding could not be given by the bank directly to the firm under the lending criteria of the bank.”
To bat off the summary application, Landgraf instructed Candey partner Andrew Dunn, who is also representing former partner Londell McMillan in a $550,000 case against the bank. Dunn has instructed 4 Stone Buildings’ John Brisby QC and Alexander Cook for the trial.
Landgraf is just one of the 50 former partners currently facing claims from the bank over $15m of loans based on the same contract. After the firm went bust in 2012 Barclays demanded repayment of the loans but the former partners claim they should not be liable as the money went straight into the firm.
According to the judgment, Landgraf claimed he was “consistently and repeatedly told by the firm’s management that the [capital loan] BCLP was merely a mechanism through which the firm could finance the shortfall in its distributable income and that the burden of repaying the capital and interest of any loans would be that of the firm (or at any rate primarily the firm) and not of its individual partners”.
The former partner has now issued a counter claim against the bank alleging that Barclays breached its duty of care in advising him about the financial health of the firm. He also alleges that the bank made implied misrepresentations that the contemplated borrowing was prudent though it knew the bank was in dire financial straits.
Popplewell J said in his judgment: “The evidence adduced on behalf of Mr Landgraf of the closeness of the relationship between the bank and the firm, and the bank’s actual or probable knowledge of the firm’s financial position, raises a real issue as to whether the bank knew that the true purpose of this particular loan was not for a capital contribution required…but simply to finance the firm’s general indebtedness, including indebtedness to the bank.”
It follows a February 2013 case filed in the Manhattan federal district court by a former partner who claimed Barclays “intentionally failed to disclose” Dewey’s indebtedness to him to “induce” him to enter into a loan agreement (20 February 2013).
Barclays’ failure to succeed in having the case decided without a full trial means it will go to a December 2014 hearing, when the loan arrangement and relationship between Barclays & Dewey will be debated in detail.
It is the latest step in battles waged between former partners and Dewey, the largest ever law firm collapse. It was cemented in May 2012 when Dewey & LeBoeuf filed for bankruptcy in the US, with the UK LLP also being put into administration (29 May 2012).
The legal line up
For the claimant, Barclays Bank Plc
Fountain Court’s Guy Philipps QC, Adam Zellick instructed by TLT partner Richard Clayton
For the defendant Lester Charles Landgraf
4 Stone Buildings’ John Brisby QC, Alexander Cook instructed by Candey partner Andrew Dunn