Miami-Sedgwick. Photo: J. Albert Diaz

The defunct law firm Sedgwick asked a federal bankruptcy judge Thursday to approve a clawback settlement with 45 former partners who have agreed to return a total of $1.595 million paid to them during the firm's 2017 collapse.

A 27-page filing by the firm's bankruptcy counsel indicates that certain partners who are not part of the settlement might still be vulnerable to breach of fiduciary duty claims.

Still, the firm said that the settlement will expedite the resolution of Chapter 11 proceedings in the Northern District of California, which began in October 2018.

“The debtor believes that further negotiation or active litigation against the settling partners will not increase the cash available for distributions to creditors but will only dissipate cash that could otherwise be used to pay the allowed claims of unsecured creditors,” said Sedgwick's bankruptcy counsel, John Lucas of Pachulski Stang Ziehl & Jones.

The filing also outlines the San Francisco firm's rocky final year, detailing its unsuccessful efforts to find new merger partners after losing two revenue-generating offices.

The filing stated that it has liabilities of between $10 million and $50 million, much of which consists of unpaid lease obligations. About $9 million of the defunct firm's liabilities are owed through accounts payable. In 2018, Sedgwick was sued by multiple landlords claiming that it failed to pay lease termination fees.

Thursday's filing noted the firm did not collapse through unsustainable guarantees to partners.

“It is important to note that the debtor was not a Dewey, Heller or Brobeck,” it said, referring to other defunct firms. “The firm's former equity partners were not operating under contractual guarantees that required the firm to pay partners fixed compensation without regard to such partners' actual book of business and receivables generated,” it said.

“Nor was the debtor inflating income or profits to ensure that partners would not leave or artificially enhance the firm's ratings,” the filing continued.

It also acknowledged the sacrifices of the partners who stuck around. ”Nearly all of the setting partners remained at the firm throughout 2017, continued to bring in clients, collect receivables and were paid a small fraction of what they were paid in prior years or what they could have been paid at [others] had they left the firm,” the filing said.

The bankruptcy filing by Sedgwick came after the set of former partners on the firm's dissolution committee hit a roadblock in discussions with a group of 12 of the busted firm's largest creditors.

The firm's creditors followed the firm's filing with a motion Thursday indicating that they would dispute the settlement. The creditors asked to convert a previously scheduled hearing June 13 into a scheduling conference for the pending fight.

But the judge in the case said Friday that scheduling and other details will be handled at a hearing now set for July 1.