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After 13 months of negotiations and mediation led by a retired bankruptcy judge, 60 former Howrey equity partners have reached a settlement with the defunct firm’s bankruptcy estate that will raise a combined total of $4.2 million for creditors.

Estate trustee Allan Diamond, a name partner at litigation boutique Diamond McCarthy, filed the proposed settlement [PDF] with U.S. Bankruptcy Judge Dennis Montali in San Francisco on Monday. If approved, the former partners in question would together pay the Howrey estate a sum equal to 16 percent of what they earned collectively while at the firm in the year before it failed.

The individual contributions being made by the partners—represented as a group by David Stern of Klee, Tuchin, Bogdanoff & Stern—range from $20,920 to $191,723. Most of those signing on to the settlement received between $270,000 and $450,000 in Howrey’s final year and will pay between $45,000 and $75,000 to resolve all claims against them.

Several will pay much more. Antitrust litigator Peter Moll, who joined Cadwalader Wickersham & Taft in March 2011, has agreed to pay the Howrey estate $191,723 after receiving $1.15 million from the firm between April 2010 and 2011. David Dekker, a construction and insurance litigation partner who also left Howrey in March 2011—in his case, for Pillsbury Winthrop Shaw & Pittman—has agreed to pay $166,522. Korula “Sunny” Cherian, a well-known IP litigator now at Winston & Strawn following a stint at Hogan Lovells, will pay the estate $142,154. And Alan Grimaldi, a former Howrey IP cochair who joined Mayer Brown, will contribute $118,440.

Montali is expected to rule on the proposed settlement at a hearing set for June 5.

Diamond noted in Monday’s court filing that the proposed settlement is the product of an effort that began with him seeking to recover $26 million—the total compensation paid to 61 Howrey partners in the firm’s final year (one those partners chose not to enter into the final agreement). Though he fell far short of that target, Diamond—who did not immediately respond to a request for comment—told The Wall Street Journal that he was ” feeling pretty good about this” settlement. He said that most clawback claims asserted against former partners of bankrupt firms fail to hit the 16 percent figure.


Stern, the lead lawyer for the partner group, disputed that assertion. He said the amount his clients have agreed to pay the Howrey estate is comparable to the clawback recoveries associated with other recent law firm bankruptcies in which he has played a role, including Heller Ehrman’s. The former Dewey & LeBoeuf partners who signed on to a partner contribution plan in that bankruptcy that raised $71 million for creditors, he said, agreed to a graduated scale under which they paid the Dewey estate 10 percent of the first $400,000 in compensation at issue and higher percentages on whatever they received from the firm beyond that.

Stern said the settlement figure is still a significant blow to the former Howrey partners he represented in striking the deal with Diamond. As a group, he said, they “worked hard at Howrey, and over the last few years were undercompensated for their work, but they were loyal and stayed at the firm and tried to keep the firm together. Their reward was not only did they lose their capital, but they now have to give a chunk of their already reduced compensation back.” He added: “To me, that outcome is very unfortunate.”

Roughly 70 former Howrey partners have not yet settled with the estate, according to a lawyer knowledgeable about the matter. Diamond said in Monday’s filing that the holdouts will be offered the same deal submitted to the court on Monday “for a limited time.” He has said in the past that he plans to sue any partner who does not reach an agreement with the estate. He filed the first batch of suits against former partners last March.

According to Diamond’s filing, the basis of the estate’s claims against the former partners was that any money they got after April 2010 should be returned because the firm was already insolvent by then. For their part, the former partners argued that the firm was solvent until it was pushed into an involuntary Chapter 7 bankruptcy filing in April 2011. The estate and the former partners also disagreed about what value to put on equity shares in the Howrey partnership given that the value of those shares was wiped out once the firm entered bankruptcy.

The former partners also asserted that the trustee had incorrectly excluded from the balance sheet proceeds from contingency fee cases that would have bolstered the bottom line. The largest of those contingency class actions, the antitrust case involving dairy farmers, generated $48.3 million in attorney fees after settling in March 2013 [PDF].

Last August, Baker & Hostetler—which inherited that litigation along with several other contingency fee matters when a group of former Howrey partners, including prominent litigator Robert Abrams, joined the firm— agreed to pay the defunct firm’s estate $41 million to settle so-called unfinished business claims.


In addition to the reaching the settlement with Baker & Hostetler, Diamond, who became the Howrey trustee in October 2011, has recovered several million dollars all told in settlements with some two dozen other firms that inherited Howrey matters. (See here and here detailing some of last year’s settlements.)

Continuing that push, Diamond on Monday filed proposed settlements that stand to raise a total of about $750,000 more from four firms facing unfinished business claims of their own: Steptoe & Johnson, which has agreed to pay the Howrey estate $324,000; McKenna Long & Aldridge ($308,000); Jenner & Block ($68,116); and Hoke LLC ($59,579). A fifth proposed settlement struck with Crowell & Moring on April 25, for $65,000, is also awaiting court approval.

The Steptoe agreement [PDF] is typical of those five agreements. According to Diamond, the firm received $1.3 million in revenue as a result of matters that senior civil litigation partner James Hibey brought along with him from Howrey. The estate will get about 18 percent of that amount back in the settlement. Hibey, who was not among the 60 partners signing on to the $4.2 million settlement, agreed separately to pay the estate $92,000 to resolve its clawback claim against him.

Representatives of the five firms did not immediately return calls seeking comment.

Meanwhile, roughly two dozen or so firms are involved in either active litigation or settlement talks with the Howrey estate related to unfinished business claims. That group includes four firms—Baker Botts, Winston & Strawn, Greenberg Traurig and Sidley Austin—facing the possibility of having to pay out substantial sums as the result of hiring numerous Howrey partners, including some with major ongoing matters. On July 29 the court is scheduled to hear motions to dismiss the estate’s claims against five firms that are currently in active litigation, including Pillsbury, Jones Day and Kasowitz Benson Torres & Friedman.