SAN FRANCISCO — The Howrey estate has slapped three more law firms with unfinished business claims — an important source of recovery for bankrupt firms and a headache for many solvent ones.
Jones Day, Hogan Lovells and Pillsbury Winthrop Shaw Pittman were the latest firms targeted by the now-defunct law firm on Friday. Howrey bankruptcy trustee Allan Diamond has now filed suit against 17 firms that hired Howrey partners as the firm was collapsing, arguing that the profits from the work the lawyers brought with them belong to the estate.
Like the Heller Ehrman estate, Howrey contends that waivers partners signed to shield themselves from clawback claims constitute a fraudulent transfer.
Partners fled to some 71 firms as Howrey unraveled in 2011. The vast majority of those firms are trying to settle with the estate, Diamond said, adding that he expects to announce new settlements soon. Diamond vowed earlier this year to file suit against any firm that did not settle.
"I am hopeful that we will not have to file more suits," Diamond said. "But I suspect that it may be that we have to file some additional suits."
Diamond is also trying to claw back the money that former Howrey partners were paid while the firm was insolvent.
Pillsbury recruited nine partners from Howrey in California and Washington, D.C., and Hogan Lovells plucked five in San Francisco. Jones Day scooped up 22 partners in California, Munich and D.C. Two of those partners — San Francisco-based Stephen O’Neal and David Buoncristiani — filed suit against Citibank in 2011, arguing that the bank duped them about Howrey’s finances. Superior Court Judge Peter Busch tossed the case in March.
Richard Stanley, a former Howrey partner who left to start his own firm in Houston, was also targeted in the latest batch of suits. But the claim against him will be dismissed without prejudice because Stanley has joined forces with a large group of former Howrey partners who are engaged in settlement talks with the estate, Diamond said. Stanley did not immediately respond to a request for comment.
The unfinished business claims stem from Jewel v. Boxer, a decades-old First District Court of Appeal case over the dissolution of a four-lawyer firm. Firms trying to overturn the controversial bankruptcy doctrine found little help from the courts Monday.
U.S. Bankruptcy Judge Dennis Montali declined to grant Haynes and Boone relief from the automatic stay in the Howrey bankruptcy. Haynes and Boone, which hired a sole Howrey partner in Washington, D.C., wanted to file suit in that jurisdiction. Attorneys for the firm argued that D.C. law does not require partners to account for unfinished business.
"H&B’s prosecution of the declaratory relief action would essentially be a defense more properly asserted and adjudicated in the adversary proceeding," Montali wrote in an order Monday.
Haynes and Boone declined to comment beyond its filings.
Firms wrestling with the Heller estate had no better luck. U.S. District Judge Charles Breyer denied requests from Jones Day; Davis Wright Tremaine; Orrick, Herrington & Sutcliffe; and Foley & Lardner for permission to appeal Montali’s findings in favor of the Heller estate.
"Having considered whether the appeal presents a controlling question of law as to which there is a substantial ground for difference of opinion, and whether an immediate appeal would materially advance the ultimate termination of the litigation … the court denies the motions," Breyer wrote in an order issued Monday.
Although the defense presented in the Heller case has not panned out yet, Jones Day sees no need to take a new approach as it fends off unfinished business claims, partner Robert Mittelstaedt said.
"We think the defense that we presented was sound," he said. "Eventually, we are confident that the courts are going to look at this in the right way and put an end to cases like this."
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