Font Size: 
No Big Deals for Heller Ehrman's People, Offices
The Recorder
October 08, 2008
Since Heller Ehrman announced its dissolution on Sept. 26, one of management's key hopes for an "orderly wind-down" has been that another firm would take hundreds of attorneys and multiple office leases in one stroke.
In the past few days, those hopes have been dashed.
On Tuesday, Peter Benvenutti, the chairman of the dissolution committee now controlling the firm, confirmed whispers that Baker & McKenzie and Winston & Strawn, both one-time merger candidates, had withdrawn proposals to pick up large groups of lawyers and their expensive real estate. While Benvenutti would not say whether deals on this scale are being discussed with any other firms, he did say there's interest in taking over certain of the firm's leases, and "we expect to have clarity in a day or two."
At the same time broad deals have fallen through, Heller employees have been told not to expect payment for accrued vacation time, leading some to question whether the firm may be forced into bankruptcy.
Filing for bankruptcy would not be in anyone's interest, Benvenutti said.
"We think that everybody would be well-advised to proceed in a measured fashion and let us try to manage the difficult situation that we're in," Benvenutti said, adding that "people should remember that once one goes into bankruptcy, if that's what happens, it's essentially irreversible and very expensive."
A bankruptcy would incur considerable administrative expenses that cut into what's available for creditors with junior claims, he noted, "which is all of the creditors with the possible exception of the banks."
A bankruptcy attorney not involved in the Heller situation observed that it's in the interest of Heller's banks -- Bank of America and Citibank -- not to force the firm to file for bankruptcy, because that would make it more difficult to collect receivables. Michael Cooper, a Wendel, Rosen, Black & Dean bankruptcy attorney, said that despite the dissolution committee's efforts, Heller could be forced into bankruptcy if at least three creditors who are owed more than $13,475 file an involuntary bankruptcy petition. The firm's creditors include banks, landlords and vendors as well as employees who haven't been paid in full. Some employees have said they plan to file wage claims for unpaid vacation time.
While large deals with Baker and Winston have failed to come to fruition, Baker remains interested in a much smaller number of Heller partners. A source familiar with the situation said Baker had once been interested in up to 300 attorneys but is now looking at between five and 20 partners in various practice areas and locations. The size of Winston's initial and current interest is unclear, though a source familiar with Winston said that firm is still pursuing some number of Heller lawyers. Representatives for Baker and Winston declined to comment on any plans to recruit Heller Ehrman attorneys.
Smaller groups of Heller attorneys have made their own moves this week. On Monday, several members of Heller's securities litigation practice agreed to join Hogan & Hartson, according to knowledgeable sources in and outside the firms. Hogan leaders declined to comment on Tuesday, and it was not clear which, or how many, Heller attorneys were making the move. Washington, D.C.-based Hogan has no West Coast offices.
Also this week, D.C. firm Arnold & Porter announced it was picking up five Heller litigators in D.C. and Los Angeles: Kenneth Chernof and Carl Nadler in D.C., and James Speyer, John Ulin and Eric Shapland in Los Angeles.
THIS SPACE FOR RENT
Benvenutti confirmed that the big offers were off the table, but said that doesn't mean the firm won't be able to find takers for its offices.
"There is interest in some of the leases of some of the offices," he said. While he declined to specify which offices, a source familiar with the situation said there has been interest in the offices in Silicon Valley and New York, where the firm has space in Times Square Tower.
The firm also may be able to negotiate with landlords, who fear they would recover less money in a bankruptcy, the source said.
In multiple e-mails, the firm's dissolution committee also has warned employees not to expect payment for accrued vacation time.
"Unfortunately, despite our fervent and repeated pleas, our banks continue to withhold their approval for paying employees accrued vacation pay," read an e-mail sent on Monday. The banks are committed to paying employees through Friday, but the e-mail did not elaborate further. Benvenutti said it would be "inadvisable" to publicize the firm's daily discussions with the banks.
"We'll let [staff] know with as much advance notice as we can," he said.
Jeff Horowitz, a special counsel in the securities litigation practice in Los Angeles, left the firm on Friday and said he had not been paid for between four and five weeks of vacation.
"I wouldn't say categorically that I'm absolutely going to file" a wage claim, he said, but he is considering it.
While the firm may hope to avoid it, Wendel Rosen's Cooper said eventual bankruptcy isn't entirely out of the question, especially if the firm's collections efforts falter. A source told The Recorder last month that a shareholder conference call put the firm's uncollected bills at $160 million.
"Unless there's enough money in the kitty to pay all creditors involved, it wouldn't surprise me that a chapter 7 would follow," he said.
