A San Francisco landlord for defunct Heller Ehrman won a key court ruling earlier this month that means bankruptcy is now likely, according to attorneys who have dealt with similar cases.
San Francisco Superior Court granted the landlord, 333 Bush Associates, a writ of attachment (.pdf) for $48 million on Dec. 19. The move makes the landlord a secured creditor, freezes a portion of Heller's assets for the landlord, and leaves other unsecured creditors at a disadvantage, essentially waiting in line behind the landlord for dibs on leftover assets.
"The fact that they have reached the point where the landlord has gotten a writ, has obtained legal process to take their money on this scale, means that it is very likely they will file bankruptcy or be forced into bankruptcy," said William McGrane, of McGrane Greenfield, who represented the three landlords that forced Brobeck, Phleger & Harrison into bankruptcy in 2003. He is not involved in claims against Heller.
If within 90 days Heller files for bankruptcy -- or if three of its creditors force it into bankruptcy -- then the writ is automatically stayed. That would make the landlord an unsecured creditor once more and put all unsecured creditors on an equal footing.
Peter Benvenutti, a member of Heller's dissolution committee and now a partner at Jones Day, said negotiations are continuing with the landlord.
"We are and have been for some time in active negotiations with our San Francisco landlord and are hopeful that we will be able to achieve a settlement with the landlord that will result in terms that will enable us to deal equitably with our other creditors," Benvenutti said. "We are close. I am hopeful that we will reach an agreement."
Benvenutti declined to comment on whether the writ changes the negotiations, or whether bankruptcy is more likely now.
The landlord's attorneys, Randall Block and Steven Roland, partners at Sedgwick, Detert, Moran & Arnold, could not be reached for comment on Dec. 24.
Bush Associates (.pdf) sued Heller for $85 million on Dec. 4, 333 Bush Associates v. Heller Ehrman White & McAuliffe, CGC-08-482519. It's one of several suits filed against the defunct firm.
The firm's Washington, D.C., landlord sued (.pdf) for $31 million in late October. Document management service Williams Lea sued (.pdf) last week for $3 million, which includes the cost of severance pay to employees. At least two (.pdf) lawsuits (.pdf) have been filed by former employees seeking lost wages, severance and vacation pay under state and federal WARN Act violations.
Benvenutti declined to comment on those lawsuits, other than to repeat that any deal reached with Bush Associates must allow Heller to deal "fairly" with other creditors.
Ronald Greenspan, who is Brobeck's bankruptcy trustee but is not involved in the Heller suits, agreed that writs of attachment can make other creditors concerned.
"If you have a party with a writ, the other parties might want to force a bankruptcy in order to level the playing field," Greenspan said.
Three creditors can force a debtor into bankruptcy if the debtor has at least 12 creditors, and the three are owed more than $13,475. Heller has dozens of such creditors.
Although Brobeck was forced into bankruptcy in 2003, involuntary bankruptcies are very rare, according to McGrane, who has worked on 10 in his career.
Big firms usually have such large lease agreements that attempts to stay out of bankruptcy typically "don't make any sense," McGrane said. In addition, the lease obligations don't have to be stated on balance sheets, which lends uncertainty to Heller's dissolution plan.
The plan (.pdf) put Heller's assets at $258 million and its liabilities at $72 million, three-quarters of which is money owed to the firm's banks, Bank of America and Citibank. The document predicted a 90 percent success rate in collecting on its $174 million in accounts receivable and work in progress.
The firm's landlords are not listed as creditors in the dissolution plan.
The writ is an aggressive move, McGrane and Greenspan said. There was never such a writ in the Brobeck case.
"Once you publicize this kind of aggression, everybody gets the same idea. There's nothing left to do. It's the end," McGrane said. "If you start throwing A-bombs, H-bombs may not be far behind."