The Heller Ehrman estate is considering suing Covington & Burling and 14 partners who defected to the firm last September for breach of fiduciary duty, according to bankruptcy court filings and other sources.
Heller has hired special counsel Lovitt & Hannan to investigate who it could pursue to recover money for the estate. The firm's fee request (.pdf) reveals it already has worked many hours on the Covington issue.
To many, the Covington partners' defection was the straw that broke Heller's back. Many blamed the move for the collapse of merger talks with Mayer Brown. But more to the point, the departures caused Heller to default on a bank covenant that restricted partner losses. The banks froze the firm's accounts, and the firm called it quits Sept. 26. It filed for bankruptcy in December.
Robert Haslam, one of the IP group's leading rainmakers, told The Recorder last fall that Heller's management was long aware the group would leave and not participate in any merger.
"When I informed the firm of my feelings and intentions in August, I was asked not to make them public, for obvious reasons, which I agreed with," he told the Legal Pad blog at the time. "I now find myself excoriated by some for allegedly pulling the rug out from under the firm. That is not the case."
Haslam could not be reached on Tuesday. His voice mail indicated that he is out of the office in depositions. A call to Randy Michelson, who is representing Covington, was not returned.
The estate has been looking into suing former partners and their new firms for taking business, under Jewel v. Boxer, 156 Cal.App.3d 171, a 1984 appellate ruling that governs where profits go when a partnership dissolves. Sources familiar with the case did not dispute that the estate also is considering suing Covington and the defecting partners over claims of breach of fiduciary duty and unfair competition.
Lovitt & Hannan also is investigating a potential malpractice claim against Greenberg Traurig for failing to discover that Bank of America had not secured its loan to Heller. The Greenberg and Covington investigations show that the estate and its creditors are also targeting those they believe caused Heller's demise.
Lovitt's fee request shows the firm has been studying a $5.5 million settlement in 2004 between Brobeck, Phleger & Harrison and Clifford Chance. Seventeen partners left Brobeck for Clifford Chance eight months before Brobeck's February 2003 demise. Late that year, several former Brobeck partners sued former Chairman Tower Snow for breach of fiduciary duty and Clifford Chance for unfair competition. The case was Hanger v. Clifford Chance Rogers & Wells, RG03120659, in Alameda County Superior Court.
Lovitt & Hannan's fee log on April 8 reads: "Legal research re Brobeck (Hanger) v. Clifford Chance claims settlement, and application to IP and Covington."
U.S. Bankruptcy Judge Dennis Montali last month asked for more details on Lovitt & Hannan's work after its first fee request included several redacted lines. A supplemental fee request was filed last week.
After Lovitt & Hannan's investigation, the firm is expected to report which claims it would pursue on a contingency fee basis, which would show which claims Lovitt thinks are strongest.
Lovitt & Hannan is the new home of Heller dissolution committee member Jonathan Hayden, who had been at Heller since 1981, after interning at Lovitt during law school. The firm also worked with Thomas Willoughby, counsel to Heller's creditor's committee, in a previous bankruptcy. In that case, the firm worked in a similar capacity -- investigating potential legal actions -- according to Heller court filings, and is credited with bringing in $34 million to the debtor, the Tri-Valley Growers Association.
