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Judge Puzzled at BofA's Stance in $58 Million Heller Suit
The Recorder
July 17, 2009
Bank of America might have a hill to climb in its dispute with Heller Ehrman's creditors after a bankruptcy judge said Thursday he "can't make any sense" of the bank's legal defense theories.
Heller's creditors have sued the bank to make it return about $58 million paid to it in the 90 days before the firm's Dec. 28 bankruptcy filing, arguing it was not secured. Bank of America terminated its security interest in 2007 in a Uniform Commercial Code filing the bank has since called a "clerical error."
Bank of America intends to try to go past Heller's main partnership, Heller Ehrman LLP, to the partner corporations that composed it, and assert they were liable for debts to the banks. It's called "piercing the corporate veil," a legal theory that says, in certain circumstances, a corporation's shareholders are not limited in their liability.
Also, the bank argues its loans were secured with the nine partner corporations that made up the limited liability partnership. Regardless of the dispute over the bank's UCC filing regarding Heller Ehrman LLP, all the correct documents had been filed for the partner corporations, BofA's lawyers said in court Thursday. The bank contends that these corporations, not Heller Ehrman LLP, generated and owned the money, which was correctly handed over as the firm dissolved.
But that argument didn't go over well with Judge Dennis Montali of the Bankruptcy Court for the Northern District of California, who suggested at one point that the creditors ought to ask for summary judgment.
If a client walks in and hires a Heller attorney to write a will, he's hired Heller Ehrman LLP, the judge said. "Who has generated the fees?" he asked.
"Exactly the point, your honor," argued M. David Minnick, counsel for Bank of America and partner at Pillsbury Winthrop Shaw Pittman. "We need to understand how they worked, what went on, how is this established, where was the asset generated, and by whom and in what way. These are important points, because there's a very serious issue: There's nobody claiming we don't have a perfected security interest against the PCs at all times."
Also, Montali said he had only ever heard of "piercing the veil" being used by plaintiffs.
"I don't recall defendants raising piercing-the-veil issues," he said to Minnick and Kirke Hasson, also of Pillsbury. "This one's got to be briefed.I can't make any sense out of the legal theories. You haven't made it clear. I don't know how it all translates."
Thomas Willoughby, a partner at Felderstein Fitzgerald Willoughby & Pascuzzi who represents the creditors committee, said the partner corporations are irrelevant.
"The PCs have no existence under any of the documents. They were a tax vehicle. Everything was done at the LLP," Willoughby said in court. "None of the documents give the PCs the right to do anything with anything, much less collect any [accounts receivable]. ... All the work is done at the LLP level. It's very clear under the documents."
Willoughby wants discovery in the case done by November, so a liquidation plan can be confirmed before the end of the year.
But Minnick would have none of those arguments. Tensions rose as Minnick, standing six inches from Willoughby, concluded with an impassioned plea that the case not be "rushed."
There's a lot of money at stake for "our people," he told the judge.
Montali, ever-grinning, asked rhetorically whether he had been rushing anything.
"If the plan has to wait, it has to wait," the judge said.
The issue came forward during the first status conference on the case. The next is scheduled for Aug. 28.
