DLA Piper has been granted an expedited hearing as to whether legal fees from the parent company of once-proposed Foxwoods Casino paid to the firm prior to the company’s bankruptcy filing were property of the estate, thus transforming DLA Piper into a creditor.
At the same time, Cozen O’Connor supplemented its filings in support of its application to serve as special litigation counsel in the bankruptcy after the trustee apparently questioned whether the firm faced conflicts. The supplementation would appear to have appeased the trustee, Kevin P. Callahan, who didn’t object to the firm’s retention at a hearing Tuesday before U.S. Bankruptcy Judge Magdeline D. Coleman of the Eastern District of Pennsylvania. Coleman was set to enter an order approving Cozen O’Connor’s retention, according to someone who was in attendance at Tuesday’s hearing.
Also on Tuesday, Coleman continued until May 28 a hearing on whether to approve DLA Piper as Philadelphia Entertainment and Development Partners’ bankruptcy counsel. Callahan had objected to DLA Piper’s application, raising concerns in a May 9 filing that DLA Piper’s disclosures could possibly indicate the firm is a creditor of debtor PEDP and may have adverse interests to PEDP and other creditors.
Callahan noted in the filing that DLA Piper was paid by PEDP within 90 days of the bankruptcy’s filing date. He also said in the filing that the information in the engagement letter and declaration by DLA Piper partner Thomas Califano relating to the payment and receipt of retainers may be inaccurate.
According to Califano’s initial declaration in support of the firm’s application, prior to the bankruptcy filing, DLA Piper received funds from certain of the partners of PEDP totaling $550,000. Additionally, RBS Citizens gave DLA Piper $150,000 from the proceeds of the sale of some real estate owned by PEDP. All of the funds were placed into a client trust account. Since the Oct. 31 engagement, DLA Piper has been paid about $365,000 from the fund from six different invoices, Califano said in the declaration.
In its motion seeking an expedited hearing, DLA Piper attorney Stuart Brown said the trustee mistakenly views the funds paid to DLA Piper prior to the bankruptcy filing as funds belonging to PEDP. But Brown said the money was provided by third parties to be used solely for the purpose of funding the expenses of the preparation and execution of the bankruptcy filing, including attorney fees.
“Accordingly, it was never the intention of any party for the funding amount to constitute the debtor’s property or general unencumbered property of the estate until the effective date of the plan should it be confirmed and the effective date occur,” Brown said.
According to the motion, Brown said the rest of the funds remaining that were earmarked for legal fees—about $215,000—will now be treated as estate property. But, regarding the previously paid funds, DLA Piper is asking the court for nunc pro tunc relief from local Rule 2014-2, which prohibits lawyers from exercising control of or disbursing funds of the estate. DLA Piper further argued that the rule only applies to lawyers who have already been approved as counsel, which it has not.
Brown didn’t return a call seeking comment by press time.
Cozen O’Connor’s ‘Ethical Wall’
According to a Monday filing by DLA Piper, the firm said the U.S. trustee for the Eastern District of Pennsylvania contacted DLA Piper and Cozen O’Connor with questions about Cozen O’Connor’s representation of PEDP. While DLA Piper’s filing doesn’t outline what the trustee’s concerns were, Cozen O’Connor Vice Chairman F. Warren Jacoby at the same time filed a supplemental declaration in support of his firm’s work on the case, which DLA Piper said addressed the trustee’s questions.
Cozen O’Connor was seeking to serve as special litigation counsel in representing PEDP in its bid to recoup the $50 million fee it paid for a license to operate a casino in Philadelphia. Given the license was revoked and is now up for a new bidder who will also pay a $50 million fee, PEDP has argued it should get its license fee back to go toward paying off the company’s creditors. Cozen O’Connor, in its initial application to represent PEDP, said it intended to sue the commonwealth to recoup the fees.
PEDP and Cozen O’Connor entered into an engagement agreement in which Cozen O’Connor Chairman Stephen A. Cozen and Jacoby would lead the firm’s representation of PEDP. Under the agreement, Cozen O’Connor would be paid a nonrefundable $50,000 deposit toward fees and PEDP would pay all costs associated with the representation. The rest of the firm’s work would be done on a contingency fee basis in which the firm would receive 25 percent of any recovery it helped achieve.
As part of its application, Cozen O’Connor noted a number of examples in which it did work for the state of Pennsylvania or a state agency.
In Jacoby’s supplemental declaration filed Monday, he said his firm represents the state or state agencies “from time to time” on matters unrelated to PEDP’s bankruptcy. Jacoby said the commonwealth and PEDP have waived any conflicts, according to the filing.
The rest of Jacoby’s supplemental declaration dealt with the firm’s contingent fee agreement with PEDP as well as Vice Chairman Thomas A. “Tad” Decker’s former role as chairman of the Pennsylvania Gaming Control Board.
“Between approximately 25 percent and 30 percent of Cozen’s revenues are generated from contingency fee matters and, for approximately 50 years, Cozen has maintained an active contingency fee practice involving substantial amounts in dispute, with an average contingency fee charged by Cozen of between approximately 33 percent and 40 percent,” Jacoby said in the supplemental declaration. “Accordingly, the contingent fee and deposit are comparable to (and in most cases less than) the contingency fees and charges for other contingency matters handled by Cozen.”
Jacoby further noted Decker has had no involvement with the firm’s yearslong representation of PEDP and that an “ethical wall” was established in August 2007 when Decker rejoined the firm from the Gaming Control Board. Jacoby also noted PEDP did not intend to call Decker as a witness.
Decker will also be electronically blocked from accessing any records related to the case, Jacoby said.
“Mr. Decker will not be apportioned any part of the fees that may be received from the contingent fee,” Jacoby further noted.