Milberg is vigorously opposing a former partner’s attempts to extract money from the firm after a merger, claiming that his demands would “pose a grave danger” to the firm’s ability to continue representing clients.
The firm pointed to pressures—including lower profits and increasing competition—that led to a “strategic partnership” announced last year, and said the new Milberg firm created through the combination, Milberg Tadler Phillips Grossman, hasn’t made any distributions of profits to partners.
Steven Schulman, a now-disbarred attorney and former equity partner of Milberg, filed suit last month against Milberg and the new firm, alleging he is owed more than $15 million under a 2009 court judgment. Schulman, one of several former Milberg partners convicted in a kickback scheme more than a decade ago, said the firm’s 2018 name change was part of a “fraudulent scheme” to evade Milberg’s creditors, including Schulman.
Shortly after filing suit, Schulman and his lawyers at Eisner filed more court papers to force Milberg, represented by Morrison Cohen, to immediately pay him amounts under the 2009 judgment. That judgment confirmed an arbitration award and directed Milberg to pay Schulman on a set schedule for certain funds, including his capital account and for his withdrawal from the firm.
Firing back in late January, Milberg said the court should deny Schulman’s demands for immediate payments. The firm blamed him for the position Milberg found itself in, noting Schulman earned “fabulous wealth from Milberg.”
“He lied to many courts for many years, concealing the kickbacks he secretly paid that allowed him to obtain leadership positions in class actions and garner ever greater income for himself,” Milberg said, referencing Schulman’s plea agreement.
All told, Milberg said it has paid Schulman over $10 million since Schulman’s conviction and imprisonment. Milberg said Schulman received all payments due through November 2018.
“After Schulman and others went to prison, the remaining partners of Milberg were left to pick up the pieces,” the firm said.
Milberg explained that its competitors sought to persuade courts and clients that Milberg was not suited for leadership positions, “particularly in the types of cases that historically had been the lifeblood of Milberg and which had, at one time, generated large fees.”
“As the result of the crimes of Schulman and others, Milberg’s profitability began to slowly and steadily decline, and Milberg resorted to borrowing to finance the prosecution of its contingency-fee cases,” the firm said.
These borrowings were also used to pay Schulman and other former partners, the firm said, and distributions available for actively working partners steadily decreased.
By 2017, Milberg had an inventory of pending contingent-fee cases, but these cases would require many years and substantial financial investment to bring to trial or settlement, the firm said. Meanwhile, “the significant debt that Milberg had incurred to finance its operations and pay former partners had matured,” Milberg said.
Milberg argued it sought a “strategic partner” to better serve client interests and provide a “more stable platform.”
Under a September 2017 agreement, Milberg assigned substantially all of its assets to the newly created firm, Milberg Tadler Phillips Grossman, including active Milberg cases, all rights to client relationships, as well as client receivables for disbursements in all but a few cases. (The new firm was a result of a “strategic partnership” with Sanders Phillips Grossman, a national mass torts and personal injury firm, according to a January 2018 press release.)
In exchange, Milberg Tadler agreed to assume or resolve certain contractual obligations of Milberg, resolve about $5 million of Milberg’s then-outstanding accounts payable and to grant Milberg a 49 percent interest in Milberg Tadler.
While the new firm has the ability to meet its “other financial obligations necessary” for the representation of clients, such as rents, salaries and case disbursements, Milberg said, the new firm has not made any distributions of profits to any of its partners and does not expect to make any distributions in the near future.
(The firm said two equity partners of Milberg Tadler “have received a modest salary for their work.”)
This is the case, Milberg said, because contingency cases take a long time to resolve and require enormous investment. The new firm must apply any revenues it generates to prosecute cases, it said. As a law firm, its “first duty must be to its clients, and not to wealthy former partners seeking to squeeze the last nickel possible out of Milberg,” the firm said.
“Currently, [Milberg Tadler] owes Milberg only potential future profits if and when the pending contingency fee cases are settled or brought to verdict,” Milberg said. “Currently, Milberg has no partnership net income to pay Schulman or any other Milberg creditors.”
Allowing Schulman—”an extremely wealthy man”—to restrain Milberg Tadler funds and bring its “operations to a halt would pose a grave danger” to the firm’s ability to continue to represent its clients, the firm argued.
The parties argued before Manhattan Supreme Court Justice Jennifer Schecter on Feb. 1. The judge urged the parties to resolve the issue themselves, asking them to appear again in court on Tuesday.
In a statement Feb. 1, Simon Miller, the Eisner partner representing Schulman, along with partner Leslie Corwin, said he disagrees with Milberg and stands with the arguments in his client’s court papers.
The Morrison Cohen partner representing Milberg, David Piedra, did not return a call seeking comment.