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U.S. Bankruptcy Judge Dennis Montali on Thursday rejected an offer from Clifford Chance to settle claims that its actions led to the demise of Brobeck, Phleger & Harrison. Instead of accepting a deal between Clifford Chance and Brobeck estate trustee Ronald Greenspan, Montali set a Dec. 17 auction in his courtroom to determine the proper price to settle or pursue those claims. There will likely only be two bidders — Clifford Chance and the KM Group, a coalition of plaintiff lawyers led by David McClain of Oakland’s Kazan, McClain, Abrams, Fernandez, Lyons & Farrise. Montali’s move was good news to Brobeck’s creditors — who want as much money to go to the estate as possible — and to a group of former partners who blame Clifford Chance for Brobeck’s 2003 implosion. “We’re very gratified by it because we think it’s a substantial improvement on the situation that would have existed had the original Clifford Chance deal been approved,” said David Stern of Los Angeles’ Klee, Tuchin, Bogdanoff & Stern, which represents 122 former Brobeck partners. Stern pointed out that theoretically anyone could enter next week’s auction for rights to the claims, which likely would push up the amount that goes into the estate even higher. Even Montali joked about the possibility of a skyrocketing auction. He noted that during a similar auction in his courtroom, the bidding went from an initial $1 million to $15 million. At the center of the wrangling is a suit that a liquidation trust — consisting of retired partners and longtime employees — filed against Clifford Chance and former Brobeck Chairman Tower Snow Jr. in October 2003. The trust members claim that the defection of Snow and 16 other Brobeck partners to Clifford Chance led to the collapse of the firm and are seeking at least $100 million in damages. Greenspan has filed a separate complaint against members of the trust claiming that the transfer of rights to the Clifford Chance litigation was fraudulent since it favored members of the trust over other creditors. In July Clifford Chance agreed to pay $3.75 million to Brobeck’s estate to settle potential claims by the trustee, which primarily relate to profits Clifford Chance received from unfinished business Brobeck partners took with them to the firm. The negotiations hit a snag, though, when the KM Group offered to purchase rights to the suit against Clifford Chance for $4 million. Greenspan subsequently renegotiated with Clifford Chance, which last month raised its settlement offer to $4.5 million. During proceedings before Montali last week the KM Group upped its bid to $4.8 million. Montali said then that he would have approved the Clifford Chance proposal once the firm made a few revisions if the KM Group wasn’t waiting in the wings with a competing offer. Clifford Chance also tinkered with its settlement proposal during last week’s proceedings. It had previously agreed to contribute $350,000 to help pay for the trustee’s complaint against a group of former Brobeck partners and employees. Clifford Chance attorney Richard Wynne, a partner at Kirkland & Ellis, said his client would not cap its contribution at $350,000 but pay whatever “reasonable fees” arose in that action. Kirkland & Ellis partner James Basile said he would like assurances that Clifford Chance is not liable for actions by third parties “piggybacking on the rights of the estate.” As an example, he said a former partner might claim that he “lost retirement benefits because Clifford Chance destroyed the Brobeck firm.” Greenspan testified last week that the retired partners had no allowable claims against the estate. He said the former longtime employees that filed claims along with the retired partners likely had claims of $50,000 to $100,000. Of the $250 million in claims filed against the Brobeck estate, Greenspan said $90 million to $115 million are allowable. Brobeck’s former landlords, University Circle Investors and Equity Office Properties, each claim to be owed about $25 million. Prior to the bankruptcy hearing, Greenspan held a meeting with former Brobeck partners to present his proposal to free them from litigation related to the firm’s collapse. Greenspan claims that they must pay back the money they received from the firm when it was insolvent. He has said in court documents that he believes the firm was insolvent for part of 2002 and probably part of 2001. Last month he sent individual letters to 230 partners, specifying how much each owed the Brobeck estate and offering to let them repay that money at an unspecified discount. He told them that from Jan. 1, 2001, through Dec. 31, 2002, partners received cash distributions of $275 million. It’s unclear how much of that sum he is trying to get back or what each partner is being asked to cough up. “I thought it was wildly over the top,” said one former partner about the amount he was asked to pay. “I didn’t think it was a very attractive proposal.” Greenspan would not comment on details of the partner meeting.

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