Brobeck Backlash: Trustee Sues Former Partners

Ronald Greenspan, the trustee of Brobeck, Phleger & Harrison's bankruptcy estate, didn't wait for former Brobeck partners to respond to a settlement offer he presented in November. Last week he began filing hefty individual suits against some 200 partners, asking them to cough up distributions, bonuses and a portion of Brobeck's debt to Citibank. Greenspan estimates the partners "are liable to the estate in the aggregate for approximately $275 million."

X

Thank you for sharing!

Your article was successfully shared with the contacts you provided.
Chart: On the Hook – Individuals hit by Demands Ronald Greenspan, the trustee of Brobeck, Phleger & Harrison’s bankruptcy estate, didn’t wait for former Brobeck partners to respond to a settlement offer he presented in November. Last week he began filing hefty individual suits against some 200 partners, asking them to cough up distributions they received in 2001 and 2002, as well as their 2002 bonuses and a portion of Brobeck’s debt to Citibank. Greenspan estimates that the partners “are liable to the estate in the aggregate for approximately $275 million,” according to the complaints. Brobeck dissolved in February 2003. Greenspan had said after making his settlement offer that he would take “a small fraction” of that amount. The terms of the settlement offer have not been made public. Partners had been given a series of deadlines to respond to Greenspan’s offer, with a discount given to those who agreed to pay up right away. The first of the deadlines is Jan. 31. The suits were apparently filed to put added pressure on the former partners. The complaints were filed now “so the partners know the alternative to settlement will be prompt resolution of [their] liability by the bankruptcy court,” said Greenspan’s attorney Bennett Murphy, of Hennigan, Bennett & Dorman. Murphy said Greenspan has also offered the partners a mutual standstill of litigation while they consider the settlement. Murphy declined to say whether any partners had accepted the settlement offer. In many of the individual complaints, Greenspan is asking for millions of dollars. In one of the biggest demands thus far, Greenspan has sought the return of $3,118,000 from former corporate partner Warren Lazarow, who served on the policy committee that elected to shut down the firm. Lazarow filed his own complaint against the estate in June, requesting money that he said Brobeck had withheld from him. Specifically, he requested $158,000 that he claims was withheld from him from 1998 to 2002 and put into Brobeck’s investment funds. He is also seeking $26,360, which he claims was withheld from his monthly draws in 2002 for funding the firm’s profit-sharing and defined benefit plans. As of Thursday, at least 151 complaints had been filed in the Northern District Bankruptcy Court. At press time, former Brobeck Chairman Tower Snow Jr. had not been sued, and Murphy would neither confirm nor deny rumors that Snow had reached a settlement. Among the key issues in pursuing former partners is when Brobeck became insolvent and whether partners took money out of the firm “without consideration.” Under the California Corporations Code, limited liability partnerships can make distributions to partners only when the total assets of the firm exceed liabilities. Greenspan said Brobeck’s income began to decline dramatically in the second half of 2000, dropping from nearly $1 million per partner to net per-partner income in 2002 of only $245,000. Greenspan said he adjusted the latter figure to account for a one-time contingent bonus payment Brobeck received related to prior work on behalf of the Western MacArthur Co. “Brobeck’s partners, however, did not correspondingly reduce the distributions they received, taking for themselves and spending on leasehold improvement more than $100 million in excess of Brobeck’s net income for 2001 and 2002,” the complaints state. “Brobeck accomplished this sleight of hand with extraordinary new levels of debt,” the suits continue. The complaints note that from Dec. 31, 2000, to June 30, 2002, total debt increased from $34 million to $89 million, and debt per partner increased from $173,000 to $505,000. According to the complaints, Brobeck ignored its financial troubles and drew $39 million more on its expanded Citibank line between January and March 2002 and, at the same time, distributed $43.3 million to partners. While some partners have said they think Greenspan’s calculations for their liability are way off base, others are considering whether it might be best for them to pay up and avoid the chances of paying more in the long run. “I think Greenspan is playing his hand very well,” said one former Brobeck partner who declined to be named. “He’s given us a take-it-or-leave-it ultimatum, and we have a limited time to decide. It’s very clever.” Other former Brobeck partners said they think older partners with liquid assets — and little to lose career-wise by taking a reputation hit — are more likely to settle than younger partners still building a career. “My guess is it will be a personal decision based on where people are in their minds, and whether they want to go on litigating and fighting for years,” said Craig Andrews, a former Brobeck partner now at Heller Ehrman White & McAuliffe who has not yet been sued. In a recent interview before Greenspan began filing individual complaints, former Brobeck partner Robert Varian said he believes that the settlement offer seeks far more money than the former partners owe. It was “way over the top,” Varian said. “It’s premised on the idea Brobeck was insolvent years before it could possibly have been insolvent. It’s a bizarre theory.” Former partner David Halbreich, who said he has not been sued, said he finds Greenspan’s decision to litigate especially irksome since some partners were never paid for work they did in the firm’s final months. “I’m disappointed that he did that,” Halbreich said. “I think his theory of liability against various partners is all wet.” Reporter Justin Scheck [email protected] contributed to this report.

This content has been archived. It is available exclusively through our partner LexisNexis®.

To view this content, please continue to Lexis Advance®.

Not a Lexis Advance® Subscriber? Subscribe Now

Why am I seeing this?

LexisNexis® is now the exclusive third party online distributor of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® customers will be able to access and use ALM's content by subscribing to the LexisNexis® services via Lexis Advance®. This includes content from the National Law Journal®, The American Lawyer®, Law Technology News®, The New York Law Journal® and Corporate Counsel®, as well as ALM's other newspapers, directories, legal treatises, published and unpublished court opinions, and other sources of legal information.

ALM's content plays a significant role in your work and research, and now through this alliance LexisNexis® will bring you access to an even more comprehensive collection of legal content.

For questions call 1-877-256-2472 or contact us at [email protected]

Trending Stories

 

Featured Product

Global Briefing

A weekly, curated selection of our international content from around the globe, across the business of law, in-house, regulatory, technology and more, with expert insights from our senior editors.

Learn More

More from ALM

 

ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Privacy Policy

About Us / Contact Us / Site Map / Advertise With Us/ Customer Service / Terms of Service/ FAQ / Privacy Policy

Publications

Law Topics

Rankings

More

Law.com

Copyright © 2020 ALM Media Properties, LLC. All Rights Reserved.