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Washington’s Gilbert Heintz & Randolph is one step closer to having to pay back more than $9 million in legal fees for work it did in connection with the asbestos bankruptcy of New Jersey flooring manufacturer Congoleum Corp. The firm was ordered to return the funds after a federal appeals court found that it violated conflict rules. On April 24, a New Jersey bankruptcy judge denied Gilbert Heintz’s motion to stay the disgorgement order pending an appeal. In its motion to stay, Gilbert Heintz argued that the 50-lawyer firm would suffer irreparable harm if it were required to make the payment right away, noting that the “threat of severe financial distress . . . can set off a self-fulfilling, destructive cycle as clients lose confidence in the long-term prospects of the firm.” The firm added that the payment substantially exceeds its available cash and assets and that it would be unable to borrow the funds necessary to make the payment. Name partner Scott Gilbert says the matter has led to a huge diversion of the firm’s resources and has already cost it a significant amount in legal fees. On April 28, the firm filed another motion to stay the payment — this time with the U.S. District Court for the District of New Jersey. In March, U.S. Bankruptcy Judge Kathryn Ferguson ordered Gilbert Heintz to return $9.6 million in fees and called for the firm to forfeit $3.3 million in pending fees after a decision by the U.S. Circuit Court of Appeals for the 3rd Circuit that Gilbert Heintz’s insurance recovery work for Congoleum conflicted with its role as co-counsel for New York’s Weitz & Luxenberg, which represented many of the asbestos plaintiffs in that case.
Alexia Garamfalvi can be contacted at [email protected].

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