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Connecticut firms that relied on their commercial bankruptcy practices to help pull them through the economic doldrums of the early 1990s now have a new dilemma on their hands: What to do with their insolvency lawyers in a healthy market where Chapter 11 work is increasingly sparse. And, though no firm will confess to considering layoffs, more than a few admit to channeling a large chunk of their bankruptcy expertise into other practice areas — at least until commercial filings start to pick up. Hartford-based Day, Berry & Howard is among the firms whose presence in the state’s three federal bankruptcy courts has declined the most, fellow bankruptcy practitioners say. “Half of [of the firm's 12 bankruptcy] lawyers are doing more commercial litigation than bankruptcy work,” conceded Thomas D. Goldberg, chairman of DBH’s insolvency practice. The firm, he insisted, is still committed to doing bankruptcy work and is making a “concerted effort” to keep its insolvency expertise intact in hopes that the practice will become busier. “Ultimately, the cycle will come back,” reasoned Michael R. Enright, of Hartford’s Robinson & Cole. But like other bankruptcy lawyers, Enright is hesitant to make any predictions as to when. An upswing in Chapter 11s could be right around the corner, but then again that was what some lawyers believed two years ago, they said. LOSING CASES TO DELAWARE In total, bankruptcy filings in Connecticut have been on a downward slide since the second quarter of 1998, when they peaked at 3,770, according to the American Bankruptcy Institute’s web site. (All but 45 of those were non-business filings.) Only 2,803 new bankruptcies were filed in the fourth quarter of last year. Chapter 11 filings have been particularly scarce in recent years not just in Connecticut, but throughout the country. Nationally, 2,220 new Chapter 11 cases were filed during the fourth quarter of 1999, compared to 2,283 during the previous quarter, according to ABI statistics. Adding to the woes of Connecticut bankruptcy practitioners is Delaware’s growing stature as the jurisdiction-of-choice for companies in financial distress. “Connecticut has not gotten its share of big national cases,” said Richard D. Zeisler, of Bridgeport’s Zeisler & Zeisler. Ames Department Stores Inc., Smith-Corona Corp. and Caldor Inc. are among the Connecticut companies to have passed over an opportunity to file here. Losing Chapter 11 petitioners to Delaware and New York is not a new phenomenon. Nor is it a struggle that only Connecticut lawyers face. But how to compete with Delaware’s mystique as being more debtor-friendly and better experienced in handling complex bankruptcies is a problem that insolvency experts in Connecticut have yet to tackle, they said. Lamented Robert U. Sattin, of Hartford’s Reid and Riege: “For bigger cases, that pattern [of filing in Delaware] is likely to continue.” MAKING THE SWITCH Despite the relative drought of meaty Chapter 11 disputes, “I haven’t seen any wholesale depletions of [Connecticut firms'] bankruptcies practices,” insisted Bridgeport-based Pullman & Comley’s Elizabeth J. Austin. But “you see people kind of broadening their horizons,” said Austin. And, though she still maintains a full-time bankruptcy practice, Austin said other bankruptcy lawyers at her firm have switched over to commercial litigation or handling insolvency proceedings, such as nursing home receiverships, in state court. “If you have good people, you want to keep them-and keep them busy,” she added. Conventional wisdom, noted Peter A, Giuliani, executive director of Cummings & Lockwood in Stamford, was that businesses hit hard during the last recession created enough work to keep firms’ bankruptcy practices in high gear for about eight years. “We’re about at the end of that eight-year cycle. “Smart bankruptcy lawyers will have already retooled,” Giuliani surmised. “It isn’t as if their skill sets [are] unusable,” he said. Busy or not, “knowledge of insolvency laws,” said Day, Berry’s Goldberg, “is critical to advising clients on business transactions.” The ability for insolvency lawyers to switch gears, Austin said, “really depends on how your bankruptcy department is structured.” At Pullman, bankruptcy is part of the litigation department, so the transition from handling matters in U.S. Bankruptcy Court to general commercial disputes is a fairly easy one, Austin said. The same goes for Day, Berry. All 12 of its bankruptcy lawyers are litigators who are adept at trying a variety of commercial disputes, according to Goldberg. Nonlitigators, meanwhile, often have the option of jumping into loan restructurings or loan originations, said Giuliani. Many of them, after all, are former real estate attorneys who survived the collapse of the state’s real estate market by transforming themselves into bankruptcy lawyers. Still, some question just how easy it will be for firms directing a substantial portion of their bankruptcy attorneys into other areas to make the switch back once the insolvency practice heats up. Returning to a full-time insolvency practice can be especially taxing for an attorney who’s trying to get out from under a caseload in another practice area at the same time, said Reid and Riege’s Sattin. Firms that have been away from the bankruptcy arena for a while also are likely to be lacking talent at the junior level, he said. “I’m not saying ‘it’s rocket science’ or that people can’t do it,” Sattin added. The transition, however, can take months, and it may have an impact on a firm’s ability to capitalize immediately on a resurgence in Chapter 11 work, lawyers said. RECOVERY ON THE HORIZON? Though bankruptcy work in general is slow, there’s some indication that the practice is beginning to recover. Sattin reported a “substantial pick-up” in his firm’s bankruptcy practice over the last eight to 10 weeks. But he qualified that, “One or two big matters can do that.” Still, he observed that even a modest increase in interest rates can throw businesses into a financial tizzy, he added. At Zeisler & Zeisler, bankruptcy attorneys have fewer cases, but the overall level of work is higher than ever, according to Richard Zeisler. Unlike five years ago, when bankruptcy lawyers often served as glorified “pallbearers,” troubled companies these days have a greater ability to reorganize their debts as investors become more and more willing to take on financial risk, Zeisler said. The result is more time-intensive work for lawyers. Zeisler and other attorneys also placed hope for an upcoming business boom in the inevitable shake-up of dot.com ventures. Some lawyers, however, weren’t quite as optimistic. With few exceptions, e-commerce start-ups are lacking substantial assets with which to reorganize, they said. Cummings & Lockwood, meanwhile, is actually growing its bankruptcy practice, according to Giuliani. Much of the credit for that, he said, lies with Charles M. Tatelbaum, a partner in the firm’s Naples, Florida office, and his growing reputation in creditors’ rights law. Currently, C&L has five full-time bankruptcy lawyers and enough work for another associate, Giuliani said. “If there is an economic downturn, we’re going to get crazily busy,” he maintained.

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