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There are obvious perks to working as an in-house lawyer: no time sheets, for starters. But in-house lawyers also face the ignominy of the sideline dweller. That’s never more true than in big-ticket litigation, the province of the outside firms. Richard Chesley is the exception. The in-house lawyer with Chicago investment bank Houlihan Lokey Howard & Zukin is the winning advocate behind one of the biggest bankruptcy rulings of the past year. In January, in the bankruptcy of United Artists Theatre Co., the 3rd U.S. Circuit Court of Appeals held that a debtor can agree to indemnify its bankers against claims of negligence. Outside of bankruptcy, corporations have long indemnified their bankers against liability for faulty advice. Banks have sought similar protection in bankruptcy, but some courts have refused to grant it. In the last few years, in particular, the U.S. Trustee Program, a division of the U.S. Department of Justice that helps administer bankruptcy cases, has made it a priority to challenge bankers’ indemnity agreements. Trustees argue that a debtor’s assets should be preserved for the benefit of creditors, not squandered on negligent financial advisers. The United Artists bankruptcy was considered a major test case for the argument, since no circuit court had ever ruled on whether bankers could be indemnified by debtors. (Professional rules bar accountants and lawyers from seeking indemnity.) United Artists hired Houlihan at the outset of its Chapter 11 case in 2000, and the theater company agreed to indemnify the bank against future claims of negligence. At that time, Chesley was a litigation and bankruptcy partner at Jones Day. Houlihan hired Chesley to defend its indemnity agreement against a challenge by the U.S. Trustee in Delaware, Patricia Staiano, who has since left office. The bankruptcy court approved the indemnity, and the United Artists reorganization plan was confirmed in early 2001. But the trustee appealed the district court judge’s approval of the indemnity. Chesley, meanwhile, left Jones Day in 2001 for Houlihan, and, once in-house, took the lead on the indemnity battle. In January, more than a year after hearing oral arguments on the issue, the 3rd Circuit finally signed off on the indemnity. It concluded, “Our decision today recognizes the need for safeguards from the second-guessing of creditors and, ultimately, the courts.” “The restructuring banking industry has been waiting for this decision with bated breath. They are very happy,” says Kirkland & Ellis partner James Sprayragen, counsel for United Artists. The trustee program is noncommittal about its next move. “We’re reviewing the decision and determining an appropriate course of action,” says Joseph Guzinski, the program’s general counsel. Michael Wiles, a bankruptcy and litigation partner at New York’s Debevoise & Plimpton, applauds the 3rd Circuit’s ruling. “Investment bankers aren’t auditors. They rely on information given to them by debtors.” he says. “If they use information given by the debtor, then the debtor should accept the risk of liability.” “This is a very significant case,” says Chesley, who is restructuring counsel for Houlihan, which employs seven other in-house lawyers. “It stands for the broad proposition that [financial] professionals … can be retained on the same conditions [in bankruptcy] that they are retained outside of bankruptcy.” Chesley concedes it is “odd” that he was the lead lawyer on the case. “You don’t see a lot of in-house counsel arguing cases in courts of appeals.” But given his history with the United Artists bankruptcy, Chesley says, it made sense that he would handle the 3rd Circuit appeal. Normally, he says, Houlihan turns to outside firms in litigation matters, including Squire, Sanders & Dempsey and Jones Day. But Chesley doesn’t plan to let his advocacy skills gather dust: “There are some cases where I’ll [continue to] take the laboring oar and lead the litigation.” Best of all, he won’t have to bill his time.

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