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Clifford Chance isn’t off the hook yet in litigation that has arisen from the collapse of Brobeck, Phleger & Harrison. At a hearing in San Francisco on Friday, U.S. Bankruptcy Judge Dennis Montali put off considering a settlement proposed last month by Brobeck’s bankruptcy trustee, Ronald Greenspan. But Montali told the parties that he was inclined not to approve it as currently drafted. The hearing focused instead on Greenspan’s request to disqualify the bankruptcy firm Pachulski, Stang, Ziehl, Young, Jones & Weintraub from representing a group of about 140 former Brobeck partners. The trustee claims that since Pachulski Stang represented Brobeck during its liquidation, it would be a conflict to now represent a group of Brobeck partners. The partners’ identities and legal goals have not been disclosed, but they are expected to have interests in opposition to the estate. Montali noted that Greenspan plans litigation to void draws given to former Brobeck partners. Former Brobeck landlords also want Pachulski Stang off the scene. Lawyers for University Circle Investors and Equity Office Partners, which put Brobeck into involuntary Chapter 7 bankruptcy, spoke in favor of the trustee’s motion. The landlords are each owed more than $20 million. More than a dozen former Brobeck partners attended the hearing, including Stephen Snyder and Luther Orton, members of the liquidation committee, and one-time chairman John Larson. Montali said he hadn’t made up his mind whether to disqualify Pachulski Stang but was inclined to deny the trustee’s request. But he left open the possibility that he could change his mind. “Your whole case [of staying on as counsel] depends on my accepting there couldn’t have been any confidences” made by Brobeck partners during Pachulski Stang’s representation of the firm, the judge told Pachulski Stang partner Kenneth Brown. “Do I ignore the appearance of conflict?” He added that it wouldn’t look good in a newspaper that the lawyer of the debtor — Brobeck — is now its adversary. Pachulski Stang had obtained a waiver from Brobeck partners to do so. Brown argued that his firm was not in conflict because the issues it had handled during the Brobeck liquidation were different than the ones now at hand. Brown is representing a large group of former Brobeck partners, one of which is G. Larry Engel, who served as an adviser to Brobeck’s liquidation committee. Many other partners have obtained separate counsel, either individually or together. Quinn Emanuel Urquhart Oliver & Hedges is counsel to 26 partners, and Winston & Strawn is representing another group of partners. Kornfield, Paul & Nyberg is representing the liquidation committee. As for the trustee’s proposed settlement with Clifford Chance, Montali said Greenspan might want to go back to the drawing board and revise it. What’s “nagging at me,” Montali said, is that the “trustee believes Brobeck was insolvent at the time” former Brobeck Chairman Tower Snow Jr. and other partners defected to Clifford Chance. “It’s an oversimplification for the trustee to say Brobeck was insolvent at the time the Clifford Chance deal came about.” A trust set up by Brobeck’s liquidation committee sued Clifford Chance and Snow in October, alleging that they contributed to the collapse of the firm and seeking a minimum of $100 million in damages. Snow and 16 other partners went to Clifford Chance in May 2002; nine months later Brobeck disbanded. In his recent proposal for Clifford Chance to pay $3.75 million to settle these claims, Greenspan said Brobeck was likely insolvent at the time the partners defected. Greenspan last month filed a complaint against a separate group of partners, those serving on the liquidation committee, for assigning rights to the Clifford Chance litigation to a trust that favored individuals in the trust at the expense of other creditors. The trust includes retired Brobeck partners and longtime employees. Montali ruled in favor of the trustee’s request for Pachulski Stang records relating to its representation of the Brobeck estate. Snyder said in an interview that the liquidation committee had already turned over its communications with Pachulski Stang to the trustee. Montali will consider the settlement proposal at an Aug. 25 hearing. Prior to that, he said he would issue a decision on whether to disqualify Pachulski Stang from the case.

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