Bankruptcy Basics: The 55-year-old firm’s partners voted to dissolve as of March 15, 2011. Less than a month later, a group of unsecured creditors pushed the firm into involuntary chapter 7 bankruptcy in San Francisco. Despite an initial insistence by Howrey’s dissolution committee and the firm’s Wiley Rein lawyers that the wind down move to the Washington, D.C., area, the West Coast venue stuck. The bankruptcy proceedings were converted to Chapter 11 in June, and in September U.S. bankruptcy judge Dennis Montali ordered that a trustee take control of the case. Texas attorney Allan Diamond, a partner at Diamond McCarthy, assumed that role in early October.
Financial Status: As of January 31, 2012—the most recent date for which information is available via court filings—the Howrey estate had $38.3 million in total assets, including an art collection valued at $1.2 million and $2.4 million in unrestricted cash in a Citibank account (Citibank is Howrey’s largest creditor). Among the other listed assets: $17.3 million in accounts receivable the estate expects to collect out of a total of $30.3 million in unpaid bills. Diamond has hired the Adler Law Firm in San Francisco and On-Site Associates, a consulting firm specializing in law firm collections, on a contingency-fee basis to help him recover that money from more than 500 former clients and other delinquent parties. The estate’s liabilities are currently unknown, according to the latest operating report (PDF), though earlier filings listed $107 million in total liabilities, and secured creditor Citibank contends in its filings that it alone is owed $40 million.
Lawyers Still Involved: Oakland firm Kornfield, Nyberg, Bendes & Kuhner is serving as local counsel to Diamond McCarthy. Whiteford Taylor Preston partner Bradford Englander in Virginia has been leading a team representing the estate’s unsecured creditors committee since October, when Sacramento lawyer Thomas Willoughby withdrew from that role. Paul, Weiss, Rifkind, Wharton & Garrison partner Kelley Cornish is acting as Citibank’s lead outside counsel. Attorneys from the U.S. Trustee’s office assigned to the case include Minnie Loo and Donna Tamanaha.
Professional Fees: By the end of January, lawyers and other professionals had billed the Howrey estate a combined total of $4.23 million, much of which has already been paid out. That amount includes $3.1 million accrued before the trustee took over in October, with most of that going to Wiley Rein ($1.03 million), consulting firm Protiviti ($1.15 million) and accounting firm Salter and Company ($632,560). Since Diamond took over, his firm has billed $738,123—an amount that a fee application (PDF) says largely excludes work he himself has done. Diamond will be paid separately for his work as trustee, a job that court records show has consumed 380 hours so far. That compensation will be granted at the court’s discretion, likely at the conclusion of the case. Others billing for time spent on the bankruptcy since Diamond’s appointment include unsecured creditors counsel Whiteford Taylor ($174,250), and finance and consulting firm Development Specialists, which is working with both Diamond and the unsecured creditors committee ($214,144).
News from the Top: In September, some six months into Howrey’s dissolution, former firm chairman, managing partner, and CEO Robert Ruyak joined Winston & Strawn—the firm with which Howrey held unsuccessful merger talks early last year—as an equity partner in Washington, D.C. Ruyak is now rebuilding an antitrust practice after 11 years of almost full-time management. At the time he joined Winston, he told The Am Law Daily “I don’t have any regrets” about what happened at Howrey. As for the other members of Howrey’s five-person dissolution committee, Gary Fischman is also at Winston & Strawn; Martin Cunniff joined Arent Fox; Gregory Commins, Jr., moved to Baker Hostetler; and Robert Green, who continued to help wind down the firm after Ruyak moved on, has yet to land at another firm.
Pensions: The firm’s retirement plans for partners, attorneys, and staff—in the form of 401(k)s, defined benefit plans, and defined contribution plans—were terminated last year, according to Ruyak and former dissolution committee member Green, with the assets distributed to plan participants and earmarked for individual IRA accounts.
WARN Litigation: A lawsuit filed April 8, 2011, in San Francisco federal court by Los Angeles law firm Blum Collins—which filed similar suits in the Heller Ehrman and Thelen bankruptcies—claims Howrey violated the Worker Adjustment and Retraining Notification Act by ceasing to pay its employees on March 31 despite a promise to pay them through May 9. The case has been stayed amid the bankruptcy proceedings. If history is any guide, former Howrey associates and staff shouldn’t expect too much: A similar suit brought by former Heller employees ended with Montali approving a settlement that gave the plaintiffs between 24 cents and 33 cents for each dollar they were owed.
Paper Trail: Diamond’s team has spent more than 50 hours trying to decide how to dispose of 220,000 boxes of client files, as well as terabytes of electronic files. Diamond won court approval March 2 for a plan under which he will notify all former clients with files in Howrey storage by June 30 that they have 90 days to request that either all or none of their files be turned over, at a cost deemed reasonable by Diamond’s team.
Outstanding Contingency Fees: When Diamond took over as trustee, he told The Am Law Daily that he had identified 30 contingency matters in which Howrey still had a financial interest. So far, the only ones identified in court filings—where they are described as collectively consuming 500 hours of Diamond and his team’s time—include a pair of proposed class actions brought against the U.S. Agriculture Department on behalf of Hispanic farmers who allege they were treated unfairly in the awarding of government loans. Though settlements in similar cases brought by black and Native American farmers suggest the Howrey estate could reap a sizeable return on the estimated $30 million in time and money firm lawyers have plowed into the case, differences between what the government offered in those cases and what it is offering the Hispanic plaintiffs have stalled negotiations. Until December, the Howrey estate employed three lawyers who were working on the matter full time, but when the firm’s malpractice insurance expired at the end of 2011, so did Diamond’s desire to keep attorneys on the payroll. They are now working on the case on their own, but Diamond has filed court papers to ensure the Howrey estate gets a cut of any contingency fee. A second major contingency assignment Diamond has focused on—this one involving a pair of antitrust class actions brought on behalf of dairy farmers alleging price fixing in the industry—may be closer to a payday. On February 14, a federal district court judge in Tennessee granted preliminary approval to a $140 million settlement in one of the cases, which was taken by former Howrey lawyers to Baker & Hostetler in the wake of Howrey’s collapse. That settlement could pump $22 million into the Howrey estate. Absent from court documents is Howrey’s stake in a pending $27.3 million settlement in an antitrust class action accusing Netflix and Wal-Mart of colluding to keep DVD prices high. Former Howrey partner Robert Abrams, now at Baker Hostetler, represents the plaintiffs.
What’s Next: In an October interview with The Am Law Daily, Diamond cautioned that once he familiarized himself with the details of the bankruptcy, things could get litigious. Some of the potential litigation is likely to target former partners in so-called unfinished business or clawback claims similar to those that continue to hover over the Thelen, Brobeck, and Heller bankruptcies. So far, while Diamond’s firm has billed for just four hours of work related to analyzing unfinished business claims, the firm’s fee request said that “this investigation is in its initial stages and will continue.” An unresolved dispute with Howrey’s former Washington, D.C., landlord, who is demanding more than $10 million in allegedly unpaid rent, also looms. Expect to see further liquidation of Howrey’s remaining physical assets as well, including another fire sale of firm-owned furniture—like the one held in D.C. last year—and an art auction.