Manhattan bankruptcy court judge Shelley Chapman ruled during an April 24 hearing [PDF] that she needs to hear live testimony from D. Tyler Nurnberg, the managing partner of Kaye Scholer’s Chicago office, and Matthew Micheli, a counsel based in the same office, as she tries to determine what exactly GSC liquidating trustee Robert Manzo said during the September 2012 meeting with the DOJ attorneys with regard to an issue at the heart of the matter. Chapman said she is having trouble reconciling deposition testimony Nurnberg and Micheli provided in the case with statements Manzo made and needs to hear from the two attorneys in order to "make a judgment about the credibility of the different versions of the story."

The scheduled appearance by the Kaye Scholer lawyers is the latest twist in a saga that began with GSC’s bankruptcy filing in 2010. Upon entering Chapter 11, the company retained Kaye Scholer as its legal adviser and Capstone as its financial adviser. Manzo—whom Capstone identified in court filings as one of its employees—was subsequently hired to oversee the liquidation of GSC’s assets. The trustee’s office—an arm of the Justice Department that monitors bankruptcy cases—intervened in the case in January via a 112-page filing that claimed Kaye Scholer and Capstone had neglected to say Manzo was actually an independent contractor who used a fee-sharing agreement prohibited by the bankruptcy code. The agency also faulted Kaye Scholer for not disclosing that Manzo had known the firm’s managing partner, Michael Solow, personally and professionally for more than two decades.

The trustee’s office ultimately agreed to drop its claims against Kaye Scholer as part of the out-of-court settlement struck last week. As The Am Law Daily reported, the deal’s terms call for the firm to give up $1.5 million in legal fees—roughly a third of its total earnings in the case—and to retain an independent expert to review and revise its approach to seeking bankruptcy work. Kaye Scholer also acknowledged in January that it made a "mistake" in perpetuating the notion that Manzo was a GSC employee. (On February 14, the trustee’s office announced [PDF] it had reached a separate settlement with Capstone under which the financial adviser agreed to give up $3.75 million in fees connected to the case and to adopt procedural reforms similar to those embraced by Kaye Scholer. Court records show that agreement was withdrawn on April 19.)

At issue now are claims filed by GSC creditors against Capstone and Manzo, according to the latter’s lawyer, Willkie Farr & Gallagher business litigation cochair Joseph Baio. And central to the dispute is the question of what, if anything, Manzo said to the Justice Department lawyers in September about whether independent contactors had worked on the bankruptcy.