The story of Ruden McClosky’s bankruptcy and unique restructuring has finally come to an end, as the dissolved law firm’s unsecured creditors have received their final distribution payments.
The total distribution for unsecured creditors in the case was 13.5 cents for every dollar of allowed claims, which was made possible by Ruden’s 2011 sale to Greenspoon Marder. Such a combination had not taken place previously in a law firm bankruptcy, said Joseph J. Luzinski of Development Specialists, who served as chief restructuring officer and bankruptcy administrator, and Paul Singerman of Berger Singerman, who represented Luzinski.
Fort Lauderdale-based Ruden filed for Chapter 11 protection in November 2011. Greenspoon Marder picked up the pieces and bought the failed firm’s assets, including about 60 lawyers, dozens of staff, and billing and computer systems. The bankruptcy proceedings continued after the two firms had fully integrated.
“There have been many law firm bankruptcies but most of them had ended poorly,” Luzinski said. Usually, the creditors’ payouts are minimal, he said.
The total unsecured claims were $73 million, but that was brought down to $7.6 million of allowed claims. The unsecured creditors received a final distribution of 3 percent of their allowed claim, Luzinski announced Wednesday, which in addition to a 10.5 percent initial distribution makes for a total of 13.5 percent.
Singerman said that amount “wildly exceeded” the projected distribution.
The secured lender, Wells Fargo & Co., which provided Ruden with a line of credit, received its full claim of $4.8 million. Luzinski said the unique restructuring process Ruden utilized allowed for a greater payout to creditors.
“In addition to paying that dividend, the structure of the case resulted in the preservation of the jobs for the nonlegal employees of Ruden McClosky, as well as the lawyers,” Singerman said. Luzinski added that the total professional fees for the case were $2.1 million.
The outcome for Ruden’s lawyers and creditors was largely due to “their recognition that they needed to make a change early on in the process,” Luzinski said. “They started looking for potential suitors, and rather than each of them cleaving off and going their own way doing what’s best for them personally, they stuck together as a group.”
At its peak, Ruden was a 200-lawyer firm, and the largest such firm in Fort Lauderdale. But it was dominated by its real estate practice, so it suffered a fatal blow from the housing and financial crisis that immediately preceded its bankruptcy filing.
“The real estate bust really decimated their client base,” Luzinski said. “They had a significant falloff in the business.”
After filing for bankruptcy, the firm faced 11 malpractice suits. Greenspoon Marder’s managing partner, Gerald Greenspoon, said he was well aware of the pending malpractice cases when his firm bought Ruden’s assets.
Through the merger deal, the Ruden estate was able to share in receivables collected by its former lawyers. Those collections were more successful than expected because the clients who owed that money were able to continue representation with their usual outside lawyers now at Greenspoon Marder, Singerman said.
Ruden’s unsecured creditors included former clients with malpractice claims against the firm, Ruden’s malpractice carrier, its landlord in West Palm Beach, law firm consultancy Altman Weil Inc., and 20 former Ruden partners who sought a return of capital contributions. Greenspoon Marder was also an unsecured creditor.
Luzinski said other failing firms could look to Ruden’s restructuring as a model, as long as the partners can work together throughout the process.
“It certainly is the right template and will be able to be used again,” he said. But “every single law firm insolvency or restructuring matter has its own dynamics.”
Singerman said other law firm lenders have contacted him asking for informal advice about how a failing firm can take a path like Ruden’s. A similar restructuring has not yet taken place, he said, but he expects it to happen in the future.
Contact Lizzy McLellan at email@example.com. On Twitter: @LizzyMcLellTLI
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