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RELIGIOUS NEWS 2006

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News & Views Bankruptcy Courts

Bankruptcy News Archives

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May 2011

WaMu, Creditors, Shareholders Said to End Bankruptcy Fight

By Steven Church and Linda Sandler, Bloomberg 

05-20-11 -- Washington Mutual Inc. and its biggest creditors agreed to settle a fight with shareholders by giving them equity in the company that will emerge from bankruptcy, two people familiar with the proposal said. . . . The outline of the deal includes $25 million for a litigation trust that would bring lawsuits to collect more money for shareholders. In return, shareholders would drop allegations that hedge funds who own $2.54 billion of WaMu’s debt used confidential information to guide their investments. . . . Washington Mutual shares rose as much as 79 percent to 7.4 cents in over-the-counter trading. . . . How much the deal is worth to shareholders can’t be easily calculated because the value of the reinsurance company they will get a stake in relies in part on future tax breaks, said one of the people, who declined to be identified because the discussions are private. . . . “That is impossible to assess,” one of the people said.


Same-Sex NY Couple Win Access to Bankruptcy Court Despite DOMA

Brendan Pierson, New York Law Journal 

05-13-11 -- A bankruptcy judge has denied a U.S. Trustee's motion to dismiss a joint petition brought by a lesbian couple in Fallsburg because it is contrary to the Federal Defense of Marriage Act, an argument that the judge said had no bearing on bankruptcy law. . . . Southern District Bankruptcy Judge Cecelia G. Morris ruled last week in In re Somers and Caggiano, 10-38296, that the non-recognition of the couple's marriage under DOMA did not have anything to do with whether allowing the bankruptcy to continue would prejudice their creditors, and thus was not cause for dismissal. She did not address the constitutionality of DOMA.


Bankruptcy Judge Allowed to Keep Country Club Membership

By Jacqueline Palank, Wall Street Journal (blog)

05-12-11 -- A bankruptcy judge found himself the subject of a recent legal decision that allowed him to retain his membership in a segregated country club. . . . Judge George Paine II has worked for 15 years to try to diversify the Belle Meade Country Club in Nashville, Tenn.–which has never allowed women or black men as members with voting powers in the more than a century it’s been open–to no avail. He also sponsored an African-American’s membership application, but the club never acted on it. Despite these failures, Paine never resigned from the club, leading some to complain that this wasn’t ethical. . . . The Associated Press obtained a memorandum by the Judicial Council of the Sixth Circuit Court of Appeals in Cincinnati which, by a narrow 10-8 vote, ruled that Paine’s membership doesn’t violate federal ethics guidelines and determined to dismiss the complaint against him.


CALIFORNIA  

Two Firms Sued by Bankrupt Ex-Clients

Brian Baxter, The American Lawyer 

05-09-11 -- Bryan Cave and Holland & Knight both face newly filed suits over their alleged roles advising two former clients that are now in bankruptcy. . . . Bankruptcy trustees for mortgage loan broker Estate Financial Inc. (EFI) and affiliate Estate Financial Mortgage Fund (EFMF) filed malpractice complaints against Bryan Cave in U.S. bankruptcy court in Santa Barbara, Calif., on April 28. . . . The trustees, who are seeking to recover assets for EFI and EFMF investors, claim that Bryan Cave and restructuring counsel Katherine Windler in Los Angeles looked the other way while their client, the now-defunct lenders EFI and EFMF, fraudulently sold mortgage-backed securities to investors, according to Cal Coast News. Bryan Cave maintains that the suits, which seek $100 million in damages, have no merit.


April 2011

FLORIDA  

Lawyer Accuses Judge of ‘Half-Baked Findings’ in Scathing Response to Sanctions Threat

By Debra Cassens Weiss, ABA Journal

04-27-11 -- A South Florida bankruptcy lawyer has filed a scathing response to a judge’s threat to sanction him, accusing the judge of drawing conclusions “from the ether” and making “half-baked findings.” . . . Hollywood, Fla., lawyer Kevin Gleason asserts in his response that Judge John Olson “misremembered” the facts of a court hearing, ignored relevant statutes and ruled against his claim for an exemption with “mere adverbial analysis.” . . . “It is sad when a man of your intellectual ability cannot get it right when your own record does not support your half-baked findings,” Gleason wrote. . . . The South Florida Lawyers blog labels Gleason's response a “doozy” and suggests the lawyer might have been better off using the document as a first draft. Legal Blog Watch agrees, saying a first draft allows a lawyer to vent anger before shredding the document and tossing it in the circular file.


ILLINOIS  

Commission: Lawyer should lose his license

By Bruce Rushton, The State Journal-Register

04-25-11 -- The state Attorney Registration and Disciplinary Commission is recommending that a local bankruptcy lawyer lose his law license for a year because of multiple instances of wrongdoing. . . . A hearing board has concluded that John Narmont violated fiduciary duties, broke conflict-of-interest rules, made false statements in court documents and got excessive judgments for legal fees before cases were finished. . . . “The misconduct charged and proved in this case was extremely serious,” the board wrote in its recommendation for a one-year suspension.


GENERAL

World's Top Grossing Firm, Ex-Partner Hit With Scathing Lawsuit

New York Lawyer 

04-12-11 -- Baker & McKenzie and former partner Martin Weisberg have been sued over their alleged roles running a stock scheme that contributed to the collapse of Pittsburgh-based Industrial Enterprises of America (IEAM). . . . In a scathing 22-page complaint filed against the firm and Weisberg in U.S. bankruptcy court in Delaware on Monday, plaintiffs claim both defendants enabled a massive fraud at IEAM, which filed for bankruptcy in May 2009. . . . "[Baker & McKenzie]'s participation in defrauding [IEAM] out of more than $150 million spanned years and knew little bounds," states the complaint filed on behalf of IEAM and its shareholders by Steven Thomas of Venice, Calif.-based Thomas, Alexander & Forrester and Christopher Loizides of Delaware's Loizides. "IEAM had the right not to have criminals for its attorneys." . . . According to the complaint, Baker & McKenzie hired Weisberg as a partner in 2005 solely because of the fees he would bring to the firm through his relationship to IEAM and its former CEO John Mazzuto. The complaint states that Weisberg and his former firm had numerous conflicts of interest that were not disclosed to the plaintiffs, and that the defendants violated "ethical rules by participating in the looting of IEAM--a looting that could not have occurred without defendants' legal expertise."


NEW JERSEY  

Lawyer Who Wrote 'How To Sue Your Lawyer' Can't Get Suit Against Him Dismissed. Ah, Irony.

Mary Pat Gallagher, New York Lawyer

04-06-11 -- Hilton Stein, who literally wrote the book on how to sue one's lawyer, has not practiced since 2002 but is still on the hook for an unhappy client's nearly 10-year-old claim against him. . . . U.S. Bankruptcy Judge Donald Steckroth in Newark on Monday refused to dismiss an adversary action by Dr. Monica Mehta, who wants to block the discharge of a $40,000 debt Stein allegedly owes her. . . . Mehta paid Stein that amount when she retained him in November 2001 to sue Chatham's Blume Goldfaden Berkowitz Donnelly Fried & Forte, her lawyers in an insurance dispute. The retainer capped his fees at $75,000, with a refundable $40,000 down-payment. . . . About seven months later, in June 2002, Stein filed a Chapter 11 petition, later converted to Chapter 7, and in July 2002, the state Supreme Court placed him on disability inactive status from which he has not returned. A number of clients filed actions against him, but Mehta's is the only one pending.


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March 2011

NEW YORK  

Syracuse bankruptcy law office manager avoids jail in fraud scheme

By Jim O'Hara / The Post-Standard The Post-Standard

03-30-11 -- Former bankruptcy lawyer Christopher Chadick's office manager was sentenced today to time served for his role in a scheme to defraud dozens of clients. . . . "You made a deal with the devil and you're stuck with it," County Judge William Walsh told Assistant District Attorney Beth Van Doren after the prosecutor tried to have the original plea deal negated. . . . Fox, 43, of Valley Drive, pleaded guilty in January to attempted first-degree scheme to defraud in a deal calling for him to cooperate with the prosecution of Chadick. . . . Chadick, 58, was sentenced Tuesday to serve four to 12 years in state prison after being convicted at trial. . . . But Van Doren clearly was dissatisfied with Fox's level of cooperation. . . . In court today, she asked Walsh to sentence Fox to one year in the Onondaga County Correctional Facility for his lack of cooperation with her office. If the judge was not willing to impose that jail sentence, Van Doren asked the court to consider negating Fox's guilty plea.


ILLINOIS  

Convicted Ex-Bankruptcy Attorney Could Get Up to 20 Years Per Count in Mortgage Fraud

By Martha Neil, ABA Journal

03-23-11 -- A disbarred Illinois bankruptcy attorney has been convicted of three counts of wire fraud as part of a nationwide mortgage fraud prosecution involving 67 defendants. . . . Lorie Westerfield allegedly purchased homes from two clients, misrepresented the purchase prices and down payments and her income to lenders from whom she obtained mortgages, and then concealed at least one of the transactions from the bankruptcy court and her client's creditors, according to an Illinois Attorney Registration and Disciplinary Commission complaint that is linked to her attorney listing.


TEXAS  

Montrose law firm accused of conflict of interest

by Andrea Dearden, Ultimate Montrose  

03-14-11 -- A Montrose law firm is accused of incompetence, breach of contract and allowing a conflict of interest. . . . Tammy M. Stomberg filed a lawsuit March 11 in Harris County District Court against Calvin C. Braun, Michael G. Orlando, Monica S. Orlando and Orlando & Braun LLP. Stromberg claims members of the law firm failed to adequately represent her and then overcharged her for its work. . . . According to the complaint, Stomberg hired Orlando & Braun to represent her in a bankruptcy. She says she was quoted a flat fee of $1,900, which she paid. Stomberg says the bankruptcy was filed; however, during the process, her mortgage company allegedly tried to lift the bankruptcy in order to foreclose on her home.


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November 2010

Judge in Tribune Co. bankruptcy being pushed to his limits

Complexity of overseeing four restructuring plans creates what one participant calls 'four-ring circus'

By Michael Oneal, Chicago Tribune reporter

11-29-10 -- The judge in Tribune Co.'s nearly 2-year-old bankruptcy case struggled openly at a key hearing Monday as he attempted to referee what one participant described as a "four-ring circus" and another called "total chaos." . . . Faced with a proceeding that has splintered into four competing restructuring plans brought by sparring creditor factions, U.S. Bankruptcy Judge Kevin Carey acknowledged that moving the complex case forward efficiently is taxing the powers of the bench. . . . "It's an unwanted meeting with my own limitations," he said at one particularly frustrating juncture during a seven-hour hearing in a bankruptcy courtroom filled to capacity with lawyers representing constituents in the Chicago-based media company's Chapter 11 case.



Developer seeks judge's ouster in bankruptcy case

By Matthew Brown, Associated Press, Forbes

11-22-10 -- Real estate mogul Tim Blixseth is acting as his own attorney as he seeks to disqualify a bankruptcy judge who slapped the former billionaire with a $40 million fraud judgment. . . . Blixseth founded Montana's Yellowstone Club, a private ski resort that fell into bankruptcy after Blixseth pocketed hundreds of millions of dollars. . . . His move to oust U.S. Bankruptcy Judge Ralph Kirscher comes after an appeal's court last month faulted the judge's approval of the club's 2009 sale. That $115 million deal passed control from Blixseth's ex-wife, Edra Blixseth, to Sam Byrne of Boston-based CrossHarbor Capital. . . . On Monday, Tim Blixseth alleged he was cheated in the deal - and that Kirscher allowed it to happen. Tim Blixseth said he filed the disqualification motion himself because his own attorneys and others he had contacted in Montana feared retaliation if they took the case.


Lehman Bankruptcy Tab Tops $1 Billion

By Liz Moyer  Wall Street Journal

11-22-10 -- Lawyers and other professionals presiding over the bankruptcy proceedings of Lehman Brothers Holdings Inc. have now taken in a collective $1 billion in fees. . . . They crossed the threshold in October, according to a monthly securities filing. Since the bankruptcy filing in September 2008, fees paid for professional services total $1.023 billion. The law firms, consultants and other advisers took in $40.6 million in fees during October alone. . . . Law firm Weil Gotshal & Manges, the lead bankruptcy counsel, had $8.8 million in fees and expenses in October and a total of $245.8 million in the proceedings.


BofA must return $500 million seized Lehman deposits

By Santosh Nadgir and Jonathan Stempel Reuters

Bangalore/New York

11-17-10 -- Bank of America Corp was ordered by a U.S. judge to return $500 million of deposits it seized from Lehman Brothers Holdings Inc shortly after Lehman's bankruptcy. . . . U.S. Bankruptcy Judge James Peck said Bank of America violated federal law when it "brazenly" seized the deposits after having taken advantage of Lehman's weakened condition in the summer of 2008 in obtaining the money. . . . "It is difficult to understand how Bank of America could have thought that taking the money was the right thing to do without first seeking permission from the court," Peck wrote in a Tuesday opinion filed in Manhattan bankruptcy court. . . . "The actions taken were surprising and, quite frankly, disappointing for a leading financial institution that should care a great deal about its reputation," he wrote.


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October 2010

Judge Approves Disclosure Statement for WaMu Reorganization Plan

Victor Li, The American Lawyer

10-21-10 -- When Washington Mutual first declared bankruptcy, the Democrats were popular, Jay Leno was getting ready to call time on his career as host of "The Tonight Show," and Tiger Woods was the most respected athlete in the world. . . . More than two years later, WaMu's bankruptcy finally looks to be winding down (I know we've said that before) with Monday's news that Delaware bankruptcy Judge Mary F. Walrath said she would sign off on an order approving a disclosure statement filed in connection with WaMu's proposed reorganization plan. The plan, which would liquidate $7 billion with the bulk coming from a $6 billion settlement between WaMu, its owner JPMorgan Chase, and the FDIC among various creditors, is set to be voted on by WaMu's creditors on Nov. 15 -- two weeks after the independent examiner's report is due. In a statement, Washington Mutual said that the settlement "will result in significant recoveries for the estate's stakeholders and is in the best interests of the estate." Quinn Emanuel Urquhart & Sullivan's Susheel Kirpalani, who represents WaMu, did not return a call for comment.


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September 2010

Trump-Icahn Bankruptcy Pact OK'd but Bondholders' Legal Fees Unresolved

Mary Pat Gallagher, New Jersey Law Journal

10-08-10 -- A judge in Camden, N.J., has approved a global settlement that puts a halt to remaining litigation in the Trump Entertainment Resorts bankruptcy, months after the company emerged from Chapter 11. . . . But in signing off on the deal on Tuesday, Chief Bankruptcy Judge Judith Wizmur deferred deciding whether to approve a request for payment of $19.5 million in fees and costs for professional advice to the bondholders, who obtained a controlling interest under the reorganization plan. . . . The amount was mostly incurred for legal services from three law firms -- Stroock & Stroock & Lavan, Lowenstein Sandler and Fox Rothschild -- plus a $2.25 million "success fee" to Houlihan Lokey Zukin & Howard, an investment bank in Century City, Calif., that provided financial advice.


Dreier's Ex-Wife Suffers Setback in Bid for $7 Million in Support

Noeleen G. Walder, New York Law Journal

10-07-10 -- The attempt of the ex-wife of jailed attorney Marc S. Dreier to collect $7 million in support from his bankruptcy estate suffered a setback this week. . . . Refusing to lift an automatic stay in the case, Southern District of New York Chief Bankruptcy Judge Stuart M. Bernstein held that Elisa Dreier was not entitled to have a state judge decide whether Mr. Dreier's noncompliance with a separation agreement accelerated all of the support obligations payable under the pact. . . . Ms. Dreier has argued that her $7.1 million support claim should be paid before other creditors. . . . "[T]he disagreement over the acceleration issue is between the estate and Elisa, and not Elisa and Marc. At bottom, it concerns a question of priority under the Bankruptcy Code rather than a matrimonial contest between the Dreiers," the judge wrote in In re Marc S. Dreier (pdf), 09-10371.


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September 2010

Another Bid for Privileged WaMu Documents Fails

Zach Lowe, The American Lawyer

09-28-10 -- A group of Texas bondholders became the latest group to make a grab for records of communication between Washington Mutual and its attorneys, and like most of those who came before them, the bondholders have failed to get what they wanted, according to court records and lawyers involved in the case. . . . Shareholders of WaMu and other parties in the case, including JPMorgan Chase, have previously tried to get their hands on privileged communications, according to our prior reporting. The latest party to do so is a group of bondholders who claim they are getting squeezed out in WaMu's proposed plan to re-emerge from Chapter 11 protection and settle claims with JPMorgan in the process.


$35 Million More in Interim Fees Awarded in Madoff Case

Noeleen G. Walder, New York Law Journal

09-15-10 -- Trustee Irving H. Picard and the team of lawyers liquidating Bernard L. Madoff's investment firm have been awarded another $34.6 million in interim counsel fees. On Tuesday, Southern District of New York Bankruptcy Judge Burton Lifland approved some $601,000 in fees to Picard and $34 million in fees to Baker & Hostetler for Feb. 1 through May 31. To date, the judge has awarded Picard and his attorneys nearly $97 million in fees. . . . Lifland also approved fee awards for several other law firms assisting Picard in unraveling the massive Ponzi scheme perpetrated by Madoff, including an award of $2.2 million to Windels Marx Lane & Mittendorf, which serves as special counsel to the trustee.


5 Key Lessons From Lehman's Fall

Lehman's former in-house lawyers talk about the 2008 collapse, giving details of what went wrong and what they learned

David Hechler, Corporate Counsel

09-14-10 -- It's been two years since Lehman Bros. Holdings Inc. filed the largest bankruptcy in U.S. history, and the subject still provokes passionate debate. . . . Was the crash of 2008 inevitable? What if the government had bailed out Lehman the way it did other companies before and after it let the investment bank go? And, most recently, would the Dodd-Frank financial reform law(pdf) have prevented the excesses that led to Lehman's demise? . . . The controversy shows no sign of abating. The books and articles continue apace as writers digest new information in the Lehman affair provided by, among other sources, the ongoing trial in a Manhattan federal bankruptcy court in which the Lehman estate accuses Barclays Capital Inc. of improperly siphoning more than $10 billion when it bought the investment bank's broker-dealer business; the congressional testimony last spring that featured former Lehman executives and regulators; and the mother lode — the bankruptcy examiner's 2,200-page report that spells out what happened and why.


Trustee for Rothstein Law Firm Files Clawback Suits Worth $14 Million

Daily Business Review

09-08-10 -- The bankruptcy trustee for Rothstein Rosenfeldt Adler is casting a wider net to recover money distributed by the insolvent Fort Lauderdale, Fla., law firm in the final months before it tanked in a spectacular $1.2 billion fraud. . . . Berger Singerman attorney David L. Gay, representing court-appointed trustee Herbert Stettin, filed a series of eight clawback actions late Friday seeking $14.2 million that went out the door within 90 days of the bankruptcy at Scott Rothstein's law firm. . . . The investment commitments illustrate the success of Rothstein's Ponzi scheme as he recruited investors with promises of annual returns as high as 164 percent.


Slowdown in Filings Fuels Competition for Bankruptcy Cases

Nate Raymond, New York Law Journal

09-08-10 -- Something new is facing New York's bankruptcy bar -- a slowdown in business. . . . Just two years after the collapse of Lehman Brothers Holdings Inc., the number of businesses filing for Chapter 11 is dropping off. Competition is heating up among law firms eager to handle newly filed cases as some of the large bankruptcy matters filed in recent years are wrapping up. . . . "If you're in restructuring, you were working around the clock for the last 18 months," said Jay M. Goffman, co-head of the restructuring group at Skadden, Arps, Slate, Meagher & Flom. "And now it's much quieter than that." . . . Business bankruptcy filings nationwide fell 4 percent in the first six months of the year, to 29,059 from the 30,333 filed during the same period in 2009, according to the American Bankruptcy Institute. Chapter 11 business filings fell 17 percent to 6,152, while Chapter 7 liquidations remained nearly flat at 20,385.


FDIC's New Power to Dissolve Companies Raises Concerns

Jenna Greene, The National Law Journal

09-07-10 -- "A narrow hole, but very, very deep."

That's how one leading bankruptcy lawyer described the Federal Deposit Insurance Corp.'s new power to take over and liquidate nonbank companies whose failure would jeopardize the financial system. . . . Intended as a "third way" between bankruptcy and bailout, the FDIC's expanded authority is part of the 2,300-page Dodd-Frank Wall Street Reform and Consumer Protection Act signed into law on July 21. . . . But the prospect of a new regime for dissolving megacompanies -- one with almost no judicial oversight and in which creditors' rights are few -- is sending shockwaves through the bankruptcy bar. . . . "It's a huge deal," said Michael St. Patrick Baxter, who heads the American Bar Association's business bankruptcy committee and is a partner at Washing ton's Covington & Burling. "I'm not even sure what people will be advising clients now. The rules still need to be made."


Colonial Bancgroup Defeats FDIC Attempt to Assert $905 Million Priority Claim

Susan Beck, The American Lawyer

09-07-10 -- In a ruling that could have a significant impact on proceedings involving failed banks, the Federal Deposit Insurance Corp. was rebuffed in its attempt to assert a $905 million priority claim against the holding company of the failed Colonial Bank. On Sept. 1, federal bankruptcy Judge Dwight Williams Jr. of the Middle District of Alabama ruled that the bank's bankrupt holding company, Colonial Bancgroup, could not be held liable for the shortfall in the bank's assets. (Here's an article about the ruling from Law360.) . . . The FDIC, represented by DLA Piper, had argued that a 2008 memorandum of understanding between the FDIC and the holding company, before the bank went under and a subsequent cease and desist order, created a commitment for the holding company to maintain the capital of the bank and to make up any deficiency. Colonial Bank's deficiency of more than $900 million would exhaust all of the assets of Colonial Bancgroup, which is in Chapter 11.


Bankruptcy lawyers in demand in U.S.

Reuters, Edmonton Journal

09-07-10 -- The United States needs more bankruptcy lawyers. Amid a sluggish economic recovery, a wobbly real estate market and high unemployment, prospects for professional-level jobs are gradually improving, a survey says, but in one area things are positively booming. . . . The U.S. legal field shows the strongest outlook for professional-level hiring in the fourth quarter amid an ongoing need for litigators, and bankruptcy and foreclosure experts, according to a poll by staffing firm Robert Half International Inc.


August 2010

FEDERAL COURTS

Failure to Notify Bankruptcy Court of Discrimination Suit Knocks Out Damages

Shannon P. Duffy, The Legal Intelligencer

08-31-10 -- In a novel approach to applying the doctrine of judicial estoppel, a federal judge has ruled that a plaintiff in a pregnancy discrimination suit who failed to inform the Bankruptcy Court of her pending discrimination claims must be barred from seeking any compensatory damages in that case, but should still be allowed to pursue declaratory and injunctive relief. . . . In his 21-page opinion in Hardee-Guerra v. Shire Pharmaceuticals, Senior U.S. District Judge Jan E. DuBois found that "the purpose of judicial estoppel -- deterrence against manipulation of the judicial process -- is served by barring Hardee-Guerra from pursuing her claims for compensatory damages while allowing her to seek appropriate equitable relief."


FEDERAL COURT

Bankruptcy Action Can Be 'Commenced' Despite Failure to Meet Law's Requirements, 2nd Circuit Says

Mark Hamblett, New York Law Journal

08-30-10 -- A bankruptcy action can be considered "commenced" even when a debtor has failed to meet a requirement imposed by Congress that he first receive credit counseling, the 2nd U.S. Circuit Court of Appeals ruled Thursday. . . . Interpreting a "statutory tangle" of bankruptcy provisions, the circuit said the counseling requirement under 11 U.S.C. §109(h) is not jurisdictional in nature and a case can still be regarded as begun by the filing of a bankruptcy petition, which triggers an automatic stay. . . . Section 109(h), added to the code by Congress in the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, was interpreted by the 2nd Circuit in three separate pro se bankruptcy cases that were on appeal. Adams v. Zarnel, 07-0090-bk, was the lead case.


Judge Sets Nov. 1 Trial Date for $4 Billion Investor Claims in WaMu Chapter 11

Alison Frankel, The American Lawyer

08-27-10 -- Delaware federal bankruptcy court Judge Mary Walrath is going to have a doozy of a fall. On Sept. 7, she's set to receive a report from the recently appointed examiner in the Washington Mutual Inc. Chapter 11, who has a broad mandate to investigate the circumstances of WMI's September 2008 demise. On the same day, WMI is scheduled to file its response to an adversary proceeding brought by holders of $1 billion in WMI trust preferred securities, who assert that WMI and JPMorgan Chase wrongfully appropriated $4 billion for WMI's estate. . . . At a hearing in Wilmington on Tuesday, Walrath said trial in the adversary case would begin on Nov. 1, as the first order of business in the confirmation hearing on WMI's reorganization plan. And according to the trust preferred investors' counsel at Brown Rudnick, the outcome of that proceeding may derail the rest of the confirmation hearing.


Chorus of Bankruptcy Lawyers, Investors Protest Rothstein Agreements

Settlements call for 'bar orders'

Julie Kay, Daily Business Review

08-16-10 -- A packed courtroom of bankruptcy attorneys and a few investors turned out for the first settlement hearings in the Rothstein Rosenfeldt Adler bankruptcy case, and many were there to protest the agreements. . . . A latecomer to the case, Miami solo practitioner Paul McMahon, threw a monkey wrench into the settlements with George Levin and his Banyon investment funds. Banyon and Levin were the top source of money for Scott Rothstein's $1.2 billion Ponzi scheme, kicking in about $830 million. . . . Thursday, McMahon filed involuntary bankruptcies against Levin and Banyon in a move he said was likely to kill the settlement proposed by RRA bankruptcy trustee Herbert Stettin. McMahon represents more than 30 Banyon investors who claim they lost about $15 million.


Judge Seals Rothstein File Posted on PACER

Julie Kay, Daily Business Review

08-13-10 -- U.S. Bankruptcy Judge Raymond Ray agreed to seal a file released by a web services company that the Rothstein Rosenfeldt Adler bankruptcy trustee said contained privileged work product as well as passwords and logons to the system. . . . Chuck Lichtman, an attorney for bankruptcy trustee Herbert Stettin, angrily asked Ray to seal the information filed with the court late Friday. The information was posted on PACER, the federal court's computer document system.


Capmark Creditors Seek Right to Sue Citigroup, Goldman Sachs

Zach Lowe, The American Lawyer

08-12-10 -- In a twist on a theme we've seen in a couple of prior bankruptcies, the creditors committee in the Capmark Financial Group case is taking aim at heavyweight lenders who loaned Capmark money just before its bankruptcy and the advisers who negotiated the loans -- including Dewey & LeBoeuf. The creditors have asked the court to allow them to sue the key lenders, including Goldman Sachs and Citigroup, claiming Capmark and Dewey won't file the suit themselves, according to court papers filed Wednesday.


Bankruptcy Judge Denies WaMu's Attempt to Get Shareholder Data

Bank holding company says it needs to know whether shareholders have the financial ability to wage a proxy war

Randall Chase, The Associated Press, Law.com

08-11-10 -- A Delaware bankruptcy judge on Tuesday rejected Washington Mutual Inc.'s attempt to get personal financial information from shareholders who are demanding an annual company meeting. . . . Attorneys for the bank holding company argued that it needs to know whether the shareholders have the financial ability to wage a proxy contest before funds from the bankruptcy estate are spent on an annual meeting. . . . But attorneys for the shareholders committee noted that its members have promised not to wage a proxy contest, and that the company is just trying to stall.


Bankruptcy Lawyers Predict Upcoming ‘Debt Wall’

By Debra Cassens Weiss, ABA Journal

08-11-10 -- Top bankruptcy lawyers are in a pessimistic mood about the economy, which could be a positive for their business. . . . Speaking at a roundtable discussion last month, the experts warned of trillions of dollars in debt coming due, according to the Wall Street Journal blog Bankruptcy Beat. Businesses that can’t refinance when debt matures will end up in default, they said.


$125 Million Shareholder Settlement Approved in New Century Financial Collapse

Amanda Bronstad, The National Law Journal

08-10-10 -- A federal judge on Monday granted preliminary approval to a $125 million cash settlement for shareholders of bankrupt New Century Financial Corp., one of the largest lenders to collapse during the subprime mortgage meltdown. . . . The settlement involves three stipulations: Auditor KPMG LLP will pay $44.75 million; the underwriter defendants will pay $15 million; and New Century's former officers and directors collectively will pay more than $65 million.


GENERAL

Baker & McKenzie to Pay $6 Million in Settlement Over Coudert Business

Nate Raymond, New York Law Journal

08-02-10 -- Baker & McKenzie has agreed to pay $6.65 million to compensate the bankruptcy estate of Coudert Brothers for profits Baker earned from unfinished business that partners took with them when they left the defunct Coudert firm. . . . The settlement resolves a lawsuit brought in April 2009 by the liquidation plan administrator for Coudert's estate seeking to recover fees that allegedly should have gone to Coudert, which dissolved nearly five years ago. . . . Baker also will forfeit most of its interest in an estimated $17 million in contingency fees for litigation former Coudert partners were handling involving coal export excise taxes. Baker & McKenzie had already collected roughly $7 million of those fees, said William Brandt Jr., the president of Development Specialists Inc., which is administering the Coudert estate's plan of liquidation. But three of the coal companies Coudert and Baker represented have refused to pay the contingency fee, Brandt said. Litigation against those companies is now likely, he added.


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July 2010

Lehman Legal Fees Approaching $400 Million

Brian Baxter, The American Lawyer

07-23-10 -- Just how much are bankruptcy lawyers and advisers making in the ongoing Lehman Brothers bankruptcy? . . . Bloomberg reports that the $873.1 million in fees billed since the case was filed in September 2008 would quadruple the annual payroll of the New York Yankees. According to a Thursday filing by the Securities and Exchange Commission, 17 law firms collectively will bring in at least half that amount, with almost $396.7 million being paid out by the debtor in the largest bankruptcy case in U.S. history. . . . Lehman's lead counsel at Weil, Gotshal & Manges is by far the biggest earner on the matter. The firm's Lehman haul now stands at nearly $200.6 million. Weil isn't alone on the debtors' side--10 other firms also have roles advising what remains of Lehman.


Approved Congoleum Bankruptcy Plan Puts All Asbestos Claims in Same Boat

Congoleum's insurers, whose refusal to cover the mounting claims triggered the corporation's bankruptcy, are to contribute $253 million to the fund

Mary Pat Gallagher, New Jersey Law Journal

07-21-10 -- After nearly seven years and more than a dozen failed attempts, a reorganization plan allowing Congoleum Corp. to emerge from bankruptcy has finally met with a federal judge's approval. . . . The Chapter 11 plan, approved June 7 and effective July 1, establishes a fund to pay an estimated 100,000-plus asbestos claimants. Congoleum's insurers -- whose refusal to cover the mounting volume of those claims triggered the bankruptcy -- are to contribute $253 million, and the reorganized Congoleum has pledged 50.1 percent of its equity. . . . All asbestos claimants -- even those who agreed to settle before the bankruptcy case was filed on Dec. 31, 2003 -- are placed in the same class and their claims are to be processed through the plan trust and resolved in the same manner. . . . In an opinion issued Monday, U.S. District Judge Joel Pisano in Trenton said the single-class placement is consistent with In re Combustion Engineering, 391 F.3d 190 (3d Cir. 2005), which held that a pre-bankruptcy settlement with some asbestos claimants violated the Bankruptcy Code's requirement of equality of distribution among creditors. That ruling changed the landscape for resolving mass claims in the bankruptcy context. . . . The approved Congoleum plan wiped clean a series of settlements with various groupings of claimants both before and during the bankruptcy case.


Quinn, Susman Both Claim Victory in WaMu Hearing

Zach Lowe, The American Lawyer

07-21-10 -- The Washington Mutual bankruptcy is going to fly past the two-year mark after a federal judge granted shareholders' request to have an independent examiner investigate whether creditors and the WaMu estate are leaving billions on the table in a proposed settlement, according to Reuters and lawyers who were in the courtroom Tuesday. . . . Judge Mary Walrath's ruling means that creditors and the WaMu estate must wait a little more than six weeks before they can truly start the process of gathering official support for the proposed plan to end WaMu's Chapter 11 case. That plan would resolve potential litigation between WaMu and JPMorgan, which purchased WaMu at the height of the financial panic in 2008, and would provide about $6.8 billion in recovery for creditors. Shareholders would receive nothing under that plan. But a committee of shareholders, represented by Susman Godfrey, believe the proposed plan might shortchange the value of certain WaMu assets and of potentially explosive legal claims WaMu might make against JPMorgan. An examiner, to be appointed Monday, will look into all of this.


NEW YORK  

Filing Involuntary Bankruptcy Against Ex-Client Gets Law Firm Sanctioned

Charles Toutant, New Jersey Law Journal

07-21-10 -- A law firm must pay punitive damages, attorney fees and costs for its bad-faith filing of an involuntary bankruptcy petition against a former client as a "tactical maneuver," a U.S. bankruptcy judge in Trenton, N.J., has ruled. . . . Scarola Ellis of New York claims Skyworks Ventures Inc. of Jamesburg, N.J., owes it $200,000 in legal fees, while the former client says in a related suit in U.S. District Court in the Southern District of New York that Scarola Ellis engaged in overbilling and legal malpractice. . . . On July 15, U.S. Bankruptcy Judge Raymond Lyons ruled in In re: Skyworks Ventures, Inc., 10-24459, that Scarola Ellis filed the involuntary bankruptcy petition against Skyworks Ventures to pressure a settlement in the district court suit. . . . This "use of the bankruptcy process for an improper purpose" constituted bad faith that warranted punitive damages, and, while the bankruptcy law is intended to benefit creditors as a group, Scarola Ellis's actions were intended to benefit only itself, Lyons wrote.


MASSACHUSETTS   

Former Saugus attorney faces federal fraud charges

By June Q. Wu , Boston Globe Correspondent

07-15-10 -- A former Saugus attorney hid almost a million dollars in state lottery winnings from bankruptcy courts and sold the rights to one of two winning tickets for $360,000 after filing for protection from creditors, prosecutors said yesterday. . . . James S. Gregson, 40, of Andover, was charged in federal court in Boston with two counts of bankruptcy fraud and filing a false tax return. If convicted, he faces up to eight years in prison and $600,000 in fines. . . . Prosecutors said that three years before filing for bankruptcy in October 2005, Gregson purchased the rights to two $1 million winning state lottery tickets — “Cash Windfall’’ and “Set for Life’’ — from an unnamed source. Each paid $35,000 a year for at least 13 years, according to Assistant US Attorney Mark J. Balthazard. Gregson failed to disclose the lottery tickets or the annuity payments he had received to the bankruptcy court, Balthazard said. In May 2006, his bankruptcy trustee received a tip about the undisclosed assets.


FLORIDA  

Feds Get Upper Hand in Battle Over Seized Rothstein Assets

Julie Kay, Daily Business Review

07-14-10 -- At least one defendant being sued by the Rothstein Rosenfeldt Adler bankruptcy trustee in the collapse of Scott Rothstein's fraud is seizing on an order by U.S. District Judge James Cohn to try to stall an action against him. . . . Cohn ruled the federal government wins the fight for control of real estate and other assets seized in the former law firm chairman's $1.2 billion Ponzi scheme. The judge decided Friday that the law firm's bankruptcy trustee can claim only monies that can be traced to RRA bank accounts -- even though the law firm was the primary vehicle for Rothstein's fraud. . . . "Because the trustee has failed to adequately plead his claim to the miscellaneous properties or the real properties, the court dismisses the portions of the Chapter 11 trustee's verified claims and petition that pertain to any property other than the RRA accounts," ruled Cohn, the judge in Rothstein's criminal case.


Stop Throwing Darts at the Phone Book Hoping to Find a Lawyer!

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Does Bankruptcy Put a Gay Website’s Teen User Info Into Creditors’ Hands?

By Martha Neil, ABA Journal

07-13-10 -- An effort by bankruptcy creditors to obtain the one valuable asset of a dying website—its database of information about 1 million subscribers and users—is raising privacy concerns both in the United States and abroad. . . . Because the website is for XY Magazine, whose focus is on young men and teenage boys who are gay, the user information is particularly sensitive. And, says a letter sent by the Federal Trade Commission earlier this month to counsel involved in the in the New Jersey bankruptcy case, providing subscriber information to creditors or even using it to start a similar publication or website could be considered an unfair or deceptive practice by the FTC, according to the BBC and IDG News.


Former Client Claims Advice From DLA Piper Led to Bankruptcy

The lawsuit offers a glimpse into the developing area of third-party litigation funding

Nate Raymond, New York Law Journal

07-13-10 -- A bankrupt outdoor furniture distributor has sued DLA Piper, claiming the firm failed to properly advise it in transactions and subsequent litigation with a Taiwanese company. . . . Joseph DelGreco & Co. Inc., a privately owned New York corporation that filed for Chapter 11 in October 2009, sued DLA Piper (pdf) earlier this month in Manhattan Supreme Court, claiming the law firm's negligence resulted in financial losses that propelled the company into bankruptcy. Among other things, DelGreco claims DLA failed to advise it of the consequences of a minor default on a loan and also pressured DelGreco to let the firm withdraw as counsel on the eve of a multimillion-dollar arbitration. . . . DelGreco's lawyer, Hartley T. Bernstein at Bernstein Cherney, in an interview called his client's predicament an "unfortunate situation that was a domino effect from day one that just kept getting worse until the company was eventually forced into bankruptcy." . . . DLA Piper in a statement called the claim "without merit" and said it would "strongly defend" itself against the suit. . . . In addition to alleging malpractice and negligence by DLA, the lawsuit offers a glimpse into third-party litigation funding, a developing area where details remain scarce as to what kinds of cases are financed by the third-party litigation companies. DLA Piper at one point referred DelGreco to two litigation funders in order to raise $500,000 in financing, only to see both turn down the pitch, the complaint said.


Bankruptcy shadow lengthens in Mercer

Meir Rinde, The Times of Trenton - NJ.com 

07-12-10 -- Bankruptcy filings are soaring locally and across the nation as unaffordable mortgages, job losses, the credit squeeze and mounting debt force individuals and businesses to default on their obligations and go to the courts for relief. . . . And bankruptcy attorneys say there's little sign of relief on the horizon. . . . "People have exhausted their savings, if any, and are literally living paycheck to paycheck or, more appropriately, from unemployment check to unemployment check," said Scott Kaplan of Malsbury Armenante & Kaplan in Allentown. "It's going to go a lot higher, based on what I'm seeing." . . . In New Jersey and nationally, the number of bankruptcies of all kinds jumped 27 percent in the 12 months ending in May, compared to the same period a year earlier, according to federal court statistics. In Mercer County they climbed 21 percent.


Filing Bankruptcy Online Without Bankruptcy Lawyers Is Not a Good Idea

Mortgage11  | Bankruptcy, Mortgage Refinance

07-12-10 -- While some bankruptcy filers prefer to go it all alone, filing bankruptcy online without the services of a qualified and experienced attorney is not a desirable proposition. Considering the seriousness of the situation, it could be foolish to file a personal bankruptcy on your own without any expert guidance. Besides, there are other reasons to avoid filing a bankruptcy petition which such debtors are completely unaware of. . . . While some bankruptcy filers prefer to go it all alone, filing bankruptcy online without the services of a qualified and experienced attorney is not a desirable proposition. Considering the seriousness of the situation, it could be foolish to file a personal bankruptcy on your own without any expert guidance. Besides, there are other reasons to avoid filing a bankruptcy petition which such debtors are completely unaware of. Here is some critical information pertaining to the same and which could invariably help probable individuals who are considering filing chapter 7 bankruptcy protections.

Possible benefits that bankruptcy can bring:

Allows for the discharge of most, if not all of your debts.

Prevents property from being repossessed.

Stops the collection process

Prevents you from having your utilities cut off

Stops/Prevents wage garnishment.


A Victims-of-Law Associate


FLORIDA  

Judge Ready to Decide Who Will Control Millions in Rothstein Assets

Julie Kay, Daily Business Review

07-09-10 -- The thorny question of who will control and divide tens of millions of dollars in assets that belonged to convicted Ponzi crook Scott Rothstein will likely be decided today. . . . At a hearing Thursday, federal prosecutors battled attorneys for bankruptcy trustee Herbert Stettin over which side would be better suited to dole out funds to victims. . . . U.S. District Judge James Cohn in Fort Lauderdale, Fla., had tough questions for both Assistant U.S. Attorney Evelyn Sheehan and Sharon Kegerreis of Berger Singerman, who represents Stettin. The judge said he would likely rule by today. . . . But Cohn said a main issue of concern to some victims -- whether the Justice Department would establish a restitution process for all the funds -- was resolved by prosecutors at the hearing.


Brown Rudnick Takes Its Shot at the WaMu Bankruptcy

Zach Lowe, The American Lawyer

07-08-10 -- As we approach the two-year anniversary of Washington Mutual's bankruptcy filing, Brown Rudnick has tossed up a new roadblock to WaMu's plans to emerge from Chapter 11. The firm, representing a bundle of securities holders, filed a 97-page complaint Wednesday accusing WaMu, its buyer (JPMorgan Chase) and the federal government of colluding to deceive and then deprive a group of securities holders who purchased about $4 billion in WaMu securities years before the bank's demise. . . . The complaint is ultra-complicated, but essentially goes like this: The plaintiff investment firms purchased about $1 billion in so-called trust preferred securities issued by a trust WaMu created for the purpose of issuing those securities. They made the investments, the complaint says, under the impression that in the event of a WaMu failure, their securities would be converted into preferred stock in WaMu's parent company. But when the bank collapsed, the complaint says, WaMu, JPMorgan and the federal Office of Thrift Supervision shifted the investors' holdings from the parent company to the bank, which JPMorgan then acquired. The parent company then filed for bankruptcy protection.


FLORIDA  

Rothstein Prosecutors Fear Attorney Fees
May Bleed Estate Dry

Feds, estate battle over who would best administer defunct firm's assets

John Pacenti, Daily Business Review

07-02-10 -- With federal prosecutors grabbing for most of the assets left over from Scott Rothstein's massive Ponzi scheme, it remains to be seen whether attorneys involved in his former firm's bankruptcy will reap the millions of dollars in fees originally expected from the case. . . . Federal prosecutors are trying to muscle the bankruptcy attorneys out, and so far they've succeeded. The government holds that it can get more money to the victims of Rothstein's $1.2 billion fraud faster than those administering the remains of Rothstein Rosenfeldt Adler -- without generating the millions of dollars in fees associated with bankruptcy cases. . . . U.S. District Judge James I. Cohn, who sent Rothstein to prison for 50 years, has sided with the government on the few financial decisions he's made, at one point ordering court-appointed bankruptcy trustee Herbert Stettin to turn over $1.6 million in four bank accounts used by Rothstein to perpetrate his scheme.


NEVADA  

Lawyer fights for his license in legal practice quagmire

By Jeff German, Las Vegas Review-Journal

07-01-10 -- In August 2008, just a couple of years out of law school, Jorge Sanchez launched what turned into a thriving Bankruptcy Court practice with hundreds of mostly Spanish-speaking clients. . . . At its height in 2009, the Sanchez Law Group, with its 12 employees, was taking on 42 new clients a month and incurring annual operating expenses of more than $600,000, Sanchez said in court documents this week.


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June 2010

ILLINOIS  

He Shoots, He Scores: Scottie Pippen Wins $2M Award From Law Firm

By Karen Sloan | The National Law Journal | New York Lawyer

06-30-10 -- It wasn't a legal slam dunk, but a Chicago jury on Monday awarded $2 million to former National Basketball Association star Scottie Pippen in a malpractice suit against a law firm that represented him in a business deal that went bad. . . . Pippen sued the Chicago law firm Pedersen & Houpt for more than $8 million in connection with his ill-fated 2002 purchase of a Gulfstream jet, alleging that the firm did not look out for his financial interests. The lawsuit initially was filed in Cook County, Ill., Circuit Court in 2004, but was stayed for several years while a co-defendant underwent bankruptcy proceedings. Pedersen & Houpt has about 30 attorneys and specializes in counseling start-up companies, real estate developers and high-net-worth individuals.


NEVADA  

Court order halts practice of LV lawyer

By Jeff German, Las Vegas Review-Journal   

06-29-10 -- The Nevada Supreme Court has issued an order temporarily suspending the license of a Las Vegas bankruptcy lawyer who abruptly shut down his office, leaving some 400 unresolved cases. . . . The order prohibits Jorge Sanchez from practicing law in Nevada or accepting any money from his clients while the State Bar investigates allegations the attorney misappropriated client funds. .


Lawyer in SonicBlue Mess Points Accusing Finger at MoFo

Kate Moser, The Recorder

06-29-10 -- William McGrane has accused yet another firm of conflicted representation in the troubled SonicBlue bankruptcy. . . . McGrane, whose firm represents a group that bought claims against SonicBlue, is now pointing the finger at Morrison & Foerster, which he claims had a "hidden agenda" in the case. . . . In his latest filings, McGrane contends that MoFo sought to protect Pillsbury Winthrop Shaw Pittman because both MoFo and Pillsbury are owners and managers of a malpractice carrier potentially on the hook because of Pillsbury's work for Sonic Blue.


Bankruptcy Judge Scolds Latham Attorney
Over Disclosure Of Fee

Christie Smythe is a staff writer at Law360  Forbes (blog)

06-25-10 -- A bankruptcy court judge has approved pigment maker Tronox Inc.'s request to extend debtor-in-possession financing by three months but chided a Latham & Watkins LLP lawyer representing the lenders for failing to disclose a $250,000 fee for his firm's work. . . . Judge Allan L. Gropper of the U.S. Bankruptcy Court for the Southern District of New York told Latham attorney Richard A. Levy on Thursday to "get out of the business or get out of my courtroom" if he didn't want to reveal the fee in public filings. . . . The desire to keep this number confidential is extremely counterproductive to the bankruptcy process as a whole," Judge Gropper added, saying both creditors and the public have interests in the cost of Chapter 11 proceedings. . . . Along with signing off on the request to extend the financing, which had been scheduled to mature on Thursday, Judge Gropper advised Levy to submit fee-related filings to the public record.


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May 2010

FLORIDA  

Fla. Bankruptcy Trustee Quits With More Than $1 Million Missing, Sources Say

Polyana da Costa and John Pacenti, Daily Business Review

05-28-10 -- Another South Florida receiver trusted by judges for years to oversee bankruptcies resigned from hundreds of cases after the U.S. Trustee's Office determined more than $1 million was missing from accounts under her control, sources told the Daily Business Review. . . . Marika Tolz, a Hollywood real estate broker, was confronted by investigators in the trustee's office after financial discrepancies were discovered in her trusteeships, sources say. . . . Tolz has not been charged with a crime. . . . Reached by telephone at her home, Tolz refused to comment and hung up. A woman who answered a phone in her office declined comment and hung up. . . . Tolz is the second long-time bankruptcy trustee or receiver in South Florida to come under scrutiny after money disappeared from court-supervised accounts. Lewis Freeman, a well-known attorney-accountant from Miami, is awaiting sentencing for pilfering $2.6 million from creditors and victims for more than a decade.


MONTANA  

Ex-attorney sentenced for defrauding clients in 1987

(AP) Great Falls Tribune  

05-28-10 -- A former Billings attorney who was convicted of stealing money from clients in 1987 was sentenced to 1 1/2 years in federal prison for taking about $17,000 from two more clients. . . . Marvin E. "Toby" Alback, 62, was sentenced Wednesday by U.S. District Judge Richard Cebull for wire fraud and bankruptcy fraud. Cebull also fined Alback $5,000, ordered 60 hours of community service and said he would determine restitution later. . . . "I'm just very sorry for what I did," Alback told the court. . . . Alback was charged with taking a mortgage payment from clients who had filed for bankruptcy in 2008 and not forwarding the payment to the bank. . . . Alback eventually repaid the money but caused the couple to pay back payments and late fees to avoid foreclosure, Assistant U.S. Attorney Ryan Archer said.


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WaMu's Chapter 11 Case: Here Come the Shareholders

Zach Lowe, The American Lawyer

05-27-10 -- Rarely does anyone accuse the litigators at Quinn, Emanuel, Urquhart & Sullivan of not being aggressive enough, but that's essentially what attorneys representing Washington Mutual shareholders are saying in asking the judge hearing WaMu's bankruptcy case for permission to investigate JPMorgan Chase's acquisition of WaMu. . . . The shareholders, represented by Susman Godfrey (which replaced Venable in this role), want to pick up the investigation after lawyers for WaMu's estate (Quinn and Weil, Gotshal & Manges) dropped a similar investigation last month, court records show. The investigation, which Quinn and WaMu started in 2009 and pursued aggressively for a time, centers on allegations that JPMorgan torpedoed WaMu's chances of finding another buyer in late 2008 by leaking confidential information and false rumors about WaMu's finances, court records show.


WaMu Chapter 11 Case Is the Bankruptcy That Won't End

Zach Lowe, The American Lawyer

05-26-10 -- The Washington Mutual Chapter 11 case has been contentious from the start, complete with accusations of sabotage. So it's fitting that a global settlement that would pave the way for resolving the mess seems to be perpetually out of reach. . . . The newest twist: A group of senior bondholders who own debt from WaMu's banking unit announced Monday that it is opposing a proposed settlement between the bankrupt estate, the Federal Deposit Insurance Corp., other bondholders, and WaMu's new owners at JPMorgan Chase, according to Reuters and this release from Boies, Schiller & Flexner attorneys representing the dissident bondholders.


Receiver Moves to Distribute $200 Million to Madoff Investors

Daniel Wise, New York Law Journal

05-26-10 -- The court-appointed receiver for two funds created by hedge fund operator J. Ezra Merkin filed court papers (pdf) Monday seeking authorization to make an interim distribution of $200 million to the funds' 278 investors. Merkin's investors lost $1.2 billion because he placed their funds with Bernard L. Madoff, who is serving a prison term of 150 years for creating the largest Ponzi scheme in history, according to a lawsuit brought by the New York attorney general's office. . . . Under the $200 million distribution, if approved by Manhattan Supreme Court Justice Richard B. Lowe III, who is presiding over the attorney general's lawsuit, People v. Merkin, 450879/09, the investors would on average recoup approximately one-third of the losses they suffered in connection with funds Merkin turned over to Madoff, according to claims the receiver, Bart M. Schwartz, has filed in connection with the Madoff bankruptcy (See Schwartz's affirmation).


FLORIDA  

Rothstein Victims Duke It Out in Bankruptcy Court

$470 million in claims filed so far

Julie Kay, Daily Business Review

05-26-10 -- Fights are starting to erupt among bankruptcy creditors victimized by swindler Scott Rothstein's Ponzi scheme. . . . Two weeks after the deadline for victims to file claims against Rothstein's defunct law firm in his $1.2 billion fraud, the largest single creditor -- Ira Sochet Inter Vivos Revocable Trust -- requested an extension Tuesday from U.S. Bankruptcy Judge Raymond Ray. . . . But the request from Miami attorney Lawrence Gordich was staunchly opposed by Jim Silver of Conrad Scherer, the Fort Lauderdale, Fla., firm heading the creditors' committee with an estimated $113 million loss. . . . Sources say the flare-up reflects long-standing tension on the committee and foreshadows a major battle brewing between direct investors and feeder funds. All are fighting over the same pot of money. Claims totaling almost $470 million were filed by the May 12 deadline.


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NEW YORK

Thelen Bankruptcy Estate Seeks Approval of $900K Settlement

Nate Raymond, New York Law Journal

05-25-10 -- The estate of the defunct law firm Thelen is seeking a bankruptcy judge's approval of a $900,000 settlement of a state court action by State Street Bank and Trust Company. The payment would come from Thelen's insurer and resolve all claims against the law firm in the litigation pending in Manhattan Supreme Court, according to a motion filed earlier this month by Yann Geron, a partner at Fox Rothschild who is the trustee for Thelen's estate. A hearing is scheduled for June 2 before Southern District of New York Bankruptcy Judge Allan Gropper. . . . "If the court approves the settlement, we believe the Thelen estate will be glad to have the matter behind it," said Michael Feldberg, a partner at Allen & Overy who represents Thelen in the case, AG Capital Funding Partners v. State Street Bank and Trust Company, 601134/2002.


FLORIDA  

Former RRA Partner Holds Out Hope for Settlement in Firm Bankruptcy

Julie Kay and John Pacenti, Daily Business Review

05-12-10 -- A confidential settlement between Scott Rothstein's former equity partner Stuart Rosenfeldt and the court-appointed bankruptcy trustee could be reached by week's end. If not, Rosenfeldt said he will hire a bankruptcy attorney. . . . He appeared cheerful in court Tuesday and represented himself at a hearing before U.S. Bankruptcy Judge Raymond Ray. Chuck Lichtman, attorney for bankruptcy trustee Herbert Stettin, said he held off on deposing Rosenfeldt in the hopes of reaching a settlement. . . . "We've been engaged in settlements talks ... and should know in the next couple days whether it happens," said Lichtman, a partner with Berger Singerman in Fort Lauderdale. "We've had an extended discussion in our office." . . . After the hearing, Rosenfeldt told the Daily Business Review he is hopeful for a settlement but declined to give any details on a dollar value. . . . "It's an amount that I can afford to live with," he said.


Court Agreement Ends General Growth Bankruptcy Bid Battle

Robert Carr, The American Lawyer

05-10-10 -- Ending one of real estate's most protracted takeover battles, Judge Allan Gropper, in the U.S. Bankruptcy Court for the Southern District of New York, agreed Friday to allow Chicago-based General Growth Properties, a mall real estate investment trust, to partner with Brookfield Asset Management of Toronto in an $8.5 billion reorganization plan. . . . The decision sets Brookfield as the "stalking horse" bidder, and ends an aggressive takeover attempt by GGP's main retail rival, Simon Property Group of Indianapolis. Simon announced a last-ditch offer late Thursday night of $20 a share to take over GGP, even though General Growth hasn't seen that price since late 2008. GGP's stock closed Friday at $14.13 a share. . . . Brookfield has pledged to help bring GGP out of bankruptcy by purchasing GGP stock at $10.50 per share, resulting in a $6.5 billion equity investment and $2 billion capital backstop offer, which includes assistance from Pershing Square Capital Management and Fairholme Funds. The Brookfield deal comes with several million dollars in warrant fees to GGP, though Brookfield has agreed to postpone some of the costs.


Madoff Judge Awards Another $25 Million in Fees

Noeleen G. Walder, New York Law Journal

05-10-10 -- A federal judge has awarded trustee Irving H. Picard and his team of lawyers liquidating Bernard L. Madoff's investment firm some $24.6 million in interim counsel fees. Southern District of New York Bankruptcy Judge Burton Lifland on Thursday awarded about $672,000 in fees to Picard and $23.9 million in fees to Baker & Hostetler for Oct. 1 through Jan. 31. All told, the judge has awarded Picard and his attorneys about $62 million in fees.


3rd Circuit Agrees to Mull Bankruptcy Discharge's Impact on Injury Claims

Shannon P. Duffy, The Legal Intelligencer

05-10-10 -- The 3rd U.S. Circuit Court of Appeals could be poised to overturn one of its most widely criticized precedents involving how courts decide whether and when the discharge of all claims in a corporate bankruptcy reorganization plan should act as a bar to future personal injury claims. . . . The 1984 decision in Matter of M. Frenville Co. was called into question in a recent appeal, Jeld-Wen Inc. v. Van Brunt, that could have profound consequences for asbestos litigation. . . . In Frenville, the 3rd Circuit held that a "claim" does not "arise" for bankruptcy court purposes until it has "accrued" under state law. . . . But as Jeld-Wen sees it, "Frenville's reliance on state law to determine when a claim arises runs contrary to the Bankruptcy Code."


FLORIDA  

Prosecutors, Bankruptcy Trustee Hit Stalemate Over RRA Assets

John Pacenti, Daily Business Review

05-04-10 -- Where Scott Rothstein's $1.2 billion Ponzi scheme ended and his defunct law firm began is at best a gray area. . . . Prosecutors asked U.S. District Judge James Cohn last month to execute a vast forfeiture plan, seeking all ill-gotten gains tied to Rothstein in the form of cash, real estate or material goods. . . . In the other corner, attorneys for bankruptcy trustee Herbert Stettin, who is overseeing the remains of the Rothstein Rosenfeldt Adler law firm, repeatedly have said the government's reach is too broad, and something should be left over. . . . Stettin's legal team disagrees with observations from stalwarts of the South Florida legal community, such as Tew Cardenas co-founder Thomas Tew, who say the firm might be left with skeletal remains to pay vendors with outstanding bills, clients with claims against the law firm and even themselves and other professionals for the work they have performed at Stettin's behest.


Lehman Bankruptcy Charges: $2,100 for Limo Rides,
$48 to Leave a Message

By Debra Cassens Weiss, ABA Journal

05-03-10 -- Weil, Gotshal & Manges has billed more than $164 million for its work as lead counsel so far on the Lehman Brothers bankruptcy, including more than $500 a day for limo drivers, billed for services in the month’s after Lehman’s collapse. . . . But new limits are now in place due to the efforts of Kenneth Feinberg, the New York Times reports. Known as the “pay czar” who is monitoring banks that received bailout money, Feinberg also has a role in the Lehman Brothers bankruptcy as the court-appointed fee monitor. His counterpart in the General Motors bankruptcy is Brady Williamson. . . . The Times detailed the work of Feinberg and Williamson in a story that also delved into the charges in the Lehman Brothers and other bankruptcies, including $2.54 charged by the Huron Consulting Group for “gum in airport.” . . . Charges by law firms in the two bankruptcy cases included more than $2,100 for late-night rides home by one partner at Jones Day, and $685 a night for one Weil lawyer’s week-long stay at the Sherry-Netherland hotel in Manhattan, the story says. Other charges by unnamed consultants and firms included more than $263,000 for photocopies in four months and $48 to leave one message.


WASHINGTON   

Disbarred Gig Harbor attorney sentenced in fraud scheme

Posted by John de Leon, Seattle Times    

-- From Times staff reporter Mike Carter:

05-01-10 -- A disbarred Gig Harbor attorney has been sentenced to prison for three years for mail fraud stemming from a fraudulent debt-elimination promotion. . . . Bruce Hawkins, 50, took money from more than 1,000 debtors, telling them he could eliminate their credit-card debt between 2002 and 2005, according to the U.S Attorney's Office. He told his clients that tax laws prevented national banks from extending credit and that they didn't have to repay their debts, and then sent them to "arbitors" who he paid to issue a meaningless award on the debtor's behalf. Many of the debtors wound up in bankruptcy after learning the scheme was useless, the U.S Attorney's Office said.


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April 2010

FLORIDA  

Tearful Ex-General Counsel Details Huge Ponzi Discovery

David Boden gives testimony in all-day deposition concerning fraud committed by Scott Rothstein

Julie Kay, Daily Business Review

04-30-10 -- Scott Rothstein's former law firm general counsel cried Thursday as he recalled how he discovered his boss had committed a fraud of epic proportions. . . . David Boden, who worked for Rothstein Rosenfeldt Adler for 18 months before it imploded last November, testified in a deposition about discovering the $1.2 billion Ponzi scheme. He was the subject of an all-day deposition by Fort Lauderdale attorney Chuck Lichtman of Berger Singerman, which represents trustee Herbert Stettin in the firm's bankruptcy. . . . Boden, 48, cried several times -- and stopped the deposition at one point to compose himself -- as he recalled finding hundreds of millions of dollars were missing from the firm's TD Bank accounts. He said he was told the accounts were frozen Oct. 30, shortly after receiving notice from Richard Pearson, RRA's investment broker, that he had not been paid and would no longer do work for RRA.


Bankruptcy Judge Rejects Dreier Agreements

Noeleen G. Walder, New York Law Journal

04-29-10 -- The government and the trustees charged with liquidating the estate of disbarred attorney Marc S. Dreier and his defunct 250-attorney law firm hit a stumbling block Wednesday when a federal bankruptcy judge said he could not sign off on two agreements reached between the parties after months of negotiation. . . . The first agreement required GSO Capital Partners, which invested in fake promissory notes peddled by Dreier, to pay about $9.5 million to the trustees. In return, the trustees agreed to release GSO from claims relating to payments it received as a result of the fraud. The agreement also barred third-party claims against GSO "releasees" that related to "Marc Dreier, Dreier LLP, and the Note Fraud Funds." . . . A second but related pact provides that the government would release nearly 100 artworks worth as much as $3 million, which have not been traced to Dreier's crimes, to Chapter 11 trustee Sheila Gowan. In turn, Gowan, of Diamond McCarthy, had vowed to refrain from contesting certain forfeited funds, including some $31 million that GSO will turn over to the government.


TENNESSEE  

Lawyer receives 2-year suspension

Dyersburg State Gazette

04-28-10 -- The Tennessee Supreme Court has suspended the law license of Dyersburg attorney Thomas H. Strawn Jr. for two years. . . . Strawn pleaded guilty April 20 to neglecting his clients' Chapter 13 bankruptcy cases. The Supreme Court's Board of Professional Responsibility (BPR) announced the suspension Monday night. . . . The neglect charges surfaced nearly a year ago. The bankruptcy trustee's office told the BPR that Strawn failed to competently and adequately represent clients in seven bankruptcy cases. The trustee's May 15 petition claimed Strawn did not timely resolve issues that arose in the bankruptcy cases and failed to appear at scheduled hearings. The bankruptcy trustee's office said it e-mailed, telephoned and otherwise attempted to contact Strawn but failed to receive sufficient response to resolve the matters. Without a resolution, the bankruptcy court dismissed all seven cases on Jan. 29, 2009.


GENERAL

Lehman Brothers Bankruptcy Bill Approaches $750 Million -- and Counting

Zach Lowe, The American Lawyer

04-23-10 -- The latest Lehman Brothers bill is in, and the total dollar amount the bankrupt estate has paid out to financial advisers and law firms is approaching $750 million and might possibly be on its way to $1 billion, according to documents Lehman filed Thursday with the SEC and this Bloomberg article. . . . The rate of law firm billing has actually slowed down a bit since the last time we checked. Through January 2010, law firms had billed about $311 million of the $649 million total paid out to advisers since Lehman filed for Chapter 11 protection on Sept. 15, 2008. Over February and March of this year, the total bill jumped by about $82 million to $731 million, with law firms accounting for just $20 million of the increase in those two months, according to the SEC documents. The total law firm bill is now up to $331 million. . . . The biggest biller, to no one's surprise, continues to be Lehman's lead debtor counsel at Weil, Gotshal & Manges, which has billed the estate just short of $165 million since the bankruptcy filing. As we reported in February, Weil's bill breaks down to about $300,000 per day since Lehman's bankruptcy filing. Weil billed about $15 million in January and February combined, which breaks down to about $255,000 per day over those two months. 


2nd Circuit Upsets Bankruptcy Sanction of Developer Linked to Marc Dreier

Mark Hamblett, New York Law Journal

04-20-10 -- A bankruptcy judge's decision to sanction a prominent real estate developer who hired Marc S. Dreier in 2004 in a scheme to meddle with a rival's bankruptcy has been reversed by a federal appeals court. . . . The 2nd U.S. Circuit Court of Appeals said that Bankruptcy Court Judge Burton R. Lifland lacked the authority to order $334,583 in sanctions against developer Sheldon Solow, his chief operating officer at Solow Realty & Development Co., Dreier and others in the bankruptcy case of Peter S. Kalikow, a developer and former head of the Metropolitan Transportation Authority. . . . The circuit made that ruling in In re Kalikow, 08-5268-bk, an appeal decided by Judges Roger J. Miner, Reena Raggi and Peter W. Hall.


FLORIDA  

Bankruptcy Trustee Settles With Former Rothstein Firm Lawyers Over Future Fees

Julie Kay, Daily Business Review

04-19-10 -- The trustee in the bankruptcy case of Ponzi operator Scott Rothstein's defunct law firm has settled disputes with seven attorneys over future legal fees from cases they handled while employed at Rothstein Rosenfeldt Adler. . . . In motions filed late Thursday, trustee Herbert Stettin seeks approval of settlement agreements with Russell Adler and six attorneys who banded together when they left RRA: Gary Farmer, Steven Jaffe, Matthew Weissing, Brad Edwards, Mark Fistos and Seth Lehrman. . . . The agreements submitted to U.S. Bankruptcy Judge Raymond Ray for approval provide for the trustee to get a percentage of recoveries on unresolved cases the former RRA attorneys are handling for clients in the door before Rothstein's $1.2 billion fraud collapsed last Nov. 1. . . . No dollar amounts are listed, but Farmer said the total uncollected fees could exceed $10 million. That would include several class action cases and qui tam actions his new firm is working on, including cases against NationsRent, a home health care agency and Palm Beach millionaire Jeffrey Epstein, who has been sued for allegedly abusing teenage girls.


Judge Freezes Assets of Rothstein Financial Adviser

Julie Kay, Daily Business Review

04-19-10 -- A Fort Lauderdale, Fla., bankruptcy judge on Thursday froze up to $33 million in assets held at one time by a financial adviser with ties to convicted Ponzi schemer Scott Rothstein. . . . U.S. Judge Raymond Ray approved the request from attorneys for Herbert Stettin, bankruptcy trustee for Rothstein’s defunct law firm, for a preliminary injunction against Michael Szafranski and his wife, Elana Strum. The Bay Harbor Islands adviser allegedly acted as the independent verifier for Rothstein’s phony settlements at the heart of his $1.2 billion fraud. . . . Szafranski’s attorney, Chris Berga of Lydecker Lee Berga & de Zayas in Miami, argued against the injunction, saying he had only a day or so to respond to the trustee’s emergency motion. He also said he wanted to call Stettin to testify and asked for a continuance. . . . “We’ve had 24 hours to review the documents,” Berga said. “That’s not much time for such a drastic remedy.”


Wachtell and Paul Weiss Advise on New Bid for Bankrupt General Growth Properties

Brian Baxter, The American Lawyer

04-15-10 -- Simon Property Group, the largest owner of shopping malls in the U.S., has teamed up with hedge fund Paulson & Co. for a new offer for bankrupt rival General Growth Properties. And plenty of Am Law 100 firms are already involved. . . . Wachtell, Lipton, Rosen & Katz corporate partners Adam Emmerich and Benjamin Roth led a team from the firm advising Indianapolis-based Simon when the mall operator made its $10 billion unsolicited offer in February for GGP, the second-largest mall owner in the country. . . . But GGP nixed that offer as too low. The Chicago-based REIT, which entered Chapter 11 a year ago, embraced a reorganization plan sponsored by Brookfield Asset Management, hedge fund Pershing Square Capital Management and fund manager Fairholme Capital Management.


Madoff Trustee Reports $1.5 Billion in Assets Recouped

Noeleen G. Walder, New York Law Journal

04-13-10 -- The trustee charged with liquidating the estate of Bernard L. Madoff's investment firm has recovered some $1.5 billion in assets and hopes to begin distributing the money to customers before the end of the year, according to court papers filed Friday. . . . In an 83-page interim report submitted to Southern District Bankruptcy Judge Burton R. Lifland, Irving H. Picard of Baker & Hostetler reported that "notwithstanding the monumental and unprecedented task faced by the Trustee, substantial progress" has been made in "reviewing and determining customer claims." . . . As of March 31, Picard has allowed 2,011 of 12,249 claims, and committed $668 million in cash advances from the Securities Investor Protection Corporation, the "largest amount of SIPC funds in any one SIPA liquidation proceeding." . . . In addition to bringing 14 avoidance actions aimed at recouping more than $14.8 billion from feeder funds, Picard has uncovered a "complex web of tangled investment structures that fed money into" Madoff's Ponzi scheme and has served more than 75 subpoenas in 20 jurisdictions.


Heller Creditors Pick 11-Lawyer McGrane Firm for Big Suit

Petra Pasternak, The Recorder

04-08-10 -- San Francisco litigation firm McGrane Greenfield may be put in charge of one of the most important pieces of litigation in the Heller Ehrman bankruptcy. . . . The unsecured creditors' committee has asked bankruptcy Judge Dennis Montali to approve the hire of McGrane Greenfield for a pending case against Bank of America and Citibank. Under the proposed contract, the 11-lawyer firm would be paid $1 million up front, plus a contingency fee worth 5 percent of the net benefit to the estate if they win, Monday court filings show. . . . A hearing on the motion is scheduled for Tuesday. . . . As special litigation counsel, McGrane Greenfield, which specializes in complex business litigation and bankruptcy matters, would pursue the suit the committee filed against the banks last April. It seeks the return of $58 million the dissolved firm paid the banks in a window of time around its December 2008 Chapter 11 filing, plus interest.


Feds, Rothstein Firm Trustee in Tug of War Over Assets

Jordana Mishory, Daily Business Review

04-02-10 -- The bankruptcy trustee for defunct law firm Rothstein Rosenfeldt Adler contends the government has once again overstepped its bounds by trying to control additional assets that belonged to convicted fraudster Scott Rothstein. . . . On Monday, the U.S. Attorney's Office filed a motion seeking a protective order be entered to preserve new assets, including four Rothstein Rosenfeldt Adler bank accounts at TD Bank containing almost $120,000 and "all property, other than 'funds'" voluntarily turned over to the government since news broke in late October that Rothstein was running a settlement scheme out of his law firm. . . . But trustee Herbert Stettin argued that the government could not lay claim to assets that don't belong to Rothstein and were not included for forfeiture in the original information, calling the motion "particularly egregious."?


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March 2010

Weil Gotshal Bills Lehman $1,000 Per Hour for Lawyers

By Linda Sandler, Bloomberg, BusinessWeek 

03-31-10 -- Lehman Brothers Holdings Inc.’s lead bankruptcy law firm, Weil Gotshal & Manges LLP, bills the bankrupt investment bank as much as $1,000 an hour for its top lawyers’ time overseas, and $990 an hour for U.S. lawyers. . . . The rates were set Jan. 1, Weil Gotshal said in court papers filed yesterday in U.S. Bankruptcy Court in Manhattan. The New York-based law firm collected $157.5 million from Lehman during a 17-month period ending last month, according to a regulatory filing. . . . Lehman, once the world’s fourth-biggest investment bank, is liquidating to pay creditors. Its payments to advisers haven’t faced major objections such as those in the case of bankrupt automaker Chrysler LLC, which is using U.S. Treasury loans to wind itself down.


Bankruptcy Lawyers Troubled by Recent High Court Ruling

Thomas B. Scheffey, The Connecticut Law Tribune

03-19-10 -- Bankruptcy lawyers will need to remain cautious about what sort of advice they offer clients, following a ruling by the U.S. Supreme Court last week. . . . The justices ruled the portion of the 2005 bankruptcy reform act that bars lawyers from advising clients to take on "any debt" is constitutional, though it may be less restrictive than first thought. . . . Still, lawyers are unhappy at being muzzled in any way by a law that they don't believe should apply to them. "Most attorneys were hoping [the Supreme Court] would strike down as unconstitutional the provision about not counseling your client to take on any debt, and I found it disappointing that they didn't do that," said Matthew K. Beatman, a partner in the Bridgeport, Conn., bankruptcy boutique firm of Zeisler & Zeisler. . . . He did, however, call it "helpful" that the Court explained that the prohibition refers to abusing the bankruptcy law by running up debt that can't be collected by creditors, and doesn't apply to lawful actions.


NY Firm, Co-Counsel Returning Some Fees in Bankruptcy

By Brian Baxter | The American Lawyer | New York Lawyer

03-19-10 -- The bankruptcy case of Miami developer Cabi Downtown has been anything but smooth since the company filed for Chapter 11 last August. . . . Within months of the filing, Bank of America, which holds a $256 million construction loan on a Cabi condo project built on the site of the former Everglades Hotel, moved to end the bankruptcy and foreclose on the property. . . . While the bank turned to lawyers from Kaye Scholer and Shutts & Bowen to handle bankruptcy litigation against Cabi, that work took an unexpected turn as the two firms agreed to pay Cabi’s legal fees in connection with an order to show cause after the firms were criticized for their conduct in the case.


Confidentiality Issues Mushroom in the Tribune Bankruptcy

Zach Lowe, The American Lawyer

03-17-10 -- The Tribune Co. bankruptcy keeps producing juicy legal storylines: a bench smackdown of Sidley Austin's proposed $1,100 per hour rates, a debate over expensive fee examiners, a cameo from Warren Beatty and, most central to the case, a possible lawsuit against the banks that engineered the leveraged buyout that ruined Tribune. . . . Now, that last issue has produced a new twist: possible sanctions against a bondholder after its law firm, Brown Rudnick, mistakenly included confidential papers in a public filing, court records show. Martin Siegel, a Brown Rudnick partner, says the mistake was "inadvertent," and that the firm has pulled the offending material from its filing. But Siegel says his firm will challenge the motion, filed by JPMorgan Chase and its lawyers at Davis Polk & Wardwell, to sanction Brown Rudnick's client (a bondholder called Wilmington Trust Co.). Possible sanctions include a ban on Brown Rudnick's client from accessing a trove of critical confidential documents, according to a source familiar with the matter.


Lehman Estate Files Restructuring Plan

Brian Baxter, The American Lawyer

03-17-10 -- It's not quite Old Carco, but bankruptcy lawyers for Lehman Brothers have filed a reorganization plan that calls for the creation of Lamco, an asset-management subsidiary carved out of Lehman that will help put an end to the largest Chapter 11 case in U.S. history. . . . According to the 93-page plan, filed Monday by Lehman's lead bankruptcy lawyers at Weil, Gotshal & Manges, Lamco will manage real estate, private equity and derivatives assets held by the defunct investment bank in order to sell them off at a premium to generate proceeds for Lehman creditors. . . . More than $830 billion in claims have been filed against Lehman, Bloomberg reports; the company says many of those claims are duplicative. Lehman is still calculating the assets available that it will pool to pay creditors while working to resolve various claims, Bloomberg reports, putting the debt of Lehman affiliates at roughly $115 billion.


WaMu, JPMorgan Agree to $6 Billion Settlement

Zach Lowe, The American Lawyer

03-15-10 -- Major developments out of federal bankruptcy court in Delaware: Washington Mutual's estate has reached a proposed settlement with JPMorgan Chase and federal regulators that will result in the return of $4 billion in deposits and nearly $2 billion in other cash that will be used to pay WaMu creditors, according to lawyers involved in the matter. . . . As part of the proposed settlement, which still requires bondholder approval, the bankrupt WaMu estate agreed not to pursue claims against JPMorgan and the Federal Deposit Insurance Corp. over the bank's collapse. . . . As you'll recall, the FDIC scooped up the bank in late 2008, placed it in receivership and sold its assets to JPMorgan for $1.9 billion. As we've previously reported, WaMu's estate and its special litigation team from Quinn Emanuel Urquhart & Sullivan claimed JPMorgan and several of its top executives, including the bank's chief, Jamie Dimon, conspired to lower WaMu's sale price by leaking false information about WaMu's finances to federal regulators and potential rival bidders.


Lehman Report Shows Ex-GC's Fight to the Bitter End

Amy Miller, Corporate Counsel

03-15-10 -- Thomas Russo knows a thing or two about shepherding struggling financial companies through chaotic times. The former top lawyer for Lehman Brothers Holdings Inc. took on the unenviable task of becoming general counsel for embattled American International Group Inc. in February. . . . Now Russo's old life as head lawyer of the collapsed Lehman Brothers is in the news again with the release of a 2,200-page bankruptcy examiners' report. The New York Times called it the "Wall Street equivalent of a coroner's report" because it lays out in minute detail how Lehman Brothers used accounting gimmicks to hide the bad investments that led to its demise. . . . Russo and Lehman's legal department weren't blamed for the accounting chicanery, according to the report. But it shows that they were involved in negotiations with other financial institutions as the bank fought for its survival.


NEW YORK  

Court: Rights to Tavern on the Green Name
Belong to New York City

Formerly the highest-grossing independently run restaurant in the United States, the restaurant remains mired in bankruptcy proceedings

Noeleen G. Walder, New York Law Journal

03-11-10 -- A federal judge ruled Wednesday that New York City had presented "compelling evidence" that it owned the right to the name Tavern on the Green. . . . The decision comes more than two months after the famous Central Park eatery closed its doors on Dec. 31. It caps a bitter battle between the city and descendants of famed restaurateur Warner LeRoy, who licensed the right to run Tavern on the Green in the 1970s. . . . Tavern on the Green, L.P., and LeRoy Adventures Inc., claimed a 1981 "incontestible" trademark registration conclusively established its right to the name.


Lehman to Judge: Make the Examiner's Report Public

Zach Lowe, The American Lawyer

03-10-10 -- Lehman Brothers and its lawyers at Weil, Gotshal & Manges sent a clear message this week to the judge hearing Lehman's bankruptcy case: Make public the full report about Lehman's demise. In a motion filed Monday by Weil's Harvey Miller, Lehman says it has cooperated fully with the special examiner investigating the bank's failure and has turned over more than 20 million pages of e-mail. (The motion is available for download below.) . . . The examiner in the case, Jenner & Block chairman Anton Valukas, was given full subpoena power to investigate Lehman's epic fall, as previously reported in this space. Issues of particular interest include whether Barclays got a sweetheart deal when it purchased Lehman's North American operations days after Lehman filed for bankruptcy; how Lehman shifted billions from unit to unit hours before its bankruptcy filing; and whether JPMorgan Chase acted appropriately as Lehman's main lender, according to Bloomberg and our prior reporting.


UNITED STATES SUPREME COURT

High Court Finds Lawyers and Their Advice Covered by Bankruptcy Reform Law

Marcia Coyle, The National Law Journal

03-09-10 -- Consumer bankruptcy lawyers are "debt relief agencies" under a 2005 federal bankruptcy law and restrictions on the type of advice they can give clients are constitutional, the U.S. Supreme Court ruled on Monday. . . . In a challenge brought by a Minnesota law firm, the justices unanimously held that the plain language of the Bankruptcy Abuse Prevention and Consumer Protection Act clearly indicates that lawyers function as debt relief agencies when they provide bankruptcy help to consumers covered by the law. The 2005 law was enacted to combat abuse of the bankruptcy system. . . . The Supreme Court case, Milavetz, Gallop & Milavetz v. U.S., actually raised three issues for the justices: . . . Whether lawyers are debt relief agencies. . . . Whether a provision prohibiting lawyers from advising clients to incur more debt "in contemplation" of filing for bankruptcy violates First Amendment free speech guarantees. . . . Whether provisions requiring a debt relief agency to include the sentence "We are a debt relief agency," or one substantially similar, in all advertisements mandate unconstitutional compelled speech. . . . The 8th U.S. Circuit Court of Appeals had ruled in favor of the law firm only on the second issue -- the restriction on lawyers' advice. That ruling prompted a cross-petition for Supreme Court review by the government.


Bankruptcy Judge Clears Way to Liquidate Tavern on the Green's Assets

Noeleen G. Walder, New York Law Journal

03-09-10 -- Lamenting the amount of time wasted in the Chapter 11 case of Tavern on the Green, a federal judge last week cleared the way for the liquidation of the famed eatery's remaining assets. In papers filed last month, the committee of unsecured creditors of Tavern on the Green Limited Partnership accused New York City of "materially interfer[ing] with the Debtors' effort to maximize the value of their estates" and "caused the estates needlessly to incur millions of dollars in administrative expenses." . . . The committee, which said the estate owed some $3 million in "professional" fees, told Southern District of New York Bankruptcy Judge Allan L. Gropper that the only way to efficiently administer the estate was to convert the Chapter 11 proceedings to a Chapter 7 liquidation. The city countered that the conversion motion was a "ploy" and accused the committee of spending "enormous amounts of money in a very short period of time without producing any tangible results."


US top court upholds lawyer bankruptcy advice law

At issue: incurring more debt before bankruptcy filing

* Law challenged for violating free-speech rights

* Government lawyers say law only targeted abuses

By James Vicini, Reuter

03-08-10 -- The Supreme Court on Monday unanimously upheld part of the U.S. bankruptcy law that bars attorneys from advising clients to take on more debt while considering a bankruptcy filing. . . . The opinion by Justice Sonia Sotomayor reverses a ruling by a U.S. appeals court that a provision of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 was unconstitutionally broad and violated free-speech rights. . . . The provision prohibits bankruptcy professionals like attorneys from advising their clients to incur more debt, such as mortgages or student loans, before filing for creditor protection. . . . The ruling is a victory for the U.S. Justice Department, which defended the provision. It said Congress adopted the law fight abuse of the bankruptcy system encouraged by lawyers.


Big Bankruptcies' Big Fees Raising Questions

Brian Baxter, The American Lawyer

03-05-10 -- The Chapter 11 cases of copper miner Asarco and casino operator Station Casinos have been a gold mine for bankruptcy lawyers. Baker Botts broke the $100 million billable mark in the five-year-old Asarco case last August, and the legal bills in the seven-month-old Station Casinos case are approaching $20 million for a dozen law firms. But future fees might not be paid out so easily as the bills have come under increasing scrutiny. . . . We've taken a close look at fee filings in both cases. Hourly billing rates for attorneys, when available, are listed in parentheses. . . . Station Casinos / When we first reported on the Chapter 11 filing of Station Casinos last summer, it struck us as one of the more twisted and complex bankruptcy cases around. And not for nothing. Since Station filed for bankruptcy on July 28, nearly a dozen law firms have landed some piece of the work for the struggling Las Vegas-based casino operator. Station has paid out nearly $20 million in legal bills in less than eight months.


Orrick Partner Sued in Contentious Chapter 11 Case

Zach Lowe, The American Lawyer

03-05-10 -- The bankruptcy case of Thornburg Mortgage has already involved an anonymous letter, allegedly stolen laptops, lawsuits against the company's former top executives and law firms bowing out of the case for various reasons. Thursday brought a new development: a suit, brought by the U.S. Trustee now handling matters for the debtor, charging Orrick, Herrington & Sutcliffe partner Karen Dempsey with being part of an alleged conspiracy to defraud Thornburg and divert the company's money to a new entity started by ex-Thornburg management. . . . The allegations are too numerous to spell out in full here (the complaint is available for download below), but the gist is this: The trustee, Joel Sher of Shapiro, Sher, Guinot & Sandler, charges four former Thornburg executives with using various means to send millions of dollars from the debtor company to their new company, SAF Financial, according to court records. Orrick's Dempsey allegedly helped the former execs along the way by, among other things, advising them on how to set up SAF and amend the Thornburg management agreement in a way that allowed for the payment of management fees and bonuses from Thornburg to the executives on a faster timetable -- and outside of bankruptcy court. The executives are separately charged with stealing confidential Thornburg property and instructing some Thornburg employees to do work for SAF, court records show. (Sher did not respond to two calls seeking comment.)


Bankruptcy Judge Backs Madoff Trustee's Payout Calculations

Noeleen G. Walder, New York Law Journal

03-02-10 -- A bankruptcy judge Monday upheld a trustee's method of adjudicating the claims of investors who fell prey to Bernard L. Madoff's massive Ponzi scheme. . . . Under Trustee Irving H. Picard's "cash-in/cash out" approach, investors who withdrew more money from their Madoff accounts than they deposited ("net winners") will not be compensated while investors who withdrew less than they put in ("net losers") would be compensated by the Securities Investor Protection Corp. . . . The method has been hotly contested by numerous investors, who argue that payouts should be based on their Nov. 30, 2008, customer statements from Bernard L. Madoff Investment Securities LLC, the last statement they received before Madoff, 71, was arrested for his multibillion dollar fraud.


Shockingly NEW!!!

Attorneys & Judges Involved in Sexual Misconduct


February 2010

NEW HAMPSHIRE  

Bankruptcy case stretches law firm

By Daniel Barrick, Monitor staff

02-26-10 -- Since two Lakes Region investment firms abruptly shut their doors last year, dozens of former investors have claimed the closures caused them severe financial strain. Add another name to that list: the law firm handling the companies' bankruptcy case. . . . Donchess & Notinger, the Nashua law firm appointed to help the trustee overseeing the bankruptcy of Financial Resources Mortgage and CL&M, said in court filings yesterday that the case has "created financial hardship for the firm." So far, the firm has rung up nearly $250,000 in legal fees and expenses from the case, according to the court filings. . . . Donchess & Notinger yesterday asked the judge in the case to authorize the payment of half that amount. But it could be a while before that money is forthcoming. Both Financial Resources Mortgage and CL&M, which officials say managed a massive Ponzi scheme, closed their doors with virtually no cash in their accounts. And since the companies closed in early November, Donchess & Notinger have recovered just $60,000 in loan payments from some of the companies' borrowers and their former law firm. . . . The firm "has spent a lot of time working through the tangled web of transactions and transfers set up by CL&M and (Financial Resources Mortgage) to further its Ponzi scheme," the firm's request said.


FLORIDA  

Scott Rothstein's Former Partners Still Refuse to Disclose E-Mail Passwords

Julie Kay, Daily Business Review

02-24-10 -- Two former partners at Scott Rothstein's defunct law firm have refused to turn over access to their off-site computer and e-mail files and will face a court order to force them to do so. . . . U.S. Bankruptcy Judge Raymond Ray, who is overseeing the Rothstein Rosenfeldt Adler bankruptcy and wind-down, said at a hearing Tuesday that he will compel Russell Adler and Robert Buschel to surrender their passwords to the RRA firm's e-mail and computer file system administered by Burbank, Calif.-based Qtask. The request was made by bankruptcy trustee Herbert Stettin. . . . Berger Singerman attorney Chuck Lichtman, who represents Stettin, said he sought the order to look for potential evidence of Rothstein's $1.2 billion Ponzi scheme and hidden assets. He guessed federal prosecutors also would be interested in reviewing the files once he has obtained them.


MONTANA  

Former attorney pleads guilty to fraud

Associated Press, Great Falls Tribune

02-24-10 -- A former Billings attorney who was sentenced to prison for stealing money from clients in 1987 has admitted doing it again. . . . Marvin E. “Toby” Alback pleaded guilty Tuesday to wire fraud and bankruptcy fraud for misappropriating money from clients for his own use. He appeared before U.S. Magistrate Judge Carolyn Ostby. . . . Prosecutors say Alback took a mortgage payment from a client in a bankruptcy case, along with a $557 tax refund check that should have gone into the bankruptcy estate.


FLORIDA  

Tension Flares Over Distribution of Seized Rothstein Assets

Jordana Mishory, Daily Business Review

02-23-10 -- Victims of convicted fraudster Scott Rothstein's $1.2 billion Ponzi scheme are elbowing each other to get the first crack at seized assets. And now, federal prosecutors and the bankruptcy trustee are going at it as well.

The U.S. Attorney's Office and Herbert Stettin, the bankruptcy trustee dismantling defunct law firm Rothstein Rosenfeldt Adler, are fighting over restitution plans for an estimated 350 victims of Rothstein's fraud. . . . The two sides met Feb. 12 in hopes of finding a way to work together. But attempts at behind-the-scenes collaboration immediately sputtered, according to a government motion Friday decrying "inflammatory statements" by the trustee's side.


The Lehman Brothers Bill: $641.9 Million and Counting

Zach Lowe, The American Lawyer

02-23-10 -- Late Friday, the Lehman Brothers estate submitted an updated accounting of the fees it has paid to bankruptcy advisers through the end of January, and that tab now stands at $641.9 million and could well reach the $1 billion mark, according to Bloomberg and the estate's SEC filing. . . . According to our math, a smidgen less than half of that amount has gone to the various law firms working for Lehman and its creditors. A total of 15 law firms (not including the estate's fee examiner) have billed Lehman $310,791,000 since Lehman filed for bankruptcy on Sept. 15, 2008.


Judge Won't Forgive $80 Million Chrysler Debt

The Associated Press, Law.com

02-18-10 -- Former auto magnate Denny Hecker won't be getting any relief from his $80 million debt to Chrysler Financial. . . . Hecker stood up and cursed in court Wednesday after U.S. Bankruptcy Judge Robert Kressel refused to forgive the debt. It means Chrysler can claim any future earnings by Hecker. . . . Kressel says that as he reviewed incomplete evidence from Hecker, it became clear Hecker "just lied."


GENERAL

Lawyers see bankruptcy boom ahead

by Steven E.F. Brown, San Francisco Business Times

02-17-10 -- Bankruptcies, foreclosures and litigation are likely to keep providing booming business to law firms, according to a survey by Robert Half Legal. . . . When asked which area of the law would grow fastest over the next three months, the 300 lawyers in the survey put bankruptcy and foreclosure at the top of the list. Litigation and labor and employment followed.


FLORIDA  

Former Rothstein Firm Partner Sued for $8 Million

John Pacenti, Daily Business Review

02-16-10 -- The bankruptcy trustee for jailed attorney Scott Rothstein's defunct law firm set his sights Thursday on equity partner Stuart Rosenfeldt, claiming $8 million in excessive compensation and linking bonuses to political contributions. . . . Rothstein has pleaded guilty to racketeering, fraud and conspiracy in a $1.2 billion Ponzi scheme based on fake structured settlements sold through the 70-lawyer Rothstein Rosenfeldt Adler. . . . Federal prosecutors accused Rothstein of funneling some of the tainted money to employees of the Fort Lauderdale, Fla.-based firm for political campaign contributions to avoid federal and state election donation caps. . . . Herbert Stettin, the firm's court-appointed trustee, is demanding the return of $7.94 million from Rosenfeldt and his wife, claiming he was entitled to a maximum $1.15 million in the past four years but received much more. Rothstein and Rosenfeldt were the firm's only equity partners.


Ruling Possible This Month in Stanford Bankruptcy

Schuyler Dixon, The Associated Press, Law.com

02-12-10 -- A federal judge said Thursday he will try to rule this month on whether to put jailed Texas financier R. Allen Stanford's businesses under bankruptcy protection. . . . Stanford's vast financial empire was placed in the hands of a court-appointed attorney last year when the Securities and Exchange Commission sued Stanford on charges that he was running a $7 billion Ponzi scheme. . . . Now some of the allegedly jilted investors are asking U.S. District Judge David Godbey to turn the case over to a bankruptcy court, arguing their rights are better served through U.S. law than the decisions of receiver Ralph Janvey. . . . Godbey said he needed time to rule.


Madoff Relatives Agree to Asset Freeze

The Associated Press, Law.com

02-08-10 -- Bernard Madoff's brother, sons and a niece, accused in a lawsuit of using the family finance business like a "piggy bank," have agreed to an asset freeze, according to a document filed in court Friday. . . . The deal with court-appointed trustee Irving Picard was described in a document filed in U.S. Bankruptcy Court in Manhattan. . . . Picard sued the family members in November seeking nearly $200 million that he said had enabled the family members to live lavishly at the expense of Madoff investors. . . . The asset freeze affects Madoff's brother, Peter; his sons, Mark and Andrew; and a niece, Shana Madoff. The consent order requires them to seek permission from Picard to spend more than $1,000 unless the expense results from a list of exemptions such as legal or medical fees. It also requires them to provide a monthly listing of all expenses.


Federal Judge Approves Settlements in Dreier Case

Noeleen G. Walder, New York Law Journal

02-08-10 -- A federal judge has approved several settlement agreements between the government, the trustees charged with liquidating the estate of disbarred attorney Marc S. Dreier and his defunct 250-attorney law firm, and various other parties affected by his massive fraud. . . . Noting that "an under-appreciated evil of substantial frauds like those of Marc Dreier is how they pit their victims against one another," Southern District Judge Jed S. Rakoff ruled Friday that a coordination agreement, which prevents the federal government from going after the proceeds of avoidance actions brought by Sheila Gowan, the trustee for Dreier LLP, was "reasonable and in the best interests of the victims collectively." . . . The coordination agreement authorizes the government to release to Gowan 97 artworks that have not been traced to Dreier's crimes.


Trustee, Madoff Investors Spar Over Payout Calculation

Noeleen G. Walder, New York Law Journal

02-03-10 -- The attorney for the bankruptcy trustee recovering the assets of Bernard L. Madoff argued before a packed courtroom Tuesday that "no one in their right mind" would use the financial statements concocted by Madoff as a basis for distributing the funds. . . . During a nearly four-hour hearing, David J. Sheehan, an attorney for trustee Irving H. Picard, urged Bankruptcy Judge Burton Lifland to accept Picard's "cash-in/ cash-out" method of compensating investors. . . . Under that approach, investors who withdrew less cash from their Madoff accounts than they deposited ("net losers") would share in whatever Picard recovers, now about $1.5 billion. . . . On the other hand, investors who withdrew funds over and above what they invested ("net winners") would get nothing.


Judge Set to Sign Off on Dreier Settlements

Noeleen G. Walder, New York Law Journal

Marc Dreier
Image: Courtesy Photo

02-02-10 -- A federal judge is set to give the green light to a number of proposed settlements involving the estates of disbarred attorney Marc S. Dreier and his defunct 250-lawyer firm. Last month, prosecutors and trustees charged with liquidating the Dreier estates asked Southern District Judge Jed S. Rakoff to approve the agreements, including one with investment manager GSO Capital Partners.

Anatomy of a Crack-Up: The Marc Dreier Case

Under the agreements, Sheila Gowan of Diamond McCarthy, the trustee for Dreier LLP, would refrain from challenging the government's attempt to collect certain forfeited funds. In turn, prosecutors would transfer certain property to Gowan, including nearly 100 artworks that have not been traced to Dreier's crimes. The government would also agree not to go after proceeds from avoidance actions brought by the Chapter 11 trustee.


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January 2010

VIRGINIA  

Former Franklin lawyer pleads guilty to lying in bankruptcy

By Tim McGlone, The Virginian-Pilot

01-26-10 -- A former Franklin lawyer pleaded guilty in federal court this morning to falsifying bankruptcy papers involving nearly $4 million he loaned to himself from an elderly client. . . . James Edward Moyler Jr., 79, who now lives in Williamsburg, is scheduled to be sentenced April 30. He faces up to five years in prison. . . . Moyler was a longtime, respected lawyer in Franklin who was forced into bankruptcy in 2008. He and his wife declared $4.2 million in debts, but he failed to disclose that he had “borrowed” just under $4 million from a client, according to court records.


Bankruptcy Judge Rules Refinancing Lender's Carelessness Won't Cost It Priority

Mary Pat Gallagher, New Jersey Law Journal

01-19-10 -- In a ruling of interest to mortgage lenders, a bankruptcy judge has ruled that even a grossly negligent lender is entitled to the benefit of equitable subrogation in determining priority. . . . The Jan. 11 decision is good news for Countrywide Homes Loans Inc., which is trying to recover on a $691,000 loan made to Richard Spair in 2004 for a refinance of his Wall Township, N.J., home. Countrywide acquired the mortgage from Quicken Loans in 2006. . . . The house was sold for $1.025 million after Spair filed for bankruptcy, and Countrywide is vying with another mortgagee for more than $900,000 in net proceeds held by the Chapter 13 trustee.


Lehman Bankruptcy Lawyers, Advisers Paid $588.4 Million So Far

By Linda Sandler, Bloomberg

01-15-10 -- Lehman Brothers Holdings Inc. has paid its lawyers and other bankruptcy advisers $588.4 million in the 15 months since it started liquidating, according to a regulatory filing. . . . The restructuring firm Alvarez & Marsal LLC, which provided Lehman with its current chief executive officer, Bryan Marsal, led the payments with $218.3 million in fees for “interim management” through December, according to the filing yesterday with the U.S. Securities and Exchange Commission. . . . Weil Gotshal & Manges LLP of New York was reported by Lehman to have collected $127.1 million through December for acting as the investment bank’s lead bankruptcy law firm, the same amount as Lehman said it had paid through November. Harvey Miller, Lehman’s lead lawyer at Weil Gotshal, didn’t immediately respond to an e-mail seeking comment yesterday.


NEW YORK  

Prosecutors, Dreier Trustees Reach Liquidation Settlement

Noeleen G. Walder, New York Law Journal

01-15-10 -- After months of negotiations, prosecutors have told a federal judge they have hammered out an agreement with the trustees charged with liquidating the estates of disbarred attorney Marc S. Dreier and his defunct 250-lawyer firm. . . . Representatives of the Southern District U.S. Attorney's Office and lawyers for Sheila Gowan of Diamond McCarthy, the trustee for Dreier LLP, and Chapter 7 trustee Salvatore LaMonica of LaMonica Herbst & Maniscalco urged Southern District Judge Jed S. Rakoff on Tuesday to approve three agreements, including one with investment manager GSO Capital Partners LP.


MASSACHUSETTS   

It's Judge v. Judge in Case of Bankrupt Law Grad

Posted by Robert J. Ambrogi, Law.com Legal Blog Watch 

01-14-10 – In an unusual example of judicial defiance, an on-his-way-out bankruptcy judge is siding with an out-of-work and deep-in-debt law grad and issuing a rebuke to the federal district judge who overruled him. . . . "An irascible Massachusetts bankruptcy judge known for 'whacking lenders' has turned his acid pen upon the chief of the U.S. District Court of Massachusetts who overruled his decision to release a penniless bar-failer from her law school debts," reports Julia Reischel has the story at The Docket, the blog of Massachusetts Lawyers Weekly newspaper. . . . The case involves Denise M. Bronsdon, now 65, who graduated in 2005 in the top half of her class at the unaccredited Southern New England School of Law but then failed the Massachusetts bar exam three times. She is now unemployed and lives on Social Security in a room at her father's house.


MARYLAND   

Citing Quinn Emanuel's Bills, Thornburgh Trustee
Seeks to Slow Payments

Andrew Longstreth, The American Lawyer

01-12-10 -- The law firms and financial advisers retained in the Thornburg Mortgage bankruptcy have had it pretty good for a while. Shortly after the jumbo loan issuer went belly up last May, the federal bankruptcy court in Baltimore established a compensation plan that allowed professionals to submit bills every month, rather than every 120 days as directed in the bankruptcy code. Among the top beneficiaries have been debtor's counsel Venable ($1,160,693) and Quinn Emanuel Urquhart Oliver & Hedges, which is counsel to the unsecured creditors' committee ($858,198). But the days of quick payouts may be numbered. Last week, the trustee in the case filed a motion (pdf) asking the court to terminate the monthly compensation order. . . . The trustee argued that the bills are too numerous to analyze and that their preparation is costing the estate a small fortune. Special criticism was reserved for Quinn Emanuel, which the trustee noted has billed the estate nearly $75,000 simply for the preparation of its monthly fee statements.


FLORIDA  

Creditors Try to Block Last Paychecks to Employees of Former Rothstein Firm

Jordana Mishory, Daily Business Review

01-08-10 -- A creditors committee in the bankruptcy case of defunct law firm Rothstein Rosenfeldt Adler unsuccessfully tried Thursday to block salary payments to three employees in the wake of founder Scott Rothstein's alleged $1.2 billion fraud. . . . The committee's attorney opposed paying a total of $7,220 to firm CFO Irene Stay, assistant managing shareholder Grant Smith and billing agent Aimee Villegas because of their possible involvement in the alleged Ponzi scheme. . . . "I know Stay has committed fraudulent activity, likely one far in excess" of the $2,000 she is owed, creditor attorney Eyal Berger, an associate at Akerman Senterfitt in Fort Lauderdale, Fla., told U.S. Bankruptcy Judge Raymond Ray.


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December 2009

Bankruptcy pays off for specialists

Chapter 11 results in huge payouts for SemGroup case players.

By Rod Walton Tulsa World Staff Writer

12-30-09 -- A bankruptcy filing may usher in a blue morning for financially troubled companies, but it's a red-letter day for the attorneys, consultants and other professionals who make a living guiding firms through reorganization or liquidation. . . . Tulsa's most recent example — the rise, fall and ultimate re-emergence of midstream oil giant SemGroup — illustrates how dozens of companies, employing hundreds of people, make millions in fees throughout a Chapter 11 case, records show. . . . Now called SemGroup Corp., the company emerged Dec. 1 after 16 months in bankruptcy. . . . SemGroup so far has paid out $137.52 million to 41 firms doing a variety of Chapter 11 work. The payout doesn't end there, as the company's last monthly operating report only details fees paid through Oct. 31. . . . Future applications for fees, including those filed this week by law firm Bifferato LLC or asset evaluator Valuation Research Corp. earlier this month, likely will push that total beyond $140 million. Whether that's money well spent depends on one's view of bankruptcy consultants.

Complete coverage: Read all the stories and documents related to the SemGroup collapse.


Privilege Takes Center Stage as WaMu Bankruptcy Heats Up

Zach Lowe, The American Lawyer

12-21-09 -- Lawyers for Washington Mutual filed papers Friday in the bank's Chapter 11 case claiming Sullivan & Cromwell, on behalf of WaMu's new owners at JPMorgan Chase, has been sending out letters asking WaMu's old law firms to turn over their client files on WaMu -- files that include privileged material. . . . The letters, which WaMu's lawyers at Quinn, Emanuel, Urquhart, Oliver & Hedges have attached as exhibits, claim JPMorgan should have access to the privileged documents because JPMorgan and WaMu are essentially the same entity now. Those entities have "joint privilege," the letters claim. . . . Firms that have received the letters include Weil, Gotshal & Manges, Simpson Thacher & Bartlett, Perkins Coie and others.


Multimillion-Dollar Fee Requests Have Some Questioning Big Bankruptcy Bills

Brian Baxter and Noeleen G. Walder, ALM Media

12-18-09 -- Bankruptcy rates are a popular topic in the world we cover and always command great interest. Today's news on the subject is no different. The latest fee requests in the bankruptcies of Bernard L. Madoff Investment Securities and Nortel Networks are boosting the bottom lines of two Am Law 100 firms. It might be good news for the lawyers, but not everyone is happy about it. . . . A federal judge on Thursday awarded trustee Irving H. Picard and his team of lawyers liquidating Madoff's investment firm roughly $22 million in interim counsel fees. Southern District of New York Bankruptcy Judge Burton Lifland granted Picard and Baker & Hostetler's respective requests for approximately $836,000 and $21.3 million in fees for May 1 through Sept. 30. In August, Lifland approved about $15 million in interim fees for Picard and his attorneys.


Judge Approves General Growth Properties' Mortgage Modification Deals

Irene Plagianos, The American Lawyer

12-17-09 -- A Manhattan bankruptcy judge approved General Growth Properties Inc.'s plans to restructure more than $10 billion in mortgages Tuesday, Bloomberg reports. The restructuring will allow 103 mall properties holding those loans to exit bankruptcy by the end of the year. . . . As we previously reported, GGP, the nation's fourth-largest real estate investment trust, filed restructuring plans for the mortgages Dec. 2. The unusual deal to modify the terms of its plethora of securities has been viewed as a possible model for other investors facing foreclosure on similarly troubled real estate; it stands as the largest restructuring of commercial mortgage-backed securities debt ever.


Bankruptcy Rates Top $1,000 Mark in 2008-09

Amy Kolz, The American Lawyer

12-16-09 -- A review of bankruptcy rates in Delaware and the Southern District of New York shows that a handful of U.S.-based partners at Am Law 200 firms have inched above the $1,000 rate barrier, making bankruptcy work as lucrative as it was plentiful in 2008 and 2009. Over a 12-month period ending August 2009, there were more than 13,000 billing rate entries submitted by law firms in the nation's two busiest bankruptcy courts, according to a new database compiled by ALM Media. . . . Among U.S.-based lawyers at Am Law 200 firms, Shearman & Sterling tax partner Bernie Pistillo topped the rate chart with an hourly fee of $1,065 for his work on the bankruptcy of Stock Building Supply Holdings LLC, a building products supplier, in Delaware. (One solo practitioner in Pleasantville, N.Y., Alan Harris, surpassed Pistillo's rate, charging $1,200 an hour for his work as special real estate litigation counsel on the bankruptcy of Digital Printing Systems in the Southern District of New York.) Eleven other U.S.-based Am Law 200 partners were in the $1,000-plus club, according to the database.


Prosecution Drop May Embolden Bankruptcy Fraud as Filings Surge

By Justin Blum, Bloomberg

12-16-09 -- U.S. authorities prosecuted the fewest number of people and companies for criminal bankruptcy fraud this year since at least 1986, even as filings rose amid the worst economic crisis since the Great Depression. . . . The FBI, which is the primary agency that probes such cases, says it is putting more emphasis on other white-collar crimes, including securities and mortgage fraud. The bureau had reassigned agents handling white-collar crimes to national security after the Sept. 11 attacks. . . . Fewer prosecutions have emboldened criminals, said Juval Aviv, the president and chief executive officer of Interfor Inc., a New York-based investigation and security firm that helps find money hidden from creditors, in an interview.


Commas key in battle to control Philly newspapers?

By Maryclaire Dale, Associated Press Writer

12-15-09 -- The future of Philadelphia's two major newspapers could turn on a pair of commas in the bankruptcy code. . . . The newspapers' creditors seized on the commas to argue in a federal appeals court Tuesday for the right to use the $300 million owed them to bid for The Philadelphia Inquirer and Philadelphia Daily News. . . . The company that owns both newspapers, Philadelphia Newspapers, interprets the statute to mean it can bar such credit bids at its proposed auction. The company hopes a new group - comprised of two current and one new investor - will win with a bid of $67 million in cash and real estate.


Weil's Lehman Legal Bill Reaches $127 Million

Brian Baxter, The American Lawyer

12-15-09 -- A monthly operating report filed in Manhattan bankruptcy court on Monday shows that Weil, Gotshal & Manges has billed Lehman Brothers $127.1 million in fees and expenses for its role as lead debtors' counsel. . . . The latest fee disclosure, first reported by Bloomberg, was part of a report on Lehman's professional fees and expense disbursements through November 30. The 26-page report (pdf) filed by Weil bankruptcy partner Shai Waisman shows that Lehman has paid legal counsel and financial advisers nearly $533.5 million since entering Chapter 11 in September 2008. . . . Weil began serving as lead debtors' counsel that month as the Lehman bankruptcy became the largest Chapter 11 case in U.S. history. The firm broke the $100 million billable mark this past August.


Ernst & Young Prevails in $140 Million Case Brought by Frontier Creditors Trust

Andrew Longstreth, The American Lawyer

12-14-09 -- When the creditors of bankrupt companies draw up lists of litigation targets, auditing firms are often right there at the top. So it was for the creditors trust of the bankrupt insurer, Frontier Insurance Group. The trust, represented by John McKetta III of Graves Dougherty Hearon & Moody, alleged that Ernst & Young underestimated the reserves Frontier needed to hold, making the company look healthy when it was actually insolvent. It claimed $140 million in damages, plus interest. . . . But E&Y decided to make a stand. It refused to chip up, and instead headed for a jury trial before White Plains, N.Y., federal district court Judge Cathy Seibel. On Wednesday, after 12 days of trial, jurors needed only two hours to exonerate the auditor.


Judge Orders Lawyers to Stop Using Capitalization ‘With Abandon’

By Debra Cassens Weiss, ABA Journal

12-14-09 -- A federal bankruptcy judge is fed up with lawyers who use superfluous words and too much capitalization, and he has directed them to stop it. . . . U.S. Bankruptcy Judge Robert Kressel of Minnesota took a stand against legalese in new guidelines (PDF) for lawyers preparing proposed orders in his court, Legal Blog Watch reports, citing a story by Lawyerist.com. . . . Kressel says lawyers should eliminate superfluous words such as “hereby,” “herein” and “heretofore entered in this case.” The phrases “serve no purpose other than to make the document sound more legal, which is exactly the opposite of the goal that I am trying to accomplish,” he writes. “Compare the meaning of ‘Now, therefore, it may be and is hereby ordered that' with ‘It is ordered.’ ” . . . Kressel also observes that “lawyers love to capitalize words. Pleadings, including proposed orders, are commonly full of words that are capitalized, not quite randomly, but certainly with great abandon.


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Mining Giant Pays $1.79 Billion to Clean Up Sites

Jeff Jeffrey, The National Law Journal

12-11-09 -- In what the U.S. Department of Justice is touting as the largest environmental bankruptcy in U.S. history, mining giant Asarco has paid $1.79 billion to fund environmental cleanup efforts at more than 80 sites in 19 states. . . . Asarco has spent the past 110 years extracting lead, zinc and copper at sites around the country, leaving in its wake a lot of hazardous material. But with the company mired in debt during the past decade, it seemed unlikely that it would be held liable for the cost of cleaning up contaminated sites. . . . In 2002, the Justice Department accused Asarco's parent company, Grupo Mexico, of trying to strip the company of all its assets to avoid paying its bills.


Judge Kressel Puts an End to Legalese in His Court

Bruce Carton , Law.com Legal Blog Watch

12-11-09 -- Attention all lawyers who practice before United States Bankruptcy Judge Robert Kressel, D. Minn.: He has just about had it with your crappy "legalese" and he has a 19-point plan to get you writing like a real person again. . . . In this post, The Lawyerist alerts us to the new "guidelines" issued this week by Judge Kressel. As the Lawyerist observes, "it is a catalog of and prohibition against every bad legal writing practice. And it makes sense, since he eventually has to sign those badly-drafted orders."


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Heller Leaders Saw Failure Looming, Documents Show

Amanda Royal, The Recorder

12-10-09 -- Heller Ehrman's leaders discussed the firm's "mortality" while assuring partners it was sound, and recruited more than five merger candidates by early 2008, including Mintz Levin, according to confidential creditors' exhibits in bankruptcy mediation talks. . . . The documents provide details never before available that give clues to the inner workings of a failing law firm and expose embarrassing ironies. . . . For instance, the firm in 2007 began a campaign to drive out up to 50 partners who weren't sufficiently profitable, but it had to ultimately close its doors because too many partners left, triggering a loan default.


MINNESOTA   

Free bankruptcy clinic made permanent

The need for the legal help offered by volunteer attorneys at the walk-in clinic is strong in this economy.

By Kara McGuire, Minneapolis Star Tribune

12-06-09 -- No one wants to be sitting across from Mary Hoben on a Thursday morning, but they are awfully glad she's there. . . . Hoben is one of 16 attorneys who donate their time and expertise to low-income Minnesotans at a free bankruptcy advice clinic. The new clinic, held at the U.S. Courthouses in Minneapolis or St. Paul, was set up on a trial basis this spring to assist people tackling the painful and mind-boggling task of filing for bankruptcy without an attorney's help. The walk-in clinic was made permanent this fall because demand is strong. In the worst recession since the Great Depression, is that surprising? . . . Bankruptcy filings in the state have surpassed levels last seen in 2004, the year before the law was overhauled in an attempt to reduce bankruptcy numbers.


General Growth Properties Eyes Exit From Chapter 11

Julie Triedman, The American Lawyer

12-3-09 -- General Growth Properties Inc., the fourth-largest real estate investment trust in the United States, filed a set of restructuring plans Tuesday night that would collectively restructure billions of dollars in mortgages that it holds. . . . The proposed plans cover the lion's share of GGP subsidiaries, and, if approved, would represent a significant step toward solving the parent company's problems by taking a substantial proportion of those subsidiaries' debt out bankruptcy. The remainder of GGP's property-related debt, including $7 billion in trade and unsecured parent company debt, $6 billion in other property-related debt, and several billions of dollars more connected to joint ventures, must still be reconciled in bankruptcy court.


FBI, DOJ refuse to investigate charges of judicial corruption

By: Barbara Hollingsworth, Washington Examiner (blog)

Re: “SEC IG looks into United Airlines bankruptcy,” Nov. 24

12-3-09 -- For three years, the Federal Bureau of Investigation and the Department of Justice have refused to investigate material evidence of a nationwide criminal racket that has allegedly infiltrated state and federal courts and is unlawfully manipulating and exploiting litigants in bankruptcy, family and probate courts. . . . According to court documents filed in Chicago, the FBI and DOJ turned a blind eye to retaliation against citizens who attempted to expose the corruption, including “kidnapping of children, false incarceration after being ‘framed’ by criminal elements in civil and criminal authorities, impoverishment, coercion under duress, and serious physical injury up to and including death.” . . . The 2006 affidavit claims that “multiple judges and lawyers are aware of and/or involved in alleged criminal acts,” but have not reported wrongdoing to authorities in violation of the Rules of Professional Conduct. It specifically mentions four federal judges, including Eugene R. Wedoff, who was appointed chief bankruptcy judge of the Northern District of Illinois in 1986. . . . Judge Wedoff presided over the 2005 bankruptcy of United Airlines, in which 20 large unsecured creditors lost nearly $18 million. The airline also defaulted on $3.2 billion worth of pension obligations for over 134,000 United employees –the largest pension default in three decades – while its top executives walked off with millions in exit bonuses.


UNITED STATES SUPREME COURT

High Court Considers Restrictions on Attorneys Giving Bankruptcy Advice

Marcia Coyle, The National Law Journal

12-2-09 -- In a constitutional challenge involving a Minnesota law firm, the U.S. Supreme Court on Tuesday seemed troubled by a federal restriction on legal advice to potential bankruptcy clients, but less concerned about the requirement that lawyers advertise as a "debt relief agency" if they give bankruptcy advice. . . . The justices heard arguments in Milavetz, Gallop & Milavetz v. U.S., one of three bankruptcy cases on the Court's docket this term. . . . Milavetz, a general-practice law firm in Edina, Minn., is challenging several provisions of the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act. The firm contends that, if those provisions are applied to lawyers, they would violate the First Amendment, put lawyers in conflict with state ethics regulations and compel lawyers to make misleading disclosures in their advertising.


MASSACHUSETTS   

Mixed Decision for Law Grad on Expunging Student Debt

Leigh Jones, The National Law Journal

12-1-09 -- When she graduated four years ago with a law degree at the age of 61, Denise Megan Bronsdon likely did not foresee bankruptcy court in her future. But that's where she ended up -- as a debtor. . . . The former farmer's wife who operated a tractor before going to Southern New England School of Law in 2002, convinced a Massachusetts bankruptcy court in January that repaying the more than $82,000 she owed in student debt would create an undue hardship. However, the U.S. District Court in Massachusetts, considering an appeal by the lender, Educational Credit Management Corp., found on Nov. 20 that Bronsdon's decision not to participate in a loan repayment assistance program should be part of the bankruptcy court's undue hardship analysis.


November 2009

UNITED STATES SUPREME COURT

Small Firm Takes Big Bankruptcy Fight to High Court

Marcia Coyle, The National Law Journal

11-30-09 -- Alan Milavetz remembers how his mother, "in typical Jewish-mother fashion," always urged him to be a doctor, lawyer or engineer when he grew up. "She didn't say doctor, debt relief agency or engineer," recalled the personal injury lawyer. . . . For Milavetz and a number of lawyers across the country, a 2005 federal law requiring them to advertise as a debt relief agency -- regardless of whether they offer sporadic or regular bankruptcy advice to clients -- irritates like a pair of ill-fitting shoes. . . . That requirement is in the Bankruptcy Abuse Prevention and Consumer Protection Act, a comprehensive package of reform measures. However, it is not the only reason Milavetz, Gallop & Milavetz, a small general practice firm in Edina, Minn., has fought the inclusion of lawyers in the law's debt relief agency provisions all the way to the U.S. Supreme Court.


NEW YORK  

Judge: Lawyer wrongly submitted bankruptcy documents

By Timothy O'Connor • Lower Hudson Journal news

11-26-09 -- A White Plains lawyer wrongly submitted bankruptcy documents without the signature of his client, a federal bankruptcy judge ruled Wednesday. . . . But Judge Robert Drain did not address whether lawyer Christopher Cabanillas had filed for bankruptcy without proper authorization from his client, Domingo Hernandez, who said he hired Cabanillas to fight foreclosure on his Yonkers property and never discussed bankruptcy with the lawyer. . . . That issue, the judge said in White Plains, would be a matter that would require further hearings in the case. . . . Drain sanctioned Cabanillas, ordering that he return whatever portion of the $1,250 retainer fee he was paid that went to the bankruptcy filing and that he pay for Hernandez’s legal fees fighting the bankruptcy filing.


Bankruptcies Up 34 Percent; Lawyers Observe Health Care Cost Impact

By Sarah Randag, ABA Journal

11-25-09 -- The number of federal bankruptcy cases is up more than 34 percent for the 12 months ending Sept. 30—the end of the federal judiciary's fiscal year—than it was for the prior 12 months, according to statistics released today. . . . Business filings are up 52 percent over 2008 (58,271 from 38,651) while nonbusiness filings are 34 percent higher (1,344,095 from 1,004,342), according to an Administrative Office of the U.S. Courts news release. . . . Meanwhile, the New York Times reported today about a "general sense among bankruptcy lawyers and court officials ... that the share of personal bankruptcies caused by illness is growing."


Casinos' Losses Prove to Be Law Firms' Gain

Zach Lowe, The American Lawyer

11-25-09 -- You know it's been a rough year when casinos are going bankrupt. And that's exactly what's happening. . . . On Tuesday, Kirkland & Ellis landed work as the lead debtor's counsel for Majestic Star Casino, which filed for bankruptcy related to its two casinos in Gary, Ind., and other facilities in Tunica, Miss., and Black Hawk, Colo. . . . James Sprayregen, the lead Kirkland partner on the case, says he began working with Majestic owner Don Barden during the two years he spent at Goldman Sachs before returning to his perch as co-head of Kirkland's prestigious bankruptcy group last November. The Delaware bankruptcy boutique Pachulski Stang Ziehl & Jones will serve as Majestic's local counsel.


Sullivan & Cromwell Cleared for Entry in CIT Bankruptcy

Zach Lowe, The American Lawyer

11-24-09 -- A federal judge has approved CIT Group's motion to hire Sullivan & Cromwell as special counsel for the duration of its bankruptcy case. Sullivan & Cromwell, which does not have a traditional bankruptcy practice, will join Skadden, Arps, Slate, Meagher & Flom (CIT's lead counsel) and Curtis, Mallet-Prevost, Colt & Mosle (conflicts counsel) as one of the lead firms on the lending giant's mega-bankruptcy. . . . As we reported earlier this month, S&C has been advising CIT Group's board of directors since August, when the company was trying everything possible to restructure its massive debt load outside of bankruptcy court. But CIT Group's initial bankruptcy petition said S&C would "act as special legal counsel to CIT going forward on certain corporate matters."


Madoff Trustee Requests $22 Million in Interim Fees

Noeleen G. Walder, New York Law Journal

11-24-09 -- The trustee and his team of lawyers liquidating Bernard L. Madoff's investment firm have asked a bankruptcy judge for $22 million in interim counsel fees. In papers filed Monday in Southern District of New York Bankruptcy Court, Baker & Hostetler and Irving H. Picard, respectively, requested some $21.3 million and $836,000 in fees for May 1 through Sept. 30, a 10 percent discount off of their customary billable rates. Picard was appointed trustee of Bernard L. Madoff Investment Securities in the wake of Madoff's arrest last December.


Coudert Estate Pursues Fees Earned From Former Clients

Nate Raymond, New York Law Journal

11-20-09 -- The liquidation plan administrator for the Coudert Brothers estate is claiming that Baker & McKenzie has breached an agreement with the defunct law firm by failing to hand over a portion of a contingency fee earned from work for former Coudert clients. . . . By not handing over the fees, Baker & McKenzie breached an agreement signed with Coudert in 2005 that gave Coudert rights to part of the fee, according to an amended complaint filed last week in bankruptcy court by the administrator. Baker & McKenzie last year resolved a series of cases involving taxes on coal exports for clients brought to the firm by former Coudert attorneys. . . . In a statement this week, Baker & McKenzie said, "We deny any wrongful conduct in this matter, and because it is pending, we will offer no further comment on the matter at this time." . . . The Southern District Bankruptcy Court approved its plan of liquidation in August 2008 in In re Coudert Brothers LLP, 06-12226.


Defective Paperwork Strips Mortgage Holder of Foreclosure Rights

Sheri Qualters, The National Law Journal

11-19-09 -- A Massachusetts federal judge has upheld a bankruptcy court ruling allowing a trustee to treat a mortgage as an unsecured claim, which strips the mortgage holder of foreclosure rights, because of defective mortgage paperwork. . . . In a Nov. 17 order, District Court Judge Patti Saris affirmed a bankruptcy court order denying the plaintiffs' request to send a question of law to the Supreme Judicial Court of Massachusetts. The case is Mortgage Electronic Registration Systems Inc. (MERS) v. Warren E. Agin, trustee. . . . The plaintiffs wanted the state high court's take on whether the omission of a borrower's name on an acknowledgement form, which a notary public uses to confirm the identity of the borrower, is a "material defect" that voids the mortgage.


Bondholders in Casino Deal Trump 'The Donald'

Zach Lowe, The American Lawyer

11-18-09 -- Donald Trump will not be taking over the bankrupt casino and entertainment company that bears his name, but he and his daughter will retain a stake in the entity under the terms of a deal Trump struck with the bondholders who will take the company out of bankruptcy, according to court records. . . . Kasowitz, Benson, Torres & Friedman bankruptcy head David Friedman represented Trump, a longtime firm client. (Friedman, who represented Trump when Trump Entertainment went bankrupt in 2004, is one of the few lawyers Trump has ever said anything nice about, according to this 2004 story from The American Lawyer.) Friedman says he has been representing Trump for about 10 years after a mutual friend introduced them.


We're Bankrupt, and Nearly Everyone Is Off the Hook
—Not So Fast ...

Sheri Qualters, The National Law Journal

11-18-09 -- The U.S. trustee in LandAmerica Financial Group Inc.'s Chapter 11 bankruptcy proceeding is objecting to the company's reorganization plan because it releases nearly everyone involved, including lawyers, from liability for negligent actions. . . . In the Nov. 12 objection, filed in In re LandAmerica Financial Group Inc. in the Eastern District of Virginia, U.S. Trustee W. Clarkson McDow Jr. stated that the releases do not comply with the bankruptcy code or case law. . . . LandAmerica filed for protection in November 2008 after its Section 1031 exchange business collapsed due to its auction-rate securities investments. Pursuant to Section 1031 of the Internal Revenue Code, the IRS allows taxpayers to defer capital gains on certain kinds of property sales if the seller uses the proceeds to buy other property within a set time frame. In February 2008, the market for auction-rate securities—bonds with interest rates set at periodic auctions—stalled when major brokerage houses stopped propping up the market by buying securities when demand waned.


Jones Day, Boies to Battle Over Lehman-Barclays Deal

Zach Lowe, The American Lawyer

11-18-09 -- Lehman Brothers and its counsel at Jones Day have filed suit against Barclays, claiming the bank got an undeserved windfall of at least $5 billion when it purchased much of Lehman's North American operations after Lehman went bankrupt last September. . . . The suit was expected. As we've reported before, Lehman and Jones Day asked a bankruptcy judge in September to modify the terms of the Barclays sale and alleged that a small number of executives on both sides conspired to give Barclays the so-called windfall.


CONNECTICUT  

Ethics Complaint Over Total Attorneys Referral Sites Could Have Wide Impact

Douglas S. Malan, The Connecticut Law Tribune

11-18-09 -- A Connecticut-licensed attorney ensnared by a nationwide ethics complaint moved to dismiss his case last week after a six-and-a-half hour hearing before a three-member ethics commission in Hartford. . . . The decision on the motion could have an impact on more than 550 lawyers in 47 states who have done or are doing business with Total Attorneys, a Chicago-based company that helps connect consumers to lawyers through web sites such as www.totalbankruptcy.com. . . . Norwich, Conn., bankruptcy attorney Zenas Zelotes filed grievances against all of those lawyers, arguing that Total Attorneys' method of connecting the parties is an example of lawyers paying for referrals, which is a felony in Connecticut and a violation of the Rules of Professional Conduct.


U.S. Trustee Objects to Third-Party Releases in LandAmerica's Reorganization Plan

Sheri Qualters, The National Law Journal

11-17-09 -- The U.S. trustee in LandAmerica Financial Group Inc.'s Chapter 11 bankruptcy proceeding is objecting to the company's reorganization plan because it releases nearly everyone involved, including lawyers, from liability for negligent actions. . . . In the Nov. 12 objection, filed in In re LandAmerica Financial Group Inc. in the Eastern District of Virginia, U.S. Trustee W. Clarkson McDow Jr. stated that the releases do not comply with the bankruptcy code or case law. . . . LandAmerica filed for protection in November 2008 after its Section 1031 exchange business collapsed due to its auction-rate securities investments. Pursuant to Section 1031 of the Internal Revenue Code, the IRS allows taxpayers to defer capital gains on certain kinds of property sales if the seller uses the proceeds to buy other property within a set time frame. In February 2008, the market for auction-rate securities -- bonds with interest rates set at periodic auctions -- stalled when major brokerage houses stopped propping up the market by buying securities when demand waned.


Lehman Brothers and Weil: Another Privilege Opening?

Zach Lowe, The American Lawyer

11-9-09 -- We've spent a lot of time dissecting Bank of America's decision to partially waive attorney-client privilege under pressure from federal authorities investigating the bank's frenzied merger with Merrill Lynch. But might there be another privilege issue brewing in the Lehman Brothers bankruptcy case? . . . It appears there may be: Weil, Gotshal & Manges, Lehman's lead bankruptcy counsel, is in the process of turning over documents related to the controversial sale of some of Lehman's prime assets to Barclays in the days after Lehman's Sept. 15, 2008, bankruptcy filing. Many of those documents were formerly protected by attorney-client privilege, though it is unclear whether any of them will ever make it to the public eye, according to a source familiar with the matter.


Bankruptcy Boutiques Are ‘Quietly Booming’

By Debra Cassens Weiss, ABA Journal

11-9-09 -- The declining economy is good news for boutique law firms handling business bankruptcies. . . . “Bankruptcy boutiques across the country have been quietly booming in this economy as bankruptcies and workouts soar,” according to Portfolio.com. “Unlike large law firms which have been pummeled by the recession, forcing them to fire lawyers and entirely rethink established business practices, these smaller bankruptcy shops say the current economy is actually an opportunity to shine.” . . . While most large law firms have bankruptcy practices, they are unable to handle some cases because they also represent large financial institutions, creating a conflict of interest, the story says


Judge Puts on the Brakes While Heller Sides Mediate

Amanda Royal, The Recorder

11-5-09 -- Judge Dennis Montali has canceled the first hearing on a liquidation plan in the Heller bankruptcy, pending the outcome of mediation talks between former shareholders and creditors. . . . Heller's creditors and at least four groups of shareholders appeared for their first mediation conference on Friday before Judge Randall Newsome for the U.S. Bankruptcy Court for the Northern District of California. . . . J. Scott Bovitz at Bovitz & Spitzer, a mediator in the bankruptcy mediation program in the Central District of California, said Montali is essentially telling everyone to stand down and cease fire. . . . Reinstatement: How Valuable Is Below-Market Secured Debt?


A closer look at 'In Re: Charter Communications'

Steven M. Hedberg, Special to Law.com

11-5-09 -- This is a story as old as borrowers, lenders and the Bankruptcy Code, but with a new twist. . . . On Oct. 15, Southern District of New York Bankruptcy Judge James Peck stated that he would confirm the joint plan of reorganization of Charter Communications Inc. over the hard-fought objection of a group of its secured lenders lead by JP Morgan Chase Bank as administrative agent. Charter holds itself out as the fourth largest cable operator in the United States, providing high-speed Internet, telephone and video service to approximately 5.5 million customers[FOOTNOTE 1], maintaining a 27-state footprint and employing more than 16,000 people.[FOOTNOTE 2] . . . More impressive than the size of its operations was Charter's ability to lose money. Even one of the wealthiest people on earth found Charter's losses unsustainable. "After investing and losing more than $8 billion in the Charter enterprise," Paul Allen said "enough."[FOOTNOTE 3]


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Tousa Ruling Emboldens Junior Creditors in Tribune and Lyondell Bankruptcies

Andrew Longstreth, The American Lawyer

11-3-09 -- Big creditor banks would love to forget about last month's ruling in the Tousa Chapter 11. But bondholders in other bankruptcies are making sure they don't. (Hat tip: Chicago Tribune) . . . As we told you in October, the federal bankruptcy court judge overseeing Tousa's Chapter 11 ruled in favor of a group of unsecured creditors who claimed that several major financial institutions, including Bank of America and Citigroup, engaged in a fraudulent conveyance when they lent the homebuilder Tousa $500 million before it filed for bankruptcy. (The decision followed a trial at which the bondholders were represented by Robbins, Russell, Englert, Orseck, Untereiner & Sauber.) . . . Now, according to The Chicago Tribune, a group of bondholders in the Tribune bankruptcy are waving the Tousa decision in the face of the banks that financed Sam Zell's $8.2 billion leveraged buyout of the media company. The Tribune bondholders haven't yet filed suit. But a motion filed by Kasowitz Benson Torres & Friedman, which represents the bondholders' trustee, suggests that litigation may be coming. "As recently determined in the Tousa bankruptcy cases on similar facts, the LBO lenders' claims are subject to dispute and likely avoidance as fraudulent conveyances," the Kasowitz attorneys wrote in the motion, which seeks to stop Tribune affiliates from making payments to lenders.


KENTUCKY  

Judge rules lawyer, financier must pay $3.2 million for 'inexcusable' conduct in bankruptcy case

By Andrew Wolfson • Louisville Courier-Journal

11-2-09 -- A suspended lawyer and a financier who once promised to employ 4,000 people building electric cars in Kentucky have both been slapped with a $3.2 million judgment by a bankruptcy court judge who called their fraud one of the most blatant she’d ever seen. . . . U.S. Bankruptcy Judge Joan Lloyd ruled Friday that attorney Bruce Atherton and Randall Scott Waldman “blatantly breached” their duty to the owner of a Louisville tool machinery company by forcing him out of business and seizing his assets. . . . In a scathing opinion, she awarded Ronald B. Stone $1,191,374 in compensatory damages and $2 million in punitive damages, saying the conduct of Atherton and Waldman was “inexcusable.” . . . Finding Atherton’s actions “nothing less than reprehensible,” she permanently disbarred him from practicing in bankruptcy court in the Western District of Kentucky.



October 2009

Heller Creditors Seek $150 Million, Detail Firm's Failings

Amanda Royal, The Recorder

10-29-09 -- The stakes have gone up. . . . Heller Ehrman's creditors now want $150 million from former partners, contending in a confidential mediation brief that the firm fraudulently conveyed that much to partners after it had become insolvent. Meanwhile, a group of 89 former Heller partners said in their own confidential brief that they've hired John Keker of Keker & Van Nest to represent them if creditors pursue a fraudulent conveyance suit. . . . The documents come to light as Heller's creditors and former partners prepare for their first mediation conference on Friday with Judge Randall Newsome of the U.S. Bankruptcy Court for the Northern District of California. . . . The creditors' brief, dated Sept. 22, contends that former Chairman Matthew Larrabee sent an e-mail describing a $9.3 million payout to partners late in 2007 as an "overdistribution." The creditors say the firm was already insolvent then, and that firm managers were trying to prop up the firm's profits-per-partner rankings to attract a merger partner.


VIRGINIA  

Roanoke bankruptcy lawyer stripped of license

Katelyn Polantz, Roanoke Times  

10-28-09 -- Ann Marie Miller, a Roanoke bankruptcy lawyer, lost her license to practice law Oct. 20, as the Virginia State Bar sorts out claims that she used clients' trust accounts improperly. . . . The bar disciplinary board action comes about a month into the investigation of Miller's misconduct. Miller consented to the revocation. . . . Miller said that in her cases, disciplinary rules she had broken regarding diligence, communication, safekeeping of property and misconduct reflected adversely on her ability to practice law, according to the Virginia State Bar's news release distributed Tuesday.


Heller Bankruptcy Judge to Lawyers: Your Plan Is a Mess

Amanda Royal, The Recorder

10-26-09 -- Judge Dennis Montali is already asking the two main lawyers on the Heller Ehrman bankruptcy to file a revised liquidation plan before the first hearing on it Nov. 9. . . . In a seven-page letter (pdf) to John Fiero, who represents the estate, and Thomas Willoughby, who represents the creditors committee, the judge pointed out dozens of issues, some of them technical and even grammatical, but many of them substantive. . . . For instance, Montali mentioned the creditors' $58 million suit against Bank of America several times, wanting to know how the plan would work if the bank wins: / "How are the secured creditors' attorneys fees and costs protected if they prevail?" the letter asks.


LOUISIANA

Feds push for $478,000 forfeiture from William Jefferson

By Bruce Alpert, Times-Picayune

10-26-09 -- In a new filing, the Justice Department says today that the federal government is entitled to $478,153 in forfeitures from former Rep. William Jefferson despite his August bankruptcy filing three weeks after a jury found him guilty of 11 corruption charges. . . . In such criminal cases, the prosecutors said, courts have ruled that the government is "entitled to every penny" a court determines should be forfeited as ill-gotten gains from illegal acts. . . . Jefferson and his wife, Andrea, have recently filed documents saying that the couple had monthly income of $30,967 in August, including Andrea's earnings of $6,134 through her administrative job at Southern University, pension benefits of $3,791; $5,152 from sales of books and gaming earnings of $14,600.


WEST VIRGINIA   

Putnam lawyer indicted in bankruptcy fraud

By Charleston Gazette Staff reports

10-22-09 -- A federal grand jury has indicted a Putnam County attorney on charges of bankruptcy fraud, the U.S. Attorney's Office announced. Patrick B. Anderson, 54, of Winfield, allegedly instructed two clients to hide assets by transferring ownership of their Harmon's Creek Road home to their daughter.


Judge: Some Lawyers Aren’t Smart Enough For Chapter 11

By David McLaughlin,  Wall Street Journal (blog)

10-21-09 -- U.S. Bankruptcy Judge Alan Jaroslovsky in California is leveling some harsh words at lawyers who are in over their heads in Chapter 11 cases. . . . In a letter posted on his Web site, Jaroslovsky, who is based in Santa Rosa, complains there has been a “spate” of individual Chapter 11s filed by attorneys “who have neither the experience nor the education nor the competence to venture into Chapter 11.” . . . The judge cited “rampant errors” and “frequent malpractice” in such cases, often used by wealthy individuals and small business owners, and said the failure by attorneys to understand the difference between Chapter 13, also used by individuals, and Chapter 11 is creating “serious liability exposure” for lawyers. . . . Then this choice line: “Forget about trying to fix your compensation. You will be paid what I allow, period.”


VIRGINIA  

Attorney convicted of disorderly conduct

Ann Marie Miller avoids any additional jail time while her former bankruptcy law practice is closed down.

By Mike Gangloff, Roanoke Times  

10-21-09 -- Criminal charges against former Roanoke bankruptcy attorney Ann Marie Miller were resolved today in a plea agreement that left her convicted of a misdemeanor charge of disorderly conduct and sentenced to 90 days in jail – with all of it suspended except for the weekend behind bars that she served after being arrested in August. . . . Besides the disorderly conduct charge, Miller entered a no contest plea to a misdemeanor charge of assault. Under the plea agreement, the charge will be dropped in a year if Miller stays clear of trouble. Misdemeanor charges of stalking and using profane language, and a felony charge of entering a home to commit assault and battery were dropped under the agreement.


Charter Defeats Lenders at Trial Over $11 Billion in Debt, Clearing the Way for Reorganization Plan

Ben Hallman, The American Lawyer

10-19-09 -- After a 19-day trial before Manhattan Federal Bankruptcy Court Judge James Peck, Charter Communications won the right to maintain favorable terms on $11 billion in secured debt that its lenders had sought to refinance. Judge Peck's Oct. 15 ruling should clear the way for the cable company to emerge from Chapter 11 in the next several weeks. . . . JPMorgan Chase & Co. and other holders of Charter's debt filed suit on March 27, claiming Charter defaulted on its loan agreement when it misrepresented its ability to repay $250 million it withdrew from its credit facility in the fall of 2008. The lenders sought to refinance Charter's debt at higher rates than the rock-bottom terms Charter received in 2007. . . . Judge Peck, however, agreed with Charter's interpretation of the language of the loan agreement. He also rejected the lenders' argument that Charter's proposed reorganization plan would result in a change of ownership that voided the loan agreement.


O'Melveny Loses $750K in SonicBlue Bankruptcy Fees

Amanda Royal, The Recorder

10-19-09 -- A bankruptcy judge has ruled that O'Melveny & Myers will have to forgo $750,000 in fees for its role in the SonicBlue bankruptcy. . . . Judge Marilyn Morgan of the U.S. Bankruptcy Court for the Northern District of California in San Jose ruled from the bench late Thursday after a two-day evidentiary hearing into O'Melveny partner Suzzanne Uhland's role in a controversial settlement between the estate, VIA Technologies Inc. and Intel Corp. involving a patent cross-licensing agreement. . . . Uhland, who chairs the firm's restructuring practice, will not have to pay back about $1 million in fees she has already collected, although creditors had demanded that.


Heller Hopes Artworks Sale Will Fetch up to $1 Million to Pay Creditors

Nate Raymond, New York Law Journal

10-19-09 -- Starting next month in New York, bankrupt law firm Heller Ehrman will sell off hundreds of artworks to repay a small portion of its debt. . . . The largely contemporary collection is expected to fetch between $610,000 and $1 million in a slow art market, according to bankruptcy papers and the auctioneer hired to conduct the sale. . . . The first of the pieces will go on sale at 1 p.m. on Nov. 10 at the 580 Madison Ave. offices of auctioneer Bonhams & Butterfields. That will be followed one week later by a sale in San Francisco and another in Los Angeles. Still more pieces will go on sale next year on the West Coast.


FLORIDA  

Under Federal Scrutiny, Attorney-Receiver
Puts His Firm out of Business

Jordana Mishory, Daily Business Review

10-19-09 -- In a speedy downfall, South Florida attorney and receiver Lewis Freeman went to court Friday to put his firm out of business amid a federal investigation trying to trace $3.6 million from accounts overseen by the firm. . . .  iami-Dade Circuit Judge Victoria Sigler signed an order appointing another veteran South Florida receiver, Kenneth A. Welt of Hollywood, as receiver for Lewis B. Freeman & Partners. Freeman, a lawyer and forensic accountant, filed a request to liquidate his firm. . . . Freeman has often been selected by federal and state judges in the past two decades as a receiver or trustee whenever companies went bust or were plagued by fraud. He did not return a call for comment. . . . Warren Trazenfeld, a Miami attorney who represented Freeman in receiverships, said he was "in a state of shock and disbelief" when he heard Freeman placed himself in receivership.


Declaring Bankruptcy

What You Need to Know

Leagle, Inc.

10-15-09 -- Bankruptcy is front-page news in these difficult economic times. The once invincible GM slipped into bankruptcy. The Undisputed Master of Bankruptcy, Donald Trump, filed yet again earlier this year. And the government bailed out financial services powerhouses – like AIG, called "too big to fail" – to keep them out of bankruptcy. . . . No such luck for individuals, of course. They're allowed to fail. And not surprisingly, as unemployment rises, so are personal bankruptcies. . . . If you're considering filing, you should take some comfort in knowing you're not alone. But it's still a big decision: There are financial consequences. People feel like they failed. And filers can be judged by others. . . . But according to personal financial advisers, most people want to repay their debts; they don't want to declare bankruptcy. Instead, it's often a last-resort option for people who may be dealing with out-of-control health care bills or the loss of a job. . . . If you're thinking about filing, this Leagle EyeView provides the info you need to know.


DISTRICT OF COLUMBIA

Robbins Russell Scores Mega-Win for Creditors in Chapter 11 Fraud Suit Against Banks

Andrew Longstreth, The American Lawyer

10-15-09 -- The lawyers at the Washington, D.C., boutique of Robbins, Russell, Englert, Orseck, Untereiner & Sauber have long been known for their strength in appellate work, but in recent years they've proven more than capable at trial as well. The most recent example came Tuesday, when the Fort Lauderdale federal bankruptcy court judge overseeing Chapter 11 proceedings for one of the country's largest homebuilders ruled in favor of the unsecured creditors committee Robbins Russell represents. The 182-page opinion against a bevy of financial institutions could cost the bank defendants as much as $688 million, according to Bloomberg. . . . The case centered on a 2007 decision by the homebuilder, a company called Tousa, to borrow $500 million to settle litigation arising from a botched joint venture acquisition. As part of the loan agreements, Tousa granted its lenders -- including Bank of America, Wells Fargo and Citigroup -- liens on assets of its subsidiaries.


FLORIDA  

Sources: FBI Investigating $3.6 Million Under Fla. Lawyer's Control

Lewis Freeman's supporters say the probe is retribution for a lawsuit he filed against the IRS

John Pacenti, Daily Business Review

10-13-09 -- The FBI is seeking to trace the whereabouts of $3.6 million from accounts overseen by prominent Miami lawyer and forensic accountant Lewis Freeman, who judges have often appointed to help recover money for victims of fraud, according to sources. . . . FBI agents earlier this month executed search warrants at the Miami and Plantation, Fla., offices of Lewis B. Freeman & Partners, confiscating documents and computer files. No charges have been filed. . . . Neither Freeman nor his criminal defense attorney, Robert Josefsberg of Podhurst Orseck in Miami, would comment on the matter Monday. . . . As a court-appointed receiver, Freeman is responsible for millions of dollars flowing in and out of companies in bankruptcy and other troubled businesses.


Heller Creditors Target Accountants

Amanda Royal, The Recorder

10-12-09 -- Heller's creditors may sue accounting firm Ernst & Young for failing to raise red flags on its audit of the firm's 2007 financials, according to a bankruptcy liquidation plan and disclosure filed on Thursday just before a midnight deadline. . . . Financial irregularities derailed at least one merger for Heller, according to sources. They are also being used by creditors to build a fraudulent-transfer case against former shareholders. . . . The plan, a road map to resolving the bankruptcy, also shows that the defunct firm has settled with its hundreds of former employees for about $19 million -- $7 million of which, however, they'd only see if the estate manages to pay every other creditor off first. Employees may get some of that money by year's end if the plan is confirmed by a majority of creditors. . . . The plan lays out classes of creditors and in what priority they will receive money. An accompanying disclosure lays out litigation the creditors plan to pursue, most of which has been previously reported, including suits against Bank of America, Greenberg Traurig and Covington & Burling.


GENERAL

Bankruptcy Attorneys Prepare for Supreme Court Argument Over Legal Advice Rules

Thomas B. Scheffey, The Connecticut Law Tribune

10-9-09 -- Robert Milavetz, the founder of an 11-lawyer bankruptcy firm in the suburbs of Minneapolis, wasn't pleased when Congress started telling bankruptcy lawyers what they could and could not say to clients. . . . Specifically, he -- along with attorneys from Connecticut and elsewhere -- didn't like a 2005 law that seemed to forbid lawyers from advising bankruptcy clients to incur any more debt. Another part of the new law apparently required bankruptcy lawyers to include in their advertisements that "we are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code." . . . Milavetz made a federal case of it, seeking declaratory relief in a Minnesota federal court. . . . The U.S. government argued that Congress' orders were not a violation of the First Amendment right to free speech, or commercial free speech law.


CALIFORNIA  

Heller Shareholders Lay Out Bankruptcy Theories

Amanda Royal, The Recorder

10-7-09 -- A group of about 90 former Heller Ehrman partners has logged a defense against creditors' claims that the firm was insolvent in 2007, a key point the creditors need to prove to build a fraudulent transfer suit. . . . The brief (.pdf) is the first peep out of any of Heller's former partners in the 10-month-old bankruptcy. . . . It asserts that creditors cannot possibly prove that Heller was undercapitalized by the end of 2007, or that funds were fraudulently transferred thereafter. It blames the recession for the firm's demise. . . . "In fact, the evidence will demonstrate that the firm failed in September 2008 as a result of the most precipitous and severe economic downturn since the Great Depression," says the filing in the U.S. Bankruptcy Court for the Northern District of California.


GENERAL

Hertz GC Sues Analyst Who Said Company Could Go Bankrupt

Sue Reisinger, Corporate Counsel

10-1-09 -- Take it back. That's what general counsel Jeffrey Zimmerman, of Hertz Global Holdings Inc., has demanded from a research firm that put Hertz on a list of companies "likely to go bankrupt or suffer severe financial distress." . . . First Zimmerman wrote a letter to the chief executive of Audit Integrity, the New York research firm, accusing the firm of reaching "incomplete and misleading conclusions" in a Sept. 15 report that listed Hertz and 19 other large companies it considers at risk of bankruptcy. . . . Zimmerman copied the letter to the GCs of the other 19 companies, including Louis Briskman at CBS Corp., Jennifer Vogel at Continental Airlines Inc., Thomas Cody at Macy's Inc., Patrick Donnelly at Sirius XM Radio Inc., and Charles Wunsch at Sprint Nextel Corp. He encouraged the other 19 to join Hertz "in protecting the investing public." (Also copied were Richard Parker and Irv Gornstein at O'Melveny & Myers.)


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September 2009

Delaware Judge Calls JPMorgan's Jurisdiction Argument in WaMu Litigation 'Frivolous'

Andrew Longstreth, The American Lawyer

9-30-09 -- Delaware bankruptcy court judge Mary Walrath appears determined to continue presiding over JPMorgan Chase's ongoing battle with Washington Mutual Inc. According to a transcript of a hearing last Friday, available here, Judge Walrath called efforts by JPMorgan's lawyers at Sullivan & Cromwell to challenge her jurisdiction "frivolous." . . . . The dispute between the two companies mainly concerns $4 billion in deposits that Washington Mutual Inc. had with Washington Mutual Bank, which was taken over by JPMorgan last September. Washington Mutual Inc., which is in bankruptcy, claims JPMorgan has wrongfully withheld the money. As we reported in June, Judge Walrath has already denied a request by JPMorgan to stay or transfer the proceedings. JPMorgan subsequently appealed that decision but continued to participate in the case, including by moving unsucessfully to dismiss WaMu's counterclaims.


OKLAHOMA  

Oklahoma high court allows attorney to practice again

By Julie Bisbee, NewsOK.com 

9-30-09 -- An Oklahoma City attorney who was sentenced to a federal prison for filing a false bankruptcy report will be allowed to practice law again. . . . In an opinion filed Tuesday, the state Supreme Court voted 7-2 to allow Kwame T. Mumina to return to practicing law. He must pay costs of $2,797. Mumina, resigned from the Oklahoma Bar Association in 1997 facing disciplinary action. . . . In 2001, he was sentenced to 21 months in a federal prison after pleading guilty to filing a false report. Initially, Mumina was indicted on 20 counts that included embezzling money while acting as a trustee for a bankrupt nursing home. . . . Prosecutors said Mumina opened accounts for the estate and used about $115,000 of nursing home funds and filed a false report to cover it up. Mumina agreed to plead guilty to filing a false bankruptcy report in exchange for the U.S. attorney’s office dismissing 19 other counts of bankruptcy fraud, according to published reports.


CALIFORNIA  

$24M Deal in Chrysler Wrongful Death Case Approved by Bankruptcy Court

Kate Moser, The Recorder

9-28-09 -- A bankruptcy court judge on Thursday approved a $24 million settlement by Chrysler in the death of a man who was run over by a Dodge pickup truck in 2004. . . . The plaintiffs' lawyers said Friday that their demand that Chrysler post an appeal bond after they won a $55.2 million verdict proved to be key once the automaker filed for bankruptcy in April. . . . "In hindsight, it was the right decision given what ultimately transpired," said Robert Nelson, senior partner at Lieff Cabraser Heimann & Bernstein and lead trial and appellate counsel. "Had we not gotten the judgment bonded, we would have been in line behind all the other creditors." . . . Judge Arthur Gonzalez of the U.S. Bankruptcy Court, Southern District of New York, approved the settlement, which had been facilitated by mediator Randall Wulff.


Judge Takes to Task Big Law Firms, Financial Giants in ABFS Case

Gina Passarella, The Legal Intelligencer

9-22-09 -- Philadelphia Judge Mark I. Bernstein's opinion was short, but it said plenty. . . . The commerce program judge was clearly irked by a request from several large financial institutions to dispense with a jury trial in the case against them by the trustee of the bankrupt American Business Financial Services. . . . Bernstein said the financial companies that are defendants in the case are represented by some of the best and largest law firms in the country with more than ample resources to have filed the motion in a more timely fashion. . . . "The financial institution defendants are represented by some of the largest, most distinguished, and thorough law firms in the country," Bernstein said, adding later, "These firms can assign however many partners, senior associates, junior associates and exceptional newly hired law school graduates to handle matters of any complexity.


NEW YORK  

Thelen Files for Bankruptcy

Amanda Royal, The Recorder

9-21-09 -- Thelen LLP filed for Chapter 7 bankruptcy (pdf) in the Southern District of New York on Thursday night, almost a year after the firm voted to dissolve. . . . The move was the only way to be fair to all unsecured creditors, said David Graybeal, a member of Thelen's dissolution committee. . . . "The trendline on the collections efforts was declining month to month, as you'd expect, and the ability to assure fair treatment of all the unsecured creditors becomes increasingly difficult in that circumstance when judgments have been entered against the firm," Graybeal said. "We really feel there was no alternative." . . . Thelen was facing a $25 million judgment granted to a New York landlord in Los Angeles County Superior Court in June.


Jones Day: Lehman Judge OK'd Barclays Sale Based on 'Inaccurate Record'

Ross Todd, The American Lawyer

9-17-09 -- We in the media have been finding all kinds of ways to commemorate the one year anniversary of the collapse of Lehman Brothers Holdings Inc. But for the Litigation Daily's money, Lehman's bankruptcy lawyers at Jones Day found a much more exciting way to mark the occasion. They filed an 87-page motion Tuesday asking Manhattan federal bankruptcy court judge James Peck to modify the order approving last September's sale of Lehman's crown-jewel investment arm to Barclays Capital Inc. Specifically, Jones Day argues that Peck approved the deal based on "an inaccurate record due to mistake, inadvertence, or misrepresentations to the court." Those are pretty strong words, folks. . . . At the time he approved the asset sale, Jones Day's team (led by Robert Gaffey) asserts, the judge was not told that certain Lehman executives brokered a behind-the-scenes discount of several billion dollars for Barclays. "The fact is that the deal was actually structured to give Barclays an immediate and enormous windfall profit," the Jones Day lawyers write. "Certain Lehman executives agreed to give Barclays an undisclosed $5 billion discount off the book value of the securities."


Chadbourne Challenges Tribune Co. Fee Examiner's Call

Zach Lowe, The American Lawyer

9-9-09 -- You have to hand it to the auditors from Stuart Maue, the company serving as the court-appointed fee examiner in the Tribune Co. bankruptcy case: They are unbelievably thorough. They chastised an employee at AlixPartners, the financial adviser to the Tribune creditors committee, for spending $902.52 for a night and two meals at the Gramercy Park Hotel in New York -- and got Alix to shell out $487.52 from its own pockets to cover the bill. They discovered that Jones Day billed the Tribune estate 20 cents per photocopy instead of 10 cents, a finding that saved the estate $8.10. They forced AlixPartners to explain why some of its employees were often spending more than $50 on work-related dinners, and asked that Alvarez & Marshal (Tribune's restructuring adviser) retract a request for Tribune to pay $22.68 for stamps, envelopes and tape.


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August 2009

ARIZONA  

BigLaw Bunch Bag $100 Million in Bankruptcy Billings

By Brian Baxter | The American Lawyer | New York Lawyer

8-31-09 -- As Tucson, Ariz.-based mining company Asarco nears the end of its four-year bankruptcy odyssey, lead debtors counsel Baker Botts submitted its 12th application for fees on Friday. . . . The filing put the firm past the $100 million mark in billable hours since Asarco filed for bankruptcy in August 2005 after getting hit with a series of asbestos and environmental pollution suits. . . . It pales in comparison to the $100 million in fees that Weil, Gotshal & Manges has racked up in just a year's worth of bankruptcy work for Lehman Brothers, but Baker Botts may have more work ahead.


CALIFORNIA  

Local attorney accused of fraud

By Karen Velie, Cal Coast News

8-27-09 -- Federal bankruptcy court attorneys filed a fraud complaint against attorney Robert “Grigger” Jones, as well as Chris Molina, Daniel Phillips, and the group’s Pejihota LLC for allegedly hiding assets of bankrupt North County developer Kelly Gearhart. . . .  Gearhart linked up with Jones, Molina and Phillips to sign a contract with the Salinan Tribe of San Luis Obispo County to develop an Indian casino in either Monterey or San Luis Obispo County through the Pejihota LLC. . . . In 2007 and 2008, Gearhart transferred between $1 million and $1.5 million into the group’s LLC at a time he “was insolvent and was made with the intent to hinder, delay, or defraud creditors,” according to the accusations. . . . In an apparent attempt to keep their venture cloaked in secrecy, the group has transferred their LLC filing at least four times during the past two decades. CalCoastNews discovered the transfers during a multi-state search of LLC filings.


District Judge Revives Congoleum Bankruptcy, and Takes Over Case

Mary Pat Gallagher, New Jersey Law Journal

8-19-09 -- After 12 failed attempts at a Chapter 11 reorganization plan that would set up a trust for tens of thousands of asbestos claims against Congoleum, a U.S. judge has reinstated the case and, in an unusual step, has withdrawn it from the bankruptcy court so he can handle the confirmation process himself. . . . A bankruptcy judge dismissed the Chapter 11 case earlier this year, fed up over the proponents' repeated failure to address concerns about unequal treatment of claimants and $2 million in "facilitation fees" for claimants' lawyers. . . . But U.S. District Judge Joel Pisano in Trenton, N.J., held Monday that the favored treatment of claimants who settled before the Dec. 31, 2003, bankruptcy filing did not preclude the plan's confirmation. He also required submission of a new plan that does not try to block judicial review of the facilitation fees.


'Bad Boy' Dispute Brewing Over Hotel Chain Bankruptcy

Andrew Longstreth, The American Lawyer

8-19-09 -- Loan agreements aren't our thing at The Am Law Litigation Daily, so we're not going to beat ourselves up for not knowing about so-called "bad boy" guaranty provisions. We're told that they were commonplace in most complex finance transactions between 2005 and 2007. In such agreements, borrowers can be held liable for certain "bad boy" acts like fraud or intentional waste. . . . Apparently another accused bad boy act is filing for bankruptcy. Just ask David Lichtenstein. As chairman of the hotel company Extended Stay, he approved a Chapter 11 filing on June 15, 2009. A day later, he and one of his affiliated entities were sued in New York state court by lenders seeking $100 million. Here's a copy of an affidavit filed by plaintiffs in support of summary judgment(pdf). Lichtenstein's lawyers at Kasowitz, Benson, Torres & Friedman argue that Lichtenstein was merely fulfilling his fiduciary duties by attempting to stabilize Extended Stay's assets for the benefit of its creditors, including the plaintiffs now suing him.


NEW YORK

Greenberg Traurig Holds Off on Collecting Fees

Sheri Qualters, The National Law Journal

8-19-09 -- Greenberg Traurig is likely to lose $2.6 million in fees for its work on a long-running bankruptcy case. . . . From July 2007 to April 2009, the firm represented the unsecured creditors committee in the bankruptcy of tax shelter outfit The 1031 Tax Group LLC. Early on, the firm submitted two bills totaling more than $3.2 million. The bankruptcy trustee objected, and a federal judge awarded the firm just $323,000. . . . In a settlement approved in the Southern District of New York late last week, the firm agreed to forgo its multimillion dollar fee request until all other creditors had been paid.


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Weil Poised to Pass $100 Million Mark in Lehman Bankruptcy Fees

Zach Lowe, The American Lawyer

8-18-09 -- We may have to scan the dockets of the largest bankruptcies in recent U.S. history to see if any of them produced so much legal work as quickly as the Lehman Brothers Chapter 11 has since the bank filed for bankruptcy almost exactly 11 months ago. . . . To wit: Weil, Gotshal & Manges filed its second application for legal fees and expenses late Monday, and, if approved, the firm will have crossed the $100 million mark in total billings if one includes so-called hold back payments the court will distribute at a later date. . . . The second application covers four months -- Feb. 1 through May 31 -- and it comes just a few days after Judge James Peck of federal bankruptcy court in Manhattan approved Weil's initial request for about $55 million in fees and expenses for the period of Sept. 15, 2008 through January of this year. As the Wall Street Journal reported Monday, that application got the approval of not only Peck, but also a special fee committee headed up by Kenneth Feinberg (the Obama administration's pay czar).


TEXAS  

Debtors File Class Action Alleging Attorneys Conspired to Defraud

Brenda Sapino Jeffreys, Texas Lawyer

8-18-09 -- In a federal class action suit filed on Aug. 6, the plaintiffs allege two Texas lawyers conspired with others to defraud debtors who sought help because of credit card and unsecured debt and to "evade" Texas laws that regulate consumer debt management services, attorney-client solicitation and lawyer advertising. . . . "By masquerading as attorney referral services, unregulated debt negotiators and exempt attorneys, the defendants collaborate to evade strict state consumer protection regulations enacted to protect unknowing debtors," the plaintiffs allege in James R. Wall, et al. v. Debt Relief Group LLC, et al., filed in the U.S. District Court for the Western District of Texas. . . . Plaintiffs' attorney Charles E. Ames of Carrollton, Texas, says the plaintiffs did not get the debt relief they expected. . . . "They did not get debt relief, and they've been harmed because these people did not follow the requirements of the Texas statute" that regulates the debt-relief business, he says.


Bankruptcy Filings Up 35 Percent Over Last Year

David Ingram, The National Law Journal

8-14-09 -- Individuals and businesses filed 1.3 million bankruptcy cases in the year ended June 30, an increase of 35 percent over the previous year, the Administrative Office of the U.S. Courts said Thursday. . . . It is the third consecutive annual increase, as the recession has forced thousands of businesses to close shop and as job losses and rising debt have caused individuals to seek protection from creditors. Business filings increased 63 percent, while individual filings were up 34 percent. . . . "This is reflective of the overall state of the economy," said Carey Ebert, president of the National Association of Consumer Bankruptcy Attorneys. . . . Ebert, name partner at Ebert Law Offices in Hurst, Texas, said she's seen the increase accelerate locally just in the last few months, as unemployment and home foreclosures hit areas of the country that previously fared better. "I don't see it getting better any time soon," she said.


Judge Approves $15 Million in Fees in Madoff Matter

Noeleen G. Walder, New York Law Journal

8-7-09 -- A bankruptcy judge has approved a request by the trustee liquidating Bernard L. Madoff's investment firm and his team of lawyers for roughly $15 million in interim counsel fees. At a hearing Thursday, David J. Sheehan of Baker & Hostetler, who is counsel for trustee Irving H. Picard, told Southern District of New York Bankruptcy Judge Burton R. Lifland that tracing the trail of money in the complex fraud required a full-service team of attorneys. Moreover, Sheehan said, the case has generated a "vast array of international litigation," an onion that "has yet to be peeled to its core."

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Another Jewel in the Weil Bankruptcy Crown

Zach Lowe, The American Lawyer

8-7-09 -- Another week, another major retail company turns to Weil, Gotshal & Manges to guide it through bankruptcy. This time it's Finlay Enterprises, a jewelry retailer with 200 stores nationwide, including 77 in major department stores like Macy's. . . . Weil began representing Finlay in March 2008, and has billed the company about $1.3 million since then for advice on various restructuring efforts. Those efforts apparently failed, and now Finlay hopes to sell all or most of its assets through the Chapter 11 process. . . . (Finlay also has stand-alone stores that operate under the names Bailey Banks & Biddle, Carlyle & Co. Jewelers and L Congress, if that helps jog the memories of any readers who aren't exactly on the cutting edge of the fine jewelry market).


Stroock Seeks to Scuttle Trump Casino Deal for Bondholder Group

Brian Baxter, The American Lawyer

8-6-09 -- Like a gambler on a losing streak, Trump Entertainment Resorts is no stranger in bankruptcy court -- the company entered Chapter 11 for a third time this past February. . . . Now Donald Trump and a team of lawyers led by Weil, Gotshal & Manges face a fight from a bondholder group represented by Stroock & Stroock & Lavan that's opposing The Donald's rescue of his Atlantic City gaming empire. (Hourly billing rates for lawyers in this story appear parenthetically, when available.) . . . Trump, who resigned from TER's board shortly before the company filed for bankruptcy almost six months ago, announced on Tuesday that he would partner with an affiliate of Beal Bank Nevada to reacquire TER for $100 million out of bankruptcy court. . . . The casino operator owns the Trump Taj Mahal, Trump Plaza and Trump Marina casinos, all of which Trump has vowed to make "great again" and restore to their glory days in the '80s. Helping Trump in that effort is a team of lawyers from Weil led by restructuring co-chair Ted Waksman ($925), restructuring partner Michael Walsh ($950), and tax partner Mark Hoenig ($900).


How to Structure 363 Sales of Assets in Bankruptcy

Amanda Bronstad, The National Law Journal

8-5-09 -- As the recession continues, more businesses are being forced to file for Chapter 11 bankruptcy protection. In many cases, the bankruptcies are liquidations, not reorganizations, said Robbin Itkin, the head of the West Coast business and financial restructuring group of Washington's Steptoe & Johnson. Itkin is the co-author of the book, "A Comparison Shopping Guide for 363 Sales," which focuses on the sales of assets in a bankruptcy. The book was recently released by the American Bankruptcy Institute. . . . Itkin, a partner in the Los Angeles office, talked to The National Law Journal about how 363 sales are structured and what thorny legal issues buyers and sellers might face when dealing with assets in a bankruptcy.


Madoff Investors Oppose Fees Sought by Trustee

Noeleen G. Walder, New York Law Journal

8-4-09 -- Citing what they called the "pathetic track record" of the court-appointed trustee in charge of liquidating Bernard L. Madoff's investment securities firm, three Pennsylvania residents who invested with Madoff urged a bankruptcy court to reject the request of Irving H. Picard and his counsel for more than $15 million in interim fees. . . . In papers filed Monday with the U.S. Southern District Bankruptcy Court, Diane and Roger Peskin and Maureen Ebel, who claim the support of more than 100 customers of Bernard L. Madoff Investment Securities LLC, accused Picard and his legal team at Baker & Hostetler of causing "needless devastation" to Madoff's customers by "ignoring" the mandate of the Securities Investor Protection Corporation (SIPC) to pay claims promptly based upon their "statutory balances."


Former Heller Employees Demand Better Representation

Amanda Royal, The Recorder

8-4-09 -- Heller Ehrman's former employees are demanding better representation on the bankrupt estate's unsecured creditors committee because of what they call a lack of aggressiveness in pursuing former shareholders and collecting accounts receivable. . . . The employees say they "lack an adequate voice on the committee" and are demanding that the U.S. Trustee appoint a former Heller employee to the committee who is not a former shareholder "nor aligned with former shareholder interests." . . . The current employee representative on the five-person committee is Wondie Russell, who was once a partner at Heller. She was a contract attorney when the firm collapsed and has the largest employee claim, for about $92,000.


July 2009

MINNESOTA   

8th Circuit: Attorney Can't Discharge $360,000 Student Loan Debt

Leigh Jones, The National Law Journal

7-10-09 -- He garnered some sympathy from two lower courts, but a three-judge appeals panel isn't letting a Minnesota lawyer off the hook from repaying his massive student loan debt. . . . The 8th U.S. Circuit Court of Appeals reversed a bankruptcy court and a district court and found that attorney Mark Allen Jesperson could not discharge more than $360,000 in student loan debt in a Chapter 7 proceeding. . . . The two lower courts had found that repaying the "shockingly immense" debt would create an undue hardship for Jesperson. But the appeals court on Wednesday determined that his "self-imposed limitations," which resulted in a gross income of $48,000, were no excuse for nonpayment.


GM and Chrysler: The End of Bankruptcy as We Know It?

Zach Lowe, The American Lawyer

7-9-09 -- Almost every bankruptcy expert The Am Law Daily talks to agrees that the super-fast General Motors and Chrysler bankruptcies diverted from traditional bankruptcy law because of the government's huge role in each case and the danger that liquidation might have posed to the broader economy. . . . What they don't agree on is whether the cases set a meaningful precedent for future judges. "What happened in GM and Chrysler is so outrageous and so illegal that until March of this year, nobody even conceptualized it," says Lynn LoPucki, a bankruptcy expert at UCLA Law School. "Wouldn't almost every company like to get out [of bankruptcy] in 30 or 60 days? Is there any reason they cannot all propose to do what GM and Chrysler have now done?" . . . Others are less worried: "These cases are huge outliers," says Kenneth Klee, name partner at the bankruptcy boutique Klee, Tuchin, Bogdanoff & Stern and LoPucki's colleague at UCLA. "They involve such major political elements and companies of such importance to the economy that the legal principles involved will not carry over to other cases." . . . Several other experts and Am Law 100 partners echoed LoPucki's concerns, though no one else directly labeled the sale illegal. But their basic views are the same: The courts stretched §363 of the Bankruptcy Code -- which allows a company to sell its best assets to a new buyer rather than go through a complete reorganization -- beyond the code's intentions.


June 2009

UNITED STATES SUPREME COURT

Supreme Court Rules for Travelers in 'Worst Advice' Case

Alison Frankel, The American Lawyer

6-19-09 -- The U.S. Supreme Court has spoken in the case of "the worst advice any lawyer ever gave a client." In Thursday's 7-to-2 ruling (pdf) in Travelers Indemnity v. Bailey, the justices didn't pick sides in the kerfuffle between Travelers' counsel Barry Ostrager of Simpson, Thacher & Bartlett and the firm that he accused of offering that "worst advice" (Cozen O'Connor). But the Court gave Ostrager the win that really mattered, finding that Travelers is protected from asbetos-related suits by an order of the bankruptcy judge who approved the 1986 Johns-Manville asbestos trust . . . . The Supreme Court ruled that the 2nd U.S. Circuit Court of Appeals erred when it found that the Manville bankruptcy judge, Burton Lifland, had exceeded his jurisdiction when he enjoined asbestos related suits against Manville's insurers, including Travelers. Thursday's ruling, however, was narrowly tailored. The Court said such jurisdictional concerns might have been raised before Lifland's 1986 order became final, but since they weren't (at least not by the parties in the Bailey case), res judicata barred a subsequent collateral attack.


BANKRUPTCY COURT

Claims of Improper Metadata Use Rejected in Sex Blogger's Bankruptcy

Joel Stashenko, New York Law Journal

6-16-09 -- An upstate New York Bankruptcy Court judge has dismissed an attorney's claims that an adversary -- a lawyer for a former congressional staffer who described her sexual activities in a notorious blog -- improperly used "metadata" to trace the authorship of an electronic filing. . . . Attorney Robert Steinbuch is being "disingenuous" by suggesting that Matthew Billips violated New York's Lawyer's Code of Professional Responsibility by using technology to surreptitiously trace a motion to compel that Steinbuch filed in the U.S. District Court in the District of Columbia, said Bankruptcy Court Judge Margaret Cangilos-Ruiz of the Northern District of New York. . . . Steinbuch is seeking in the bankruptcy court a determination that claims underlying his previous district court filings in the District of Columbia and in Arkansas against debtor Jessica L. Cutler are nondischargeable due to her "willful and malicious injury" of Steinbuch under 11 U.S.C. §523(a)(6) of the U.S. Bankruptcy Code.


Former Shareholder's Lawsuit Adds New Wrinkle to Heller Bankruptcy

Amanda Royal, The Recorder, Law.com

6-15-09 -- Things just got a little more complicated in the Heller bankruptcy. Namely, it's now the Heller bankruptcies. . . . In a move that may do nothing more than add a layer of complication and delay, a former Heller shareholder has forced nine corporations that made up Heller Ehrman LLP into bankruptcy, including Heller Ehrman Hong Kong, Heller Ehrman Europe and corporations in various states like California which technically employed Heller's partners. . . . These corporations were also the target of the class action brought by Heller's former employees that was winding through civil court before being dismissed Wednesday. The request to dismiss was submitted before the corporations were forced into bankruptcy, according to Steve Blum with litigation boutique Blum Collins, which is representing the employees.


FLORIDA

Sanctions Sustained Against Crowell & Moring Partner

Leigh Jones, The National Law Journal

6-15-09 -- A federal appeals court has upheld a $372,000 sanction against a Crowell & Moring partner and affirmed his five-year suspension from practice in bankruptcy court in a big swath of Florida. . . . Peter R. Ginsberg, a white-collar defense attorney in Washington, D.C.-based Crowell & Moring's New York office and a former Assistant U.S. Attorney, lost his appeal of the sanctions on Thursday in the 11th U.S. Circuit Court of Appeals. A three-judge panel found that Ginsberg's attempts to have a bankruptcy judge recuse himself from a Chapter 11 case were in bad faith. . . . The appeals court affirmed the $371,517 monetary sanction imposed by the judge whom Ginsberg attempted to oust and upheld the judge's suspension of Ginsberg's license to practice for five years in the U.S. Bankruptcy Court for the Middle District of Florida.


 

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UNITED STATES SUPREME COURT

When Bankruptcy Gets Ugly: Lawyers Fight Over Filene's Basement, Delphi

Zach Lowe, The American Lawyer

6-12-09 -- We would have loved to have been in Cooley Godward Kronish's Manhattan office last Friday, when lawyers from six firms involved in the Filene's Basement auction were sniping at each other over the rules for the proceeding. . . . Men's Wearhouse, who emerged as the winning bidder, has dropped its $67 million offer after the previous stalking horse bidder, a consortium led by Crown Acquisitions, filed a blistering motion Tuesday accusing Men's Wearhouse (and its lawyers at K&L Gates) of violating the rules a bankruptcy judge had set for the auction, according to court papers and The Boston Globe. . . . Calling the auction "a travesty," Crown's lawyers at King & Spalding argued in the filing that Filene's and its lawyers (Pachulski Stang Ziehl & Jones) and the creditors committee counsel (Cooley) looked the other way when Crown brought up the violations because they believed Men's Wearhouse had presented the best bid.


GM Bankruptcy May Come Calling at Supreme Court Next

Marcia Coyle, The National Law Journal

6-11-09 -- Although the U.S. Supreme Court refused to halt the Chrysler LLC sale on Tuesday night, the justices' traditionally quiet summer may be interrupted when the same opponents to that sale raise similar challenges to the pending General Motors Corp. bankruptcy. . . . "We would not rule out going to the Supreme Court again," said Barry Bressler, a partner at Philadelphia's Schnader Harrison Segal & Lewis and counsel to the Ad Hoc Committee of Consumer Victims of Chrysler and the Committee of Consumer Victims of General Motors. . . . Bressler said there are a number of different issues in the GM bankruptcy which may not be "four-square" with what happened in Chrysler. The new Chrysler that has emerged from the sale to Fiat SpA is free and clear of all pending and future claims of liability against the old Chrysler.


Madoff Victims Blast Trustee's Valuations of Their Investments

Noeleen G. Walder, New York Law Journal

6-11-09 -- For the second time in a week, investors who fell prey to Bernard L. Madoff's massive Ponzi scheme are claiming they have been victimized not once, but twice: this time by the trustee charged with overseeing the liquidation of Madoff's investment securities firm. . . . In a suit filed Wednesday in bankruptcy court in the Southern District of New York, three Pennsylvania residents accused Irving H. Picard, who was appointed to the trustee post under the Securities Investor Protection Act of 1970 and oversees claims filed by Madoff investors, of favoring the brokerage industry and "enrich[ing]" Wall Street at the expense of innocent investors. . . . By "disregarding all appreciation" in investors' accounts, which were collectively valued at roughly $9.6 million on the last account statement they received prior to Madoff's arrest last December, Picard has created his own definition of "net equity" and "intends to avoid paying [Securities Investor Protection Corporation] insurance to the thousands of elderly Madoff investors" who depended on these investments for their "daily living expenses," states the complaint in Peskin v. Picard, 08-01789.


May 2009

Cap on Legal Fees in Bankruptcy Alarms Firms

Amanda Bronstad, The National Law Journal

5-11-09 -- Lawyers representing directors and officers of IndyMac Bancorp Inc. are attempting to remove a cap on their billing rates, the latest example of how judges are scrutinizing hourly fees in large bankruptcies. . . . IndyMac, one of the nation's largest mortgage lenders, filed for Chapter 7 protection on July 31, 2008. Six law firms representing more than a dozen directors and officers recently appealed to the bankruptcy judge in the case to overturn a court-appointed monitor's decision to cap their fees at $600 per hour. . . . Four of the firms — Washington's Covington & Burling and Williams & Connolly; Los Angeles-based Munger, Tolles & Olson; and New York's Willkie Farr & Gallagher — charge top rates of between $750 and $995 per hour, according to court documents. . . . The judge has declined to intervene.


Bankruptcy Lawyers Bill Illegally, Says New Study

Zach Lowe, The American Lawyer

5-7-09 -- In the past few weeks, we've all marveled at the huge amounts Jones Day, Schulte Roth & Zabel and Weil, Gotshal & Manges have billed in the country's two most-watched Chapter 11 cases (Chrysler for Jones and Schulte, Lehman Brothers for Weil). But we have to admit we haven't stopped to ponder: Are those fees illegal? . . . According to a new study co-authored by UCLA bankruptcy law professor Lynn LoPucki (hat tip: the Wall Street Journal's Law Blog), the answer might be yes. LoPucki and his co-author, fellow UCLA prof Joseph Doherty, essentially argue that bankruptcy judges allow lawyers to bill their debtor clients for months at a time before submitting those billing statements to the judge for approval, according to Bloomberg. That goes against the federal bankruptcy code, the study argues, and it has allowed legal fees to increase faster than inflation rates.


GENERAL

Chrysler Bankruptcy Lawyers Reap Fees Illegally, Professor Says

By Linda Sandler and Christopher Scinta, Bloomberg 

5-6-09 -- Bankruptcy lawyers who stand to make as much as $372 million in the reorganization of Chrysler LLC will be doing so illegally, according to a California law professor. . . . Attorneys are billing bankrupt companies for about 80 percent of their fees without first submitting the charges to the court, as required under the U.S. Bankruptcy Code, according to a study on the issue by the University of California at Los Angeles, “Routine Illegality in Bankruptcy Court Fee Practices,” which was released today. . . . In practice, judges often review the monthly fee payments later, because it’s time-consuming to scrutinize them every month, the report said. Such a lack of oversight has permitted bankruptcy attorneys and other professionals to raise their fees by more than twice the rate of inflation from 1998 to 2007, according to Lynn LoPucki, a bankruptcy law professor who co- wrote the report.


GENERAL

Jones Day Billing $18.5 Million So Far in Chrysler Bankruptcy

Zach Lowe, The American Lawyer

5-4-09 -- We've spent Friday morning digging into some of the filings already crowding the Chrysler bankruptcy docket, but it's going to be a while before we find one more interesting than Jones Day's application to be Chrysler's lead counsel. . . . The firm already has billed Chrysler a smidgen more than $18.5 million since Chrysler paid the firm $1 million in late November to establish a retainer, according to the Jones Day filing,  About $5.8 million remains in the retainer, meaning Jones Day has drawn down just over $13 million so far, the filing says. . . . Also of interest: the firm is staying below the magic $1,000 per hour mark that a few firms have jumped over in bankruptcies this year. Corrine Ball, the lead bankruptcy partner in the Chrysler case, is billing at $900 per hour. She's actually not the top-billing partner, though. That distinction goes to John Cornell, who will be advising Chrysler on employee benefits and executive compensation to the tune of $950 per hour.



April 2009

Contempt For Court

By Jacqueline Palank, Daily Bankruptcy Review, WSJ Blog

4-28-09 -- In the hundreds of pages of court documents that we here at Bankruptcy Beat peruse every day, we’re sometimes lucky to find a few gems. When creditors or investors are angry, they don’t hold back – especially when they don’t have a lawyer’s guidance. But one creditor’s letters in the bankruptcy case of USA Capital take the cake. . . . To say Curtis Clark, who lost his $200,000 investment in USA Commercial Mortgage Co., isn’t a fan of the officials involved in the mortgage lender’s bankruptcy proceedings would be putting it lightly. In a letter filed last month, Clark called the U.S. Bankruptcy Court in Las Vegas “a brothel” whose “madam” is none other than bankruptcy Judge Linda B. Riegle. Nor does Clark show any love for the buyer of the right to service USA Commercial Mortgage’s loans, Compass Partners LLC, which Clark deems the “john” in this “all-nighter” of an orgy.


NEW YORK  

Bankruptcy Judge Slams No-Show Lawyer

By David McLaughlin, Daily Bankruptcy Review, WSJ

4-28-09 -- Lawyers at the biggest firms in the country probably don’t need to be reminded to show up to court when their clients need them, but WilmerHale may need a refresher. . . . Andrew Goldman, a WilmerHale partner and the vice chairman of the firm’s bankruptcy practice, skipped a hearing Monday at the U.S. Bankruptcy Court in Manhattan that was pretty important to his client – PricewaterhouseCoopers. . . . Needless to say Judge Robert Gerber was not pleased, calling Goldman’s absence “unacceptable” (three times) and then topping off the hearing by ruling against the accounting giant.


UNITED STATES SUPREME COURT

Lawyers Challenge Limits of 2005 Bankruptcy Act

Marcia Coyle, The National Law Journal

4-27-09 -- As the economy tanks and bankruptcy filings soar, bankruptcy lawyers challenging a 2005 law's restrictions on how they can assist debtors contend that there is an urgent need for guidance from the nation's highest court. . . . For the past four years, consumer bankruptcy attorneys and lawyers representing the credit industry, along with their national associations, have filed lawsuits around the country attacking attorney-related provisions in the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act. . . . Their challenges are generally two-pronged: Licensed attorneys are not "debt relief agencies" within the meaning of the statute even if they provide bankruptcy-related advice to debtors, and, to the extent that the statute does apply to them, certain provisions restricting the advice they can give clients violate the First Amendment.


Mortgage Cramdowns:
Problems with Involving Bankruptcy Judges

by Andrew M. Grossman and David C. John, Heritage.org / WebMemo #2409

4-27-09 -- According to several reports, negotiators in the Senate may be on the verge of finalizing a compromise version of legislation that would give bankruptcy judges the power to modify home mortgages, a practice known as "cramdown" or "strip-down." This potential compromise, unlike the House's version of the legislation (H.R. 1102), would limit a judge's discretion in reducing the portion of a mortgage that must be repaid and otherwise altering the terms of the loan. . . . However, no matter how strict those limits seem, they do not alter the fundamental problems caused by mortgage cramdowns. Even with these limits, this proposal would still increase the cost of homeownership and especially hurt both first-time homebuyers and families with low to moderate incomes. It would also deal a blow to banks and other lenders at a time when many are faltering. Worst of all, allowing bankruptcy judges to rewrite mortgages would prevent few foreclosures while imposing high costs on many who tried this approach.


WISCONSIN    

Attorneys see clients’ desperation increase

by Jack Zemlicka, Wisconsin Law Journal

4-27-09 -- When a woman recently came into attorney James W. McNeilly’s office to explore the possibility of filing for bankruptcy, there was little he could do for her. . . . The woman had gotten divorced in November and received a 50 percent interest in her ex-husband’s pension, but also about $40,000 in credit card debt the couple accumulated during the marriage. McNeilly said the woman planned to withdraw the pension money to pay down the credit card debt, but then she lost her job. . . . “She asked if she should use the money from the pension to settle with the creditors or use it to live on,” McNeilly said. “I couldn’t answer that.” . . . All he could tell her was that Chapter 7 would have proven useless because creditors could have still tried to get the money from her ex-husband and Chapter 13 was not an option because she had no source of income.


GENERAL

Law Firms Seen as Potential Cash Cows in Bankruptcy Cases

By Debra Cassens Weiss, ABA Journal

4-22-09 -- Updated: The worsening economy may bring more malpractice lawsuits against law firms by bankruptcy trustees who consider them potential cash cows. . . . David Parker of Parker Mills in Los Angeles told the Daily Journal (sub. req.) that the burgeoning area of litigation is attracting some plaintiffs lawyers who are actively searching for bankruptcy trustees to represent. . . . A number of recent cases illustrate the trend according to the story. The publication lists these examples: . . . • Pillsbury Winthrop Shaw Pittman paid $10 million to settle a suit over the firm’s failure to disclose an alleged conflict of interest in a bankruptcy case. Another firm, Levene, Neale, Bender, Rankin & Brill, paid $2.5 million to settle the trustee’s claim in the same case.


Bankruptcies surge despite law meant to curb them

By Mike Baker/The Associated Press, Lincoln Journal Star

4-18-09 -- The number of U.S. businesses and individuals declaring bankruptcy is rising with a vengeance amid the recession, despite a three-year-old federal law that made it much tougher for Americans to escape their debts, an Associated Press analysis found. . . . “There’s no end in sight,” said bankruptcy lawyer Bryan Elliott of Hickory, N.C., who is working seven days a week and scheduling prospective clients a month in advance. “To be doing this well and having this much business, it is depressing. It’s not a laugh-a-minute job.” . . . Nearly 1.2 million debtors filed for bankruptcy in the past 12 months, according to federal court records collected and analyzed by the AP. Last month, 130,831 sought bankruptcy protection — an increase of 46 percent over March 2008 and 81 percent over the same month in 2007.


Malpractice and Partner Liability at Issue in Heller Bankruptcy

By Debra Cassens Weiss, ABA Journal

4-17-09 -- A bankruptcy judge sorting out the issues surrounding the dissolution of Heller Ehrman is refusing to allow a malpractice suit by an identity theft company to proceed against the former law firm. . . . The identity theft company Lifelock Inc. accuses Heller and former partner Mary Azcuenaga of overbilling, the Recorder reports. Judge Dennis Montali of the Northern District of California refused to lift an automatic stay that prevented the case from going forward because of the risk of draining assets from the estate so early in the bankruptcy, the Daily Journal reports. . . . Heller’s bankruptcy trustee has estimated that only $8.25 million will be available by the end of May to pay the law firm’s debts.


BANKRUPTCY

Bankruptcy is a legally declared inability or impairment of ability of an individual or organization to pay their creditors. A declared state of bankruptcy can be requested by creditors in an effort to recoup a portion of what they are owed; however in the overwhelming majority of cases the bankruptcy is initiated by the bankrupt individual or organization.

From Wikipedia, the free encyclopedia


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The United States Trustee Program is the component of the Department of Justice responsible for overseeing the administration of bankruptcy cases and private trustees under 28 U.S.C. § 586 and 11 U.S.C. § 101, et seq.

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"The commercial world is very frequently put into confusion by the bankruptcy of merchants, that assumed the splendour of wealth only to obtain the privilege of trading with the stock of other men, and of contracting debts which nothing but lucky casualties could enable them to pay; till after having supported their appearance a while by tumultuary magnificence of boundless traffic, they sink at once, and drag down into poverty those whom their equipages had induced to trust them."
--Samuel Johnson: Rambler #189 (January 7, 1752)--

 

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Inaugurated on October 20, 2006
Updated 02/04/2012