Legal Pad

Heller's Creditors: Spending Big Bucks On (Hopefully) Getting Back Really Big Bucks

[Petra Pasternak]

Heller Ehrman’s creditors have so much faith in Bill McGrane’s ability to shake millions of dollars from the defunct firm’s banks, they seem to have forgotten he’s a mere mortal.

The unsecured creditors’ committee wants to pay 11-lawyer McGrane Greenfield $1 million up front to pursue more than $58 million it says the banks shouldn’t have.

But at a hearing to approve the employment of McGrane Greenfield (free reg. req.) this afternoon, bankruptcy Judge Dennis Montali momentarily stumped attorney Tom Willoughby, who represents the creditors’ committee, by calling the prompt payment of $1 million to an 11-lawyer firm “a staggering amount,” and asking what happens if the very next day, McGrane got hit by a bus.

No Heller Money For You, Unless You Didn't Work There

[Amanda Royal]

The carcass keeps a-rottin' and the lawyers keep a-feedin'.

While Heller’s former employees still wait to receive one penny of the $6 million they are automatically owed from the bankrupt Heller Ehrman estate, the lawyers on the case get fatter and fatter at the trough.

Judge Dennis Montali has approved another $2.9 million in fees and expenses for work done between August and December, 2009. Lawyers have already been paid $3.55 million, bringing the total cost of the bankruptcy to date to $6.5 million.

The highest earners are Pachulski Stang Ziel & Jones, which represents the estate and took home $800,000 in fees. Next up is Lovitt & Hannan, which is investigating who to sue, and which pocketed $670,000. In third place is Felderstein, Fitzgerald, Willoughby and Pascuzzi, which represents the creditors committee, and which took home $373,955.00

Employees were supposed to get their money by Christmas under an initial settlement. Now, lawyers on all sides are promising them their money by the end of July, 2010.

Heller Creditors Pencil Deal With Junior Partners

Heller’s creditors have reached a tentative settlement for about $1.6 million with 62 former shareholders, most of them junior partners.

Creditors are targeting 180 shareholders altogether and have carved out policy committee members and senior management for separate settlement talks.

Fifty-six partners who made less than $450,000 will pay $700,000 to creditors, according to court filings. Another six partners who made more than $450,000 will pay $920,000 to creditors.

No settlements have been reached with policy committee members or senior management.

What's next, what's left, after the jump.

Ex-Heller Attorney: 'Your Honor, This Stuff Makes No Sense.'

One brave associate took to the podium in front of Judge Dennis Montali on Thursday, demanding a clearer liquidation plan and questioning the $1 million fee proposed for the employee’s lawyers at Blum Collins.

At a hearing on the employee’s $19 million proposed settlement in the bankruptcy, David Simon’s voice quavered slightly as he began to speak to a courtroom full of experienced bankruptcy attorneys and litigators and to a judge well-known for his intelligence and wit.

As the strawberry-blond young attorney stood up, Montali ruffled him, asking if he was an objector. Simon stumbled a little, saying, “I guess I’m an objector.”

But he got up his nerve and went straight to the point.

The point ... after the jump.

Heller Judge to Lawyers: Your Plan is a Mess

Judge Dennis Montali is already asking the two main lawyers on the Heller 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.

Montali schools 'em, after the jump.

Heller Bankruptcy on Track for $5M/Year in Lawyer Fees

Heller’s creditors, former employees and partners better hope things get tied up soon: the bankruptcy attorneys are burning through the defunct firm’s money at a rate of over $5 million per year.

The latest fee requests are in and attorneys working for both the creditors and the estate want a combined $1.75 million in fees and expenses for work done between May and August. The first round of fee requests, for work between January and April, totaled $1.8 million.

About 1,200 creditors have filed claims for $382 million in the bankruptcy. A liquidation plan is due today, and creditors hope to have it confirmed by the end of the year. Even with confirmation, creditors will have to wrap up their litigation with Bank of America, which seems inclined to draw things out as long as possible. Creditors are currently in mediation talks with former shareholders and employees.

— Amanda Royal
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$7.5 Million Offer Could End Heller Employees' Suit

Heller Ehrman’s employees have been offered $7.5 million to settle their $30 million claim in the bankruptcy, according to a letter sent to the employees’ counsel from the Heller estate’s employment lawyer, John Fox at Manatt Phelps & Phillips.

The staff’s lawyers at litigation boutique Blum Collins are urging their clients to reject the settlement offer because “the firm seeks to take advantage of employees’ desperation,” according to a letter from Blum Collins.

The letters were provided by an employee on the condition that they not be posted. The employee declined to be named.

The proposed settlement would end Biggers v. Heller Ehrman, a class action that seeks unpaid vacation and WARN Act money for hundreds of employees. At least 95 percent of employees involved in a class action must sign on to complete the settlement.

A settlement is not required for employees to receive money in the bankruptcy. The Heller estate can also propose an amount in its liquidation plan, and if Judge Dennis Montali agrees, that will be the amount distributed to employees.

— Amanda Royal
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Heller Judge Orders Mediation Talks, Sets Dates

The judge in Heller Ehrman’s bankruptcy has ordered (.pdf) mediation  between the firm’s creditors and its former shareholders, the first sign that shareholders might come to the table to iron out an ending to the nine-month-old bankruptcy.

The talks are slated to take place on Oct. 30 and Nov. 16. Also, Judge Dennis Montali ordered each side to file settlement conference statements confidentially with the moderator, Judge Randall Newsome, by later this month.

It’s not clear how many shareholders the creditors intend to target by arguing the firm was insolvent as early as 2007, bringing into question payments made to partners since then.

A majority appear to be participating in settlement talks: Six attorneys are representing 183 of the former shareholders, some of whom left or retired before the firm dissolved, according to the order’s proof of service.

Who they are and who they represent (after the jump):

Creditors Go After Heller Pension Fund

Hellerites: Thought your retirement money was yours? Think again.

Heller’s creditors want $13.8 million of Heller’s pension plan assets “set aside” for them, and Heller’s dissolution committee has agree to do so.

Creditors think about $24 million in pension contributions for 2007 fall under a fraudulent transfer claim they say they’ll assert against former shareholders. About $10.2 million was in other pension plans that have been liquidated and closed, leaving about $13.8 million for creditors to haggle over.

The creditors committee is hoping to show the firm was insolvent as early as 2007, and that money that flowed out of it throughout 2008 is theirs. Retirement benefits that accrued in 2007 were deposited into the plan in early 2008.

Heller’s Dissolution Committee is currently administering the retirement plan, but has proposed to transfer authority to Keith Betzina, counsel at Davis Wright Tremaine. They hope to distribute all $49 million in assets out of the plan as soon as Friday or Monday and close it.

But wait, there’s more: Those pesky accounts receivable, and more bank flogging.

Heller: Profits That Weren't, and Checks that Were in the Mail

Some pretty shady stuff was going on at Heller last year, if a new report in the bankruptcy court is to be believed.

In early 2008, someone at Heller Ehrman instructed its accounting department to distribute $9 million in profits it did not have, and then cover it up, an interim status report alleges.

Also, in late 2007, Heller printed 118 checks made out for $3 million in total to pay for expenses. It then placed a hold on the checks and didn’t let them clear until early 2008, the report says.

The information is the result of investigations by the Creditors Committee. The report indicates it believes Heller’s management was making these “very troubling business decisions” to boost its 2007 numbers.

“Whatever the rationale, the reality was that Heller LLP boosted its 2007 financial numbers at the expense of the 2008 numbers, even though 2008 looked to be an even worse year for the firm’s revenues,” the report says.

No wonder Bank of America was so nervous by September 2008.