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March 24, 2011 6:38 PM

Heller Ehrman Settles with Bank of America, Citibank

Posted by Victor Li

More than two years after it went out of business, Heller Ehrman won a multimillion-dollar settlement from Bank of America and Citibank.

According to sibling publication The Recorder, the banks agreed to pay the defunct firm's estate $20 million and waive claims against Heller's shareholders. A hearing on the proposed settlement is scheduled for March 31. 

The agreement ends two years of litigation that began in April 2009 when the firm's creditors sued the banks demanding the return of $56 million Bank of America received after the firm announced its dissolution but before it filed for bankruptcy at the end of December 2008.

At issue was a document BofA filed with the state in August 2007, on behalf of itself and as an agent of Citibank, forfeiting its secured creditor's status. BofA claimed it filed the document by mistake. It said it filed papers to correct the mistake a week after Heller said it would dissolve.

The case was scheduled to go to trial in November but the parties hammered out an agreement in mediation with former U.S. district judge Eugene Lynch. In addition to the $20 million, BofA and Citibank agreed to waive their claims against individual Heller shareholders, and promised not to sue any shareholders unless the shareholders sued them.

Sacramento-based Thomas Willoughby of Felderstein Fitzgerald Willoughby & Pascuzzi, who represents the Heller Ehrman creditors committee, said he was pleased with the deal.

"They agreed to pay $20 million and not to file proof of claim, which significantly increases the value of the settlement," he said.

San Francisco firm Trepel McGrane Greenfield handled the bank litigation for the creditors committee. Pillsbury Winthrop Shaw Pittman partner M. David Minnick advised BofA. Citibank was represented by Lawrence Peitzman of Peitzman, Weg & Kempinsky in Los Angeles.

In his motion to approve the settlement, Trepel McGrane Greenfield's Christopher Sullivan, who represented the official committee of unsecured creditors, likened the deal to a peace treaty.

"For all intents and purposes, peace is assured between the banks and the settling shareholders," Sullivan wrote. "The only possible exception to peace is if any settling shareholder(s) declares war."

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