The Firms

March 31, 2011 10:43 PM

Howrey Staffers Jobless After Citi Cuts Payroll Funding

Posted by Brian Baxter

Citibank cut funding to cover the Howrey payroll on Thursday, according to a memo issued by the firm. The move puts remaining staffers on the unemployment line more than a month ahead of schedule.

Though the newly jobless will continue to receive some benefits through April 30, they were informed in the memo that all of Howrey's U.S. offices would close and that most staffers would be terminated as of close of business Thursday.

"We did not foresee this outcome. It was Howrey's intent to continue salary and benefits pursuant to our WARN obligations, but our ability to do so was contingent upon the approval of Citibank," the firm said in its memo. "We know that this is extremely difficult information to receive. We regret this action and wish you success in your future endeavors."

Latham & Watkins corporate and restructuring partner Peter Gilhuly, who is advising Howrey on its wind-down efforts, confirmed via e-mail that Citi had cut payroll funding to the firm after March 31. (Above the Law first broke news of the termination memo, posting it online early Thursday.)

The Am Law Daily reported earlier this month on the 702 WARN Act notices sent via overnight mail to Howrey employees across the country. The firm, which officially dissolved on March 15, had previously said that, pursuant to its WARN Act obligations, it would pay professional and other support staff through May 9 if those employees did not find new jobs by that date.

But Howrey also owed a substantial sum against a $75 million credit line extended to the firm by Citi. Howrey took on a good chunk of that debt at the start of 2011 because, like most large law firms when a new year begins, it needed money to cover payroll and rent payments. 

Citi Private Bank, the unit that operates the financial institution's law firm group, said in a statement released by spokesman Mark Costiglio that the Howrey memo inaccurately described the bank's role in the layoffs.

"We are deeply disappointed in Howrey's mischaracterization of the situation," said the statement. "Citi is not responsible for the employment practices of a client and has acted in a professional manner throughout this process."

Blank Rome restructuring partner Andrew Eckstein in New York, who previously advised Citi on the dissolutions of Thelen and Thacher Proffitt & Wood, is representing the bank on the Howrey matter. Eckstein says that his client continues to allow the use of its cash collateral for certain approved wind-down functions.

"They've got to deal with client files, leases, collection of receivables, and ongoing obligations in the context of winding down [Howrey's] business affairs," Eckstein says. "There's a lot of money on the line here."

Steven Blum and Craig Collins of Los Angeles firm Blum Collins, who say they are representing an unspecified number of Howrey employees, tell The Am Law Daily that they have been told that about 15 Howrey staffers will be retained by the now-defunct firm's dissolution committee. 

Eckstein says a "significantly" larger number of individuals will be retained, but declined to provide a specific number. The employees will work out of a "variety of locations," with accounting and financial operations based in Washington, D.C., he says.

As for why Citi decided to rein in certain payments to Howrey, Eckstein says that the rapid rate at which the firm's fee earners have been relocating to new firms was a factor.

"Most of the practices [at Howrey] are landing at other law firms, people are moving on, and there is much less left of Howrey than there once was," he says. He declined to comment on whether Citi will attempt to recover capital contributions from ex-partners who have joined new firms.

This is not the first law firm failure for several of the parties dealing with the Howrey collapse. Citi also was the lender to Heller Ehrman and Thelen, and cut payroll funding for both when they dissolved. Latham's Gilhuly advised on the wind-downs of Thelen and Brobeck, Phleger & Harrison.

Blum and Collins, meanwhile, represented former Heller and Thelen employees in suits over WARN Act payments. Both lawyers dispute Howrey's contention that Citi's decision to stop payments to staffers could not have been anticipated.

"It was inevitable," Collins says. "If you know anything about what Citibank did to Brobeck, Heller, or Thelen, it's the same thing."

Blum says he believes that Howrey is claiming the staff layoffs were unexpected because doing so offers a defense against possible WARN Act claims. Beyond the brief e-mail confirming that Citi had cut off the firm's payroll funding, Gilhuly was unavailable for further comment Thursday. Martin Cunniff, a member of the firm's dissolution committee, did not respond to a request for comment.

Blum Collins recovered almost $20 million for former Heller employees. Much of that settlement was deferred based on the result of litigation between Heller's creditors' committee and Citi and Bank of America. As previously noted by The Am Law Daily, that litigation settled last week, meaning that some Heller employees can expect to receive payments in the near future.

Collins says that he expects to bring WARN Act suits connected to Howrey's dissolution on behalf of his clients. How such litigation would unfold largely depends on whether what's left of Howrey files for bankruptcy, an outcome that Gilhuly has said he would try and stave off for as long as possible, according to our prior reports.

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I guess bankers are not the only ones who are greedy, go figure. Law firms partners are a class act.

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