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July 13, 2011 5:31 PM

Milk Money: $140 Million Dairy Settlement a Likely Boon to Howrey Estate

Posted by Brian Baxter

A group of former Howrey lawyers, now employed by Baker & Hostetler, have reached a settlement worth up to $140 million with milk and dairy producer Dean Foods in an antitrust class action filed on behalf of 7,200 dairy farm plaintiffs from the southeastern United States.

Dallas-based Dean Foods announced late Tuesday that it had reached an agreement with plaintiffs, who filed their case in July 2007 in federal court in Greeneville, Tenn.

The settlement's terms call for Dean Foods to pay up to $140 million into a fund earmarked for class members. An initial payment of $60 million will be made once U.S. district court judge J. Ronnie Greer gives the accord his preliminary approval. The company will pay off the balance of the settlement in $20 million installments over the next four years.

The plaintiffs in the case claim that Dean Foods and several other defendants--including the Southern Marketing Agency (SMA), an industry trade group, and the Dairy Farmers of America (DFA), a milk- marketing cooperative--stifled competition in the milk industry by keeping prices artificially low while milk processors enjoyed record profits.

Advocates for the defendants denied those allegations and claimed that farmers had gained financially as a result of industry regulations.

The Am Law Daily reported earlier this year that "the milk case"--as the sweeping antitrust class action became known--had emerged as something of a sticking point in the ultimately unsuccessful merger talks between Howrey and Winston & Strawn.

A former Howrey partner familiar with the milk case told The Am Law Daily on Wednesday that the now-bankrupt firm had spent $25 million on discovery in the litigation. The ex-partner says that his former firm will be "taken care of" as a result of the settlement with Dean Foods. He notes that Howrey stands to recoup roughly one-third of the settlement on contingency--potentially bringing the bankrupt Howrey estate more than $40 million--and that Baker & Hostetler would get a smaller share since it essentially only entered the case in March.

Former Howrey CEO Robert Ruyak, who serves on the firm's five-member dissolution committee, told The Am Law Daily via e-mail Wednesday that the fee breakdown is currently confidential but would let us know when it becomes public.

Wiley Rein bankruptcy and restructuring chair H. Jason Gold, who has taken the lead advising Howrey in its Chapter 7 case, did not immediately respond to a request for comment on Wednesday about the potential implications of the Dean Foods settlement. The bankruptcy docket for Howrey's Chapter 7 case in San Francisco did not contain an entry for the Dean Foods settlement as of early Wednesday afternoon.

News of the settlement came one day after Howrey's largest secured lender, Citibank, filed a motion in the bankruptcy court objecting to the firm's plan to pay $455,781 in bonuses to 20 of its 46 remaining employees. Howrey owed Citi about $75 million at the time of its dissolution four months ago. As of early June, that debt had been whittled to $49 million. Paul, Weiss, Rifkind, Wharton & Garrison and Los Angeles litigation and bankruptcy boutique Peitzman, Weg & Kempinsky are representing Citi in Howrey's bankruptcy. (Click here for a copy of Citi's loan agreement with Howrey.)

There is precedent to show that the Dean Foods settlement is likely to help Howrey trim its debts even further, assuming the firm is able to achieve an amicable split with Baker & Hostetler on the contingency fees. In the dissolution of Coudert Brothers, the defunct firm's liquidation plan administrator reached a settlement last year in a civil case with Baker & McKenzie in which the latter firm agreed to give up $7 million in contingency fees to compensate Coudert's bankruptcy estate.

Former Howrey global litigation cochair Robert Abrams is serving as lead counsel to the class of dairy farmers, while Winston represents the SMA. The two firms are facing off against one another in multidistrict litigation in Tennessee and Vermont, where Dean Foods reached a $30 million settlement with plaintiffs in December, according to our previous reports.

A federal judge in Vermont approved that settlement in May, two months after Dean Foods agreed to sell a milk processing plant in Wisconsin in order to settle a separate antitrust case filed by the Justice Department and state attorneys general in Illinois, Michigan, and Wisconsin.

That Howrey and Winston were adverse to one another in the milk case is what made the matter a complicating factor in a potential merger between the two firms. Howrey eventually dissolved in mid-March and entered bankruptcy proceedings in April. (The American Lawyer published a detailed narrative about Howrey's demise, including the firm's involvement in the milk case, in its June issue.)

Winston managed to pick up 40 lawyers from Howrey's Houston office in March, the same month that Abrams and his team representing plaintiffs in the milk case announced their intention to join Baker & Hostetler. (None of the Howrey lawyers who went to Winston had worked on the milk case.)

At the time, Abrams told us that because of the conflict with Winston, several firms attempted to woo his team. He declined to comment on any agreement between Howrey and Baker & Hostetler to split a contingency fee in the case in the event of a successful verdict or settlement with one or all of the defendants.

Though Abrams did not immediately respond to a request for comment Wednesday, he did release a statement through Baker & Hostetler calling the settlement with Dean Foods a "very positive and successful resolution" for plaintiffs.

"We feel the settlement amount of $140 million speaks to Dean's past activities in the southeast and the impact those activities had on the dairy farmers," Abrams said in the statement. "Significantly, in addition, the settlement also reflects action that Dean has taken toward restoring a more competitive market for southeast dairy producers."

Abrams and Baker & Hostetler partners Gregory Commins, Jr., Robert Brookhiser, Terry Sullivan, and Joanne Caruso are representing dairy farm plaintiffs in the case. Thomas Jessee of Johnson City, Tenn.-based Jessee & Jessee is serving as local counsel to dairy farm plaintiffs in the southeast.

Dean Foods chairman and CEO Gregg Engles said in a statement that his company was confident that it had "operated lawfully and fairly at all times in the Southeast," and that settling the case allowed Dean Foods to focus on its operations and avoid the "uncertainty and distraction of a protracted litigation" and the likelihood of a lengthy appeals process.

Dechert antitrust cochair Paul Denis, past antitrust cochair Paul Friedman, partner Carolyn Feeney, and counsel Paul Frangie have been leading the firm's team representing Dean in the case. Tennessee firms Waller Lansden Dortch & Davis and Hunter Smith & Davis served as local counsel to Dean Foods.

While the dairy farmers' class action against Dean Foods has concluded in Tennessee pending the the approval of a federal judge, the suit against remaining defendants the SMA, DFA (represented by Williams & Connolly), and National Dairy Holdings (advised by Andrews Kurth) is scheduled for trial in August.

None of the Am Law 100 partners identified in this story with active roles in the milk case responded to requests for comment on the Dean Foods settlement or the disbursement of attorneys' fees. A Baker & Hostetler spokeswoman also did not respond to a request for comment.

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