The Firms

January 27, 2012 4:39 PM

Bankrupt Howrey May Be Off Hispanic Farmers' Suits, But Ex-Firm Lawyer Vows to Soldier On

Posted by Sara Randazzo

As Howrey's bankruptcy plods into its ninth month—and as the trustee overseeing the Chapter 11 proceedings tries to wind down its financial affairs in an orderly fashion—one loose end that remains concerns the fate of a group of clients left stranded by the firm's demise.

This week, several members of that group—which includes hundreds of Hispanic farmers suing the federal government in a pair of proposed class actions over what they say are discriminatory lending practices—asked the judge overseeing the bankruptcy to ensure that the Howrey estate's decision to drop the cases doesn't leave them without representation.

Their fears, it turns out, may be unfounded.

The Hispanic plaintiffs' requests came in response to a December 29 motion filed in San Francisco bankruptcy court by Bradford Englander, counsel to Howrey's unsecured creditors' committee, requesting that the estate be allowed to reject the farmers' engagement letters.

Meanwhile, in a motion (PDF) of his own filed the next day, Howrey bankruptcy trustee Allan Diamond asked the Washington, D.C., federal district court judge presiding over the Hispanic farmers suits—Garcia v. Vilsack and Cantu v. United States—to let the Howrey estate withdraw from the cases.

The suits allege that the U.S. Department of Agriculture routinely discriminated against Hispanic farmers when granting federal loans, steering most of the money to white male farmers instead. Similar suits brought by Indian and black farmers have yielded settlements worth a combined total of more than $2 billion, but the Hispanic plaintiffs' cases, and one filed on behalf of women farmers, have stalled.

On January 6, the judge approved Diamond's requests—a good thing for Diamond given that, according to his December 30 motion, he had already sent the plaintiffs letters saying Howrey was exiting the litigation. 

The clients, however, don't want Howrey to go, according to 17 letters filed on Tuesday in which Garcia and Cantu plaintiffs ask bankruptcy court judge Dennis Montali to intervene in the matter on their behalf.

In the lengthiest of the letters (PDF), plaintiff Gloria Moralez of Fresno, California, explains the importance of resolving the cases and describes what she views as Howrey's selfish behavior in keeping  the cases going over the past several years for greater financial gain.

Moralez—who says in the letter that she has a brain injury and subsists on $760 a month—expresses disappointment that, after representing her for more than a decade, Howrey would act so quickly and impersonally. 

In his filings, Diamond explains why he believes the cases have become too great a burden for the estate to shoulder, emphasizing that the last three attorneys working on legal matters for Howrey were terminated on December 22, and that the firm's malpractice insurance is not being renewed this year. (Diamond notes that Howrey has so far spent 50,000 hours worth $30 million on the litigation.)

What Moralez and her fellow plaintiffs apparently don't know is that despite Howrey's move, they haven't been abandoned.

Stephen Hill, the now-former Howrey antitrust partner who has been working on the Hispanic farmer litigation since 2002, tells The Am Law Daily he plans to stick with the case "if at all possible" and that he is exploring a number of options to make that happen.

As Hill tells it, he and his fellow former Howrey attorneys Collette Harrell and Jennifer Samolyk were working on the case out of Howrey's Washington, D.C., offices until December 22, when they were told they had ten minutes to pack up and leave—and not to return.

Diamond disagrees, saying that soon after being named trustee in October, he notified Hill that employing him into the new year "would be impossible" and that a months-long effort to reach an agreement with Hill about how the estate could advance the cases proved fruitless.

In a Thursday filing, Diamond says that at one point, he even considered having his own firm, Diamond McCarthy, take on the cases in conjunction with either Hill and other former Howrey lawyers or attorneys from a different firm. Ultimately, Diamond says, the malpractice insurance expired before a solution could be found.

Moralez, a lead plaintiff in Garcia, says in her letter that she has repeatedly asked over the past two years that Howrey settle the case, but that the firm kept insisting it should try to certify a class of 55,000 Hispanic farmers. She says Howrey clung to that "because it would have meant a lot more legal fees for them, without consideration of how it has affected us." (Moralez also says Howrey made her "feel guilty of hurting the rest of the plaintiffs" by requesting to settle her claims.)

Hill says that the cases have stalled because the government's settlement proposals have fallen far short of what the black and Native American farmers received. While the government has set aside at least $1.3 million to pay claims by Hispanic and female farmers, Hill says the limitations placed on the payouts create "what I characterize as a very cynical and illusory process."

For instance, a revised proposal announced by Agriculture secretary Tom Vilsack this week caps recovery for Hispanic farmers at $50,000 apiece for claimants on one tier and $250,000 apiece for those on a second, higher tier.

By contrast, there were no caps placed on the claims paid to black farmers, and one claimant in that class received $13 million, according to Hill. The amount of proof the government is requiring plaintiffs to show to establish that they were discriminated against is also onerous and offers little hope for any of his clients to actually recover money, Hill says.

Since Howrey extricated itself from the case, Hill says he has been working to reach what he estimates are more than 1,400 plaintiffs to confirm that they still want him to represent them. Chances are, those who filed letters of objection to the court haven't spoken with him yet. The letters—all of which, besides Moralez's, are one paragraph long—were filed pro per and come mostly from plaintiffs in Fresno, and also from Texas, Oklahoma, and elsewhere in California. The letters insist that if Howrey ceases its representation, "it will do immediate and irreparable damage" to each plaintiff. The sixteen one-paragraph letters add that, "As of today nobody has explain (sic) to us what effect the bankruptcy has on us."

Though the Howrey estate has ceased its active role in the litigation, its financial interest remains strong: motions (PDF) filed Thursday in both Garcia and Cantu assert a lien against any recovery by the plaintiffs and "[demand] that Howrey's interests be recognized" in the event that such recovery is distributed. The chances of a huge recovery may be slim, however, as the claim fund established so far by the Agriculture Department does not provide for contingency fees.

At a hearing scheduled for February 9 in San Francisco, Montali is expected to rule on what has become another wrinkle in Howrey's bid to disassociate from the Hispanic farmers litigation. In his motion, unsecured creditors' counsel Englander aims to officially reject the contracts entered into with the farmers. Diamond, the trustee, argues in a competing motion (PDF) that simply winning approval to withdraw as counsel from the courts overseeing that litigation is enough, and that having the bankruptcy court reject the engagement agreements could jeopardize attempts to monetize any potential recovery.

This week also saw Diamond file a monthly operating report detailing the estate's finances in December. That report lists current assets of $23.4 million, roughly a million less than the estate had in the previous month. Expenses for the month, totaling $844,364, include $40,732 for monthly rent to a D.C. landlord; $18,651 to Los Angeles attorney Richard Burdge, whose fees were approved at a December hearing; $13,000 for contract employees; and just over $20 for light bulbs. 

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