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January 2, 2012 6:45 PM

No Holiday Respite for Lawyers Working on Howrey Bankruptcy

Posted by Sara Randazzo

Lawyers working on the Howrey bankruptcy stayed busy over the holidays, filing multiple motions in late December aimed at moving along what is now a trustee-supervised Chapter 11 bankruptcy. 

Among the latest court filings: a motion (PDF) by the Howrey estate's unsecured creditors' committee seeking bankruptcy court approval to cut ties to a pair of federal putative class actions in which firm lawyers had been representing Hispanic farmers who say the federal government discriminated against them.

The cases—Garcia v. Vilsack and Cantu v. United States, both of which are pending in Washington, D.C., federal district court—involve claims that the U.S. Department of Agriculture routinely discriminated against nonwhite farmers when granting federal loans. Similar class actions have yielded settlements worth a combined total of more than $2 billion for Indian and black farmers, but the Hispanic plaintiffs' cases have stalled without producing a settlement.

Creditors' committee counsel Bradford Englander of Whiteford Taylor Preston argues in the motion that the Howrey estate simply can't afford to continue to play a role in litigation that has already cost the firm more than $32 million in fees and expenses over the past decade.

Englander points specifically to the December 31 expiration of the defunct firm's malpractice insurance and the recent departure of the last three lawyers working on matters under the Howrey name as reasons why the estate should abandon the litigation. Continuing to pay the $2.7 million malpractice insurance premium alone would be too much of a burden, the motion states, never mind the costs required to hire experts and perform the other tasks required to keep the cases moving along. At the same time, the motion states, dumping the cases should not affect the estate's ability to recover attorneys' fees in the event that a settlement is reached.

The motion says that until December 22, three Howrey lawyers were working exclusively on the litigation, but that trustee Allan Diamond informed the trio shortly after being appointed to oversee the bankruptcy that their services would no longer be needed come the new year. (Englander and Diamond did not return calls for comment Monday afternoon.)

The Am Law Daily reported in August that as of July, former Howrey partner Stephen Hill and ex-firm attorney Collette Harrell were still being paid by the estate in connection with their work on the class actions (Hill received $1,357 that month; Harrell, $5,570). It was not immediately clear Monday where either attorney works now or if they will continue to represent the Hispanic plaintiffs if the court approves Howrey's withdrawal from the litigation.

Meanwhile, less than ten months after Howrey closed its doors, the bankrupt firm's financial state is as precarious as ever. While the estate lists $39.9 million in total assets, according to a November operating report (PDF) filed December 29, it has just $2.8 million in cash.

The lack of cash is one reason Diamond, of Texas firm Diamond McCarthy, cites in a December 28 filing (PDF) in arguing that administrative rent requests submitted by landlords in Chicago and D.C. should not be paid just yet.

The Chicago landlord, Hines Properties, has requested $28,912 that it says it is owed after the court approved Howrey's rejection of its Hines lease in June.

"While the Trustee is sympathetic to Hines's position, the reality is that this estate has very limited financial resources at this time," Diamond says in his motion. He adds that if Hines receives its modest request, the estate could be required to give similar treatment to the firm's former D.C. landlord, Warner Investments, which seeks more than $10 million—an amount the estate is vehemently disputing.

As for his own work on the matter, Diamond is seeking $278,008 for his firm's handling of the Howrey bankruptcy from the time he came on board on October 21 through the end of November. The Diamond McCarthy fee request (PDF), which totals more than 100 pages, shows firm partners Howard Ressler and Jason Rudd racking up more than $70,000 in fees apiece, with Diamond himself billing nearly $21,000.

(The fee request shows that the Hispanic farmers litigation is clearly on Diamond's radar: Getting up to speed on the matter—including meetings with former Howrey chairman Robert Ruyak to discuss "Winston [& Strawn]'s role in the case"—consumed 123 hours of Diamond McCarthy's time at a cost of $55,752). 

Other professional services firms also continue to seek payment from the estates. Kornfield, Nyberg, Bendes & Kuhner, an Oakland firm advising Diamond, filed a motion requesting $6,233 for work done between November 7 and November 30. Financial adviser Development Specialists requested $45,254 for the period from October 21 to the end of November, with its consultants billing at hourly rates between $225 and $625.

All of the recent fee requests account for a 20 percent holdback that won't be paid until the conclusion of the case. Such a holdback was at issue last month in the final bill submitted by Wiley Rein, Howrey's counsel until Diamond took over as trustee. Last month, U.S. bankruptcy court judge Dennis Montali approved Wiley Rein's full $1.03 million fee request over the objections of Diamond, who thought the firm should agree to the same holdbacks as other professional services providers. That Montali approved the fee requests doesn't mean Diamond can't raise more serious objections to those fees, recoup them once the bankruptcy concludes, or even bring malpractice claims against Wiley or the other advisers in the future.

Upcoming hearings in the bankruptcy case are scheduled for January 11 (on Hines's motion to be paid) and February 9 (on the motion related to the Hispanic farmers litigation).

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