The Firms

June 9, 2009 3:17 PM

Failure to File Routine Financial Statements Can Mean Trouble for Law Firms

Posted by Francesca Heintz

The Recorder’s Amanda Royal has an interesting post today about how failing to file routine financial statements under the Uniform Commercial Code (UCC) can get both companies and their law firms into trouble.

Exhibit A: Greenberg Traurig is being investigated by the estate of one of its bankruptcy clients, Heller Ehrman, for failing to discover that Heller’s biggest creditor, Bank of America, had terminated its security interest in the San Francisco-based law firm before it plunged into bankruptcy.

Exhibit B: A German aviation company is suing Mayer Brown for malpractice for allegedly failing to properly file financing documents related to an $8 million loan the company bought from a bank.

Although firms occasionally get sued over missed filings, Royal writes, the litigation usually focuses on the lawyers who did (or did not) file the paperwork. Here, however, the firms themselves are the targets.

In the Greenberg case, coverd by The Recorder on June 3, Heller’s creditors are pointing the finger at GT, alleging that firm lawyers did not look through Heller’s public UCC filings after being retained to represent the firm last summer.

If they had, they might have noticed that Bank of America was no longer a secured creditor, which lawyers say would have given Heller more leverage with banks and other creditors, possibly saving the firm from filing for bankruptcy.  

Bank of America, which calls the termination a “clerical error," has already been sued by Heller creditors seeking the return of $51 million paid to the bank in the three months leading up to Heller's bankruptcy. Greenberg could face tens of millions of dollars in damages if Heller proves that Greenberg’s oversight hurt its collection efforts.

The suit against Mayer Brown is slightly different. In that case, examined in this story in sibling publication Texas Lawyer, Thielert AG, a bankrupt German aviation company, alleges that Mayer Brown failed to file the proper documents related to an $8 million loan it bought from a bank. Thielert bought the loan for Superior Air Parts, Inc., which later filed for bankruptcy.

Thielert alleges that because of Mayer Brown’s negligence, the terms of its financing statement were not extended, and its claim in Superior’s bankruptcy has been “relegated” to an unsecured creditor instead of a secured creditor. The company is seeking a minimum of $10 million in damages from Mayer Brown.

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