The Firms

March 14, 2011 11:43 PM

On Eve of Dissolution, Howrey Staffers Face Uncertainty

Posted by Brian Baxter

UPDATE, 3/15/11, 2:45 p.m. - Information from California's Employment Development Department has been added to the second paragraph below.

Howrey is poised to dissolve on March 15 after the partnership voted last week to break up the Washington, D.C.-based firm. In a press release last Wednesday, the firm noted that it had issued WARN Act letters to staff members, in compliance with federal and state laws that require 60 days notice prior to a mass layoff.

Howrey confirmed on Friday that it sent out 702 WARN notices via overnight mail to its employees, including 480 to individuals working for the firm in Northern Virginia and Washington, D.C. Beatriz Sandoval, a spokeswoman for California's Employment Development Department, says that Howrey has issued WARN notices to 70 employees in Los Angeles, 37 in Palo Alto, and 29 in San Francisco.

The WARN letters, which followed the official statement of Howrey's dissolution, informed associates, secretaries, paralegals, and other professional and support staff that they will be paid through May 9 if they cannot find new employment before that date.

According to one current staff member, Howrey's remaining employees are working together to help each other find new jobs. An online job board listing openings and other potential opportunities nationwide and in Washington has been set up, this staffer says. "It has been extremely gratifying," the employee says of the effort. "Everyone is contacting their sources to try and get people placed, and it’s beginning to work."

Still, questions remain for Howrey staffers, including uncertainty over pay. The firm must have money on hand in order to pay employees what they are due if those workers don’t find new employment soon. Howrey's ability to do so depends largely on whether or not the firm will file for bankruptcy. If it does, payments to employees would move to the back of the creditors’ line, reducing the chances that those staffers will receive full pay through May 9.

Thelen, in its dissolution two years ago, issued WARN Act notices and paid staff salaries for 30 days. But when Thelen moved to pay staff for the second 30-day period, Citibank, which was owed $50 million and controlled the firm's secured assets, blocked the payments. Citi made that decision during the economic crisis of late 2008. (Click here and here for stories from The Recorder, a sibling publication, on lawsuits filed by Thelen staffers against former partners of the firm.)

Such a scenario is on the minds of some Howrey staffers and associates. According to one Howrey partner, at a meeting last Wednesday describing the dissolution process, one associate asked whether Citi would approve payroll checks on March 15. The answer, according to the partner, was that the firm didn't know.

Howrey does owe Citi a significant sum--$75 million, says Latham & Watkins corporate restructuring and bankruptcy partner Peter Gilhuly, who is advising Howrey on its wind-down efforts. But Gilhuly adds that any fears about the firm missing potential payments to current employees are overblown.

"Howrey is doing everything it can, first to place people," Gilhuly says. "The priority of the dissolution committee is to take care of staff." So far, Gilhuly says the firm has helped "hundreds" of staff members and associates land new jobs. (Howrey has also let go of 29 associates and 65 staffers in February 2010, as well as another 32 staffers in November.)

Gilhuly says that another priority is collections, so that Howrey will have the money for potential staff costs, such as paying out accrued vacation time. "To the extent that we develop a good working relationship with Citi, and have an efficient collection machine that will pay them down, that allows us to pay more staff costs that we're desperately wanting to," he says.

Staff members, including associates, who land jobs before May 9 are not entitled to WARN damages, Gilhuly says, noting that payment of salaries through that date applies only to those individuals who don't find another job before then. Gilhuly adds that the WARN issue is best examined a month from now.

"Firms are well counseled to distribute [WARN notices] widely--even in places where you don't think people are entitled to a WARN notice--out of an abundance of caution," he says. "What you really want to do is get people new jobs, and our experience is that our people are quite employable. So that's really our focus right now, not to worry about the dates or amounts, but to mitigate them so it’s a win-win [for both sides]."

That could be tough in a legal market that lost 2,900 jobs in February. One former Howrey partner says the staffers who will have a hard time relocating will be those that were not directly assigned to a particular attorney, such as those individuals performing back-office functions, including accounting, human resources, and marketing.

As for the possibility of a bankruptcy filing, a former partner at the firm says much will depend on Howrey's landlords.

In Thelen's case, the firm dissolved on November 30, 2008, but it did not file for bankruptcy until nearly ten months later, on September 19, 2009. Thelen's landlords had agreed to a standstill on rent payments up to a certain point, but as that time drew to a close, it became apparent that no money remained to pay the landlords.

Howrey is in much better shape financially than either Thelen or Brobeck, Phleger & Harrison, according to Gilhuly, who advised both of those firms in the aftermath of their dissolutions. Howrey is not burdened by bad lease deals—obligations that plagued both defunct firms, Gilhuly says. He notes that Howrey already has been approached about subleasing some of its current space to mitigate its liabilities. Keeping the landlords happy will likely go a long way toward keeping Howrey out of bankruptcy in the near future, he says.

Steven Blum, a name partner at Los Angeles firm Blum Collins, has been soliciting Howrey staffers as potential clients on blogs chronicling the firm's downfall. Blum, who also is representing former Thelen and Heller Ehrman employees in suits over WARN Act payments, says it's too early to talk about potential litigation.

"Some people from Howrey have spoken to us about what we've learned from similar cases that we've done," says Blum, who notes he's recovered about $19 million for Heller employees. "But nothing's happened yet that I know of that would give rise to a lawsuit by [Howrey] employees. The real question is when will Howrey go into bankruptcy and how will they do it?"

Gilhuly says that bankruptcies don't make a lot of sense in the beginning of law firm dissolution cases because the secured bank usually approves expenses necessary to collect receivables--such as moving records and other methods of preserving client relationships--necessary to pay the bank's bill. It will likely take six to eight months to pay down Citi in the Howrey case, Gilhuly says.

Managing partner and CEO Robert Ruyak did not respond to a request for comment and Howrey declined to comment on whether the firm had considered filing for bankruptcy.

Additional reporting by Nate Raymond.


CLICK HERE for Howrey Scorecard: Where Have All the Lawyers Gone?, our chart tracking Howrey partner moves.



Associate Confidential: Keeping Careers on Track Amid a Firm's Collapse
The Am Law Daily, 3/8/2011

An Expert in Law Firm Breakups Looks at Possible Howrey Scenarios
The Am Law Daily, 3/4/2011

Experts: For Howrey, Mass Departures to Winston Could Breach Debt Obligations
The Am Law Daily, 2/2/2011

Rescues Gone Wrong?
The American Lawyer, January 2011


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