The Firms

July 29, 2011 7:25 PM

Howrey Files Monthly Operating Report; Hires Duane Morris

Posted by Brian Baxter

UPDATE: 8/2/11, 6:00 p.m. Howrey is battling with an insurer in bankruptcy court over employee medical coverage, according to sibling publication The Recorder.

Howrey, which officially dissolved in March and was forced into Chapter 7 proceedings in April, has filed a series of financial statements this month with a federal bankruptcy court in San Francisco.

In a summary of schedules filed July 6, Howrey listed assets of $138.7 million against liabilities of $107 million. Subsequent court filings, however, show that the firm's financial outlook as of late June was actually much bleaker, though it could improve thanks to settlements secured this month by former Howrey partners in a pair of contingency fee cases.

Howrey also recently filed its first monthly operating report, which sketches out the firm's financial situation as it teetered on the brink of insolvency. Among the expenditures detailed in the filing: payments to Latham & Watkins for its advice as the firm slid toward oblivion. Peter Gilhuly, a Latham restructuring partner in Los Angeles, took the lead in advising Howrey on its efforts to find a merger partner prior to the decision to dissolve.

Court filings show that Latham has been paid more than $600,000 for its work on behalf of Howrey. Roughly $512,000 was paid to Latham in February and March, with another $100,000 payment made on May 18, after Howrey had begun formal bankruptcy proceedings. Gilhuly did not immediately respond to a request for comment.

Howrey's current bankruptcy counsel—the firm converted its involuntary Chapter 7 case to a Chapter 11 in early June—have received more than $500,000 for their services to date.

Wiley Rein—with financial restructuring chair H. Jason Gold and partners Valerie Morrison, Dylan Trache, and Alexander Laughlin taking lead roles—has already drawn down $340,021 of its $500,000 retainer, according to court records. (Gold notes in a declaration that a former Howrey partner who joined Wiley Rein in April as of counsel, Alan Cooper, could have a potential claim against the defunct firm over a loan he took from Citibank that Cooper claims Howrey agreed to repay.)

Silicon Valley bankruptcy boutique Murray & Murray has received $37,500 for its efforts as local counsel in the case, according to court records.

Meanwhile, court filings how that Howrey--which faces a pair of lawsuits filed by former employees over the firm's alleged failure to meet its obligations under the federal Worker Adjustment and Retraining Notification (WARN) Act--has hired Duane Morris as special labor and employment counsel to Howrey.

Employment litigation partners Eve Klein, James Hollihan, and Lori Ocheltree, employee benefits and executive compensation partner John Reade, Jr., and bankruptcy partners Joel Walker, Aron Oliner, and special counsel Geoffrey Heaton are leading the Duane Morris team. (Klein and Walker did not respond to requests for comment on the firm's role in Howrey's bankruptcy.) Court records show that Duane Morris was paid roughly $65,500 in the year prior to the start of Howrey's involuntary Chapter 7 case on April 11.

Duane Morris has an existing retainer balance of $41,412 that it wants to draw down on in order to pay $16,852 in fees for work already performed, according to a declaration filed by Walker. Howrey has agreed to pay Duane Morris an additional $85,000 retainer—subject to court approval—to secure the firm's services for the remainder of the bankruptcy case.

Howrey's monthly operating report for June provides further details on the firm's finances and accounts receivable. A May 10 line item includes a payment of $72,930 to Martin Cunniff, a member of Howrey's five-man dissolution committee and former cochair of the firm's commercial litigation practice. In mid-March, Cunniff joined Arent Fox, which was paid $12,976 by Howrey on June 23.

Also receiving payments from Howrey's bankrupt estate are former CEO Robert Ruyak, another member of the dissolution committee, who received $47,793 on June 23. A third member of the dissolution committee, ex-litigation partner Gary Fischman, was paid $2,050, also on June 23. (Fischman joined Winston & Strawn with the bulk of Howrey's Houston office in March.)

Citibank, Howrey's largest secured creditor, has objected to $500,000 in payments made to employees helping Howrey wind down its operations.

Another firm receiving payments from Howrey is Blank Rome, which received $55,794 on April 28 and $95,675 on May 23. Blank Rome advised Citibank in the run-up to the firm's dissolution. (It is common for a debtor to pay the legal fees incurred by a secured lender in any bankruptcy proceeding.)

Andrew Eckstein, a bankruptcy partner in Blank Rome's New York office who was representing Citibank, did not respond to a request for comment. Paul, Weiss, Rifkind, Wharton & Garrison and L.A. bankruptcy boutique Peitzman, Weg & Kempinsky are advising Citi in Howrey's bankruptcy case in California.

Howrey's 391-page creditor matrix details the full scale of the firm's debts. An official committee of unsecured creditors chose Sacramento's Felderstein Fitzgerald Willoughby & Pascuzzi to represent them earlier this month, according to court filings. (Click here, here, here, here, here, and here for attached exhibits to Howrey's monthly operating report showing funds coming into and out of the firm's bank accounts with Citi, Deutsche Bank, and ABN AMRO.)

In a summary of schedules filed with the bankruptcy court earlier this month, Howrey listed the costs and expected market values of such assets as artwork, office furniture and equipment, and lease obligations. Ruyak stated in a declaration that Howrey is having problems with the landlord of its lone remaining office in Washington, D.C. The office was once the firm's global headquarters before the bulk of space there was sublet to Baker Botts, which picked up the core of Howrey's antitrust group in March.

"[T]he Landlord, to Debtor's surprise, has now conditioned its signing of the New Lease on the Debtor's stipulation to an amount of administrative rent vastly in excess of what was contemplated in the agreement reached in April," Ruyak says. "As a result, the Debtor, at great cost, will be forced to move its operations to other suitable premises."

The liabilities of other Howrey offices in Amsterdam, Germany, and Houston have been picked up by European IP boutique Hoyng Monegier, British firm Field Fisher Waterhouse, and Winston & Strawn, according to court documents.

Howrey also states that it has arranged to shift "several contingency fee cases to other firms." The Am Law Daily reported on two of those cases this month, including a $140 million antitrust settlement that a group of former Howrey lawyers now employed by Baker & Hostetler reached with Dallas-based milk and dairy company Dean Foods. The same group, led by former Howrey global litigation cochair Robert Abrams, also reached a $27.3 million antitrust settlement with Wal-Mart.

"[W]ith exception of the case transfers to Baker Hostetler LLP . . . Howrey retained its ratable interest in these contingent fee matters pursuant to its Partnership Agreement," Howrey states in court filings.

A contract between Howrey and Baker & Hostetler detailing the breakdown of the contingency fee in the milk case—estimated to be more than $40 million—has not yet been made public. Howrey lists the contract, as well as the transfer of other contingency fee matters to Dewey & LeBoeuf and Dickstein Shapiro, in its schedules A through H.

Dewey has an unsecured claim of $285,674 against Howrey for unpaid rent on office space subleased by the firm in East Palo Alto, California, according to court records. Other firms with unsecured claims against Howrey are Arent Fox ($235,693), Latham ($53,869 for professional fees), Baker & Hostetler ($69,500), and Blank Rome (two claims totaling $260,871).

In a statement on its financial affairs, Howrey gave its gross revenue figures from January through March of this year as $48.2 million. The firm took in $479.8 million in 2009 and nearly $422 million in 2010. The American Lawyer covered Howrey's collapse in detail in its June issue.

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