September 1, 2011 3:04 PM

Landlord and Milk Farmers Handicap Howrey Bankruptcy

Posted by John Hazard

By Petra Pasternak, The Recorder

What started off as a straightforward bankruptcy hearing for Howrey Wednesday turned rocky as the firm's Washington, D.C., landlord threw a monkey wrench into the proceedings. Suddenly, a $140 million settlement that promised a huge contingency fee boost to the estate started unraveling, sibling publication The Recorder reported.

Howrey and Citibank agreed to let the firm use $2.15 million in cash collateral from Citibank to get it through most of September. U.S. bankruptcy judge Dennis Montali of San Francisco was poised to sign off on the order when Gregg Kleiner, counsel for the landlord, Warner Investments, flagged his client's objection to the plan.

Kleiner, a San Francisco partner at Luce, Forward, Hamilton & Scripps, said Howrey still owed Warner more than $4 million in administrative rent for space it's leased at 1299 Pennsylvania Ave. He said that with $1.3 million teed up for bankruptcy attorneys' fees, and other obligations outlined in Howrey's monthly operating report, there appeared to be no reserve for his client.

"I'm more concerned that this case may not be administratively solvent," Kleiner said.

Howrey has vigorously disputed Warner's claim. Citibank's counsel, Wiley Rein partner Valerie Morrison, who participated in the hearing by telephone from Washington, said she didn't believe the estate was insolvent. She said Warner has been paid on time for the months of June through August, and that Howrey was moving out of the premises Wednesday.

The rent dispute could pale in comparison to problems with Howrey's contingency case involving Dean Foods Co. and a class of milk farmers. A judge decertified a portion of the class in Sweetwater Farms v. Dean Foods and vacated the $140 million settlement--which could have provided the Howrey estate with a $40 million infusion. A trial date was set for Sept. 13.

Read the complete story “Howrey Bankruptcy Hits Unexpected Turbulence” from The Recorder (Subscription required).

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