The trustee representing creditors of defunct law firm Brobeck Phleger & Harrison LLP is seeking to collect $284 million from its former partners to settle outstanding claims.
The settlement offer is the latest in a series of efforts by Bankruptcy Trustee Ronald Greenspan to collect money owed to unsecured creditors of the San Francisco firm.
In letters mailed to 230 former partners, about a third of whom are now scattered among various firms in Los Angeles, Greenspan said he arrived at the figure by adding the profits distributed to the partners beginning in 2001, when he claims they should have begun helping the firm recover from insolvency, until 2003, as the firm was dissolving.
"We happen to believe his theories of liability are incorrect and excessively aggressive and unsupported," said David Stern, a partner at Klee Tuchin Bogdanoff & Stern LLP representing a group of 120 former partners. "We don't believe it's well founded."
He said the partners have until early next year to respond to Greenspan, senior managing director of corporate finance and restructuring at FTI Consulting Inc. in Los Angeles.
At its peak, Brobeck had 900 lawyers in offices scattered nationwide and generated annual revenue of $476 million. Focused on technology clients during the dot-com boom, the firm began suffering massive losses in 2001 as the bubble burst.
In May 2002, a group of 17 partners led by former Chairman Tower Snow left the firm for Clifford Chance. That departure, according to papers filed in U.S. Bankruptcy Court, Northern District of California, left the firm with $560 million in leasehold liabilities and $430,000 per partner in bank debt incurred by profit distributions.
Seven months later, the firm defaulted on a loan from Citibank, its principal secured creditor, court papers say. Shortly thereafter, in February 2003, Brobeck shut down. A liquidation committee, comprised primarily of former partners and firm employees, was formed to pursue claims against Clifford Chance for contributing to Brobeck's demise. That aspect of the dissolution was settled last month for $3.8 million.
An outside group of unsecured creditors, concerned they were not represented by the liquidation committee, succeeded in filing an involuntary Chapter 7 bankruptcy later that year, after which Greenspan was put in place to manage the estate.
Greenspan, whose attorneys did not return calls, has already orchestrated the settlement of some claims by collecting funds from various sources, including accounts receivable, Clifford Chance and Morgan Lewis & Bockius LLP, which last year hired about 60 former Brobeck partners. But the bulk of the claims remain.
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