Diamond wants the firms to produce invoices, contracts and other documentation of any client matter that former Howrey partners took with them to the new firms, and how much they have been paid to work on those matters. The idea is that revenue generated from business relationships that originated at Howrey could be used to repay Howrey creditors.
“When a lawyer leaves a law firm and goes to successor firm and takes cases and files and business that is unfinished with him or her, and that work is worked on at the new firm ... the departing lawyers have a fiduciary duty to take all the profits from the unfinished business and deliver them back to their old law firm in bankruptcy, Howrey, for the benefit of Howrey’s creditors,” Diamond said.
Diamond said he hopes to reach agreements with each of the 70 firms that would allow the Howrey estate to collect all the revenue that has been generated from former Howrey matters — minus the overhead costs the new firms have incurred.
Howrey’s largest creditor and sole secured creditor is Citibank, which is owed about $40 million, according to bankruptcy filings. The largest unsecured creditors are the property owners of Howrey’s former offices that are owed rent, including Warner Theater Associates ($5.9 million) and a subsidiary of Fairview Property Management in Falls Church ($814,082).
The law firms must respond to the subpoenas within 21 days of receiving them, Bankruptcy Judge Dennis Montali wrote in an order signed last week.
One of the law firms Diamond plans to subpoena, Baker Hostetler, is handling a major contingency fee case that could bring the largest potential recovery to date for the Howrey estate. A federal judge in Tennessee last week approved $48.3 million in attorney’s fees in a lawsuit, known as the “milk case,” which was brought by Howrey on behalf of dairy farmers who alleged they had been victims of price fixing. The suit ended in a $145 million settlement between the dairy farmers and two defendants, Dean Foods and dairy industry trade group Southern Marketing Agency, neither of whom conceded wrongdoing, and a judge approved one third of that settlement to go toward attorney’s fees.
Of the $48.3 million in approved fees, $44.5 million will be split between Baker Hostetler and the Howrey estate, said Diamond, who could reach an agreement with Baker Hostetler within 60 days on how the fees will be allocated.
A spokeswoman for Baker Hostetler declined to comment.
The milk case is one of 27 contingency fee cases and hundreds of other pending matters that former Howrey attorneys continued to work on after they left for other law firms. They raise the question of whether, and how much of the attorney’s fees recovered in those matters should go toward repaying Howrey’s creditors, or stay with the new law firms.
At the time the Howrey attorneys on the milk case — led by antitrust litigator Bob Abrams, who now chairs the antitrust group at Baker Hostetler — left last year for Baker Hostetler, Howrey had invested $40 million into litigating the case, Diamond said.
At that time, the Howrey dissolution committee reached an agreement with Baker Hostetler that entitled Baker Hostetler to a percentage of future recoveries, in exchange for taking in Howrey attorneys as the firm was dissolving, Diamond said. He declined to provide details about the agreement, which has not been made public.
“I’m now looking at this [agreement] and asking, ‘Was it fair to the creditors of Howrey that the members of the dissolution committee cut this deal with Baker, giving Baker this substantial interest in recoveries?’” Diamond said. “That’s the question on the table.”