The ability of the Howrey estate to repay its creditors could hinge on the outcome of dozens of pending cases that former Howrey attorneys took with them to other law firms in the wake of the Washington firm’s dissolution in 2011.
Two cases that could bring millions of dollars to the estate are now coming to an end, raising questions about how they and 25 other contingency fee cases that Howrey was handling prior to bankruptcy will affect the estate’s ability to pay back creditors.
Howrey, the Washington law firm that at its peak had more than 700 attorneys worldwide, dissolved in March , and the following month was pushed into involuntary Chapter 7 bankruptcy by a group of unsecured creditors. The case was later converted to a Chapter 11 proceeding.
“There were 27 contingency fee arrangement cases that at one time belonged to Howrey and its lawyers that then found new homes at new law firms when the partners left,” said Houston attorney Allan Diamond, bankruptcy trustee for Howrey. “There was a lot of unfinished business, projects, litigation, you name it, that are now being completed by former Howrey lawyers. If the clients and those unfinished cases left to go to another firm with former Howrey partners, and that firm is finishing those matters and making profits, the Howrey bankruptcy estate has a right to claw back the profits that were made by the successor firm.”
Howrey attorneys have scattered to Greenberg Traurig, Baker Botts, Baker Hostetler and other firms.
Aside from the 27 contingency fee cases, there are hundreds of other pending matters that former Howrey lawyers are continuing at other firms, Diamond said. But the contingency fee cases with the greatest dollar value are drawing heightened attention because they could have the greatest impact on the assets of the estate, which owes its largest creditor, Citibank, more than $40 million.
One case, a class action lawsuit against Wal-Mart accusing the retail giant of colluding with Netflix and Blockbuster to keep DVD rental prices artificially high, is poised to end in a $27 million settlement with Wal-Mart that a federal judge is scheduled to give final approval to next month. The judge’s September order granting preliminary approval to the settlement okayed $8.5 million in attorneys fees.
Another, an antitrust class action against Dallas-based dairy food producer Dean Foods, is also coming to a close. A federal judge on Feb. 10 reinstated a previously revoked approval of a $140 million settlement with dairy farmers who sued Dean Foods, dairy industry trade group Southern Marketing Agency, dairy marketing cooperative Dairy Farmers of America and several other defendants, accusing them of price fixing. The settlement only resolves claims against Dean Foods, and the case against the Dairy Farmers is slated to go to trial in July.
In both class actions, plaintiffs are being represented by former Howrey partner Bob Abrams, who now heads the antitrust group at Baker Hostetler. Abrams declined to comment.
Exactly how much of those settlements the Howrey estate is entitled to won’t be known until after attorneys’ fees for each case are finalized, Diamond said, but attorneys fees in a large contingency fee case can be up to 30 percent.
Diamond said an agreement on what percentage of recoveries would go to the estate was hammered out between Howrey’s management committee and Baker Hostetler before Howrey entered bankruptcy — at the same time Howrey partners were negotiating with several law firms, including Baker Hostetler, to bring in Howrey attorneys ahead of the law firm’s collapse. Diamond said the agreement, which he has reviewed but did not disclose the terms of, gives too meager a share to the estate, and that he will likely to challenge the terms of the agreement.
As the Justice Department-appointed bankruptcy trustee, Diamond’s objective is to obtain and distribute money to creditors. His own fees are a percentage of the amount he distributes to them.