Bankrupt Thelen Collects More Than $400K in Clawback Settlement With 4 Firms

, The Am Law Daily

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Thelen representatives informed a New York bankruptcy court judge this week that the defunct law firm has recently settled unfinished business claims with four more law firms, bringing to 20 the number of firms that have agreed to make payments to the Thelen estate so far this year.

Some of those settlements are tied to a spate of lawsuits filed by Thelen's Chapter 7 bankruptcy trustee, Fox Rothschild partner Yann Geron, last September against former firm clients, ex-Thelen partners and 16 law firms. When he filed the suits — with time running out on his ability to launch such litigation — Geron said there were other law firms he was pursuing but had not yet sued because settlement negotiations were under way.

Under bankruptcy law, law firms that take on partners from another firm as that firm collapses are subject to unfinished business, or clawback, claims seeking to recover profits the departing partners bring to the new firms. The Thelen filings detailing the latest settlements describe them as resolving "Jewel" claims, a reference to the 1984 California case Jewel v. Boxer that serves as the precedent for unfinished business litigation.

U.S. Bankruptcy Judge Allan Gropper, who is overseeing the Thelen bankruptcy, approved a procedure for settling Jewel claims connected to the case on Nov. 29. Since then, the Thelen estate has submitted three updates to the court describing its progress on that front, with the latest coming Wednesday.

That update shows Thelen receiving a total of $412,663 — just under 73 percent of what Geron sought — from DLA Piper; New York firm Hartman & Craven; Holland & Knight; and Pillsbury Winthrop Shaw Pittman. (Representatives for Holland & Knight and Pillsbury declined to comment; DLA Piper and Hartman did not immediately respond to requests for comment).

In late March, six firms — including Davis Wright Tremaine; Morgan, Lewis & Bockius; and Sedgwick — settled with the Thelen estate for a total of $703,336 (55 percent of what Geron sought). And in February, 10 other firms — including Alston & Bird; Baker & Hostetler; McDermott Will & Emery; and Wilson Sonsini Goodrich & Rosati — kicked in $200,750 (62 percent of what Geron was asking).

Of the 16 firms Geron sued in September, at least nine — Bingham McCutchen; Kilpatrick Townsend & Stockton; and Seyfarth Shaw among them — have yet to settle with the estate.

Geron and Howard Magaliff, a DiConza Traurig Magaliff partner who is serving as special litigation counsel in the adversary cases, did not immediately return calls for comment Friday.

Thelen's ability to pursue and settle clawback claims may offer a hint of what's ahead for law firms that took on partners fleeing two other law firms that wound up in bankruptcy over the past two years: Howrey and Dewey & LeBoeuf.

A recent filing in the Howrey bankruptcy shows that Diamond McCarthy, the law firm of Chapter 11 trustee Allan Diamond, billed 2.4 hours for work on unfinished business claims in May. Details about the nature of the work were redacted from the filing. Those hours do not include work done by Diamond, who will be awarded compensation at the conclusion of the case.

(In an unrelated Howrey development, Wiley Rein, the law firm that advised the estate until Diamond became trustee in October, was recently awarded $1.1 million in fees and expenses for its work on the case.)

Meanwhile, in the Dewey bankruptcy, which is now entering its second month, the lawyers for the firm's estate are expected to present a proposed settlement to former partners within the next two weeks that is likely to include, among other things, a suggested amount for each partner's new firm to contribute to cover Jewel claims.

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