DIAMOND MCCARTHY LLP 1 Andrew B. Ryan, Esq. (pro hac vice) 2 James D. Sheppard, Esq. (pro hac vice) Michael Fishel, Esq. (pro hac vice) 3 1201 Elm Street, Suite 3400 Dallas, TX 75270 4 Telephone: 214-389-5300 Facsimile: 214-389-5399 5 aryan@diamondmccarthy.com 6 jsheppard@diamondmccarthy.com mfishel@diamondmccarthy.com 7 Counsel for Allan B. Diamond, 8 9 10 11 12 13 14 15 Chapter 11 Trustee for Howrey LLP KORNFIELD, NYBERG, BENDES & KUHNER, P.C. Eric A. Nyberg, Esq. (Bar No. 131105) Chris D. Kuhner, Esq. (Bar No. 173291) 1970 Broadway, Suite 225 Oakland, CA 94612 Telephone: 510-763-1000 Facsimile: 510-273-8669 e.nyberg@kornfieldlaw.com c.kuhner@kornfieldlaw.com Local Counsel for Allan B. Diamond, Chapter 11 Trustee for Howrey LLP UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA SAN FRANCISCO DIVISION 16 17 18 19 In re HOWREY LLP, Debtor. 20 21 ALLAN B. DIAMOND, Chapter 11 22 23 24 25 26 Trustee for Howrey LLP, Plaintiff, v. PERKINS COIE LLP, Defendant. Case: 11-31376 Doc# 1685 ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) Filed: 03/28/14 41 Case No. 11-31376 DM Chapter 11 Hon. Dennis Montali Adv. Proc. No. 14-_________ ORIGINAL COMPLAINT Entered: 03/28/14 18:23:06 Page 1 of Plaintiff, Allan B. Diamond, chapter 11 trustee (the “Trustee”) for the estate of Howrey 1 2 LLP (“Howrey” or the “Debtor”), brings this adversary proceeding against Perkins Coie LLP 3 (“Perkins Coie”) and alleges as follows: 4 5 6 7 8 9 INTRODUCTION 1. The Trustee files this lawsuit to recover a valuable asset of the Debtor’s estate. After or prior to Howrey’s dissolution, Perkins Coie has received the benefit of the revenues and profits from completing Howrey’s unfinished business virtue of hiring nine (9) former Howrey partners from offices in California and Washington, D.C. The Trustee is entitled to recover the 10 profits Perkins Coie has obtained from Howrey’s unfinished business. 11 2. In a classic self-dealing transaction, Howrey’s former partners attempted to shield 12 themselves and their successor firms (including Perkins Coie) from unfinished business claims 13 14 15 16 by executing a so-called Jewel Waiver on the eve of Howrey’s dissolution. But the Jewel Waiver was a textbook fraudulent transfer: Howrey’s partners approved the waiver (a) simultaneously with their decision to dissolve; (b) at a time when Howrey was insolvent; (c) for 17 their own benefit and for the benefit of their successor firms; and (d) for no consideration or 18 other value to Howrey. Howrey’s partners approved this eleventh-hour Jewel Waiver knowing 19 that similar waivers had been avoided as fraudulent transfers in prior law firm bankruptcies. 20 Accordingly, the Jewel Waiver should be avoided here. 21 PARTIES 22 23 24 3. Plaintiff is the chapter 11 trustee for Howrey. On September 22, 2011, this Court entered an order granting a motion to appoint a chapter 11 trustee. On October 7, 2011, the U.S. 25 Trustee for the Northern District of California appointed the Trustee as chapter 11 trustee for 26 Howrey. On October 12, 2011, this Court entered an order approving the appointment of the Trustee. Pursuant to Sections 1104, 1106, 1108 and other relevant provisions of the Bankruptcy 2 Case: 11-31376 Doc# 1685 Filed: 03/28/14 41 Entered: 03/28/14 18:23:06 Page 2 of 1 Code, the Trustee is administering the Debtor’s estate and liquidating its assets for the benefit of 2 creditors. 3 4. Defendant Perkins Coie is a limited liability partnership with its principal place of 4 business in Seattle, Washington. Defendant can be served with process by any manner of service 5 authorized by Rule 7004 of the Federal Rules of Bankruptcy Procedure. Perkins Coie hired nine 6 (9) partners from Howrey that included (a) five (5) former Level II Partners from Howrey’s 7 8 9 offices in California and Washington, D.C.; (b) three (3) former Level I Partners from Howrey’s offices in California and Washington, D.C.; and (c) one (1) fixed partner from Howrey’s office 10 in California (collectively, the “PC Former Howrey Partners”). 11 Four of the PC Former Howrey Partners Dissociated From Howrey Prior To Its Dissolution 12 13 14 15 16 5. Prior to joining Perkins Coie, Lester Brown was formerly a Level II Partner in Howrey’s Los Angeles, California office and signed Howrey’s Partnership Agreement (as defined below). Brown dissociated from Howrey on or about February 8, 2010. 6. Prior to joining Perkins Coie, Thomas McMahon was formerly a Level II Partner 17 in Howrey’s Los Angeles, California office and signed Howrey’s Partnership Agreement (as 18 defined below). McMahon dissociated from Howrey on or about February 12, 2010. 19 7. Prior to joining Perkins Coie, Koorosh Talieh was formerly a Level II Partner in 20 Howrey’s Washington, D.C. office and signed Howrey’s Partnership Agreement (as defined 21 below). Talieh dissociated from Howrey on or about May 31, 2010. Talieh has filed a proof of 22 23 24 claim (POC No. 720) in Howrey’s chapter 11. 8. Prior to joining Perkins Coie, Viola Kung was formerly a Level I Partner in 25 Howrey’s Silicon Valley, California office and signed Howrey’s Partnership Agreement (as 26 defined below). Kung dissociated from Howrey on or about February 28, 2011. Kung has filed a proof of claim (POC No. 641) in Howrey’s chapter 11. 3 Case: 11-31376 Doc# 1685 Filed: 03/28/14 41 Entered: 03/28/14 18:23:06 Page 3 of 1 9. Collectively, the PC Former Howrey Partners described above in Paragraphs 5 2 through 8 are referred to as the “Pre-Dissolution Partners.” 3 Five of the PC Former Howrey Partners Dissociated From Howrey After Its Dissolution Or 4 5 the Jewel Waiver 10. Prior to joining Perkins Coie, Daniel Shvodian was formerly a Level II Partner in 6 Howrey’s Silicon Valley, California office and signed Howrey’s Partnership Agreement (as 7 defined below). Shvodian dissociated from Howrey on or about March 15, 2011. 8 9 10 11 12 13 11. Prior to joining Perkins Coie, James Valentine was formerly a Level II Partner in Howrey’s Silicon Valley, California office and signed Howrey’s Partnership Agreement (as defined below). Valentine dissociated from Howrey on or about March 15, 2011. 12. Prior to joining Perkins Coie, Margaret Macdonald was formerly a Level I Partner in Howrey’s Washington, D.C. office and signed Howrey’s Partnership Agreement (as defined 14 below). Macdonald dissociated from Howrey on or about March 12, 2011. Macdonald has filed 15 a proof of claim (POC No. 661) in Howrey’s chapter 11. 16 17 18 19 20 21 13. Prior to joining Perkins Coie, James Pistorino was formerly a Level I Partner in Howrey’s Silicon Valley, California office and signed Howrey’s Partnership Agreement (as defined below). Pistorino dissociated from Howrey on or about March 15, 2011. Pistorino has filed a proof of claim (POC No. 961) in Howrey’s chapter 11. 14. Prior to joining Perkins Coie, Christopher Kelley was formerly a Fixed Partner in 22 Howrey’s Silicon Valley, California office and signed Howrey’s Partnership Agreement (as 23 defined below). Kelley dissociated from Howrey on or about March 15, 2011. Kelley has filed a 24 proof of claim (POC No. 604) in Howrey’s chapter 11. 25 15. 26 Collectively, the PC Former Howrey Partners described above in Paragraphs 10 through 14 are referred to as the “Post-Dissolution Partners.” 4 Case: 11-31376 Doc# 1685 Filed: 03/28/14 41 Entered: 03/28/14 18:23:06 Page 4 of The PC Former Howrey Partners Are Subject To A Duty to Account On The Former Howrey 1 Matters 2 16. 3 4 5 As described above, the Pre-Dissolution Partners dissociated from Howrey prior to its dissolution and caused the transfer of and/or transferred pending matters from Howrey to Perkins Coie that included hourly and/or contingent fee cases that were matters arising prior to 6 their dissociation from Howrey (the “Pre-Dissolution Matters”). Under the laws of the District 7 of Columbia, the profits from these Pre-Dissolution Matters belong to Howrey – not Perkins 8 Coie. 9 10 11 12 13 17. As reflected on Exhibit A, the Pre-Dissolution Matters included hourly rate and/or contingent fee cases for which Howrey’s books and records reflected significant unpaid accounts receivable and pending work in progress as of the date the Pre-Dissolution Partners dissociated from Howrey. Thus, the Pre-Dissolution Matters are matters arising prior to the Pre-Dissolution 14 Partners’ dissociation from Howrey and are, therefore, subject to the duty to account contained in 15 D.C. Code §§ 33-104.04 and 33-106.03(b)(3).1 16 17 18 19 20 18. Following the Jewel Waiver and Howrey’s dissolution, the Post-Dissolution Partners caused the transfer of and/or transferred pending hourly and/or contingent fee cases matters from Howrey to Perkins Coie (the “Post-Dissolution Matters” and collectively with the Pre-Dissolution Matters, the “Former Howrey Matters”). Under the laws of the District of 21 Columbia, the profits from these Post-Dissolution Matters belong to Howrey – not Perkins Coie. JURISDICTION & VENUE 22 23 19. This adversary proceeding is commenced pursuant to sections 541 through 550 of 24 the Bankruptcy Code and in accordance with Rule 7001 of the Federal Rules of Bankruptcy 25 Procedure. 26 1 Exhibit A contains information that the Defendant contends is proprietary and/or confidential. The Trustee does not concede that this information is either proprietary or confidential. However, out of an abundance of caution, the Trustee has filed Exhibit A under seal and will provide the Defendant with an unredacted copy. 5 Case: 11-31376 Doc# 1685 Filed: 03/28/14 41 Entered: 03/28/14 18:23:06 Page 5 of 1 20. This Court has subject matter jurisdiction over this action pursuant to section 2 1334(b) of Title 28 of the United States Code, in that this adversary proceeding arises in, arises 3 under, and/or relates to Howrey’s chapter 11 case. 4 21. This adversary proceeding is a core proceeding under section 157(b)(2) of Title 5 28 of the United States Code, such that this Court has jurisdiction to hear and determine this 6 proceeding and to enter an appropriate order and judgment. To the extent necessary, the Trustee 7 8 9 consents to entry of a final order or judgment by this Court. 22. This Court is the proper venue for this adversary proceeding pursuant to section 10 1409(a) of Title 28 of the United States Code because the Debtor’s chapter 11 case is pending in 11 this judicial district. 12 13 14 15 16 FACTUAL BACKGROUND A. Howrey’s Formation, Structure, and Governing Law. 23. Formation. In July 1956, four antitrust attorneys formed Howrey, Simon, Baker & Murchison (“Howrey Simon”). Decades later, in 2000, Howrey Simon merged with Arnold, 17 White & Durkee Corporation, an intellectual property law firm. The combined law firm became 18 Howrey LLP or, as referred to here, Howrey. 19 24. Structure. Howrey was governed by the Partnership Agreement of Howrey 20 Simon Arnold & White LLP, effective January 31, 2000 (the “Partnership Agreement”). The 21 Partnership Agreement provided, among other things, that Howrey initially would have two 22 23 24 classes of partners: Level II Partners and Level I Partners. 25. Level II Partners. Howrey required its Level II Partners to contribute to the 25 firm’s permanent capital and maintain capital accounts. Level II Partners had voting rights with 26 respect to all matters submitted to the partnership for a vote, including the exclusive right to vote on amendments to the Partnership Agreement. 6 Case: 11-31376 Doc# 1685 Filed: 03/28/14 41 Entered: 03/28/14 18:23:06 Page 6 of 1 26. Howrey was supposed to distribute profits to the Level II Partners according to 2 their percentage interest in the partnership’s profits. Each Level II Partner’s compensation was 3 to be calculated, on a cash basis, as a percentage of Howrey’s distributable net income. 4 27. During each calendar year, Level II Partners received advances against their share 5 of Howrey’s anticipated profits. These advances were not guaranteed; instead, the Level II 6 Partners agreed to return to Howrey any advances made during each calendar year that exceeded 7 8 9 the partner’s share of the firm’s actual profits. 28. Such Draws are not salaries or any other form of guaranteed compensation, and are at all times subject to reconciliation with a partner’s actual share of Partnership profits during the time such partner is a partner of the Firm. In the event a partner ceases to be a partner for any reason, and such partner’s draws within a calendar year exceed his/her share of actual cash basis Partnership profits for the period of time he/she was a partner in such year, such excess draws will be a debt owed to the Firm and personally guaranteed by such partner. 10 11 12 13 14 15 16 17 Specifically, Paragraph 9.2 of the Partnership Agreement states, in relevant part: See Partnership Agreement at ¶ 9.2 (emphasis supplied). 29. Level I Partners. Howrey’s Level I Partners shared many of the same 18 characteristics as Level II Partners. Level I Partners attended Howrey’s partnership meetings 19 and had limited voting rights, including the right to vote on Howrey’s dissolution. 20 21 22 23 24 25 30. Regardless of a partner’s level or category, all Howrey partners were compensated from Howrey’s profits. And Howrey specifically was to compensate Level I Partners from the firm’s profits in at least four specific ways. 31. First, each calendar year, Howrey provided Level I Partners with an estimate of their annual base compensation. Upon information and belief, Howrey withheld 15% of the 26 Level I Partners’ annual base compensation during each calendar year from 2009 until 2011. If 7 Case: 11-31376 Doc# 1685 Filed: 03/28/14 41 Entered: 03/28/14 18:23:06 Page 7 of 1 there were not sufficient profits to pay all or part of the withheld 15% to the Level I Partners, 2 those partners would not receive their entire annual base compensation. 3 32. Second, Howrey could (and did) require Level I Partners to return distributions 4 received during calendar years when Howrey had insufficient profits to pay Level I Partners even 5 85% of their annual base compensation. 6 33. 7 8 9 10 Third, Howrey’s Level I partners were eligible for baseline profit sharing compensation if Howrey reached its performance goals, and higher profit sharing if the firm exceeded its performance goals by 10% or more. 34. Fourth, Level I Partners shared in Howrey’s profits through discretionary 11 bonuses. Level I bonuses were based on “Firm Performance” and paid from a bonus pool 12 established from Howrey’s annual partnership profits. 13 14 15 16 35. In addition to compensation-based profit sharing, Howrey also distributed firm profits to Level I Partners based on capital each contributed to the firm. Howrey demanded capital contributions from Level I Partners because they were already sharing in Howrey’s 17 profits, and should be obligated to contribute to its capital. 18 36. On or about April 8, 2009, Howrey’s Executive Committee required each Level I 19 Partner to make a capital contribution to Howrey equal to ten percent (10%) of their annual base 20 compensation. 21 In return for this capital contribution, Level I Partners were entitled to a distribution of Howrey’s annual profits, based upon the amount of their capital contribution and 22 23 24 Howrey’s annual performance. 37. In addition to their voting rights and profit sharing, Level I Partners also held 25 themselves out to the public as Howrey partners. Many Level I Partners signed engagement 26 agreements with Howrey clients. All Level I Partners identified themselves as Howrey partners 8 Case: 11-31376 Doc# 1685 Filed: 03/28/14 41 Entered: 03/28/14 18:23:06 Page 8 of 1 on the firm’s website (without any differentiation made between Level I and Level II status), and 2 many had their promotions to Level I Partner announced via press releases or news stories. 3 38. Fixed or Contract Partners. Like Level II and Level I partners, fixed or 4 contract partners were also compensated from Howrey’s profits. 5 6 7 8 9 39. Fixed or contract partners were paid approximately 75% of an agreed amount in monthly draws. The remaining portion of the draw – often referred to as a “holdback” – was first used to re-pay expenses Howrey advanced on their behalf, with any excess paid to the partner. However, Howrey would not pay the remaining holdback or would demand repayments 10 of overdraws if the firm’s profits did not justify the amounts paid to fixed or contract partners. 11 40. Like Level I partners, fixed or contract partners were also entitled to bonus 12 payments derived from a pool of profits created for their compensation. 13 14 15 16 17 41. Many fixed or contract partners identified themselves as Howrey partners on the firm’s website (without any differentiation made between partnership status), and many had their promotions to partner announced via press releases or news stories. 42. Finally, fixed or contract partners were also issued Schedule K-1’s prepared by 18 Howrey’s accountants at Salter & Company LLC, and were described by the firm’s accountants 19 as “partial equity partners” or “fixed equity partners.” Schedule K-1’s issued to fixed or contract 20 partners listed their share of Howrey’s profits or losses. 21 43. 22 23 24 Regardless of level or location, Paragraph 13.9 of the Partnership Agreement contains three key provisions to which all partner signatories were bound. First, Howrey’s clients were clients of the partnership – not of any individual partner. Second, withdrawing or 25 dissociating partners could not solicit Howrey’s clients before their departure from the firm. 26 Third, “all partners . . . ha[d] a fiduciary duty to assist the Firm in preserving and protecting all 9 Case: 11-31376 Doc# 1685 Filed: 03/28/14 41 Entered: 03/28/14 18:23:06 Page 9 of 1 aspects of its business, and no partner . . . shall act in any way contrary to the interests of the 2 Firm in this or in any other regard.” See Partnership Agreement at ¶ 13.9 (emphasis supplied). 3 44. Governing Law. Because Howrey was “qualif[ied] and operate[d] as a Limited 4 Liability Partnership under the District of Columbia Uniform Partnership Act of 1996, as 5 amended” (see id. at ¶¶ 1.1-1.2), Howrey’s partners (hereinafter “Former Howrey Partners”) 6 were governed by District of Columbia law with respect to their partnership obligations to each 7 8 9 other and to Howrey. 45. Subject to the terms, conditions and provisions of this Agreement, the undersigned parties agree to continue their Partnership in accordance with the laws of the District of Columbia, and this Agreement shall be governed by and construed in accordance with the laws of the District of Columbia. 10 11 12 13 See id. at ¶ 23. 14 46. 15 16 17 Specifically, Paragraph 23 of the Partnership Agreement originally stated: Howrey did attempt to change its applicable law from the District of Columbia to New York through a March 16, 2002, amendment to the Partnership Agreement (“Amendment 1”). From March 16, 2002, to March 9, 2011, Amendment 1 purported to modify Paragraph 23 18 of the Partnership Agreement to read: 19 [E]xcept as restricted by the laws of the District of Columbia applicable to a partnership formed under the laws of the District of Columbia which has the status of a limited liability partnership under such laws, this Agreement shall be governed by and construed in accordance with the laws of the State of New York and the laws of the State of New York shall govern relations among the partners and between the partners and the partnership. 20 21 22 23 24 25 See id. at Amendment No. 1 (emphasis supplied). 47. Amendment 1 was void under District of Columbia law. Specifically, Section 33- 26 101.03(b)(9) of the District of Columbia Official Code provides that a partnership agreement may not vary the law applicable to a limited liability partnership. The Comments to the 1997 10 Case: 11-31376 Doc# 1685 Filed: 03/28/14 of 41 Entered: 03/28/14 18:23:06 Page 10 1 Uniform Partnership Act (“Revised Uniform Partnership Act” or “RUPA”) further confirm the 2 meaning of Section 33-101-03(b)(9): “[s]ubsection (b)(9) makes clear that a limited liability 3 partnership may not designate the law of a State other than the State where it filed its statement 4 of qualification to govern its internal affairs and the liability of its partners.” See RUPA, § 103 5 (Comments). Amendment 1 to the Partnership Agreement was therefore void and New York law 6 never applied to Howrey. 7 8 9 48. When Howrey amended its Partnership Agreement for the final time on March 9, 2011 (“Amendment 3”), it reinstated the application of “the laws of the District of Columbia” to 10 “relations among the partners and between the partners and the Partnership.” See id. at 11 Amendment 3. 12 13 14 15 16 49. From 2000 until the firm’s dissolution in 2011, Howrey was governed by Title 33 of the District of Columbia Official Code as applied to limited liability partnerships (“Title 33”). Title 33 is very similar, if not identical, to RUPA. 50. Title 33 imposes many fiduciary duties on Former Howrey Partners, two of which 17 are central to this Original Complaint. First, Title 33 imposes a duty of loyalty on Former 18 Howrey Partners, which requires each partner: 19 20 21 22 23 24 25 [t]o account to the partnership and hold as trustee for it any property, profit, or benefit derived by the partner in the conduct and winding up of the partnership business or derived from a use by the partner of partnership property, including the appropriation of a partnership opportunity. See D.C. CODE § 33-104.04(b)(1). This duty requires the Former Howrey Partners to account to Howrey for all profits generated in winding up partnership affairs, including the completion of the Former Howrey Matters. 26 11 Case: 11-31376 Doc# 1685 Filed: 03/28/14 of 41 Entered: 03/28/14 18:23:06 Page 11 1 51. Second, Title 33 extends the duty to account to Howrey for profits to dissociating 2 partners, including the Pre-Dissolution Partners who withdrew from Howrey before its 3 dissolution. Specifically, Section 33-106.03(b)(3) states, in relevant part, that: 4 Upon a partner’s dissociation[,] . . . [t]he partner’s duty of loyalty under § 33-104.04(b)(1) [to account for partnership profits] . . . continue[s] only with regard to matters arising and events occurring before the partner’s dissociation . . . . 5 6 7 See D.C. CODE § 33-106.03(b)(3). Thus, Pre-Dissolution Partners were required to account to 8 Howrey for profits collected on the Pre-Dissolution Matters, even if they left before Howrey’s 9 dissolution. 10 B. Howrey Goes From Boom to Bankruptcy in Less than Three Years. 11 12 13 52. In January 2011, Howrey hit a financial wall, but the financial downfall of Howrey was inevitable by the Second Quarter of 2010 at the latest. From 2008 until 2011, 14 Howrey increased its borrowing from Citibank in an effort to meet the cost of its rapid expansion 15 and to plug financial holes caused by the firm’s declining hourly revenue and collections. With 16 insufficient hourly cases, Howrey began to rely even more on contingent fee cases in the hopes 17 that a significant contingency recovery would save the firm. 18 53. 19 20 21 By the Second Quarter of 2010, however, Howrey’s management – if not the Former Howrey Partners – knew or should have known that the firm could not be saved. From 2008 and through dissolution in 2011, Howrey suffered from three fundamental (and ultimately 22 insurmountable) financial problems. 23 54. First, Howrey faced plummeting demand for its legal services. As the global 24 economy entered a lingering recession in 2008, Howrey faced consistently decreasing demand 25 26 for hourly fee work. But even when Howrey found hourly work, the firm all too often would be forced to “write off” time spent working on the client’s matter (under policies described as 12 Case: 11-31376 Doc# 1685 Filed: 03/28/14 of 41 Entered: 03/28/14 18:23:06 Page 12 1 “unregulated”), which limited the firm’s ability to collect on book entries it depended on to meet 2 its budget and financial obligations. 55. 3 Second, Howrey filled the gap in hourly fee work by dedicating more attorney 4 time to contingent fee cases. Rather than adjust attorney staffing to meet demand and reduce 5 expenses, Howrey simply shifted attorneys to its growing stable of contingent fee cases. But this 6 move did not generate revenue because Howrey’s contingency fee cases were either expensive 7 8 9 failures or long-term investments with no hope of realizing cash recoveries in time to save the firm from its disastrous financial condition. 56. 10 Third, many of Howrey’s clients were not paying their bills. Much of Howrey’s 11 accounts receivable (“A/R”), while touted as exceeding $100 million, was never collected. 12 Internally, Howrey partners referred to this A/R as inflated, uncollectible bad debts, or just plain 13 14 15 16 “crap.” 57. These three structural economic problems were exacerbated by an increasing number of partner departures. After Howrey’s management revealed that Howrey missed budget 17 projections by approximately 35% in 2009, Howrey began to lose partners and, when partners 18 left, so did cash – in the form of lost revenue, lost clients, and return of capital. Instead of 19 reducing partner distributions to reflect Howrey’s true financial condition, Howrey paid the 20 Former Howrey Partners over $45 million in distributions in the Second Quarter of 2010 and 21 more than $58 million over the next three quarters. Combined with the structural economic 22 23 24 problems plaguing Howrey’s business, these excessive partner distributions were made at a time that Howrey was insolvent or had unreasonably small capital. With increased borrowing used to 25 fuel the firm and pay the partners, Howrey was on the road to financial collapse. 26 13 Case: 11-31376 Doc# 1685 Filed: 03/28/14 of 41 Entered: 03/28/14 18:23:06 Page 13 1. Howrey’s Fixed Costs Create a Constant Need for Huge Cash Flow. 1 58. 2 Although historical profitability allowed Howrey to grow aggressively, it left the 3 firm with substantial – and fixed – overhead. Rather than keep significant cash reserves to cover 4 this overhead in the event of a disruption to its cash flow, Howrey distributed all (or virtually all) 5 of its available cash to the Former Howrey Partners. As a result, Howrey theoretically could 6 fund its operations in one of two ways – generate sufficient cash revenues from its operations 7 8 9 each month, or take on additional debt. From 2008 until its dissolution in 2011, Howrey took on more and more debt as its inability to fund its operations through revenue increased. And by the 10 Second Quarter of 2010, it was reasonably foreseeable that Howrey was doomed to have 11 unreasonably small capital, be unable to pay its debts as they would become due, and thus fail. 12 Howrey’s increasing debt, combined with its ever-decreasing cash flow, put Howrey into a death 13 14 15 16 spiral. 59. For almost a decade prior to its bankruptcy, Howrey relied heavily on borrowing tens of millions of dollars from Citibank. Howrey’s borrowing from Citibank took many forms, 17 including lines of credit, term loans, and letters of credit (collectively, the “Citibank Debt”). 18 60. Howrey’s increased borrowing was driven by the cost of high, fixed overhead that 19 outpaced its revenue. While most firms had de-leveraged during 2008 and 2009, Howrey had 20 not engaged in serious cost-cutting measures. According to an internal study provided by 21 Citibank, Howrey’s overhead and expense situation worsened in 2009 in three key ways. 22 23 24 61. First, Howrey’s overhead expenses as a share of overall revenue increased by 18%. Second, Howrey increased its number of equity partners, even as much of the legal 25 industry – with an eye toward profit – eliminated or reduced similar partnership positions. Third, 26 Howrey used increased capital contributions to fund overhead or expansion, whereas many of Howrey’s peer firms used similar capital payments to decrease debt obligations. 14 Case: 11-31376 Doc# 1685 Filed: 03/28/14 of 41 Entered: 03/28/14 18:23:06 Page 14 1 62. Starting in the spring of 2009, Howrey began a cycle of defaulting and then 2 restructuring the Citibank Debt that would continue until the firm’s dissolution. By May 2009, 3 Howrey had breached certain loan covenants due to the firm’s excessive borrowing in relation to 4 its A/R and work in progress. Specifically, Howrey borrowed $23 million on the Citibank Debt, 5 only to disclose to the bank that it had insufficient work-in-progress and A/R to justify its 6 borrowing. 7 8 9 63. Howrey remained in default on the Citibank Debt for months as it renegotiated the terms of its loan and secured a waiver of its then-existing defaults. In the fall of 2009, 10 Howrey was able to get out of default of the Citibank Debt by renegotiating the terms of its debt 11 to relax its borrowing base requirements. Whereas Howrey historically had borrowed against 12 A/R aged 90-days or less, the fall 2009 refinancing permitted Howrey to borrow against A/R 13 14 15 16 aged up to 120 days. As a result, Howrey became even more dependent on strong collections in order to repay debt incurred on aged A/R. 64. Howrey did not remain in compliance with the terms of its renegotiated Citibank 17 Debt for long. By January 2010, Mr. Hennessy, Howrey’s CFO, had begun comparing 18 Howrey’s financial troubles to those of failed firms. At the same time, Howrey’s chairman and 19 managing partner, Robert Ruyak (“Howrey’s Chairman”), was concerned that Citibank would 20 cut-off Howrey’s use of the Citibank Debt, especially when the firm’s cash flow position would 21 worsen in April and May 2010. 22 23 24 65. Howrey’s Chairman was correct to predict problems with Citibank in the spring of 2010. In April 2010, Howrey once again ran out of room on its line of credit by breaching a 25 borrowing base covenant on the Citibank Debt. That is, even under the lax borrowing base 26 standards negotiated after the spring 2009 default, Howrey did not have sufficient A/R or work in progress to justify the huge sums it was borrowing to fund operations and partner draws. 15 Case: 11-31376 Doc# 1685 Filed: 03/28/14 of 41 Entered: 03/28/14 18:23:06 Page 15 1 66. Like 2009, Howrey remained in breach of its covenants under the Citibank Debt 2 as it worked to complete the renegotiated loan terms and obtain yet another waiver of then3 existing defaults. Again, Howrey renegotiated the terms of the Citibank Debt so that Howrey 4 could borrow greater amounts on older A/R and on work in progress, becoming even more 5 dependent on strong demand for its services and collection of stale accounts. Howrey also 6 obtained a separate $10 million line of credit on its contingent fee cases. 7 8 9 67. In approximately October 2010, after yet again breaching its borrowing base covenants, Howrey and Citibank entered into further negotiations resulting in the completion of a 10 restructuring of the Citibank Debt. Howrey knew – or should have known – that its deteriorating 11 financial condition would once again prevent the firm from complying with the loan covenants 12 on its newly restructured Citibank Debt. 13 14 15 16 68. Within approximately thirty days, Howrey breached its borrowing base requirements, and completely exhausted the $10 million line of credit for the contingent fee cases. In December 2010, Howrey had to approach Citibank for another round of refinancing or 17 else the firm would collapse. In Mr. Hennessy’s words, this final round of refinancing kept 18 Howrey on life support. 19 69. Even the December 2010 refinancing of the Citibank Debt did little to improve 20 Howrey’s chances of survival. Howrey simply converted a portion of the Citibank Debt that was 21 on Howrey’s line of credit into a term loan. This was simply reshuffling deck chairs on the 22 23 24 Titanic. As explained in detail below, Howrey’s financial condition was so structurally unsound that it had long passed the point where the firm would survive. 25 26 16 Case: 11-31376 Doc# 1685 Filed: 03/28/14 of 41 Entered: 03/28/14 18:23:06 Page 16 2. Weakening Demand and Increasing Write-Offs Reduce Howrey’s Hourly Collections. 1 2 3 4 5 70. Because demand for Howrey’s hourly services did not match its substantial overhead, Howrey’s partners had a terrible 2009. Although Howrey projected it would have profits per partner of $980,000 in 2009, the firm’s actual profits per partner were $646,000 – 6 nearly 35% less than the Level II Partners expected. 7 71. A significant contributor to Howrey’s poor 2009 performance results was 8 weakening demand for its hourly services. Weakening demand for Howrey’s hourly services 9 10 11 12 13 had two dramatic effects on the firm’s financial health. 72. First, Howrey’s expenses remained high as the firm retained attorneys who simply could not bill enough to justify their employment. Members of Howrey’s Executive Committee and their financial staff discussed how low attorney hours were on an annualized basis, and even 14 those hours were “pretty useless” for predicting hourly revenue because the hours were “stuffed 15 full of contingent work.” 16 17 18 19 20 21 73. Howrey’s flagship antitrust practice, for example, saw a staggering 22% decline in hourly work in 2009 compared to 2008. Another segment of the firm’s practice saw an astounding 95% drop from $20 million in hourly business to approximately $1 million between 2009 and 2010. 74. The decline in billable hours at Howrey was further exacerbated by a significant 22 increase in write-offs. In March 2010, Mr. Hennessy sent a memorandum to all partners 23 announcing a new and more restrictive write-offs policy. In explaining the policy to one partner, 24 Mr. Hennessy explained: 25 26 The driver behind the policy change is the significant increase in 2009 for unbilled time write offs . . . This is only one change meant to tighten controls across the Firm . . . [G]iven the 2009 17 Case: 11-31376 Doc# 1685 Filed: 03/28/14 of 41 Entered: 03/28/14 18:23:06 Page 17 decline in realization and it’s [sic] impact on Firm profitability, we need to give the realization issue priority. 1 2 (emphasis supplied). 3 75. 4 5 Second, weakening hourly demand distorted Howrey’s financial picture. Howrey had historically judged billable demand by multiplying hours billed by the firm’s preferred rates. 6 During 2009 and 2010, Howrey was not selling its time at preferred rates, resulting in a 7 discrepancy between projected revenue and actual revenue. In the words of one Executive 8 Committee Member, “[i]t is like a seller o[f] cars calculating its sales based on the manufacturers 9 price rather than the price at which the cars are sold.” As a result, Howrey’s demand number 10 was “inflate[d]” and “encourage[d] people to believe [Howrey is] doing better than we are.” 11 76. 12 13 By the spring of 2010, Howrey knew the demand for its services had fallen sharply as contrasted to 2009 and the pre-financial collapse revenues upon which its practice was 14 built. With billings and collections lower for the start of 2010 than in 2009, Howrey was funding 15 its shortfalls with more debt. As Howrey’s Chairman commented to one of the firm’s 16 management consultants, “Business is still flat . . . it is hard to give anyone positive signs at this 17 point.” 18 19 20 21 77. By the end of May 2010, Howrey’s financial reporting revealed that demand was flat, bills were aging, and collections were down. 78. In June 2010, Howrey management disclosed to the Level II Partners that they 22 had no reportable income for the first two quarters of 2010 because although Howrey had net 23 income in the first quarter, it was insufficient to cover non-equity partner compensation. Put 24 another way, Howrey was not bringing in enough money to cover its overhead, much less 25 declare a profit. And, of course, the shortfalls were funded with debt. 26 18 Case: 11-31376 Doc# 1685 Filed: 03/28/14 of 41 Entered: 03/28/14 18:23:06 Page 18 1 79. Howrey management knew that the situation was worsening. Indeed, Howrey 2 management projected that the weak demand for hourly services would yield an average of just 3 1400 attorney hours in 2010. The situation was even worse than these numbers revealed, 4 however, because a greater percentage of the record-low attorney hours were attributed to 5 contingency cases that were only generating expenses, not recoveries. 6 3. Howrey’s Increasing Reliance on Contingency Fee Cases Worsens Its Financial Position Without a Reasonable Prospect of Short-Term Recoveries. 7 8 9 10 11 12 13 14 80. As demand for Howrey’s hourly services dropped, the firm more than doubled the amount of attorney time it invested in contingency fee cases. Historically, Howrey only spent approximately 3 to 4% of its total attorney hours on contingency fee cases. By 2009, contingency fee cases accounted for over 8% of all attorney hours worked at Howrey, and grew to 11% in 2010. 81. By February 2010, Howrey’s management knew that the increasing investment in 15 contingent fee cases was a “specific area” of the firm’s finances that needed to be watched. 16 According to documents prepared for Howrey’s annual partner retreat, Howrey’s management 17 18 19 20 knew that it “would put the firm at risk” and “mortgage the future” to “borrow to meet the gap” between hourly revenue and contingent fee matters. But that is exactly what Howrey’s management did – and all without the short-term promise of a significant contingency fee 21 recovery. 22 82. Howrey was not investing in simple contingent fee cases. Instead, Howrey 23 routinely invested in contingency cases that would require years of litigation (and retention of 24 pricey experts at Howrey’s expense) in complex class action lawsuits, cases against the United 25 States government, patent lawsuits, and antitrust matters. Given the complexity and expenses 26 involved, Howrey management and the Former Howrey Partners knew or should have known 19 Case: 11-31376 Doc# 1685 Filed: 03/28/14 of 41 Entered: 03/28/14 18:23:06 Page 19 1 that these contingent fee cases would not – and could not – pay off quickly, if they ever paid off 2 at all. 83. 3 Due to the long life cycle of contingency fee cases (and Howrey’s court losses on 4 certain cases), Howrey did not generate substantial revenue on contingency fee cases in either 5 2009 or 2010. 6 For example, Howrey dedicated over 8% of the firm’s attorney hours toward contingent fee cases in 2009, but only recovered $2 million – or barely one-half of one percent of 7 8 its annual operating expense. 84. 9 As early as May 2009, Howrey’s CFO was worried that Howrey would exhaust 10 its borrowing capabilities under the Citibank Debt before its contingency fee investments 11 generated a return. Mr. Hennessy’s concerns were well-founded, and shared by others at the 12 firm. 13 14 15 16 85. Howrey’s contingency fee investments were simply not generating revenue. By April 2010, partners were reporting to Howrey’s management that the “contingency effect” was creating “problem[s]” for individual partners. As one partner noted: “More importantly . . . this 17 feels to me like the straw that could break the back of the firm.” 18 86. By May 31, 2010, Howrey had a “deferred investment” of more than $80.7 19 million in contingency cases, with no significant, immediate return on that investment on the 20 horizon. 21 Around this time, Howrey’s Chairman – in response to partner complaints of “increasing frustration with the performance of the contingency portfolio” – admitted that the 22 23 24 “timing and success” of the contingent fee cases “cannot be predicted,” and expressed concern that the Former Howrey Partners were “looking too much to them for salvation . . . people are 25 now getting to[o] dependent on some good news on that front.” 26 87. By Second Quarter of 2010, there was little – if any – good news on the contingency fee front. Indeed, Howrey would lose several of its contingency cases entirely. 20 Case: 11-31376 Doc# 1685 Filed: 03/28/14 of 41 Entered: 03/28/14 18:23:06 Page 20 1 88. For example, Howrey invested over $30 million in a case known as Hispanic 2 Farmers, a class action against the United States government. Howrey filed the Hispanic 3 Farmers case in 2000, but the trial court denied Howrey’s first motion for class certification in 4 2002 and the renewed motion in 2004. In 2006, six expensive years after Howrey filed the 5 Hispanic Farmers suit, a federal appellate court affirmed the trial court’s denial of class 6 certification. Without a certified class, the likelihood of any significant cash recovery on the 7 8 9 10 Hispanic Farmers case was substantially less than 50%. To date, Howrey has not recovered any money from the Hispanic Farmers case. 89. Howrey invested $12 million more in a case known as the National Guard case, 11 another class action suit against the U.S. Government. By the Second Quarter of 2010, the U.S. 12 Government had moved for summary judgment, and in August 2010, Howrey’s case was 13 14 15 16 17 dismissed when the federal district court granted the U.S. Government’s motion. An appellate court affirmed summary judgment in favor of the U.S. Government and against Howrey’s clients. To date, Howrey has not recovered any money from the National Guard case. 90. Howrey’s management knew or should have known that recovery on two other 18 antitrust class actions – known as Southeast Milk and Northeast Milk – was not likely in 2010 or 19 2011. Although Howrey filed Southeast Milk in 2008, the class of plaintiffs was not certified 20 until September 2010, and the certification ruling was under review until April 2011. The 21 earliest settlement in Southeast Milk was signed on July 12, 2011 – four months after Howrey’s 22 23 24 bankruptcy. 91. Similarly, Northeast Milk was not filed until October 2009, and Howrey did not 25 enter an appearance in the case until March 2010. Although part of Northeast Milk settled in 26 December 2010, Howrey had no reasonable expectation of receiving that money quickly, as the 21 Case: 11-31376 Doc# 1685 Filed: 03/28/14 of 41 Entered: 03/28/14 18:23:06 Page 21 1 court had to approve the settlement, hold various hearings, and approve an award of attorneys’ 2 fees to the plaintiffs’ lawyers. 3 92. Thus, by the Second Quarter of 2010, Howrey had no genuine or realistic 4 expectation of significant contingent fee recoveries to offset the weakening demand for hourly 5 services. Its final hope was to collect a significant sum of its diminishing A/R which was not 6 likely (if even possible) given the poor quality of its receivables. 7 4. Howrey’s A/R was Stale and Uncollectable. 8 9 93. With weak hourly demand and non-paying contingency fee cases, Howrey 10 scrambled to squeeze revenue from its A/R. But Howrey’s repeated efforts to collect A/R 11 proved difficult and, in many cases, impossible. As a result, Howrey’s collection efforts fell far 12 short of the firm’s internal budget. 13 14 15 16 94. On or about December 10, 2009, Howrey’s Chairman sent an email to all Howrey partners informing them that the firm had $189 million in A/R, but that the firm needed to collect $105 million from clients in two weeks to reach certain budget goals. But Howrey collected just 17 $50 million – less than half of the amount needed to make budget. 18 95. The start of 2010 revealed more problems in collecting A/R from clients. 19 Although Howrey touted its A/R as often exceeding $100 million, much of the A/R was stale and 20 aged. In early 2010, Howrey partners began to discuss a “call to arms” to collect on the invoices 21 before Second Quarter of 2010. As part of this call to arms, Howrey’s Cash Flow Committee 22 23 24 had established by February 2010 a “Hall of Shame” for partners whose A/R was “both over 120 days outstanding and over $150,000.00.” Initially, there were 35 partners on Howrey’s Hall of 25 Shame with A/R in excess of $15.5 million. As discussed below, membership in the Hall of 26 Shame would grow throughout 2010. 22 Case: 11-31376 Doc# 1685 Filed: 03/28/14 of 41 Entered: 03/28/14 18:23:06 Page 22 1 96. The call to arms to collect Howrey’s A/R did not result in substantial cash for the 2 firm – but instead revealed that many clients had multi-million dollar invoices that were past due 3 for more than one year. It also revealed other clients with six-figure invoices who were in jail, 4 had frozen bank accounts, or otherwise had no immediate access to money. 5 6 7 8 9 97. Two Howrey partners stated what firm management should have known. One partner identified Howrey’s A/R as “inflated” and “unregulated.” Another was more colloquial: Howrey had “some real dog accounts.” 98. By April 2010, Howrey claimed to have approximately $125 million in A/R. But 10 much of this A/R was not on good and collectible accounts. Almost half of Howrey’s invoices 11 had not been paid in over sixty days. Over $47 million (or 37%) of Howrey’s A/R were invoices 12 that had not been paid in over ninety days. Throughout 2010, A/R aged over 120 days 13 14 15 16 17 compromised over 33% of Howrey’s A/R. And by October 2010, when Howrey finally began tracking how much of its A/R was more than 180 days past due, over 29% of its A/R – totaling nearly $30 million – had aged beyond six months. 99. Despite its intimate knowledge of the firm’s weak A/R, Howrey’s management 18 continued to project that the firm would recover 90% of all of the A/R on its books, even when 19 the true collection rate was far closer to 50% than 90%. 20 5. In January 2011, Howrey Hits the Wall Management Saw or Should Have Seen Coming Since the Second Quarter of 2010. 21 22 100. By November 2010, Howrey’s financial position worsened to the point that 23 Howrey’s management disclosed to the Executive Committee and other partners that the firm 24 would again breach its loan covenants on the Citibank Debt. Specifically, in addition to the 25 borrowing base eligibility defaults discussed previously, the Citibank Debt contained a “clean 26 up” covenant, which required Howrey to bring the debt on its revolving line of credit to a zero 23 Case: 11-31376 Doc# 1685 Filed: 03/28/14 of 41 Entered: 03/28/14 18:23:06 Page 23 1 balance for thirty days during each calendar year. Effective November 1, 2010, Howrey owed 2 approximately $55.6 million on its operating line of credit, and its financial managers knew that 3 “collections are well below target which will make it difficult for us to clean up the line by 4 December 1st.” 5 6 7 8 9 101. Once Howrey’s partners learned of the firm’s impending default, partner departures increased significantly. 102. In January 2011, when the full state of Howrey’s finances was disclosed to the remaining Former Howrey Partners, it became apparent to the partners that the firm would not 10 survive. Howrey had dramatically missed its budgeted compensation, with profits per partner 11 falling to less than $550,000 – or hundreds of thousands less than 2010 or 2009, and less than 12 half of 2008. The remaining Former Howrey Partners began leaving the firm in droves and 13 14 15 16 Howrey’s descent into dissolution was quick. 103. As Howrey approached dissolution, the firm continued to make payments to or for the benefit of the Former Howrey Partners, including borrowing approximately $20 million 17 just prior to January 15, 2011, to fund the partners’ tax obligations. Shortly thereafter, Howrey 18 disclosed to Citibank that it was yet again in default under the Citibank Debt and by the last 19 week of January 2011, Howrey no longer had unfettered use of its cash to pay creditors. As a 20 result, creditors went unpaid as Howrey could not pay its debts as they came due. 21 104. 22 23 24 By February 2011, Howrey had defaulted on the Citibank Debt yet again. Not only was Howrey far outside its borrowing base requirements, but it had lost so many partners that it breached additional loan covenants related to the number of partner departures within 25 certain timeframes. 26 24 Case: 11-31376 Doc# 1685 Filed: 03/28/14 of 41 Entered: 03/28/14 18:23:06 Page 24 1 105. On March 3, 2011, Citibank began prohibiting Howrey from using its cash 2 collateral without the bank’s specific and express consent. On March 4, 2011, Howrey’s 3 Chairman scheduled a vote of Howrey’s remaining partners on whether the firm should dissolve. 4 C. Howrey Dissolves – But Not Before Adopting a Jewel Waiver to Benefit Howrey’s Partners at the Expense of Howrey and its Creditors. 106. Faced with mounting bills, intense oversight by its creditors, and insufficient 5 6 7 capital to keep operating, on March 9, 2011, the Former Howrey Partners held a vote on whether 8 the law firm should dissolve. Both Level I and Level II partners were entitled to, and did, vote 9 on dissolution. The Partnership Agreement required an 85% vote in favor of dissolution for the 10 firm to be dissolved. 11 12 13 107. In preparation for the dissolution vote, Howrey management sent the Former Howrey Partners a packet of materials on March 4, 2011. These materials included a discussion 14 of Amendment 3 to the Partnership Agreement – an amendment that would accomplish many 15 things, including waiving Howrey’s valuable rights to the profits from Howrey’s unfinished 16 business. 17 18 19 20 21 108. Specifically, Howrey’s Executive Committee sent the Former Howrey Partners a memorandum on Jewel v. Boxer and the unfinished business doctrine (the “Jewel Memo”). It is clear from the Jewel Memo that the Former Howrey Partners knew a waiver of the partnership’s right to profits from unfinished business was for the express benefit of the Former Howrey 22 Partners and their Successor Firms. 23 109. If they did not already know, the Jewel Memo informed Howrey’s partners that, 24 absent a Jewel Waiver, the partners would have a duty to account to Howrey for profits collected 25 26 on the Post-Dissolution Matters: Following dissolution of a limited liability partnership, all partners have a fiduciary duty to wind down the unfinished business of the 25 Case: 11-31376 Doc# 1685 Filed: 03/28/14 of 41 Entered: 03/28/14 18:23:06 Page 25 firm and to divide the resulting fees with their former colleagues on the basis specified in the partnership agreement. This rule is set forth in the landmark case of Jewel v. Boxer, 156 Cal.App.3d 171 (Cal. App. 1 Dist. 1984) and has been followed in most jurisdictions including New York and the District of Columbia. 1 2 3 4 See Jewel Memo at p. 1 (emphasis supplied). 5 6 7 8 9 10 110. Continuing, the Jewel Memo reminded the Former Howrey Partners about “Celebrated Cases Involving Jewel,” including rulings arising out of the Coudert Brothers and Brobeck law firm bankruptcies, that affirmed the Howrey partners’ obligation to remit profits from Howrey’s unfinished business to Howrey. 111. The only justification for the Jewel Waiver mentioned in the Jewel Memo was to 11 benefit the Former Howrey Partners in their transition to new law firms: 12 [T]he application of Jewel to post-dissolution work of the Howrey partners would likely create undue hardship and uncertainty for Howrey partners as they continue to serve clients at various different law firms in the future. We recommend, therefore, that the Partnership Agreement be amended to effectuate a waiver of Jewel. 13 14 15 16 See Jewel Memo at p. 7 (emphasis supplied). 17 18 19 20 21 22 112. The Jewel Memo contained no discussion of a benefit to Howrey – because there was none. In fact, the Jewel Waiver was not contingent upon receipt of any payment or other consideration, and no payment or other consideration was ever given to Howrey by anyone in exchange for the Jewel Waiver. 113. Moreover, the Jewel Memo alerted all Former Howrey Partners that the Jewel 23 Waiver would, under this Court’s decision in Brobeck, be invalidated if Howrey were insolvent: 24 25 26 Thus, the current solvency of Howrey LLP is a critical consideration to the extent that the firm seeks to amend the Partnership Agreement to include a similar waiver [to Brobeck’s]. The Executive Committee currently believes that the firm is solvent, but there can be no guaranty that this will ultimately turn out to be the case. 26 Case: 11-31376 Doc# 1685 Filed: 03/28/14 of 41 Entered: 03/28/14 18:23:06 Page 26 1 See Jewel Memo at pp. 6-7 (emphasis supplied). Of course, as discussed above, Howrey was 2 insolvent at the time of the Jewel Waiver, and long before. 3 114. The Former Howrey Partners approved the Jewel Waiver solely for their own 4 personal benefit, and in direct violation of their duties to Howrey and its creditors. As is made 5 clear by the Jewel Memo, the Former Howrey Partners intended to use Howrey’s unfinished 6 business to reduce the “hardship and uncertainty” they faced in attempting to find positions at 7 8 9 other law firms. In other words, the Former Howrey Partners intended to use the anticipated revenues and profits from Howrey’s unfinished business to obtain new jobs. To make their 10 personal economic transitions smoother, the Former Howrey Partners wanted to transfer the right 11 to collect profits from Howrey’s unfinished business to themselves and their Successor Firms. 12 Thus, the Former Howrey Partners overwhelmingly voted to approve to the Jewel Waiver. 13 115. 14 19.3 No Unfinished Business Following Dissolution. In the event of dissolution of the Partnership (as set forth in Paragraph 17.3 above), neither the Partners nor the Partnership shall have any claim or entitlement to clients, cases or matters ongoing at the time of dissolution other than the entitlement for collections of amounts due for work performed by the Partners and other Partnership personnel on behalf of the Partnership prior to the earlier of their respective departure dates from the Partnership or the date of dissolution of the Partnership. The provisions of this paragraph 19.3 are intended to expressly waive, opt out of and be in lieu of any rights any Partner or the Partnership may have to “unfinished business” of the Partnership, as that term is defined in Jewel v. Boxer, 156 Cal. App. 3d 171 (Cal. Dist. Ct. App. 1984), or as otherwise might be provided in the absence of this provision through interpretation or application of the LLP Act. 15 16 17 18 19 20 21 22 23 24 25 In relevant part, the Jewel Waiver states as follows: 116. Shortly after the March 9, 2011, vote, Martin Cunniff, a member of Howrey’s Dissolution Committee, confirmed that over 85% of the partnership had voted to dissolve 26 Howrey. Effective March 15, 2011, and after fifty-six years in business, Howrey proceeded to dissolve under District of Columbia partnership law. 27 Case: 11-31376 Doc# 1685 Filed: 03/28/14 of 41 Entered: 03/28/14 18:23:06 Page 27 1 117. Before Howrey formally dissolved, however, the Pre-Dissolution Partners 2 dissociated from Howrey. 3 118. Following their dissociation from Howrey, the Pre-Dissolution Partners caused 4 the transfer of and/or transferred the Pre-Dissolution Matters from Howrey to Perkins Coie. 5 6 7 8 9 119. The Trustee has demanded that Perkins Coie account for and turnover the profits from the Pre-Dissolution Matters. Perkins Coie, however, refuses to account for the profits collected on the Pre-Dissolution Matters despite the fact that the Pre-Dissolution Partners (and now partners of Perkins Coie) have a duty to hold the profits in trust for Howrey as required by 10 D.C. Code §§ 33-104.04 and 33-106.03(b)(3). 11 CLAIMS FOR RELIEF 12 COUNT I Avoidance and Recovery of Jewel Waiver as an Actual Fraudulent Transfer Pursuant to 11 U.S.C. §§ 548(a)(1)(A) and 550 (Relating to Post-Dissolution Partners) 13 14 15 120. The Trustee repeats and re-alleges the allegations set forth in all preceding 16 paragraphs of this Original Complaint, as if set forth herein. 17 18 19 20 21 121. At the time of the Jewel Waiver, Howrey had an exclusive property interest in all profits and/or benefits derived or arising from the completion of the unfinished business on or related to the Post-Dissolution Matters taken by the Post-Dissolution Partners to Perkins Coie. 122. Through the Jewel Waiver, Howrey transferred the profits from its unfinished 22 business to the Post-Dissolution Partners and/or Perkins Coie. The Jewel Waiver therefore 23 constituted one or more transfers by Howrey of an interest in its property. 24 25 26 123. Howrey made the Jewel Waiver with actual intent to hinder, delay, or defraud one or more entities to which Howrey was indebted or became indebted on or after the date of such transfers. 28 Case: 11-31376 Doc# 1685 Filed: 03/28/14 of 41 Entered: 03/28/14 18:23:06 Page 28 1 124. The circumstances surrounding Howrey’s adoption of the Jewel Waiver reveal 2 several badges of fraud. First, the transfer was to insiders – i.e., the Former Howrey Partners. 3 Second, before Howrey made the transfer, it knew that the Former Howrey Partners and their 4 Successor Firms would be threatened with unfinished business suits, which the Jewel Waiver 5 was intended to avoid entirely or otherwise frustrate. Indeed, the very reason the Jewel Waiver 6 was adopted was to prevent the Trustee from recovering the profits from Howrey’s unfinished 7 8 9 business. Third, the Jewel Waiver constituted Howrey’s attempt to remove or conceal its assets from creditors. Fourth, Howrey did not receive any value – much less reasonably equivalent 10 value – for the Jewel Waiver. Fifth, Howrey was insolvent, unable to pay its debts as they came 11 due, and/or had unreasonably small capital at the time it executed the Jewel Waiver. 12 13 14 15 16 125. The Former Howrey Partners, including the Post-Dissolution Partners, were initial transferees of such transfers and/or the entities for whose benefit the transfers were made. 126. Perkins Coie was the entity for whose benefit the transfers were made and/or the immediate or mediate transferee of the initial transferees of such transfers. 17 127. The Jewel Waiver was made within two years of the Petition Date. 18 128. Pursuant to 11 U.S.C. § 548(a)(1)(A) and 11 U.S.C. § 550, the Trustee is entitled 19 to judgment against Perkins Coie: (a) avoiding the Jewel Waiver; (b) directing the Jewel Waiver 20 be set aside; and (c) requiring Perkins Coie, as the recipient of the Jewel Waiver and/or the entity 21 for whose benefit the Jewel Waiver was given and/or the subsequent transferee of the Jewel 22 23 24 Waiver, to return the profits from Howrey’s unfinished business, or the value thereof, to the Trustee for the benefit of the Howrey chapter 11 estate. 25 26 29 Case: 11-31376 Doc# 1685 Filed: 03/28/14 of 41 Entered: 03/28/14 18:23:06 Page 29 1 2 COUNT II Avoidance and Recovery of Jewel Waiver as an Actual Fraudulent Transfer Pursuant to 11 U.S.C. §§ 544, 550 and D.C. Code § 28-3104(a)(1) (Relating to Post-Dissolution Partners) 3 4 5 6 129. The Trustee repeats and re-alleges the allegations set forth in all preceding paragraphs of this Original Complaint, as if set forth herein. 130. There are at least six creditors of Howrey who hold unsecured claims that are 7 allowable under Section 502 of the Bankruptcy Code and whose claim arose prior to the date of 8 the Jewel Waiver (hereinafter the “Golden Creditors”). Specifically, the Trustee identifies the 9 10 11 following six Golden Creditors whose claims arose before any of the transfers identified in this Original Complaint: Date Howrey Incurred Debt Amount 13 Liu, Shen & Associates December 9, 2009 $739.29 14 Adams & Adams April 30, 2010 $397.00 15 LA Best Photocopies, Inc. July 6, 2010 $4,390.00 Advanced Discovery LLC September 9, 2010 $77.22 LexisNexis, Inc. November 12, 2010 $5,562.15 Ricoh Professional Services Corp. January 18, 2011 $235,269.94 12 16 17 18 19 20 21 22 23 24 Creditor 131. At the time of the Jewel Waiver, Howrey had an exclusive property interest in all profits and/or benefits derived or arising from the completion of the unfinished business on or related to the Post-Dissolution Matters taken by the Post-Dissolution Partners to Perkins Coie. 132. Through the Jewel Waiver, Howrey transferred the profits from its unfinished 25 business to the Post-Dissolution Partners and/or Perkins Coie. The Jewel Waiver therefore 26 constituted one or more transfers by Howrey of an interest in its property. 30 Case: 11-31376 Doc# 1685 Filed: 03/28/14 of 41 Entered: 03/28/14 18:23:06 Page 30 1 133. Howrey made the Jewel Waiver with actual intent to hinder, delay, or defraud one 2 or more entities to which Howrey was indebted or became indebted on or after the date of such 3 transfers. 4 134. The circumstances surrounding Howrey’s adoption of the Jewel Waiver reveal 5 several badges of fraud. First, the transfer was to insiders – i.e., the Former Howrey Partners. 6 Second, before Howrey made the transfer, it knew that the Former Howrey Partners and their 7 8 9 Successor Firms would be threatened with unfinished business suits, which the Jewel Waiver was intended to avoid entirely or otherwise frustrate. Indeed, the very reason the Jewel Waiver 10 was adopted was to prevent the Trustee from recovering the profits from Howrey’s unfinished 11 business. Third, the Jewel Waiver constituted Howrey’s attempt to remove or conceal its assets 12 from creditors. Fourth, Howrey did not receive any value – much less reasonably equivalent 13 14 15 16 value – for the Jewel Waiver. Fifth, Howrey was insolvent, unable to pay its debts as they came due, and/or had unreasonably small capital at the time it executed the Jewel Waiver. 135. The Former Howrey Partners, including the Post-Dissolution Partners, were initial 17 transferees of such transfers and/or the entities for whose benefit the transfers were made. 18 136. Perkins Coie was the entity for whose benefit the transfers were made and/or the 19 immediate or mediate transferee of the initial transferees of such transfers. 20 21 22 23 24 137. The Jewel Waiver was made within two years of the Petition Date. 138. Pursuant to 11 U.S.C. § 544, 11 U.S.C. § 550, and D.C. Code § 28-3104(a)(1), the Trustee is entitled to judgment against Perkins Coie: (a) avoiding the Jewel Waiver; (b) directing the Jewel Waiver be set aside; and (c) requiring Perkins Coie, as the recipient of the Jewel 25 Waiver and/or the entity for whose benefit the Jewel Waiver was given and/or the subsequent 26 transferee of the Jewel Waiver, to return the profits from Howrey’s unfinished business, or the value thereof, to the Trustee for the benefit of the Howrey chapter 11 estate. 31 Case: 11-31376 Doc# 1685 Filed: 03/28/14 of 41 Entered: 03/28/14 18:23:06 Page 31 1 2 3 4 5 6 COUNT III Avoidance and Recovery of Jewel Waiver as a Constructively Fraudulent Transfer Pursuant to 11 U.S.C. §§ 548(a)(1)(B) and 550 (Relating to Post-Dissolution Partners) 139. The Trustee repeats and re-alleges the allegations set forth in all preceding paragraphs of this Original Complaint, as if set forth herein. 140. At the time of the Jewel Waiver, Howrey had an exclusive property interest in all 7 profits and/or benefits derived or arising from the completion of the unfinished business on or 8 related to the Post-Dissolution Matters taken by the Post-Dissolution Partners to Perkins Coie. 9 10 11 12 13 141. Through the Jewel Waiver, Howrey transferred the profits from its unfinished business to the Post-Dissolution Partners and/or Perkins Coie. The Jewel Waiver therefore constituted one or more transfers by Howrey of an interest in its property. 142. The circumstances surrounding Howrey’s adoption of the Jewel Waiver reveal 14 several badges of fraud. First, the transfer was to insiders – i.e., the Former Howrey Partners. 15 Second, before Howrey made the transfer, it knew that the Former Howrey Partners and their 16 Successor Firms would be threatened with unfinished business suits, which the Jewel Waiver 17 18 19 20 was intended to avoid entirely or otherwise frustrate. Indeed, the very reason the Jewel Waiver was adopted was to prevent the Trustee from recovering the profits from Howrey’s unfinished business. Third, the Jewel Waiver constituted Howrey’s attempt to remove or conceal its assets 21 from creditors. Fourth, Howrey did not receive any value – much less reasonably equivalent 22 value – for the Jewel Waiver. Fifth, Howrey was insolvent and/or had unreasonably small 23 capital at the time it executed the Jewel Waiver. 24 25 143. The Former Howrey Partners, including the Post-Dissolution Partners, were initial transferees of such transfers and/or the entities for whose benefit the transfers were made. 26 32 Case: 11-31376 Doc# 1685 Filed: 03/28/14 of 41 Entered: 03/28/14 18:23:06 Page 32 1 144. Perkins Coie was the entity for whose benefit the transfers were made and/or the 2 immediate or mediate transferee of the initial transferees of such transfers. 3 145. Howrey was insolvent, unable to pay its debts as they came due, and/or had 4 unreasonably small capital when it executed the Jewel Waiver. 5 6 7 8 9 146. Howrey received no value or less than reasonably equivalent value in exchange for the Jewel Waiver. 147. The Jewel Waiver was made within two years of the Petition Date. 148. Pursuant to 11 U.S.C. § 548(a)(1)(B) and 11 U.S.C. § 550, the Trustee is entitled 10 to judgment against Perkins Coie: (a) avoiding the Jewel Waiver; (b) directing the Jewel Waiver 11 be set aside; and (c) requiring Perkins Coie, as the recipient of the Jewel Waiver and/or the entity 12 for whose benefit the Jewel Waiver was given and/or the subsequent transferee of the Jewel 13 14 15 16 17 18 19 20 21 Waiver, to return the profits from Howrey’s unfinished business, or the value thereof, to the Trustee for the benefit of the Howrey chapter 11 estate. COUNT IV Avoidance and Recovery of Jewel Waiver as a Constructively Fraudulent Transfer Pursuant to 11 U.S.C. §§ 544, 550 and D.C. Code § 28-3105(a) (Relating to Post-Dissolution Partners) 149. The Trustee repeats and re-alleges the allegations set forth in all preceding paragraphs of this Original Complaint, as if set forth herein. 150. There are at least six creditors of Howrey – i.e., the Golden Creditors identified 22 above – that hold unsecured claims that are allowable under Section 502 of the Bankruptcy Code 23 whose claim arose prior to the date of the Jewel Waiver. 24 25 26 151. At the time of the Jewel Waiver, Howrey had an exclusive property interest in all profits and/or benefits derived or arising from the completion of the unfinished business on or related to the Post-Dissolution Matters taken by the Post-Dissolution Partners to Perkins Coie. 33 Case: 11-31376 Doc# 1685 Filed: 03/28/14 of 41 Entered: 03/28/14 18:23:06 Page 33 1 152. Through the Jewel Waiver, Howrey transferred the profits from its unfinished 2 business to the Post-Dissolution Partners and/or Perkins Coie. The Jewel Waiver therefore 3 constituted one or more transfers by Howrey of an interest in its property. 4 153. The circumstances surrounding Howrey’s adoption of the Jewel Waiver reveal 5 several badges of fraud. First, the transfer was to insiders – i.e., the Former Howrey Partners. 6 Second, before Howrey made the transfer, it knew that the Former Howrey Partners and their 7 8 9 Successor Firms would be threatened with unfinished business suits, which the Jewel Waiver was intended to avoid entirely or otherwise frustrate. Indeed, the very reason the Jewel Waiver 10 was adopted was to prevent the Trustee from recovering the profits from Howrey’s unfinished 11 business. Third, the Jewel Waiver constituted Howrey’s attempt to remove or conceal its assets 12 from creditors. Fourth, Howrey did not receive any value – much less reasonably equivalent 13 14 15 16 value – for the Jewel Waiver. Fifth, Howrey was insolvent, unable to pay its debts as they came due, and/or had unreasonably small capital at the time it executed the Jewel Waiver. 154. The Former Howrey Partners, including the Post-Dissolution Partners, were initial 17 transferees of such transfers and/or the entities for whose benefit the transfers were made. 18 155. Perkins Coie was the entity for whose benefit the transfers were made and/or the 19 immediate or mediate transferee of the initial transferees of such transfers. 20 21 22 23 24 25 156. Howrey was insolvent, unable to pay its debts as they came due, and/or had unreasonably small capital when it made the Jewel Waiver. 157. Howrey received no value or less than reasonably equivalent value in exchange for the Jewel Waiver 158. Pursuant to 11 U.S.C. § 544(a)(1)(B), 11 U.S.C. § 550, and Section 28-3105(a) of 26 the D.C. Code, the Trustee is entitled to judgment against Perkins Coie: (a) avoiding the Jewel Waiver; (b) directing the Jewel Waiver be set aside; and (c) requiring Perkins Coie, as the 34 Case: 11-31376 Doc# 1685 Filed: 03/28/14 of 41 Entered: 03/28/14 18:23:06 Page 34 1 recipient of the Jewel Waiver and/or the entity for whose benefit the Jewel Waiver was given 2 and/or the subsequent transferee of the Jewel Waiver, to return the profits from Howrey’s 3 unfinished business, or the value thereof, to the Trustee for the benefit of the Howrey chapter 11 4 estate. 5 COUNT V Accounting For Unfinished Business Pursuant to 11 U.S.C. § 542 (Relating to Pre-Dissolution Partners) 6 7 8 9 10 11 12 13 14 159. The Trustee repeats and re-alleges the allegations set forth in all preceding paragraphs of this Original Complaint, as if set forth herein. 160. Upon information and belief, when the Pre-Dissolution Partners left Howrey or thereafter, the Pre-Dissolution Partners transferred and/or caused the transfer of the PreDissolution Matters to Perkins Coie. 161. Upon information and belief, Perkins Coie has collected revenue and/or profits 15 relating to the Pre-Dissolution Matters in the past and will collect such revenue and/or profits in 16 the future. 17 18 19 20 21 162. Pursuant to D.C. Code §§ 33-104.04 and 33-106.03, the profits from the Pre- Dissolution Matters must be held in trust for Howrey and are to be paid over to the Trustee for the benefit of the Howrey chapter 11 estate. 163. Without an accounting from Perkins Coie, as the entity whose partners (e.g. the 22 PC Former Howrey Partners) owe fiduciary duties to Howrey under District of Columbia 23 partnership law, the Trustee cannot determine: (a) the amount of revenue and/or profits received 24 by Perkins Coie from the Pre-Dissolution Matters; or (b) the status of the Pre-Dissolution 25 Matters. 26 35 Case: 11-31376 Doc# 1685 Filed: 03/28/14 of 41 Entered: 03/28/14 18:23:06 Page 35 1 164. Perkins Coie has exclusive possession, custody, and control over information 2 (including books and records) that is necessary for an accounting of the revenue received (or 3 profits collected) by Perkins Coie with regard to the Pre-Dissolution Matters. 4 5 6 7 165. Pursuant to 11 U.S.C. § 542, the Trustee is entitled to judgment against Perkins Coie compelling it to produce an accounting of all payments, revenue, and profits it has received with regard to the Pre-Dissolution Matters. COUNT VI Turnover of Profits Related to Unfinished Business Pursuant to 11 U.S.C. § 542 (Relating to Pre-Dissolution Partners) 8 9 10 11 12 13 166. The Trustee repeats and re-alleges the allegations set forth in all preceding paragraphs of this Original Complaint, as if set forth herein. 167. If, after an accounting under Counts V and/or VII, Perkins Coie provides 14 information that shows the firm has collected revenue and/or profits from the Pre-Dissolution 15 Matters to which Howrey is entitled to under D.C. partnership law, then this Court should order 16 17 18 19 20 turnover of those profits. Pursuant to D.C. Code §§ 33-104.04 and 33-106.03, the profits from the Pre-Dissolution Matters must be held in trust for Howrey and are to be paid over to the Trustee for the benefit of the Howrey chapter 11 estate. 168. The Trustee is entitled to an order, pursuant to 11 U.S.C. §§ 541 and 542, 21 compelling Perkins Coie to turnover profits received on account of the Pre-Dissolution Matters. 22 COUNT VII Equitable Accounting – Unfinished Business (Relating to Pre-Dissolution Partners) 23 24 25 26 169. The Trustee repeats and re-alleges the allegations set forth in all preceding paragraphs of this Original Complaint, as if set forth herein. 36 Case: 11-31376 Doc# 1685 Filed: 03/28/14 of 41 Entered: 03/28/14 18:23:06 Page 36 1 170. When the Pre-Dissolution Partners left Howrey and thereafter, the Pre-Dissolution 2 Partners had a duty to account for and turnover any profits generated on account of the Pre3 Dissolution Matters pursuant to D.C. Code §§ 33-104.04 and 33-106.03. 4 171. The Pre-Dissolution Partners have a fiduciary relationship with Howrey with 5 respect to the Pre-Dissolution Matters. 6 172. 7 8 9 10 Upon information and belief, Perkins Coie has collected revenue and/or profits relating to the Pre-Dissolution Matters in the past and will collect such revenue and/or profits in the future. The precise amounts of the revenue or profits are currently unknown. 173. Without an accounting from Perkins Coie, as the entity whose partners (e.g. the 11 PC Former Howrey Partners) owe fiduciary duties to Howrey under District of Columbia 12 partnership law, the Trustee cannot determine: (a) the amount of revenue and/or profits received 13 14 15 16 by Perkins Coie from the Pre-Dissolution Matters; or (b) the status of the Pre-Dissolution Matters. 174. Perkins Coie has exclusive possession, custody, and control over information 17 (including books and records) that is necessary for an accounting of the revenue received (or 18 profits collected) by Perkins Coie with regard to the Pre-Dissolution Matters. 19 175. Because the Pre-Dissolution Howrey Partners have a fiduciary duty to account for 20 the profits of the Pre-Dissolution Matters to Howrey, pursuant to D.C. Code §§ 33-104.04 and 21 33-106.03, then Perkins Coie must provide an accounting of the revenue and profits collected on 22 23 24 the Pre-Dissolution Matters. 176. Without an equitable accounting from Perkins Coie, the Trustee does not have an 25 adequate remedy at law. 26 177. The Trustee is entitled to judgment against Perkins Coie compelling it to produce an accounting of all payments, revenue, and/or profits with regard to the Pre-Dissolution Matters. 37 Case: 11-31376 Doc# 1685 Filed: 03/28/14 of 41 Entered: 03/28/14 18:23:06 Page 37 COUNT VIII Unjust Enrichment – Unfinished Business (Relating to Pre-Dissolution Partners) 1 2 3 178. The Trustee repeats and re-alleges the allegations set forth in all preceding 4 paragraphs of this Original Complaint, as if set forth herein. 5 6 7 8 9 179. Upon information and belief, when the Pre-Dissolution Partners left Howrey or thereafter, the Pre-Dissolution Partners transferred and/or caused the transfer of revenue and/or profits from the Pre-Dissolution Matters to Perkins Coie. 180. Upon information and belief, Perkins Coie has collected revenue and/or profits 10 relating to the Pre-Dissolution Matters in the past and will collect such revenue and/or profits in 11 the future. 12 13 14 15 16 181. The Pre-Dissolution Partners did not account for the revenue and/or profits on the Pre-Dissolution Matters and, in turn, thus conferred a benefit on Perkins Coie. 182. Perkins Coie received and has retained a benefit: (a) as a result of collecting the revenue and profits from the Pre-Dissolution Matters; and/or (b) as a result of the Pre- 17 Dissolution Partners’ failure to account to Howrey. 18 183. The Trustee has a superior and/or better claim to the profits from the Pre- 19 Dissolution Matters because the Pre-Dissolution Partners have both: (a) a duty to account to 20 Howrey; and (b) a duty to hold the profits in trust for the benefit of Howrey as stated in D.C. 21 Code §§ 33-104.04 and 33-106.03(b)(3). 22 23 24 184. It is inequitable and unjust for Perkins Coie to have received, been enriched by, and retained benefits in connection with collecting revenue and/or profits from the Pre- 25 Dissolution Matters when the Pre-Dissolution Partners (and now partners of Perkins Coie) have a 26 fiduciary duty to account for these profits to Howrey. 38 Case: 11-31376 Doc# 1685 Filed: 03/28/14 of 41 Entered: 03/28/14 18:23:06 Page 38 1 185. The profits from the Pre-Dissolution Matters rightfully belong to Howrey. Equity 2 and good conscience require that Perkins Coie disgorge monies and/or benefits improperly 3 obtained in connection with collecting revenue and/or profits from the Pre-Dissolution Matters. 4 186. Under the circumstances of this case, Perkins Coie’s retention of the profits from 5 the Pre-Dissolution Matters is unjust. 6 7 8 9 187. The Trustee is entitled to restitution in the amount of profits collected by Perkins Coie and/or a judgment against Perkins Coie in an amount of its gain or benefit to be determined in an accounting proceeding. RESERVATION OF RIGHTS 10 11 188. The Trustee hereby specifically reserves the right to bring any and all other causes 12 of action that it may maintain against Perkins Coie including, without limitation, causes of action 13 14 15 arising out of the same transaction set forth herein, to the extent discovery in this action or further investigation by the Trustee reveals such further causes of action. PRAYER 16 17 Wherefore, the Trustee respectfully requests that the Court enter judgment and grant it 18 the following relief against the Defendant: 19 20 21 22 23 24 1. Avoiding the Jewel Waiver as an actual and/or constructive fraudulent transfer under applicable federal and state law; 2. Requiring Perkins Coie to return the value of the Jewel Waiver including, without limitation, all profits collected by Perkins Coie on the PostDissolution Matters; 3. Requiring Perkins Coie to provide an accounting of all payments received by, and profits collected from, Perkins Coie on the Pre-Dissolution Matters; 4. Requiring Perkins Coie to turnover all profits received on account of the Pre-Dissolution Matters; 5. Requiring Perkins Coie to provide an equitable accounting of all payments received by, and profits collected from, Perkins Coie on the PreDissolution Matters; 25 26 39 Case: 11-31376 Doc# 1685 Filed: 03/28/14 of 41 Entered: 03/28/14 18:23:06 Page 39 1 2 3 4 6. Requiring Perkins Coie to disgorge the profits by which Perkins Coie has been unjustly enriched on account of the Pre-Dissolution Matters; 7. Awarding the Trustee his attorneys’ fees incurred in the prosecution of this action as allowed by law; 8. Awarding prejudgment and post-judgment interest as allowed by law; and 9. All other relief to which the Trustee may be entitled, in law or at equity. 5 6 7 Dated: March 28, 2014 Respectfully submitted, /s/ Andrew B. Ryan Andrew B. Ryan, Esq. (pro hac vice) James D. Sheppard, Esq. (pro hac vice) Michael Fishel, Esq. (pro hac vice) DIAMOND MCCARTHY LLP 1201 Elm Street, Suite 3400 Dallas, TX 75270 Telephone: 214-389-5300 Facsimile: 214-389-5399 aryan@diamondmccarthy.com jsheppard@diamondmccarthy.com mfishel@diamondmccarthy.com Counsel for Allan B. Diamond, Chapter 11 Trustee for Howrey LLP 8 9 10 11 12 13 14 15 16 Eric A. Nyberg, Esq. (Bar No. 131105) KORNFIELD, NYBERG, BENDES & KUHNER, P.C. Chris D. Kuhner, Esq. (Bar No. 173291) 1970 Broadway, Suite 225 Oakland, CA 94612 Telephone: 510-763-1000 Facsimile: 510-273-8669 e.nyberg@kornfieldlaw.com c.kuhner@kornfieldlaw.com Local Counsel for Allan B. Diamond, Chapter 11 Trustee for Howrey LLP 17 18 19 20 21 22 23 24 25 26 40 Case: 11-31376 Doc# 1685 Filed: 03/28/14 of 41 Entered: 03/28/14 18:23:06 Page 40 1 2 3 4 5 6 7 8 9 10 11 EXHIBIT A 12 13 {Submitted Under Seal} 14 15 16 17 18 19 20 21 22 23 24 25 26 41 Case: 11-31376 Doc# 1685 Filed: 03/28/14 of 41 Entered: 03/28/14 18:23:06 Page 41