Heller_sues_gt Heller v Greenberg Traurig

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

Complaint For Professional Negligence, Etc.

CHRISTOPHER D. SULLIVAN (148083) MATHEW R. SCHULTZ (220641) KENNETH J. BRUNETTI (156164) TREPEL GREENFIELD SULLIVAN & DRAA LLP 150 California Street, 22nd Floor San Francisco, California 94111 Telephone: (415) 283-1776 Email: [email protected] [email protected] [email protected] Special Litigation Counsel for Heller Ehrman LLP

GREGORY C. NUTI (151754) KEVIN W. COLEMAN (168538) SCHNADER HARRISON SEGAL & LEWIS LLP One Montgomery Street, Suite 2200 San Francisco, California 94104 Telephone: (415) 364-6700 Email: [email protected] [email protected] Co-Special Litigation Counsel for Heller Ehrman LLP

JEFFREY T. MAKOFF (120004) ELLEN RUTH FENICHEL (172142) VALLE MAKOFF LLP 2 Embarcadero Center, Suite 2370 San Francisco, California 94111 Telephone: (415) 986-8001 Email: [email protected] [email protected] Co-Special Litigation Counsel for Heller Ehrman LLP, by and through Michael Burkart, Plan Administrator

UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF CALIFORNIA

In re: HELLER EHRMAN LLP, Liquidating Debtor.

Case No. 08-32514 DM Chapter 11

Adv. Proc. No.

COMPLAINT FOR PROFESSIONAL NEGLIGENCE; ATTORNEYS’ FEES FOR THE TORT OF ANOTHER; RECOVERY OF PREFERENTIAL TRANSFER; AND DISGORGMENT OF FEES

HELLER EHRMAN LLP, Liquidating Debtor, Plaintiff, v. GREENBERG TRAURIG, LLP, a New York limited liability partnership; Leslie D. Corwin, an individual, Defendants.

Case: 08-32514 Doc# 2711 Filed: 10/31/11 Entered: 10/31/11 15:42:59 of 45

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

1 Complaint for Professional Negligence, Etc.

Comes now plaintiff Liquidating Debtor Heller Ehrman LLP, by and through

Michael Burkart, in his capacity as the duly appointed plan administrator under the Plan of

Liquidation confirmed in this case, and alleges as follows:

INTRODUCTION

1. Liquidating Debtor Heller Ehrman LLP (“Debtor” or “Plaintiff”) brings this

action against the law firm Greenberg Traurig, LLP (“Greenberg”) and one of its partners,

Leslie D. Corwin, to recover millions of dollars in losses the Debtor incurred as a result of

the negligent conduct of Mr. Corwin and Greenberg during the course of their

representation of Heller Ehrman, LLP (“Heller”) in the months prior to December 28,

2008, when the Debtor filed for bankruptcy.

2. As Heller faced increasingly dire financial problems, Greenberg and Corwin

assumed the mantle, in Greenberg’s own words, of acting as Heller’s “lead counsel in

connection with the firm’s dissolution.” From the outset, though, Greenberg failed to live

up to its fiduciary obligations. To begin with, Greenberg concealed a fundamental

conflict of interest – at the time it was retained and throughout the Heller engagement –

Greenberg represented Bank of America, a party obviously adverse to the firm as the bank

was its major lender and was asserting it held a security interest in virtually all of Heller’s

assets. No disclosure was made to Heller and no consent to the conflict was sought or

obtained. Then, Greenberg failed to take a routine and necessary step – the firm neglected

to conduct a routine check of UCC security filings. Had it done so, it would have

discovered that its other client (Bank of America) had terminated its security interest in

Heller’s property. Had Heller been alerted to this key fact at the time of its dissolution,

Heller could have filed for bankruptcy and prevented its banks from seizing tens of

millions from the firm and forcing Heller to try to wind-down in a chaotic, disorderly

posture. Moreover, shortly after Heller adopted a Plan of Dissolution, a third party

specifically advised Greenberg about the UCC termination, but again Greenberg failed to

act. Finally, Greenberg tried to sweep its misconduct under the rug and mischaracterize

the scope of its earlier representation of the Heller firm in order to secure employment as


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28


the Debtor’s bankruptcy counsel. Fortunately, the facts underlying Greenberg’s

negligence did not escape the notice of Heller’s creditors and the creditors were able to

insist that the claims against Greenberg be preserved and steps taken to allow this lawsuit

to be prosecuted.

3. Mr. Corwin and Greenberg’s basic failure to discover that Bank of America

had terminated the banks’ UCC financing statement a year earlier is hard to understand

and irreconcilable with its standard of care. They failed to conduct a routine lien search of

Heller’s assets even after the banks declared a default under their loan agreement with the

firm and seized control of all of Heller’s deposit accounts and accounts receivable. Armed

with the information readily available from a simple lien search, that Bank of America

had terminated the financing statement under which the security interest in the Heller

loans was perfected, Heller would have realized that the banks had no enforceable security

interest in the firm’s deposit accounts and accounts receivable. Armed with that

information Mr. Corwin and Greenberg could have and should have immediately advised

Heller to file for bankruptcy or take some other measures to immediately re-take control

of their accounts. Had Heller filed for bankruptcy prior to the time the banks re-perfected

their security interest on October 2, 2008, the banks would have been treated as unsecured

creditors and the Debtor could have wrested control of their deposit accounts and accounts

receivable from Bank of America. If that had occurred, or if the firm had threatened to do

so and negotiated a proper resolution at that time and/or taken control of their accounts,

not only would the Debtor have been able to conduct an orderly liquidation, which would

have generated millions of additional dollars in collections, it would have prevented Bank

of America and Citibank from paying themselves $56 million, which is what they did

during in the months after issuing their default notice to Heller in September, 2008.

4. The conduct of Mr. Corwin and Greenberg is particularly negligent because

shortly after the banks had re-perfected their security interest on October 2, 2008, Mr.

Corwin and Greenberg were advised both in a telephone call and by email that Bank of

America had terminated the banks’ security interest some fourteen months earlier. Alerted


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28


to this information, Mr. Corwin instructed an associate to conduct an independent lien

search, which she did. That independent lien search revealed that indeed Bank of America

had filed a termination statement in August 3, 2007, and that the bank had filed a new

financing statement re-perfecting the banks’ lien a mere few days earlier -- on October 2,

2008. Armed with this information, Mr. Corwin should have immediately explored the

notion of having Heller file for bankruptcy as soon as possible, to avoid the re-perfection

of the bank loans, treat the banks as unsecured creditors, and to have Heller re-take

control of its deposit accounts and accounts receivable and attempt to negotiate a

resolution at that time with the Bank of America. Had this happened the Debtor would

have saved millions through an orderly liquidation and could have prevented the banks

from paying themselves the $56 million they paid themselves during the months after

issuing their default notice to Heller in September, 2008. At a minimum Mr. Corwin

should have advised the banks that he discovered that the banks had terminated their lien

in Heller’s assets and that the firm had the ability to avoid the newly perfected lien. The

situation had completely changed, legally. Yet, Mr. Corwin did nothing. He asked an

assistant to place the results of the lien search in the files. The banks continued to control

Heller’s accounts for the next few months, controlling every single payment that the firm

made, resulting in a very disorderly liquidation.

5. In addition to the other negligent acts and omissions committed by Mr.

Corwin and Greenberg, they breached their duties to the law firm partnership and were

negligent to include language in a dissolution agreement they prepared for the firm under

which Heller agreed to waive any rights and claims the firm might otherwise have been

able to assert against its departing shareholders under the doctrine of Jewel v. Boxer, 156

Cal. App. 3d 171 (1984). As a result of that waiver the Debtor has been harmed. More

specifically, in the course of prosecuting Jewel claims against former shareholders, Heller

will be required to show that the creation of the Jewel waiver was in fact an actual or

constructive fraud under 11 U.S.C. § 548, which may include the additional requirement

of having to establish that Heller was insolvent as of the September 26, 2008, the date the


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28


Plan of Dissolution was approved. Had Mr. Corwin and Greenberg not included the Jewel

waiver in the Heller dissolution agreement, the Debtor would not have avoided these

additional costs.

6. Greenberg is liable to Heller for all of Heller’s attorneys’ fees in connection

with certain litigation that Heller was required to prosecute or defend as a result of

Greenberg’s professional negligence. To the extent that a party incurs attorneys’ fees in

litigation with a third party as a result of another party’s tortious conduct the tortfeasor

can be held liable for such attorneys’ fees under the well accepted “tort of another”

doctrine. Here, Heller incurred significant attorneys’ fees as a result of Greenberg’s

professional malpractice. First, Heller had to defend against a lawsuit by former Heller

employees after the firm was forced by Bank of America to terminate the employees

without the requisite 60-days notice required under the federal WARN Act. Had

Greenberg not committed malpractice and discovered the filing of the Termination

Statement it could have prevented Bank of America from taking control of Heller’s assets

and the firm would not have been forced to terminate these employees without appropriate

notice. Further, as a direct and proximate cause of the conduct of Mr. Corwin and

Greenberg Heller was forced to prosecute the preference lawsuit against Bank of America

and Citibank, for which it incurred over $3 million in fees and costs. Greenberg and Mr.

Corwin are liable for those fees and costs. Finally. as a direct and proximate cause of the

conduct of Mr. Corwin and Greenberg in inserting the Jewel waiver into the Plan of

Dissolution, Heller incurred increased attorneys’ fees and costs incurred in connection

with prosecuting the Jewel lawsuits against its former Heller Shareholders and the law

firms in which they took Heller unfinished business.

7. Greenberg is also liable to Heller for the repayment of approximately $1.46

million which was paid to Greenberg in the ninety days preceding the Petition Date –

December 28, 2008. Such payments constitute preferential payments to Greenberg on

account of an antecedent debt and can be avoided pursuant to 11 U.S.C. § 547. The

Liquidating Trustee may recover all of these payments under 11 U.S.C. § 550.


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28


8. Finally, Mr. Corwin and Greenberg were negligent when they agreed to act

as the Debtor’s bankruptcy counsel in the weeks leading up to the December 28, 2008

bankruptcy filing when they knew or should have known that there was an irreconcilable

conflict between Greenberg and the Debtor as a result of the potential claims the Debtor

had against Mr. Corwin and Greenberg. Not only did Mr. Corwin and Greenberg ignore

these potential claims -- they apparently tried to cover up these potential claims by, among

other things, misleadingly stating to the Bankruptcy Court that Greenberg had done no

bankruptcy work for Heller prior to December of 2008. In affidavits it filed with the

Bankruptcy Court in support of its application to be retained, Greenberg stated that it did

not begin performing bankruptcy-related services until December 10, 2008. That is belied

by the record, which shows that Greenberg did provide bankruptcy-related advice and

materials in the months prior to December, 2010. Knowing that it had performed

bankruptcy-related work prior to December, 2008, and that this work in part led to the

aforementioned claims against Greenberg, the firm should not have undertaken the work

in preparing for Heller’s bankruptcy filing. The firm should have known that the conflict

was irreconcilable and that another bankruptcy firm should have been retained.

9. As a result of the negligent conduct of Mr. Corwin and Greenberg, the

Debtor suffered tens of millions in damages, including but not limited to unrecovered

amounts of the $56 million that was paid to Bank of America and Citibank in the months

prior to the bankruptcy filing, uncollected accounts receivable that resulted from the

disorderly liquidation and control over Heller’s management by the banks, including acts

resulting in the termination of key employees that were responsible for collections, the

costs of attorney’s fees and costs incurred by the Debtor in prosecuting its preference

claim against the banks, damages for increased attorneys’ fees incurred by the Debtor in

prosecuting Jewel lawsuits against former shareholders as a result of the inclusion of the

Jewel waiver in the Heller dissolution agreement, and damages for attorneys’ fees paid to

Greenberg for bankruptcy work performed by the firm in preparation for the Chapter 11

filing when the firm knew that it had a potential conflict and should not have performed


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28


that work.

THE PARTIES

10. Heller is a California limited liability partnership, formerly engaged in the

practice of law, which filed a voluntary petition for relief under Chapter 11 of the United

States Bankruptcy Code on December 28, 2008 (the “Petition Date”).

11. On August 9, 2010, Debtor and the Official Committee of Unsecured

Creditors filed in this Court the Joint Plan of Liquidation of Heller Ehrman LLP (the

“Plan”). On August 16, 2010, this Court entered its order confirming the Plan, which

order became effective on September 1, 2010. Under the terms of the Plan, Plaintiff has

all right, title and interest of Debtor in the causes of action alleged herein.

12. Michael Burkart is the duly appointed administrator under the Plan (“Plan

Administrator”).

13. Defendant Greenberg Traurig, LLP is a New York limited liability

partnership practicing business in numerous jurisdictions, including San Francisco,

California.

14. Defendant Leslie D. Corwin is a shareholder with Greenberg, who holds

himself out as skilled in bankruptcy and partnership dissolution issues and with respect to

the legal representation of law firms, including representation of law firms in liquidations,

dissolutions and bankruptcies.

JURISDICTION AND VENUE

15. The District Court has jurisdiction over this action because the amount in

controversy herein exceeds $75,000 and because this action is between citizens of

different states. More specifically, Heller Ehrman LLP, Liquidating Debtor is a citizen of

California. Greenberg is a citizen of New York. Upon information and belief Mr. Corwin

is a citizen of New York.

16. The Bankruptcy Court has jurisdiction over this adversary proceeding under

28 U.S.C. §§ 157 and 1334 in that the issues in dispute arise in and/or are related to the

underlying Title 11 case.


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28


17. This is a core proceeding pursuant to 28 U.S.C. §§ 157(b)(1) and (b)(2)(A),

(O) and is filed in accordance with the Federal Rules of Bankruptcy Procedure, Rule

7001. As such, the Bankruptcy Court has jurisdiction to hear and to determine this

proceeding and to enter an appropriate order and judgment. Any claims alleged herein

that are not core proceedings are legally and factually related to the core proceedings, and

are related to Debtor’s bankruptcy case such that it is lawful, appropriate and economical

to join such claims.

18. Venue is proper in the United States Bankruptcy Court, Northern District of

California under 28 U.S.C. § 1409, as the Debtor’s bankruptcy case is pending in this

judicial district.

GENERAL ALLEGATIONS

19. In business for more than 130 years before its dissolution and ultimate

bankruptcy in December 2008, Heller Ehrman LLP (“Heller”) was a prominent international

law firm with approximately 700 lawyers and offices through the world in places such as

California, New York, Washington, D.C., the United Kingdom and Asia.

20. At the time of its dissolution in 2008, Heller was organized as a limited

liability partnership under the laws of the state of California under a Partnership Agreement

dated January 1, 1994, as amended (“Partnership Agreement”).

21. Under ¶ 2.2 of the Partnership Agreement, Heller’s purpose was to engage in

the practice of law.

22. Five professional corporations originally served as Heller’s partners: Heller

Ehrman (California), a professional corporation; Heller Ehrman (Washington) P.S.; Heller

Ehrman White & McAuliffe (Oregon) P.C.; Heller Ehrman (Alaska) P.C; and William R.

Mackey, a California professional corporation. By subsequent amendments to the

Partnership Agreement, certain additional professional corporations were admitted as

partners to the partnership, in particular Heller Ehrman, P.C., a District of Columbia

professional corporation; Richard L. Cassin, P.A., a Florida professional corporation; and


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28


Heller Ehrman (New York), a professional corporation (collectively, with the original

partners, the “Heller PCs”).

23. Each of the Heller PCs in turn had shareholders. These shareholders were

required, under the terms of certain Shareholders Agreements, to be eligible and admitted to

practice law in one or more jurisdictions where Debtor practiced law (“Heller

Shareholders”).

The Bank of America Loan and Terminated Financing Statement

24. Since 1991, Bank of America, N.A. (“BOA”), as agent for itself and

Citibank N.A. (BOA and Citibank are hereinafter referred to as the “Banks”), was the

primary lender to Heller up until the time of the firm’s dissolution, beginning in

September 2008. The Banks provided loans to Heller pursuant to a Second Amended and

Restated Credit Agreement, dated as of May 1, 2007, as amended by the First Amendment

to the Second Amended and Restated Credit Agreement, dated April 1, 2008, and the

Second Amendment to the Second Amended and Restated Credit Agreement, dated as of

July 30, 2008 (collectively, the “Credit Agreement”).

25. Through the Credit Agreement, as amended, the Banks provided Heller with

a revolving line of credit up to $50 million, letter of credit commitments of $20 million,

and a term loan of $10 million.

26. Loans made to Heller under the Credit Agreement were purportedly secured

under a Security Agreement, dated as of December 1, 2001, as amended on December 1,

2004 (collectively, the “Security Agreement”), under which Heller purported to grant

BOA, as a lender and as agent for itself and Citibank, a security interest in substantially all

of Heller’s personal property (the “Collateral”), including receivables, and all proceeds

from the same.

27. BOA purportedly perfected its security interest in the Collateral by filing a

UCC-1 Financing Statement with the California Secretary of State on January 3, 1991,

Filing No. 91-001275 (the “Original Financing Statement”), which was amended and

continued in subsequent UCC filings over the years before 2007.


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28


28. On August 3, 2007, BOA terminated the Original Financing Statement when

one of its authorized employees caused to be filed with the California Secretary of State a

UCC Financing Statement Amendment (the “Termination Statement”). On the

Termination Statement, Box No. 2 “Termination” was checked after which appeared the

following statement: “Effectiveness of the Financing Statement identified above with

respect to security interest(s) of the Secured Party authorizing this Termination.” Box No.

1a identified the Initial Financing Statement to which the Termination Statement applied

as filing No. 91-001275, or the Original Financing Statement.

29. The Banks’ filing of the Termination Statement could have been discovered

at any time by a simple UCC public records search.

30. By letter dated September 19, 2008, BOA provided Heller with formal

notice of default (“Default Notice”) under the Credit Agreement, terminating the

commitment of the Banks to provide any additional credit, declaring all unpaid principal,

interest and other amounts owed under the Credit Agreement immediately due and

payable, declaring that default rate interest to be in effect, stating that BOA was taking

possession of Heller’s deposits and proceeds and advising Heller that all accounts

receivable constituted cash collateral and could not be used without BOA’s consent. At

that time, Heller owed the Banks approximately $56 million.

31. On or about September 25, 2008 Heller publically announced that it was

dissolving as a firm. Beginning on September 26, 2008, the Heller Shareholders voted to

dissolve the firm.

32. On September 30, 2008, BOA conducted a lien search with the California

Secretary of State and discovered that the Termination Statement had been filed some

fourteen months earlier by a BOA employee who was no longer working for the bank.

33. On October 1, 2008, having discovered the filing of the Termination

Statement, BOA filed a Financing Statement Amendment (“Correction Statement”) with

the California Secretary of State. The Correction Statement contained the following

language: The Termination Statement “was filed in error and as a result of a clerical error”


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28


and the “Initial Financing Statement filed with the California Secretary of State on

January 3, 1991, and assigned Document No. 91001275, as subsequently amended and

continued, remains in full force and effect.”

34. On October 2, 2008, BOA filed a new UCC Financing Statement with the

California Secretary of State, Filing No. 08-7174165847 (the “New Financing

Statement”), purporting to “reaffirm” the perfection of BOA’s security interest in the

Collateral.

Heller’s Retention of Greenberg

35. Heller retained Greenberg to perform legal services for Heller pursuant to a

retainer letter agreement dated June 11, 2008 (the “Retainer Agreement”). The Retainer

Agreement specified that Heller had retained Greenberg to “render advice and consult

with the Heller Executive Committee and Policy Committee in connection with its current

Partnership Agreement and matters relating to its affairs, including potential issues

regarding a combination and/or restructuring.” The Retainer Agreement further provided

that “[w]hile this letter is intended to deal with the specific legal services provided above,

these terms and conditions will also apply to any additional legal services that we may

agree to provide that are outside the initial scope of representation.”

36. Greenberg itself declared in an affidavit filed with the Bankruptcy Court

that, “Since June 2008, Greenberg Traurig has served as the Debtor’s lead counsel in

connection with the firm’s dissolution and has continued to serve as lead counsel

throughout the dissolution process.”

37. When it was retained, Greenberg had a severe undisclosed, and likely

disabling conflict of interest. Greenberg represented Bank of America, which, as Heller’s

primary lender, was likely to become, and soon became, adverse to Heller. Greenberg

failed to obtain informed written consent for this severe conflict of interest.

38. Greenberg thus violated Rule 3-310(C)(3) of the California Rules of

Professional Conduct, which states, “(3) A member shall not, without the informed

written consent of each client: . . . (3) Represent a client in a matter and at the same time


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28


in a separate matter accept as a client a person or entity whose interest in the first matter is

adverse to the client in the second matter.”

39. Between June 10, 2008 and June 27, 2008, Greenberg provided a variety of

legal services to Heller related to the latter’s partnership structure, including tasks such as

reviewing governing documents, researching deferred compensation and unfunded

pension liability under California law, as well as reviewing and researching partnership

issues.

Expanding Focus of Greenberg’s Legal Services

40. Beginning on August 5, 2008, Greenberg ramped up its work for Heller,

expanding the legal services it was providing and shifting more from restructuring

Heller’s partnership structure and/or advising on a potential “combination and/or

restructuring” to grappling with Heller’s looming financial failure. Around this time

Greenberg began drafting a plan of dissolution and advising Heller regarding the various

components of liquidating the firm.

41. By at least August 5, 2008, Heller advised Greenberg that it was considering

dissolving the firm and requested that Greenberg draft a plan of dissolution for the firm.

On or about August 8, 2008, Greenberg began drafting a plan of dissolution.

42. In addition to drafting a plan of dissolution, Greenberg reviewed Heller’s

various governing documents to determine the votes needed to approve of a liquidation,

explored the creation of a dissolution committee, worked on a timeline for dissolution,

reviewed insurance agreements, malpractice policies and various benefit plans to see how

they would be impacted by a dissolution and reviewed leases and the effect of their

termination.

43. On at least seven occasions in August, 2008 (August 5, 6, 8, 13, 18, 21 and

26), Greenberg attorneys participated in conference calls with certain Heller Shareholders,

during which they discussed, among other things, a potential liquidation of the firm.

Based on these calls, and many other factors, Greenberg must have understood that the

legal services they were requested to perform on behalf of Heller included services related


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28


to a potential liquidation of the firm, including drafting a plan of dissolution and also

including evaluating a possible bankruptcy filing.

44. On September 12, 2008, Greenberg attorneys participated in respective

conference calls with Heller’s Policy Committee and Executive Committee. In the

meeting with the Executive Committee one of the issues discussed was the rejection of a

merger with Heller by the law firm Mayer Brown LLP as well as the potential dissolution

of Heller.

45. On September 13, 2008, Greenberg attorneys participated in more

conference calls with certain Heller Shareholders as well as with the Executive

Committee. Upon information and belief, among the other issues discussed in both of

these meetings were the potential dissolution of Heller and a potential bankruptcy filing

by the firm.

46. On September 15, 16 and 17, 2008, Leslie Corwin, a senior level

shareholder at Greenberg, met with various Heller Shareholders at the Heller offices in

San Francisco, including but not limited to the Policy Committee. Again, the potential

dissolution of Heller and a potential bankruptcy filing by the firm would have been

understood.

47. At the time these meetings were taking place in San Francisco (from

September 15 through September 17, 2008), other attorneys at Greenberg were providing

services in connection with the dissolution of the firm, including but not limited to

continuing to draft and update the Heller plan of dissolution, drafting resolutions

authorizing the dissolution of the firm, researching the Worker Adjustment and Retraining

Notification Act (“WARN Act”) and its implication for Heller employees, evaluating

potential employee issues related to the overseas offices, evaluating leases, looking into

various issues related to the Banks, and exploring potential termination agreements with

staff.

48. On September 18, 2008, the chairman of Heller specifically raised the need

to talk with Greenberg and Mr. Corwin about contested bankruptcy risks.


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28


49. Based on the various meetings and telephone calls described above, as well

as on emails exchanged between certain Heller Shareholders and Greenberg attorneys,

Greenberg understood that by the middle of September, 2008, the legal services they were

requested to perform on behalf of Heller, and which they were in fact performing at the

time, were primarily services related to a potential liquidation of the firm, and also

including evaluating a possible bankruptcy filing.

50. Not later than September 18, 2008, at least two Greenberg attorneys were

specifically researching bankruptcy law issues, including but not limited to “outstanding

wages in bankruptcy” and “administrative claim issues.”

51. On September 19, 2008, BOA sent Heller the Default Notice.

52. There is no doubt that Heller was actively adverse to BOA at this time, at

the latest.

53. On September 19, 2008, following Heller’s receipt of the Default Notice

several Greenberg attorneys participated in numerous telephone calls with certain Heller

Shareholders about the Default Notice and strategy in response. Upon information and

belief, among other topics discussed during these calls was a potential Heller bankruptcy

filing.

54. On September 20, 2008 two Greenberg partners, Mr. Corwin and Alan

Annex, participated in a telephone conference call with Heller’s Policy Committee

discussing key issues raised by Heller’s impending financial failure. Upon information

and belief, among other topics discussed during these calls was a potential Heller

bankruptcy filing.

55. On September 21, 2008, a third Greenberg attorney began researching

additional bankruptcy issues, including but not limited to “lease rejection issues.”

56. On September 22, 2008 Mr. Annex drafted the text of a proposed

memorandum to be sent to Heller Shareholders. The text was included in an email sent to

Maria Spampanato, an administrative assistant working in Greenberg’s New York City

office. Mr. Corwin was also cc’d on the email. The text of the draft memo was entitled


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28


“Heller Ehrman, LLP – Frequently asked questions.” One of the questions listed in the

draft memo was, “Will we filing (sic) for bankruptcy protection?” The response to the

question read as follows:

We are attempting to conduct a dissolution and liquidation outside of a formal bankruptcy proceeding. There is a risk that if we are not successful in monetizing our assets and in minimizing our liabilities that we will need to file for bankruptcy protection. If we do there is a risk that all payments to shareholders in the year prior to filing could be subject to recapture by the firm.

(Emphasis added.)

57. The draft “Frequently Asked Questions” memo was revised and presented to

the Heller Shareholders in final format on September 25, 2008.

58. Over the course of the next few days following September 21, 2008, various

Greenberg attorneys continued researching various aspects of bankruptcy law in

anticipation of a possible Heller bankruptcy filing. On or about September 22 and 23,

2008, a memorandum was prepared by Greenberg attorneys examining various

bankruptcy law issues.

59. From September 22, 2008 through September 24, 2008 various Greenberg

attorneys, including Mr. Corwin and Mr. Annex, participated in numerous calls with

various Heller Shareholders, including the Heller Policy Committee, Dissolution

Committee, Real Estate Groups and various individual Heller Shareholders. Upon

information and belief, among other topics discussed during these calls was a potential

Heller bankruptcy filing.

60. Greenberg attorneys continued drafting and revising a plan of dissolution,

resolutions of the Heller PC’s approving of the dissolution, the Question and Answer

memo referred to above, WARN Act notices and various other dissolution documents

through September 26, 2008.

61. On September 25, 2008, Mr. Corwin attended meetings in San Francisco

with the Policy Committee and other Heller Shareholders to discuss the dissolution of the

firm. Upon information and belief, among other topics discussed during these meetings


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28


was a potential Heller bankruptcy filing.

62. In an email sent to Heller on October 1, 2008, Mr. Annex advised several

Heller shareholders regarding the effect of a bankruptcy filing on the firm’s ongoing

ability to provide services to its clients

63. In preparation for a Heller Dissolution Committee meeting held on October

3, 2008, Mr. Corwin distributed an agenda. The last item appearing on the agenda is

“Bankruptcy (Keith Shapiro of GT-Chicago).” Upon information and belief, Mr. Corwin

consulted with Mr. Shapiro, a bankruptcy attorney practicing in Greenberg’s Chicago

office, regarding a potential Heller bankruptcy filing. Mr. Corwin was also regularly

communicating with the Dissolution Committee about Heller’s financial failure at

numerous other Dissolution Committee meetings held around that time.

64. Despite all the work Greenberg was undertaking in light of Heller’s

unfolding financial collapse, preparing for its dissolution, researching bankruptcy issues,

and responding to the BOA’s notification of default, Greenberg never took the simple and

basic step of conducting a standard UCC security-filings search. Had Greenberg

undertaken this basic step it would have discovered that the Termination had been filed by

Bank of America a year earlier and that in fact the Banks’ security interest in Heller’s

property was unperfected.

Heller’s Approval of the Plan of Dissolution

65. On September 20, 2008 the Heller Policy Committee created the Heller

Dissolution Committee that would eventually constitute the Dissolution Committee under

the Plan of Dissolution.

66. On September 25, 2008, Heller issued a press release announcing the

dissolution of the firm.

67. On September 26, 2008, Mr. Corwin attended a Heller Shareholder meeting

in San Francisco, at which he presented the “Frequently Asked Questions” memo, the

plan of dissolution, dated as of September 26, 2008 (the “Plan of Dissolution”) and draft

resolutions approving the Heller dissolution, among other documents. At this meeting the


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28


Heller PC’s, through the Heller Shareholders voted to approve the Plan of Dissolution and

dissolve the firm.

68. The Plan of Dissolution specifically contemplated the firm filing for

bankruptcy and authorized the Dissolution Committee under Chapter 7 or Chapter 11 of

the United States Bankruptcy Code if the Dissolution Committee deemed such a filing

advisable.

69. On or about September 26, 2008, Heller sent out WARN Act notices to all

non-essential employees that the Dissolution Committee had deemed were not needed to

assist the firm in its dissolution. The notices provided sixty days notice of termination and

indicated that the employees would be paid the equivalent of sixty days salary from the

notice date.

BOA’s Possession and Control Over Heller’s Assets

70. BOA sent the Default Notice to Heller on September 19, 2008. Mr. Corwin

was copied on the Default Notice and he received a copy of the Default Notice via

electronic mail on September 19, 2008.

71. Following the issuance of the Default Notice, BOA took possession and

control of all of Heller’s deposit accounts held at the bank. Because all of Heller’s primary

bank accounts were held at BOA, the bank had possession and control over virtually all of

Heller’s cash deposits. Heller was prohibited from drawing on any of its accounts without

BOA’s consent.

72. Further, as stated in the Default Notice, BOA claimed that all of Heller’s

accounts receivable and any proceeds thereof constituted BOA’s cash collateral and it

instructed Heller that it could not use any of such proceeds without BOA’s consent. In

short, Heller had no access to cash without first obtaining the consent of BOA.

73. On September 22, 2008 an outside attorney representing BOA, David

Minnick, sent Mr. Corwin an email in which he stated that BOA had “taken control of

[Heller’s] deposit accounts and proceeds of the banks’ collateral. As a result the firm is

not able to make wire transfers and other payments without the consent of the banks.”


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28


Further, in the same email Mr. Minnick said that the banks had “elected to engage George

Nicolais & Associates, Inc. to monitor and evaluate the situation at the firm to give us a

better understanding of how things are developing and the factors that affect the banks’

decisions with respect to the firm, the loans and the banks’ collateral. In the same email

Mr. Minnick stated that “George and his people should be in San Francisco tomorrow to

commence their assignment.”

74. On September 23, 2008 George Nicolais and a colleague of his, George

Buys, arrived at Heller’s San Francisco offices where they met with certain Heller

Shareholders and began reviewing Heller’s finances. Over the course of the next three

months Mr. Nicolais and Mr. Buys spent significant time monitoring Heller’s finances

and, working with BOA and its outside counsel, effectively controlling Heller’s ability to

make any payments to anyone, whether it be employees, shareholders, landlords or

outside vendors.

75. As a result of BOA’s having taken control of Heller’s accounts, Heller could

not make any payments to anyone without first obtaining the prior approval of BOA.

76. In or about late September and early October, 2008, BOA rejected Heller’s

request to pay accrued but unpaid vacation pay for terminated employees at the time of

their termination. Further, at or about the same time BOA rejected the firm’s request to

pay terminated employees sixty days of wages as Heller believed it should do under the

WARN Act.

77. In response to BOA’s rejection of Heller’s request to pay accrued but unpaid

vacation and/or sixty days wages to terminated employees Heller sent at least two emails

to its employees advising them of the policy mandated by BOA. The result was extreme

displeasure and loss of morale on the part the affected employees. This displeasure was

displayed in the form of threats of litigation, absenteeism, lack of productivity and early

termination of certain key employees. Among employees affected by the Banks’ policy

were certain employees in charge of collection of Heller’s accounts receivable.

78. On October 6, 2008, Mr. Corwin sent a letter to Mr. Minnick advising him


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28


of the various disruptions that the Bank’s policies were having on Heller’s orderly

dissolution and the effect it was having on Heller’s remaining employees. However, BOA

did not change its position with respect to vacation pay and sixty days salary for

terminated employees.

79. Based on its actions of taking control over Heller’s accounts and requiring

pre-approval of every single check written or wire transfer made by Heller, BOA

effectively took over control of key aspects of the ultimate management of the firm for the

three months from the notice of the Default Notice (September 19, 2008) until Heller filed

its voluntary bankruptcy petition (December 28, 2008). The result was a disorderly wind-

down of Heller. As a result of this disorderly process, Heller could not maximize its

ability to pursue collections during this three-month period, generally considered the most

important period for collecting accounts receivable.

80. Moreover, the threats of litigation made by Heller’s terminated employees

were real as they ultimately filed a lawsuit, Biggers et al., v. Heller Ehrman LLP.

Adversary Proceeding No. 09-03058 (the “WARN Act Class Action”). The WARN Act

Class action sought substantial wages, statutory penalties and attorneys’ fees arising from

Heller’s failure to comply with WARN Act procedures for notice when a large employer

lays off a substantial portion of its staff. Ultimately, the WARN Act Class Action resulted

in a settlement requiring maximum payments of (1) an administrative claim totaling

$950,000; (2) priority wage claims totaling $4.6 million; (3) general unsecured claims

totaling $7.4 million; and (4) subordinated allowed unsecured claims of $7 million. These

damages could have been avoided if the Banks had permitted Heller to comply with

WARN Act procedures, less the amount that Heller would have been required to pay

under the WARN Act.

81. Further, Heller could have avoided the attorneys’ fees and costs it incurred

in defending against the WARN Act Class Action had the Banks permitted Heller to

comply with WARN Act procedures.

82. During the period from September 19, 2008, when it issued the Default


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28


Notice, to December 28, 2008, BOA, while controlling Heller’s accounts, paid itself and

Citibank $49.6 million. An additional $6.6 million was paid to the Banks post-petition.

Greenberg’s Failure to Conduct a Lien Search Prior to October 2, 2008

83. At no time from the date of its retention on June 11, 2008 to October 2,

2008, the date BOA filed the New Financing Statement, did Greenberg conduct a simple

lien search to determine if in fact the Banks’ security interest in the Heller Collateral was

perfected.

84. Had Greenberg conducted a lien search at any time prior to October 2, 2008,

it would have discovered that the Original Financing Statement filed by BOA had been

terminated and in fact the Banks’ security interest in the Collateral was unperfected.

85. On September 18, 2008, Paul Sugarman, a Heller Shareholder, sent Mr.

Corwin an email forwarding an email from the general counsel of the firm’s “group-

practice” malpractice carrier, MPC Insurance, Ltd., stating that MPC intended to exercise

its rights to file a UCC financing statement to shore up its position in the event Heller was

required to fund its self-insured retention obligations under the policy. In a response

email sent the same day, Mr. Corwin wrote, “Paul I understand the issue have dealt with it

before and am not surprised – your response was certainly appropriate.” Incredibly, the

fact that another entity intended to file a UCC financing statement against Heller did not

cause Mr. Corwin to conduct a lien search for Heller, even though Mr. Corwin said he

“understood the issue” and had “dealt with it before.”

86. Had Greenberg discovered that the Original Financing Statement was

terminated at any time during the three and a half months that it has been working for

Heller prior to October 2, 2008, it could have, and likely would have, advised Heller to

immediately file for bankruptcy before BOA filed the New Financing Statement and.or

taken other steps with the same effect. Heller, as a debtor-in-possession, would have had

a superior claim to its deposit accounts and accounts receivable (and all of the Collateral)

as a hypothetical lienholder under 11 U.S.C. § 544(a). Pursuant to California Commercial

Code section 9317(a)(2), a security interest is subordinate to any rights of a pre-existing


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28


judicial lien creditor. Moreover, the automatic stay, 11 U.S.C. § 362(a)(4) would have

prohibited BOA from filing the New Financing Statement after any bankruptcy filing.

87. Alternatively, even if Heller had chosen not to file for bankruptcy, it could

have informed the Banks of its legal position and or take other steps and refused to allow

the Banks to take control of Heller’s accounts, money and accounts receivable.

88. Had Greenberg discovered that the Original Financing Statement was

terminated prior to October 2, 2008, and had Heller filed for bankruptcy prior to that date,

or taken other action to enforce its legal position, the Banks would have been in effect

unsecured creditors and Heller would have had control of all of its accounts, money and

accounts receivable. In that case Heller could have undertaken an orderly liquidation,

retained key employees that were crucial to collection of accounts receivable, collected a

significantly higher amount of accounts receivable than the amount it collected in the

months following BOA’s taking control of Heller’s accounts, and avoided the WARN Act

Class Action and the damages it incurred as a result of that lawsuit, including attorneys’

fees.

89. Further, Heller would have avoided damages in the form of the total amount

of money that was paid to the Banks following September 19, 2008, when BOA issued the

default notice, less the amount that the Banks returned to Heller under the settlement of

the Preference Action, described below, plus attorneys’ fees. If Heller had been in control

of its money, including its deposit accounts and accounts receivable, it would not have

paid it over to the Banks. Instead, it would have used the money to finance its orderly

liquidation and, ultimately, to pay over to all unsecured creditors on a pro rata basis.

Greenberg’s Failure to Take Any Immediate Action Following its Discovery that the Original Financing Statement Had Been Terminated

90. In early October, 2008, as part of its dissolution, Heller was in the process

of negotiating a deal in which the law firm Perkins Coie LLP (“Perkins”) would

essentially acquire the entirety of Heller’s Madison, Wisconsin office, including taking

over the lease, purchasing all leasehold improvements and tangible personal property, and

hiring all non-Shareholder employees (the “Madison Transaction”). Perkins had informed


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28


Heller that before it could complete the Madison Transaction it would first require, among

other things, the consent of all of Heller’s secured creditors.

91. As part of its due diligence in connection with the Madison Transaction,

Perkins conducted a UCC lien search with the California Secretary of State in or about

early October, 2008. As a result of the search, Perkins discovered that BOA filed the

Termination Statement on August 3, 2007 and also that BOA filed the Correction

Statement on October 1, 2008.

92. During a telephone conference call held on October 7, 2008 between several

Perkins partners and several Heller Shareholders, as well as Mr. Corwin from Greenberg,

one or more of the Perkins attorneys informed the others on the call about the result of

Perkins’ lien search. Specifically, the Perkins attorney(s) informed the Heller

Shareholders and Mr. Corwin that the Termination Statement had been filed on August 3,

2007, and that the Correction Statement had been filed on October 1, 2008. On

information and belief the Perkins attorney(s) questioned the validity and/or effect of the

Correction Statement during this call.

93. On the same day, October 7, 2008, following the telephone call described

above, Al Smith, a Perkins partner who participated in the telephone call referred to

above, sent an email to Mr. Corwin and several Heller Shareholders, including Peter

Benvenutti. The subject line of the email was “Madison – Lien Search and other matters.”

In the email Mr. Smith said: “Nice speaking with everyone this afternoon. I’m glad we

made contact and I look forward to continuing the discussions. . . . Attached as promised

are a few pages from the lien search: . . . – initial summary pages . . . – 2007 termination .

. . – 10/1/08 ‘correction statement’/‘amendment.’” The email then went to discuss other

issues related to the Madison Transaction. Attached to the email was a summary of the

results of the lien search as well as copies of the Termination Statement and Correction

Statement.

94. Corwin received and read Al Smith’s October 7, 2008 email. A few minutes

after receiving it Mr. Corwin forwarded the email to Nellie Graverson, an administrative


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28


assistant in Greenberg’s New York office, with the instructions, “Please print out and put

in a folder labeled Heller Ehrman-Madison office.”

95. A few minutes after that Mr. Corwin responded to Al Smith’s email. In this

email Mr. Corwin acknowledged receiving it by stating, “Nice speaking with you as

well.” Mr. Corwin then went on to discuss other issues related to the firm’s malpractice

policy but did not mention anything about the results of the lien search, the Termination

Statement or the Correction Statement.

96. On October 8, 2008, upon information and belief, either Mr. Corwin or Mr.

Annex, or both, instructed an associate in Greenberg’s New York office – Julia Engel -- to

conduct an independent lien search of Heller. Ms. Engel contacted an outside lien search

company on October 8, 2008 and October 10, 2008.

97. In an email dated October 10, 2008, Ms. Engel sent Mr. Corwin and Mr.

Annex an email with an attachment containing a summary of the results of the Heller lien

search. The summary reflected the filing of the Termination Statement, the Correction

Statement as well as the October 2, 2008 filing of the New Financing Statement. Ms.

Engel stated in her email that “[t]here will be more coming.” However, it is uncertain

whether Ms. Engel ever provided Mr. Corwin and Mr. Annex with any further results.

98. In response to Ms. Engel’s October 10, 2008 email, on the same date, Mr.

Corwin forwarded the email to Ms. Graverson with the instructions, “Please print out and

place in a labeled folder – thanks.”

99. Having learned about the filing of the Termination Statement as well as the

Correction Statement and the New Financing Statement, neither Mr. Corwin, Mr. Annex,

nor anyone else at Greenberg, took any further action for almost two months. Greenberg

did not look into the circumstances surrounding the filing of the Termination Statement

and it did not undertake any legal analysis of what Heller could do to take advantage of

the filing of the Termination Statement.

100. Had Greenberg looked into these issues it would have concluded, as the

firm concluded two months later, that Heller could have filed for bankruptcy and voided


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28


the filing of the New Financing Statement as a preferential transfer under 11 U.S.C. § 547.

As such, Greenberg also would have concluded, or should have concluded, and advised

Heller accordingly, that the firm should file for bankruptcy immediately. The reason for

this conclusion and advice is that after filing for bankruptcy Heller could then seek an

immediate judicial determination by the bankruptcy court that the money held in its

accounts with BOA, as well as its accounts receivable, did not constitute the Banks’ cash

collateral, in that the perfected lien created by the filing of New Financing Statement was

a voidable transfer under 11 U.S.C. § 547.

101. Alternatively, Heller could have confronted the Banks and attempted to

negotiate a deal or in any event it could have taken control of its accounts, money and

accounts receivable and conducted an orderly dissolution. Notably, the outstanding

amount on the bank loans was significantly higher than it was in December of 2008, after

the third party landlord alerted Heller to the issue. Heller lost considerable leverage

between early October 2008 and December 2008 because the banks were draining the

value of Heller’s accounts receivable to pay off the “secured” loan.

102. Had Greenberg investigated these issues and advised Heller accordingly,

and had Heller filed for bankruptcy shortly after discovering the filing of the Termination

Statement on October 7, 2008, or taken other steps to protect its financial interests, Heller

immediately could have obtained control of its money, accounts and accounts receivable.

In that case Heller could have undertaken an orderly liquidation either in or out of

bankruptcy, retained key employees that were crucial to collection of accounts receivable,

collected a significantly higher amount of accounts receivable than the amount it collected

in the months following BOA’s taking control of Heller’s accounts, and avoided the

WARN Act Class Action and the damages it incurred as a result of that lawsuit, including

attorneys’ fees. Further, Heller would have avoided damages in the form of a significant

portion of the approximately $56.2 million that was paid to the Banks following October

2, 2008 when the New Financing Statement was filed, less the amount that the Banks

returned to Heller under the settlement of the Preference Action, described below, plus


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28


attorneys’ fees. If Heller had been in control of its money, including its deposit accounts

and accounts receivable, it would not have paid it over to the Banks. Instead, it would

have used the money to finance its orderly liquidation and, ultimately, to pay over to all

unsecured creditors on a pro rata basis. A Third Party Informs Heller About the Filing of

the Termination Statement and Heller’s Resultant Bankruptcy Filing

103. On November 28, 2008, in a telephone call between Heller Dissolution

Committee member Mr. Benvenutti and Mike Brody, an attorney representing the

landlord for Heller’s San Francisco offices at 333 Bush Street, Mr. Brody told Mr.

Benvenutti that he had undertaken a UCC search and discovered the August 3, 2007 filing

of the Termination Statement, as well as the October 1, 2008 filing of the Correction

Statement and the October 2, 2008 filing of the New Financing Statement. Mr. Brody told

Mr. Benvenutti that based on this discovery he believed that the Banks’ security interest in

Heller’s Collateral was voidable if a bankruptcy was filed within ninety days of the

October 2, 2008 filing of the New Financing Statement. He also requested that Mr.

Benvenutti agree not to pay down the Banks any further until the issue was sorted out.

104. Also on November 28, 2008, after their telephone conversation, Mr. Brody

sent Mr. Benvenutti a fax containing copies of the Termination Statement, the Correction

Statement and the New Financing Statement.

105. On November 28, 2008, after his call with Mr. Brody, Mr. Benvenutti sent

an email to Mr. Corwin and Mr. Annex in which he described his conversation with Mr.

Brody, stating that if it was in fact correct “the banks’ security interest could be avoided in

a bankruptcy case filed within 90 days after October 2,” and asking “What’s the story

here?” He also stated that he had agreed that until the issue was sorted out Heller would

not initiate any further pay-downs to the banks.

106. On November 29, 2008, Greenberg began to focus in earnest for the first

time on the issues surrounding the filing of the Termination Statement and whether in fact

the Banks’ lien on Heller’s Collateral was in fact voidable. In addition to talking to Mr.

Benvenutti, Mr. Corwin and Mr. Annex reviewed the earlier email sent to them on


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28


October 10 by Julia Engel attaching the results of her UCC search. Mr. Annex sent this

October 10 email to Mr. Benvenutti and Mr. Corwin. In addition, Mr. Corwin and/or Mr.

Annex apparently gave an assignment to a Greenberg associate, Kristin Rinaldi, who

immediately began to research the legal issues surrounding the Termination Statement, the

effect of the Correction Statement and related issues surrounding the Banks’ lien.

107. Over the next few days a flurry of activities took place, including further

discussions between Mr. Corwin, Mr. Annex and Mr. Benvenutti, discussions between

Mr. Corwin and Mr. Brody, discussions between Greenberg attorneys and the Dissolution

Committee and numerous internal discussions among Greenberg regarding the

Termination Statement and whether the Banks’ lien in Heller’s collateral was voidable.

108. On December 7, 2008, Greenberg provided to the Heller Dissolution

Committee a memorandum, from Mr. Corwin and Mr. Annex, regarding the issue of

whether the Banks’ lien was voidable under bankruptcy. The conclusion of this memo was

that the filling of the Termination Statement rendered the Banks’ lien unperfected until it

re-perfected it on October 2, 2008. The memo further concluded that “[a]ssuming a

bankruptcy proceeding is commenced on behalf of the Firm by December 30, 2008, the

Bank’s perfection should be subject to preferential avoidance.”

109. The December 7 memo, with work performed in connection with the memo,

and other work performed by Greenberg that the firm was providing bankruptcy services

to Heller before December 10, 2008 appear to make it indisputable that Greenberg had

been providing bankruptcy related services to Heller for several months by early

December, 2008.

110. Greenberg provided no explanation in the memo or otherwise why they

failed to examine the issues and draw the conclusions they drew in the December 7 memo

until two months after they became aware that the Termination Statement had been filed,

or why Greenberg had not undertaken a lien search on its own initiative.

111. Over the course of the next few weeks Heller, with Greenberg’s assistance,

engaged in negotiations with the Banks in attempt to have the latter return money to


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28


Heller and reach a settlement without Heller having to resort to a bankruptcy filing. The

negotiations were not successful.

112. In December, 2008, Greenberg intensified preparation for a bankruptcy

filing. On December 28, 2008, Heller filed its Chapter 11 petition.

Heller’s Preference Lawsuit Against the Banks and Settlement

113. On April 23, 2009, Heller, by and through its authorized representative, the

Official Committee of Unsecured Creditors of Heller (the “Committee”), filed an

adversary proceeding against the Banks to avoid the perfection of the Banks’ lien in

Heller’s Collateral and to avoid and recover all of the money that had been transferred by

Heller to the Banks in the ninety days prior to the Petition Date (the “Preference Action”)

– in excess of $56 million.

114. Litigation between Heller and the Banks took place over the course of

almost two years, with substantial discovery taking place, including extensive written

discovery and at least nine depositions in San Francisco, Southern California and New

York. The costs to the Heller estate of litigating the case exceeded $3 million.

115. The outcome of the Preference Action was uncertain. One of the primary

reasons for the uncertainty was that Heller would have been required to go through the

process of establishing the firm’s insolvency as of October 2, 2008, the date of the filing

of the New Financing Statement, an element required to establish a preference claim

under 11 U.S.C. § 547(b).

116. On February 24, 2011, at a mediation held in San Francisco, Heller (now

being represented by the Liquidating Trustee) and the Banks settled the Preference

Action. The terms of settlement were that the Banks would pay the Heller estate $20

million and would dismiss their proof of claim against the Heller estate and waive with

prejudice any and all claims they have against Heller. In turn, Heller would dismiss the

Preference Action with prejudice.

117. Considering that the Bank has waived any and all claims against the estate,

the value of the settlement to the Heller estate is significantly higher than $20 million,


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28


though the true value cannot be determined until it is ultimately determined what the final

payout will be to unsecured creditors.

Creation of the Jewel Waiver

118. Greenberg was hired by Heller LLP to provide legal services to the

partnership, not to the individual Heller Shareholders. As such, Greenberg had an

obligation to provide legal services to Heller not to the Heller Shareholders.

119. As retained counsel for Heller, Greenberg owed a duty of care and a duty of

loyalty to Heller, not the individual Heller Shareholders.

120. During the course of representing Heller, after Greenberg was assigned the

task of drafting the Plan of Dissolution, it was determined by certain Heller Shareholders

and Greenberg to include language in the Plan of Dissolution under which Heller would

agree to waive any rights and claims the firm might otherwise have been able to assert

against its departing Shareholder under the doctrine of Jewel v. Boxer, 156 Cal. App. 3d

171 (1984) (the “Jewel Waiver”).

121. The Jewel Waiver was beneficial to the Heller Shareholders and detrimental

to Heller in that it caused the firm to waive valuable potential future claims against the

Heller Shareholders.

122. The Jewel Waiver ultimately caused harm to Heller in that it made it more

difficult for Heller to assert claims under Jewel v. Boxer, in that Heller must go through

the process of proving that the creation of the Jewel Waiver was in fact an actual or

constructive fraudulent transfer under 11 U.S.C. § 548, which may include the additional

step of establishing that Heller was insolvent or operating with unreasonably small capital

as of the September 26, 2008, the date the Plan of Dissolution was approved. While

Heller is likely to be successful in proving that the firm was insolvent or operating with

unreasonably small capital as of this date, it will be more expensive to go through this

process in that expert witnesses as to this issue will be required. More significantly,

Heller has settled the Jewel actions for less than it would have collected had the Jewel

Waiver not been inserted by Greenberg into the dissolution plan due to Greenberg’s


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28


failure to meet the standard of care.

123. Heller has been damaged by Greenberg’s act of including the Jewel Waiver

in the Plan of Dissolution in that the amount of attorneys’ fees and expert witness fees

incurred by the firm in prosecuting the various Jewel lawsuits will be greater than it would

have been if Heller were not required to first establish that the Jewel Waiver is a

fraudulent transfer under 11 U.S.C. § 548. Moreover, if Heller is required to establish

insolvency Heller’s fees and costs, including expert witness costs, will be greater than if

no Jewel Waiver existed. If the Jewel Waiver had not been included in the Plan of

Dissolution, liability under Jewel v. Boxer would be a foregone conclusion and Heller

would only be required to establish damages. The additional element of proof Heller must

establish directly translates into increased attorneys’ fees and costs to Heller.

124. Debtor also asserts a claim for Greenberg’s negligence with respect to other

actions in the run-up to the bankruptcy, including any failure of Greenberg to adequately

cement an agreement the Debtor had reached with a broker regarding the surrender of the

lease of Heller’s New York office. The Debtor is informed and strongly believes that the

broker agreed in writing to provide its services for $325,000 based upon, among other

things, an invoice from the broker dated October 15, 2008 stating the agreed amount due

was $325,000 and a letter from Mr. Corwin dated October 21, 2008, to the debtor’s

secured lenders and the debtor stating that the amount of the commission owed was

$325,000. However, the Broker alleges that the Debtor’s agreement to the $325,000 was

not communicated and, as a result, that the commission was $2,939,496. While the

Debtor vehemently dispute’s the broker’ contentions, Greenberg should have handled the

transaction in a manner that would have avoided the broker’s contentions on this issue. If

it is determined that the broker is entitled to a commission in excess if $325,000, the

Debtor is informed and believes that such increase in the commission shall be attributable

to a failure of Greenberg to adequately cement an agreement regarding the commission.

FIRST CLAIM FOR RELIEF

(Professional Negligence)


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28


(Against All Defendants)

125. Plaintiff incorporates herein by reference the allegations set forth in each of

the previous paragraphs alleged above, inclusive, as though fully set forth herein.

A. Failure to Discover Termination Statement Before Bank Re-filed Financing Statement.

126. Mr. Corwin and Greenberg were hired to provide legal services to Heller on

June 11, 2008. The scope of the legal services to be provided initially was to render advice

and consult “in connection with its current Partnership Agreement and matters relating to

its affairs, including potential issues regarding a combination and/or restructuring.”

127. The legal services Mr. Corwin and Greenberg were providing expanded in

August, 2008, to concentrate on legal services in connection with the dissolution of

Heller, including the drafting of a plan of dissolution and advice concerning a potential

liquidation of the firm, including bankruptcy issues. In August and September, 2008, the

legal services Greenberg was requested to perform on behalf of Heller, and which it was

in fact performing at the time, were primarily services related to a potential liquidation

and/or because of the firm evaluating a possible bankruptcy filing.

128. As such, Mr. Corwin and Greenberg should have known to conduct a lien

search of Heller to determine the degree to which secured creditors had perfected security

interests against the firm and to ensure that the Banks’ liens were perfected.

129. At no time from the date of its retention on June 11, 2008 to October 2,

2008, the date BOA filed the New Financing Statement, did Mr. Corwin or Greenberg

conduct a lien search to determine if in fact the Banks’ security interest in the Heller

Collateral was perfected.

130. On September 19, 2008, BOA sent the Default Notice to Heller, a copy of

which was sent to Mr. Corwin, and stated therein that BOA immediately was taking

possession of Heller’s deposit accounts and stating that all accounts receivable constituted

the Banks’ cash collateral and not to use any of it for any purpose without BOA’s prior

approval. Even in response to this, Mr. Corwin and Greenberg failed to conduct a lien

search to confirm that the Banks had a valid security interest in Heller’s deposit accounts


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28


and accounts receivable.

131. Even after Heller informed Mr. Corwin that its insurance carrier, MPC,

would be filing a UCC financing statement with respect to Heller, Mr. Corwin and

Greenberg still did not conduct a lien search of Heller.

132. Had Mr. Corwin and Greenberg conducted a lien search at any time prior to

October 2, 2008, they would have discovered that the Original Financing Statement filed

by BOA had been terminated on August 3, 2007 and in fact the Banks’ security interest in

the Heller Collateral was unperfected.

133. Had Mr. Corwin and Greenberg known that the Banks’ security interest in

the Heller Collateral was unperfected they could have advised Heller to immediately file

for bankruptcy protection, which would have prevented the Banks from filing the New

Financing Statement under 11 U.S.C. § 362. Alternatively, they could have attempted to

negotiate with the Banks or take other steps to enforce Heller’s legal rights and prevent

BOA from filing the New Financing Statement, to regain control over its money, accounts


134. Had Mr. Corwin and Greenberg undertaken a lien search prior to October 2,

2008 and discovered that the Banks’ security interest in the Heller Collateral was

unperfected, and had Heller subsequently filed for bankruptcy protection prior to October

2, 2008, when the New Financing Statement was filed, the Banks would have been in

effect unsecured creditors and Heller would have had control of all of its accounts, money


135. If Heller had filed for bankruptcy at the time the Banks were unperfected, or

had the firm taken other steps to protect its financial interests, Heller could have

undertaken an orderly liquidation, retained key employees that were crucial to collection

of accounts receivable, collected a significantly higher amount of accounts receivable than

the amount it collected in the months following BOA’s taking control of Heller’s

accounts, and avoided the WARN Act Class Action and the damages it incurred as a result

of that lawsuit, including attorneys’ fees.


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28


136. As attorneys for Heller Mr. Corwin and Greenberg owed a duty of care to

provide legal advice and services of the skill, prudence and diligence as members of the

legal profession commonly, and purported bankruptcy specialists particularly, possess and

exercise.

137. In failing to conduct a lien search with respect to Heller’s property, and as a

result of its failing to discover that the Banks’ security interest was unperfected, and that

Heller could have filed for bankruptcy or taken other legal steps and in effect rendered the

Banks unsecured creditors, Mr. Corwin and Greenberg breached their duty to use such

skill, prudence, and diligence as members of the legal profession commonly, and

purported bankruptcy specialists particularly, possess and exercise.

138. As one prominent San Francisco bankruptcy attorney stated in a quote

printed in a June 3, 2009 in the San Francisco Recorder, “I’ve been practicing for nearly

30 years and I have never begun a debtor representation without pulling the UCC run.” In

failing to conduct a UCC lien search on Heller’s property Mr. Corwin and Greenberg fell

below the standard of care, skill, prudence, and diligence that members of the legal

profession commonly, and purported bankruptcy specialists particularly, possess and

exercise.

139. As a direct and proximate cause of Mr. Corwin’s and Greenberg’s failure to

conduct a lien search and to advise Heller to file for bankruptcy protection, or take other

appropriate legal steps, at a time when the Banks’ lien in the Heller Collateral was

unperfected, Heller suffered harm. Instead of being able to control its own accounts and

accounts receivable, and to conduct an orderly liquidation, Heller was instead essentially

put under the control of the Banks and underwent a disorderly liquidation. Instead of

treating the Banks as unsecured creditors, which Heller could pay in the same manner as

all other unsecured creditors, the Banks took control over Heller’s deposit accounts and

accounts receivable, and caused Heller to transfer in excess of $56 million to the Banks.

Further, Heller suffered harm in the form of a disorderly liquidation under the control and

management of the Banks, which resulted in lower collections during the three-month


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28


period after the Banks issued the Default Notice, the loss of key personnel, some of whom

were responsible for collections and the filing of the WARN Act Class Action against

Heller.

140. Heller suffered actual damages as a direct result of Mr. Corwin’s and

Greenberg’s failure to conduct a lien search and to advise Heller to file for bankruptcy or

take other appropriate legal steps prior to October 2, 2008. The damages suffered include

the total amount paid over to the Banks following the issuance of the September 19, 2008

Default Notice (in excess of $60 million), less the $20 million paid to Heller under the

settlement of the Preference Action, plus attorneys fees. In addition, Heller suffered

damages based on the significantly reduced amount of accounts receivable it collected as

a result of the disorderly liquidation caused by the control exercised by the Banks over

Heller and its deposit accounts and accounts receivable. Heller also suffered damages

caused by the WARN Act Class Action, including the amounts it paid under the

settlement of that suit, minus the amount it would have been required to pay under the

WARN Act, plus attorneys’ fees. But for Mr. Corwin’s and Greenberg’s negligent

conduct as alleged herein, Heller would not have suffered these damages.

B. Failure to Alert Heller to the Significance of the UCC Termination.



142. On October 7, 2008, Mr. Corwin and Greenberg became aware that the

Termination Statement had been filed and that only a few days earlier BOA had filed the

Correction Statement. Greenberg, and specifically, Mr. Corwin, became aware of both of

these filings because he had been told this in a telephone conversation that day with,

among others, Alan Smith, a partner at Perkins Coie.

143. Further, on the same date, October 7, 2008, Alan Smith sent an email to Mr.

Corwin, among others, with attachments showing the results of a UCC lien search for

Heller and a copy of the Termination Statement and Correction Statement. Mr. Corwin


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28


forwarded these materials to an administrative assistant and requested that she place them

in a file.

144. On October 8, 2008, Mr. Corwin and/or Mr. Annex instructed an associate

in Greenberg’s New York City office to conduct an independent lien search of Heller.

145. The independent lien search confirmed not only the filings of the

Termination Statement and the Correction Statement but also that another UCC financing

statement (the New Financing Statement) had been filed on October 2, 2008.

146. Upon receiving the materials from his associate confirming that the

Termination Statement had been filed on August 3, 2007, the Correction Statement on

October 1, 2008 and the New Financing Statement on October 2, 2008, Mr. Corwin

instructed an assistant to place the materials in a folder. Upon information and belief Mr.

Corwin took no further action following his discovery of these filings and did not

communicate with anyone at Heller about these filings until late November, 2008, when

Heller Shareholder Benvenutti raised the issue with Mr. Corwin and Mr. Annex.

147. Upon learning about the filing of the Termination Statement, and that for

more than a year the Banks’ lien against the Heller assets until very recently, Mr. Corwin

and Greenberg should have advised Heller to immediately file for bankruptcy, stop paying

down the bank loan, or take other steps to protect the firm’s interests. Mr. Corwin and

Greenberg failed to make any such recommendation until December, 2008.

148. If Heller had filed for bankruptcy or taken other steps to protect its interests

in October, 2008, shortly after Mr. Corwin and Greenberg discovered the existence of the

Termination and New Financing Statement filings, it could have sought to void the filing

of the New Financing Statement as a preferential transfer under 11 U.S.C. § 547, or

otherwise. Moreover, Heller could have sought an immediate judicial determination by

the bankruptcy court that the money held in its accounts with BOA, as well as its accounts

receivable, did not constitute the Banks’ cash collateral, in that the perfected lien created

by the filing of New Financing Statement was a voidable transfer under 11 U.S.C. § 547.

Alternatively, Heller could have negotiated with the Banks armed with the information


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28


that the banks were effectively an unsecured creditor and that Heller could avoid the

Banks’ lien through a bankruptcy filing.

149. In failing to take any action after discovering the filing of the Termination

Statement and the New Financing Statement on October 7, 2008, other than to place

evidence of the filings in a file, and in failing to advise Heller to immediately file for

bankruptcy immediately, or take other steps to protect Heller’s interests, or to even

communicate with Heller about the filings, Mr. Corwin and Greenberg breached their duty

to use such skill, prudence, and diligence as members of the legal profession commonly,

and purported bankruptcy specialists particularly, possess and exercise.

150. As a direct and proximate cause of Mr. Corwin’s and Greenberg’s failure to

advise Heller to file for bankruptcy shortly after learning about the UCC filings in

October, 20008, Heller suffered harm. Had Mr. Corwin and Greenberg investigated these

issues and advised Heller accordingly, and had Heller filed for bankruptcy shortly after

Greenberg had learned about the UCC filings on October 7, 2008, or taken other steps to

protect its legal interests, Heller immediately could have obtained control of its accounts

and accounts receivable. In that case Heller could have undertaken an orderly liquidation

in or out of bankruptcy, retained key employees that were crucial to collection of accounts

receivable, collected a significantly higher amount of accounts receivable than the amount

it collected in the months following BOA’s taking control of Heller’s accounts, and

avoided the WARN Act Class Action and the damages it incurred as a result of that

lawsuit, including attorneys’ fees. Further, Heller would have avoided a damages in the

form of a significant portion of the approximately $56.2 million that was paid to the

Banks following October 2, 2008 when the New Financing Statement was filed, less the

amount that the Banks returned to Heller under the settlement of the Preference Action,

plus attorneys’ fees. If Heller had been in control of its money, including its deposit

accounts and accounts receivable, it would not have paid it over to the Banks. Instead, it

would have used the money to finance its orderly liquidation and, ultimately, to pay over

to all unsecured creditors on a pro rata basis.


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28


151. Heller suffered actual damages as a direct and proximate result of Mr.

Corwin’s and Greenberg’s failure to advise Heller to file for bankruptcy in October, 2008,

or take other steps to protect the firm’s legal interests. The damages suffered include the

total amount paid over to the Banks following the issuance of the September 19, 2008

Default Notice (in excess of $60 million), less the $20 million paid to Heller under the

settlement of the Preference Action, plus attorneys fees. In addition, Heller suffered

damages based on the significantly reduced amount of accounts receivable it collected as

a result of the disorderly liquidation caused by the control exercised by the Banks over

Heller and its deposit accounts and accounts receivable. Heller also suffered damages

caused by the WARN Act Class Action, including the amounts it paid under the

settlement of that suit, minus the amount it would have been required to pay under the

WARN Act, plus attorneys’ fees. But for Mr. Corwin’s and Greenberg’s negligent

conduct as alleged herein, Heller would not have suffered these damages.

C. Jewel Waiver.



153. Mr. Corwin and Greenberg knew that Greenberg had been retained by

Heller under the June 11, 2008 retainer agreement between Greenberg and Heller. As

such, Mr. Corwin and Greenberg knew that they owed a duty of care and loyalty to Heller,

not the individual Heller Shareholders.

154. By not advising against including the Jewel Waiver in the Plan of

Dissolution Mr. Corwin and Greenberg were acting in the best interest of the Heller

Shareholders, not the Heller firm itself. The Jewel Waiver allowed Heller Shareholders to

take unfinished business that lawfully belonged to Heller to other law firms and to try and

keep the profits from that unfinished business either for themselves or for themselves and

their new firms. The Jewel Waiver caused harm to Heller in that it waived valuable claims

for profits from such unfinished business.


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28


155. By not advising against including the Jewel Waiver, an act detrimental to

Heller, Mr. Corwin and Greenberg, violated their duty of care and loyalty to Heller. As

such, Mr. Corwin and Greenberg breached their duty to use such skill, prudence, and

diligence as members of the legal profession commonly, and purported bankruptcy

specialists particularly, possess and exercise.

156. Alternatively, in not advising against including the Jewel Waiver, Mr.

Corwin and Greenberg aided and abetted the Heller Shareholders in usurping rights and

property that belonged to Heller in favor of the Heller Shareholders. As such, Mr. Corwin

and Greenberg breached their duty to use such skill, prudence, and diligence as members

of the legal profession commonly, and purported bankruptcy specialists particularly,

possess and exercise.

157. Greenberg also failed to document the broker agreement so as to avoid a

dispute, as outline above. If the broker is able to establish a claim greater than the agreed

upon amount it will be due to the fault of Mr. Corwin and Greenberg for failing to

adequately document in writing the agreement to accept a reduced commission for

negotiating a surrender agreement.

158. The Jewel Waiver ultimately caused harm to Heller in that it made it more

costly for Heller to assert claims under Jewel v. Boxer, in that Heller must go through the

process of proving that the creation of the Jewel Waiver was in fact an actual or

constructive fraud under 11 U.S.C. § 548, which may include having to show that Heller

was insolvent as of the September 26, 2008, the date the Plan of Dissolution was

approved.

159. Heller has been damaged by Mr. Corwin’s and Greenberg’s act of including

the Jewel Waiver in the Plan of Dissolution in that the amount of attorneys’ fees and costs

that will be incurred by Heller will be greater than it would have been if Heller were not

required to first establish that the Jewel Waiver is a fraudulent transfer under 11 U.S.C.

§ 548. The additional element of proof Heller must establish directly translates into

increased attorneys’ fees, expert witness fees and other costs to Heller.


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28


D. Failure to Disclose Interest Adverse to the Debtor and That Heller Had Actual And

Potential Causes Of Action Against It For The Preference Period Payments.

160. On January 12, 2009, Greenberg filed with the Bankruptcy Court on behalf

of the Debtor an Application authorizing the employment of Greenberg as co-counsel for

the Debtor in the bankruptcy case (the “Application”). In support of the Application

Greenberg submitted an affidavit of one of its shareholder’s, Keith Shapiro (the “2014

Declaration”) in accordance with Rule 2014 of the Federal Rules of Bankruptcy Procedure

(the “Bankruptcy Rules”) and 11 U.S.C. ' 110(h)(2).

161. In the 2014 Declaration, Greenberg declared under penalty of perjury that

Greenberg does “not hold any interests adverse to the Debtor or its chapter 11 estate.”

While the firm mentioned that it received certain payments from Heller prior to the

Bankruptcy Petition, it did not disclose that Greenberg could be liable for having received

preferential payments with respect to some or all of the $1.47 million as compensation for

attorneys’ fees and costs billed by Greenberg in 2008 and during the 90-day period

preceding the Debtor’s bankruptcy filing (the “Preference Period”) hereinafter

(“Preference Period Payments”).

162. Some or all of the Preference Period Payments met all the requirements for

avoidance under 11 U.S.C. §550 as the payments:

(a) were on account of an antecedent debt owed by Greenberg to Heller;

(b) made at the time that the Debtor was insolvent as that term is meant under

11 U.S.C. § 547(b) and.

(c) as a result of being paid the aforementioned payments by Heller, Greenberg

received more than it would have received if:

i. Heller were a debtor under Chapter 7 of Title 11 of the United States

Code;

ii. The payments had not been made by Heller to Greenberg; and

iii. Greenberg received the same payment as other unsecured creditors as

provided for under Chapter 7.


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28


163. Accordingly, at the time of the Application and 2014 Declaration, Heller, as

the liquidating Debtor, was entitled to avoid any such payments made by Heller to

Greenberg that exceed the hypothetical amount Greenberg would have been paid had it

not been paid and this was a case under Chapter 7 of Title 11 of the United States Code.

164. As an experienced bankruptcy counsel, Greenberg knew, or should have

known, at the time of the Application and 2014 Declaration and thereafter, the Debtor had

actual and potential claims against Greenberg for these Preference Period Payments.

165. Yet, Greenberg did not advise the Debtor that the Debtor had a potential

claim for the Preference Payments.

166. Nor did Greenberg ever disclose the actual conflict of interest between itself

and the Debtor due to these potential claims.

167. As stated in In re Park-Helena Corp., 63 F.3d 877, 880 (9th Cir. 1995): A fee applicant must disclose, “the precise nature of the fee arrangement,” and not simply identify the ultimate owner of the funds. Debtor’s counsel [must] lay bare all its dealings . . . regarding compensation. Counsel’s fee revelations must be direct and comprehensive. Coy, or incomplete disclosures . . . are not sufficient. The burden is on the person to be employed to come forward and make full candid, and complete disclosure.

168. Rather, than comply with these duties, Greenberg made misrepresentations

and failed to disclose the potential claims against it to the Bankruptcy Court. In the

Application and 2014 Declaration, Greenberg stated that it “does not hold, or represent

any entity having an adverse interest in connection with this case.”

169. In failing to fully advise the Debtor concerning the Debtor’s claims against

it for the Preference Payments or the conflict of interest arising therefrom and by making

misrepresentations in the Application and 2014 Declaration concerning the lack of any

adverse interest with respect to the Debtor, Greenberg breached its duty to use such skill,

prudence, and diligence as members of the legal profession commonly, and purported

bankruptcy specialists particularly, possess and exercise.

170. Had Greenberg disclosed its potential exposure on a preference claim, it

would have had to overcome the holding of In re Pillowtex, 304 F.3d 246 (3d. Cir. 2002),


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28


in order to become employed by the estate.

171. Greenberg’s errors, omissions, and misrepresentations have caused

proximately and actually caused Heller injury in the form of additional attorneys’ fees,

interest, and delay in the Debtor’s ability to obtain the Preference Payments.

172. These injuries damaged Heller in an amount to be proven at trial.

SECOND CLAIM FOR RELIEF (Attorneys’ Fees for Tort of Another)

(Against All Defendants)



174. As a direct and proximate cause of the tortious acts of Mr. Corwin and

Greenberg as alleged above, Heller has incurred significant attorneys’ fees in connection

with defending the WARN Act Class Action.

175. Further, as a direct and proximate cause of the tortious acts of Mr. Corwin

and Greenberg as alleged above, Heller has incurred significant attorneys’ fees in

connection with prosecuting the Preference Action against the Banks that it would not

have incurred but for the tortious acts of Mr. Corwin and Greenberg.


and Greenberg as alleged above, Heller has incurred significant additional attorneys’ fees

in connection with prosecuting the Jewel cases against former Heller Shareholders and the

law firms in which they took Heller unfinished business, that it would not have incurred

but for the tortious acts of Mr. Corwin and Greenberg.


and Greenberg as alleged above, Heller has incurred significant attorneys’ fees in

connection with objecting to the CB Richard proof of claims, that it would not have

incurred but for the tortious acts of Mr. Corwin and Greenberg.

178. Under both New York and California law, to the extent a plaintiff incurs

attorneys’ fees in prosecuting or defending an action against a third party that is the

proximate and natural consequence of a defendant’s tortious conduct, the plaintiff is


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28


entitled to collect its attorneys’ fees incurred in such third party litigation.

179. As such, Heller is entitled to collect from Mr. Corwin and Greenberg the

attorneys’ fees Heller incurred in connection with the WARN Act Class Action, the

Preference Action, the Jewel lawsuits and in connection with objecting to the CB Richard

proof of claim.

THIRD CLAIM FOR RELIEF

(Recovery of Preferential Payments) (Against Greenberg)



181. During the ninety day period prior to December 28, 2008, Heller paid

Greenberg an amount of in excess of $1.48 million as compensation for attorneys’ fees

and costs billed by Greenberg.

182. The payments made by Heller to Greenberg were for the benefit of

Greenberg.

183. The payments made by Heller to Greenberg were on account of an

antecedent debt owed by Heller to Greenberg.

184. The payments made by Heller to Greenberg were made at a time in which

Heller was insolvent as that term is meant under 11 U.S.C. § 547(b).

185. As a result of being paid the aforementioned payments by Heller, Greenberg

received more than it would have received if:

(a) Heller were a debtor under Chapter 7 of Title 11 of the United States Code;

(b) The payments had not been made by Heller to Greenberg; and

(c) Greenberg received the same payment as other unsecured creditors as

provided for under Chapter 7.

186. Heller, as the liquidating Debtor, is entitled to avoid any such payments

made by Heller to Greenberg that exceed the hypothetical amount Greenberg would have

been paid had it not been paid and this was a case under Chapter 7 of Title 11 of the


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28


United States Code.

187. Under 11 U.S.C. §550, to the extent that the payments made to Greenberg

described above are avoided, Heller is entitled to recover from Greenberg the full amount

of any such avoided payments.

FOURTH CLAIM FOR RELIEF

(Disgorgement of Fees) (Against Greenberg)



189. On January 12, 2009, Greenberg filed with the Bankruptcy Court on behalf

of the Debtor an Application authorizing the employment of Greenberg as co-counsel for

the Debtor in the bankruptcy case (the “Application”). In support of the Application

Greenberg submitted an affidavit of one of its shareholder’s, Keith Shapiro (the “Shapiro

Affidavit”).

190. In the Application and the Shapiro Affidavit, Greenberg claimed that “since

approximately December 10, 2008, Greenberg Traurig has advised the Debtor in regards

to bankruptcy-related matters.” However, in fact Greenberg had performed bankruptcy-

related services for Heller for several months prior to December 10, 2008, including

bankruptcy consulting services. Included within this work was a memorandum dated

December 7, 2008, authored by Mr. Corwin and Mr. Annex, in which Greenberg

effectively recommended that Heller file for bankruptcy protection in order to avoid Bank

of America’s October 2, 2008 re-perfection of its lien in Heller’s assets with the filing of

the New Financing Statement. Further, as alleged in detail above, Heller had been

providing bankruptcy related services to Heller for several months prior December 10,

2008. Thus, the statement that Greenberg had not begun providing bankruptcy related

services to Heller until December 10, 2008 was not accurate. As such, Greenberg failed

to comply with Rule 2014 of the Federal Rules of Bankruptcy Procedure by failing to

fully and accurately disclose the nature of Greenberg’s relationship with the Debtor.


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28


191. In the Application and the Shapiro Affidavit, Greenberg also failed to

disclose that it had a serious conflict of interest with the Debtor in that at the time the

Debtor had potential claims against Greenberg for professional negligence. Specifically,

as a result of Greenberg’s failure to conduct a lien search either prior to the October 2,

2008 filing of the New Financing Statement by BOA, or the failure of Greenberg to take

any action when it became aware of the filing of the Termination Statement and New

Financing Statement in earlier October, 2008, Heller incurred significant damages as

described in detail above. Heller had potential claims against Greenberg for professional

negligence as a result of these damages. Greenberg was obligated to describe these

potential claims against it under 11 U.S.C. § 329 and Rule 2014. Had Greenberg disclosed

these potential claims to the Bankruptcy Court as it was required to do the Court could

have rejected Greenberg’s Application.

192. Greenberg was well aware at the time it filed the Application that Heller had

potential claims against Greenberg and as such it never should have acted as Heller’s

bankruptcy counsel. Further, Greenberg was well aware that it had a conflict with Heller

in that it was then representing BOA in other matters and could not represent the Debtor

in what would inevitably be a major aspect of the bankruptcy case, namely litigation

against BOA. Instead, Greenberg should have advised Heller to seek independent

bankruptcy counsel.

193. Nor did Greenberg ever disclose the actual conflict of interest between itself

and the Debtor due to the potential preference claims discussed above.

194. The Bankruptcy Court has the authority to disgorge fees paid to professional

persons under 11 U.S.C. § 329 and Rule 2014 for failure to fully and adequately disclose

the professional person’s relationship with a debtor, the scope of work performed on

behalf of a debtor, and any adverse interest the professional person has with a debtor.

Here, Greenberg failed to fully and adequately describe its relationship with Heller and

the potential claims Heller had against Greenberg. For these reasons the Court should

disgorge all fees paid to Greenberg by Heller during its entire representation of Heller


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28


during the year prior to the December 28, 2008 bankruptcy filing as well as any and all

fees paid post-petition.

PRAYER FOR RELIEF

WHEREFORE, Plaintiff prays that this Court enter judgment against Defendants as

follows:

1. As to the First Claim for Relief for Professional Negligence, Debtor is entitled

to:

(a) Judgment against Greenberg for damages in the amount to be determined at

trial;

(b) Prejudgment and post-judgment interest to the extent allowed by law;

(c) Reasonable attorneys’ fees and costs of suit to the extent allowed by law; and

(d) For such other and further relief as this Court deems just and appropriate.

2. As to the Second Claim for Relief for Attorneys Fees for the Tort of Another,

Debtor is entitled to:

(a) The amount of Heller’s attorneys’ fees and costs it incurred in connection with

defending the Warn Act Class Action, in connection with prosecuting the

Preference Action against the Banks, in connection with prosecuting the Jewel

cases against former Heller Shareholders and the law firms in which said

Shareholders took Heller unfinished business, and in connection with

objecting to CB Richard’s proof of claim.




3. As to the Third Claim for Relief for Recovery of Preferential Payments,

Debtor is entitled to:

(a) Judgment against Greenberg for amounts paid to Greenberg within ninety


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28


days prior to December 28, 2008, with said amount to be determined at trial;




4. As to the Fourth Claim for Relief for Disgorgement of Fees, Debtor is entitled

to:

(a) Judgment against Greenberg for amounts paid to Greenberg for professional

fees and costs within a year prior to December 28, 2008, as well as any fees

paid to Greenberg post-petition, with said amount to be determined at trial;




DATED: October 31, 2011 TREPEL GREENFIELD SULLIVAN & DRAA LLP By: /s/ Christopher D. Sullivan Christopher D. Sullivan Special Litigation Counsel for Liquidating Debtor, Heller Ehrman LLP


Heller_sues_gt Heller v Greenberg Traurig

Documents

Transcript of Heller_sues_gt Heller v Greenberg Traurig