Ex-Howrey Partners Disgruntled With $4.2 Million Settlement

It’s often said in legal circles that the best settlements leave both sides equally unhappy.

But a deal reached this week requiring former partners to contribute $4.2 million to Howrey LLP’s bankruptcy estate has one side cheering jubilantly and the other side licking its wounds.

“I’m feeling pretty good about this,” Howrey trustee Allan Diamond told Bankruptcy Beat this week. Mr. Diamond, who is in charge of tracking down money for the defunct law firm’s creditors, said the settlement will be used as a blueprint for future Howrey settlements.

Meanwhile, the 60 former partners being asked to return between $21,000 and $192,000 of their onetime Howrey earnings are doing a fair share of grousing.

“I think it’s ridiculous that—we’ve already forfeited all of our capital….For the trustee to ask for more, it just doesn’t seem right,” said Washington, D.C., attorney Carmine Zarlenga, referring to the personal financial contributions he and other equity partners lost when Howrey dissolved in March 2011. “But the cost of fighting it is high. It’s dragged on, and it’s better to have it over with.”

Court papers show that Mr. Zarlenga, who worked at Howrey for his entire career but moved to Mayer Brown LLP upon Howrey’s collapse, is chipping in more than $84,000 to the settlement. (See the list of all the participating partners and the amounts they owe here, here, here and here.)

Houston attorney Floyd Nation, who joined more than 40 Howrey lawyers in a move to Winston & Strawn in the weeks before the firm went under, said the settling partners teamed up a few years ago when they realized the trustee would be pursuing claims against them.

“We tried to get as many people as we could in order to make it economical for each one of us,” Mr. Nation said. Once organized, the group hired David Stern of Klee, Tuchin, Bogdanoff & Stern LLP in Los Angeles to represent them as a united front. More than a year of negotiations and one mediation later, and the compromise was finally made.

Even as they lend their support to the deal, the settling partners made it clear to U.S. Bankruptcy Judge Dennis Montali in San Francisco, who must bless the settlement, that they aren’t happy. In a filing made Monday, the partners say that while they “do not agree with trustee’s and the [creditor] committee’s assessment of the claims against former Howrey partners, certain facts going to the merits of those claims, or the trustee’s ability to successfully pursue those claims,” they request that the settlement be approved.

“It’s mixed emotions,” said Mr. Nation, who is contributing just over $71,000. “It’s kind of a bad thing to have it resolved this way….I’m glad to get it behind me and just move on.”

And although Mr. Nation said this should be the end of the Howrey chapter for him, he told Bankruptcy Beat to “never say never. It seems these bankruptcies last forever and ever.”

Write to Sara Randazzo at [email protected]. Follow her on Twitter at @sara_randazzo.