Howrey Becomes Third Bankrupt Firm Denied Claw Backs
The 31-year-old rule that allows bankrupt firms to collect fees on work started before they collapsed, and finished by other firms - a process called "claw backs" - continues to be put under question now that the third ruling against it has happened in Washington. Howrey LLP cannot collect on work that has been taken over by 8 competitors since its 2011 bankruptcy.
On June 3, federal judge James Donato ruled against claw backs, with the court saying, "When a client decides to discharge a firm and hire a competing firm, does the old firm have a right to profit from the new firm's work?"
Answering its own question, it said, "The limited circumstance where the matters are performed pursuant to the same retention agreements by firms that came into existence directly out of the dissolution of the former firm." Otherwise, "the dissolved firm does not own" rights to fees.
Firms Hogan Lovells US LLP, Jones Day, Kasowitz, Benson, Torres & Friedman LLP, Neal, Gerber & Eisenberg LLP, Perkins Coie LLP, Pillsbury Winthrop Shaw Pittman LLP, Seyfarth Shaw LLP, and Sheppard Mullin Richter & Hampton LLP are among those who, per this ruling, are off the hook, and don't have to endure claw back remuneration, paying fees to defunct Howrey, in the interest of investors hoping to make the most of a bad case.
Summary: Howrey LLP was denied claw backs, so it cannot collect on work that has been taken over by 8 competitors since its 2011 bankruptcy.