Bankruptcy
Baker & McKenzie to pay $6 million in settlement over Coudert business
Baker & McKenzie has agreed to pay $6.65 million to compensate the bankruptcy estate of Coudert Brothers for profits Baker earned from unfinished business that partners took with them when they left the defunct Coudert firm.
The settlement resolves a lawsuit brought in April 2009 by the liquidation plan administrator for Coudert's estate seeking to recover fees that allegedly should have gone to Coudert, which dissolved nearly five years ago.
Baker also will forfeit most of its interest in an estimated $17 million in contingency fees for litigation former Coudert partners were handling involving coal export excise taxes. Baker & McKenzie had already collected roughly $7 million of those fees, said William Brandt Jr., the president of Development Specialists Inc., which is administering the Coudert estate's plan of liquidation. But three of the coal companies Coudert and Baker represented have refused to pay the contingency fee, Brandt said. Litigation against those companies is now likely, he added.
"Do I think there's $10 million left in the pot? The answer is yes," he said.
A hearing on the settlement agreement, which is subject to approval by Southern District Bankruptcy Court Judge Robert D. Drain, is scheduled for Aug. 19. The agreement is conditioned on approval of a separate settlement with Steven Becker, a former Coudert partner now at Baker who has agreed to cooperate in helping recover the contingency fees.
Founded in 1853, Coudert Brothers at its peak was one of the largest law firms in the world, with more than 600 lawyers in 15 countries and 28 offices. Partners voted to dissolve the firm in August 2005. Baker & McKenzie that September acquired most of Coudert's New York office, which consisted of 70 lawyers, including about 25 partners.
Coudert filed for Chapter 11 in September 2006, In re Coudert Brothers LLP, 06-12226. The Southern District Bankruptcy Court approved its liquidation plan in August 2008.
Coudert's plan administrator subsequently launched lawsuits against several law firms that in the wake of the dissolution hired large groups of the fallen giant's partners and acquired offices. Among those suits were three filed in April 2009 against Baker and two other firms, DLA Piper and Dechert. The suits claimed Coudert did not give up its interest in unfinished business former partners took with them and now had to hand over fees earned from former Coudert clients. The plan administrator also accused the firms of buying Coudert's accounts receivable at less than face value.
The firms generally denied the accusations and argued that Coudert had no right to the money. The suits against DLA and Dechert remain pending.
The $6.65 million payment will satisfy claims for fees the estate says Baker & McKenzie improperly earned.
Of that amount, $1.65 million is from the coal cases. Baker is reserving the right to $1.85 million from the net recovery in those cases. Baker & McKenzie agreed it will provide information relating to collecting those fees.
The settlement also allows the plan administrator to remain on the fourth floor of Baker's New York office until the end of the year. Baker will waive all of the administrator's unpaid rent and future rent obligations. Baker will withdraw a proof of claim it had filed in Coudert's bankruptcy case.
The biggest windfall for the bankruptcy estate could be the contingency fees, though, which stem from work by Becker, who represented a number of coal companies before the Internal Revenue Service and the U.S. Court of Federal Claims over the constitutionality of the coal export federal excise tax.
The potential for a recovery had seemed in doubt after the U.S. Supreme Court in April 2008 reversed an earlier Federal Circuit ruling that would have allowed Coudert's former clients -- Clintwood Elkhorn Mining Co., Gatliff Coal Co. and Premier Elkhorn Coal Co. -- to recover a refund and interest from what they claimed was an unconstitutional tax.
Baker & McKenzie turned to Congress to change that, according to bankruptcy briefs and U.S. Senate lobbying records. In October 2008, when Congress passed the legislation to create the $700 billion Troubled Asset Relief Program, a provision allowed the law firm's coal clients to file for a refund on the excise taxes going back to 1990, according to a July 2009 motion in the Coudert case.
The settlement follows a setback two weeks ago in a separate suit by retired Coudert partners, who had sued Baker & McKenzie; Orrick Herrington & Sutcliffe; DLA Piper; and Dechert to have those firms held as the successors to Coudert and to make them responsible for paying their pensions. Coudert's plan administrator joined as co-plaintiff in that case. In a bench ruling filed on July 15, Judge Drain dismissed the case.
David J. Adler, a partner at McCarter & English, represented the plan administrator, Development Specialists Inc. Brian Trust at Mayer Brown represented Baker & McKenzie.
(Published by Law.com – August 2, 2010)