Howrey Seeks Voluntary Chapter 11; Wiley Rein Takes Lead

Howrey announced in a press release Monday that it has moved to convert its involuntary Chapter 7 case in San Francisco to a voluntary Chapter 11 filing.

"Howrey has concluded that Chapter 11 will give better order to the wind-down process and provide the clearest and quickest path to satisfying all of the firm's creditors," said H. Jason Gold, bankruptcy and restructuring chair at Wiley Rein in Washington, D.C., in the statement.

Gold, who was traveling on Tuesday and unavailable for comment, is now serving as lead counsel to Howrey, along with partners Dylan Trache and Valerie Morrison in McLean, Va.

Three petitioning creditors, including legal recruitment agency Matura Ferrington Staffing Services, sought to have a federal bankruptcy court in San Francisco declare Howrey insolvent in April over $36,609 in unpaid bills. Howrey, which announced in March it would dissolve after 55 years practicing law, responded by seeking to move the proceedings from San Francisco to bankruptcy court in either Virginia or Washington (the latter location is home to the now-defunct firm's sole remaining office).

Los Angeles–based Latham & Watkins restructuring partner Peter Gilhuly, who has been advising Howrey as dissolution process unfolds, told The Am Law Daily via e-mail that Wiley Rein has been serving as D.C. bankruptcy counsel to the firm. With Howrey's moving to shift the case to the D.C. area, he says, it made sense for Wiley Rein to take the lead on the matter and litigate the venue issue.

Gilhuly, who is being assisted on Howrey matters by Latham associate Kimberly Posin, says he will stay involved in the case "as requested by the client." Also advising Howrey in involuntary bankruptcy proceedings in San Francisco are Robert Franklin and Craig Prim from Cupertino, Calif.-based Murray & Murray. None of the three firms advising Howrey have filed billing statements with the bankruptcy court.

Former Howrey managing partner and CEO Robert Ruyak, now a member of the firm's five-member dissolution committee, stated in a declaration filed with the bankruptcy court on Monday that approximately five attorneys and 45 other staffers are working on the wind down out of an office in Washington.

Ruyak's declaration states that Howrey continues to represent clients in a number of ongoing matters. The Am Law Daily reported last month on Howrey's effort to secure a legal services contract worth at least $10.5 million for the North Country Power Authority in upstate New York.

"Howrey's principal assets include accounts receivable and work in process in connection with client matters, including hourly, contingent and other fee arrangements," Ruyak says in court papers.

Ruyak's declaration also underscores Howrey's argument that "San Francisco is not the proper forum for this bankruptcy case" and says the defunct firm intends to press the court to have the bankruptcy case moved from California to the Washington area. The declaration lists Howrey's current assets as follows:

-- $3.6 million in unrestricted cash

-- $63 million in accounts receivable and work in process

-- $8.2 million in capital from debtor's errors and omissions insurers

-- contingency fees of uncertain value

-- furniture fixtures and other equipment of uncertain value

-- other personal property, including artwork, of uncertain value

Howrey's largest liability is $49 million to Citibank, a secured lender that at the time of the firm's dissolution three months ago was owed as much as $75 million. Paul, Weiss, Rifkind, Wharton & Garrison bankruptcy partner Kelley Cornish and counsel Diane Meyers in New York are representing Citi in connection with the Howrey bankruptcy, along with Lawrence Peitzman of L.A.'s Peitzman, Weg & Kempinsky. (Click here for a copy of Citi's loan agreement with Howrey.)

In his declaration, Ruyak also says the firm owes $8 million in accounts payable, another $8.4 million in pension and deferred compensation claims covering former employees' accrued vacation time and health insurance obligations, and approximately $12.7 million in unpaid rent. The firm must also deal with disputed claims over alleged violations of the WARN Act, according to Ruyak's declaration.

Ruyak states in the declararation that Howrey continues to pay its current employees on a bimonthly basis and reimburse them for "expenses incurred in the ordinary course of business." Ruyak says in court papers that the firm owes $130,025 for wages and salaries--including employer taxes--for the period between June 1 and June 3.

Howrey has vacated all "relevant premises for each of the non-residential real property leases" that once represented the firm's 16 offices, Ruyak states in court records. (Howrey also filed exhibits detailing its employee wages, bank accounts, cash collateral budget, cash management system, office leases, and subleases.)

The Am Law Daily noted last month that Howrey's old office space in New York at 601 Lexington Avenue had been rented to OrbiMed Advisors, a health care-focused private equity firm that took 30,000 square feet of space covering the building's entire 54th floor, according to Real Estate Weekly.

A hearing on Howrey's venue motion is scheduled for June 29 in San Francisco before U.S. bankruptcy judge Dennis Montali.

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