In a filing Friday, Brobeck’s liquidation committee asked the U.S. Bankruptcy Court in San Francisco to reject the $3.75 million settlement agreement proposed earlier this month by Brobeck’s bankruptcy trustee, Ronald Greenspan.
The committee wants the court to wait for a hearing on the issue — or to put the claim against Clifford Chance out for bid, to see if others would finance its prosecution.
“The trustee’s conduct with respect to the lawsuit against Clifford Chance and [former Brobeck Chairman] Tower Snow has bordered on the irresponsible,” the committee says in its filing. “By any reasonable assessment, Clifford Chance and Tower Snow precipitated the destruction of Brobeck, Phleger & Harrison.
“In the trustee’s warped view, however, they had nothing to do with the firm’s demise, need not be called to account for their actions, and instead are invited to join with the trustee in an unholy alliance to inflict further damage on the partners who had the courage (or poor judgment) to stay with the firm to the end,” the committee continues.
Brobeck announced that it would dissolve in January 2003. In September, its creditors successfully petitioned to put the firm in involuntary Chapter 7 bankruptcy. Shortly before the bankruptcy filing, Brobeck’s liquidation committee formed a liquidation trust, which sued Clifford Chance and Snow, alleging that they contributed to the collapse of the firm and seeking a minimum of $100 million in damages.
Earlier this month, Trustee Greenspan proposed that Clifford Chance pay $3.75 million to settle claims related to Brobeck’s demise. He concluded that Brobeck was likely already insolvent when Snow and 16 other partners defected to Clifford Chance in 2002 and thus Clifford Chance and Snow could probably not be held accountable for the firm’s collapse.
Greenspan also filed a complaint against the liquidation committee for assigning rights to the Clifford Chance litigation to a liquidation trust. Greenspan said this arrangement “favored” the individuals comprising the trust at the expense of other creditors. He suggested directing $350,000 of the Clifford Chance settlement money to help pay for a suit against the committee.
In its filing Friday, the liquidation committee asked the bankruptcy court to stay this complaint, prohibit Greenspan from making disparaging public comments about the lawsuit against Clifford Chance and Snow, and require the trustee to put materials relating to the suit under seal.
The committee notes that remaining creditor claims against the Brobeck estate could exceed $100 million. It says there are only two possible sources to pay these claims: either from Clifford Chance and Snow, or from former Brobeck partners, based upon claims that distributions they received were “preferences or fraudulent conveyances.” The committee expressed doubt about collecting from partners.