|  | | 2007 News and Press Releases | | |
HEADLINE NEWS:
Lawyers' New Nightmare: Bankruptcy Trustee Suits
Anthony Lin
New York Law Journal. November 26, 2007
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EXCERPT: Though they garner fewer headlines, such bankruptcy trustee suits have largely replaced shareholder class actions in the nightmares of law firm managing partners. These suits are often better-funded, better-lawyered and, with the U.S. Supreme Court likely to further limit third-party liability in securities fraud cases, they may soon have a distinct legal edge as well. 'These are the lawsuits firms are most worried about now,' said Michael Carlinsky, a partner at Quinn Emanuel Urquhart Oliver & Hedges who is representing Marc S. Kirschner, the bankruptcy trustee of failed commodities brokerage Refco Inc. in a $2 billion suit against the company's former lawyers at Mayer, Brown, Rowe & Maw, among others. Indeed, the journey of Enron Corp. law firm Vinson & Elkins illustrates the shifting landscape of law firm liability. The Houston-based firm vigorously fought the high-profile securities fraud suit brought against it by former class action king William S. Lerach, getting off scot-free with a voluntary dismissal in January 2007. But last year Vinson & Elkins quietly paid $30 million to Enron's bankruptcy trustee, who never formally filed suit against the firm. Law Firms as Targets While securities class actions are brought on behalf of shareholders, bankruptcy trustee suits are brought for the benefit of creditors, the biggest of which are usually banks and investment funds. These creditors have grown more aggressive about recouping losses, lawyers say, with trustees acting accordingly. 'In the past, there was not a strong inclination on the part of trustees to sue lawyers and accountants,' said Stephen F. Caley, a bankruptcy partner at Kelley Drye & Warren. 'Over time that broke down and now they go after everyone.' Denis F. Cronin, a bankruptcy litigator who represented Vinson & Elkins before the Enron bankruptcy trustee and recently joined the firm himself as a New York partner, declined to discuss that case, but agreed that bankruptcy litigation has become a bigger concern for law firms. He said distressed-debt hedge funds, which buy bankruptcy claims as an investment, bore a large part of the blame. 'They'll fight for every two or three cents,' said Mr. Cronin. |
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