The US legal market’s most recent high-profile bankruptcies got nasty last week following audacious legal proceedings from former partners of Testa Hurwitz & Thibeault and Altheimer & Gray.
Ten former Altheimer partners had a call for a criminal investigation rejected by a bankruptcy judge, while a group of eight former Testa partners tried to force the partnership to file for Chapter 11 bankruptcy.
The Altheimer partners objected to the court’s dissolution plan and filed a petition that asked whether the firm’s management had misled the partnership with questionable accounting.
US bankruptcy judge Carol Doyle dismissed their objections but proceeded with a plan to make the nine-lawyer executive committee pay a management premium. This amounts to 45 per cent of the debt, a total of $6.78m (£3.6m), or $750,000 (£392,700) per person, compared with an average of $165,500 (£86,700) for each of the 58 remaining equity partners.
The eight ex-Testa partners, who left between 2001 and 2004, are seeking to recover capital contributions.
Involuntary Chapter 11 petitions are rarely successful, but the petition was filed in the hope of getting a better deal in court than otherwise. For example, in a bankruptcy court the firm’s former landlord could only ask for a maximum of one year’s rent.
The firm is calling in all its debts to pay its creditors, including the eight former partners. It has not paid any redundancy payments to staff.