Ex-Heller employees sue former partners

A group of former Heller Ehrman employees have sued at least 179 of the firm's ex-partners, including chairman Matthew Larrabee, demanding they hand over $32m (£22m) for the largest group of creditors in the defunct firm's bankruptcy.

The suit targets all partners who were at the firm on 11 August 2008, when 60 days' notice should have been given to the first employees laid off on 10 October, said Craig Collins of Los Angeles litigation boutique Blum Collins.

Heller's former shareholders prefer not to be called partners. They were technically shareholder employees of the professional corporations that composed the limited liability partnership (LLP), a factor which could lead to difficulties in proving liability for the LLP's employee wages.

Blum Collins' name partner Steven Blum called that an "overly nuanced legalism" that would not hold up in court.

"You have elaborate layers of curtains that the partners are hiding behind, and this lawsuit asks the court to open the curtains and reveal the Wizards of Oz," said Blum, a former Heller associate.

"We think in this case, where the shareholders and the PCs and the LLP were all one integrated enterprise, that the shareholders can be liable," Collins added.

It is unclear whether the partners can be sued in bankruptcy court since they are not bankrupt. The professional corporations that made up Heller LLP are also named in the suit, but are also not bankrupt. Collins argues the suit is allowed under bankruptcy rules because the outcome will have an economic impact on the Heller estate and its rights and liabilities.

Heller's 800-plus former employees say they are owed accrued vacation and severance as guaranteed by the firm's policies, the 60-day notice required by federal and California WARN Acts, and penalties for failure to give that notice. The suit also alleges violations of New York, Washington state and Washington DC labour laws.

The suit, which proposes a plaintiffs class of the former employees, also attempts to create a defendant class. It names Larrabee and members of the executive, policy and compensation and dissolution committees "individually and on behalf of those similarly situated."

The action against the partners comes a day after Heller's creditors sued Bank of America, saying its "clerical error" in an August 2007 Uniform Commercial Code filing would have misled other "hypothetical" secured creditors.

They want the bank to return $58m (£40m) paid to it since the firm dissolved.

Bank of America was thought to be Heller's only secured creditor, but its last UCC filing before the US firm's September dissolution vote terminated its security interest in Heller.

Shortly after the dissolution, the bank attempted to correct the statement, calling the 2007 filing a "clerical error." The creditors say these actions fall within a 90-day "preference" period during which any actions that affect a debtor's financial status can be thrown out by the bankruptcy court.

This article first appeared in The Recorder, Legal Week's US sister title.

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