Thelen Trustee Sues Ex-Equity Partner Over Excess Pay

March 20, 2013 – In The News

Thelen LLP’s Chapter 7 trustee on Tuesday sued former equity partner James R. Bridges, saying he was overpaid in 2008, while the firm was insolvent, and has failed to return the funds to the fallen firm’s estate.

Trustee Yann Geron, a bankruptcy partner at Fox Rothschild LLP, claims Bridges received $8,835 more than he should have in 2008 and is now demanding that those funds be returned to the estate.

Equity partners who took home semimonthly draws higher than what they were entitled to under the firm’s partnership agreements are liable to the firm for that excess amount, according to the suit. The draws were applied against each partner’s share of distributable profits for that year or their guaranteed salary. Full equity partners received a minimum of $21,000 per month.

“Defendant breached the contract by failing to repay those amounts to the debtor, which represent the overcompensation paid to the defendant,” Geron said in the complaint.

Though the firm did not dissolve until October 2008 and it did not file for bankruptcy until September 2009, Thelen was insolvent by the end of 2006, according to the complaint. A balance sheet for Dec. 31, 2006, showed the firm’s liabilities exceeded its assets by approximately $32.5 million, the suit said.

Still, Thelen occasionally issued loans and gave advances to its partners for various reasons during the next couple of years, including the payment of health insurance and other personal expenses, according to the complaint. The firm also made quarterly estimated state, federal and foreign tax payments on behalf of certain partners, the suit said.

These expenses, among others, reflected that by the end of October 2008, the firm was owed more than $1 million from its partners, Geron said.

Bridges could not be immediately reached for comment Wednesday.

Earlier this month, a New York federal judge approved settlements between Geron and three former partners who agreed to repay compensation from business completed after the law firm dissolved in 2008.

U.S. Bankruptcy Judge Allan L. Gropper signed off on the clawback deal between Geron and former partners Christopher D. Baker, Brian R. Gallagher and Darlene H. Smith. The partners each agreed to pay 68 percent of the claims asserted against them. In exchange, they will be released from all further claims by Thelen that relate to the firm.

Smith will pay $9,154, while Baker will pay $3,004. The amount of Gallagher’s settlement was not available.

Geron’s clawback suit against nine former partners who decamped to Robinson & Cole LLP is currently pending before the federal district court in Manhattan. The parties are waiting on two pending Second Circuit cases over the still-evolving unfinished business doctrine.

Thelen, which had offices in New York and San Francisco and once employed 600 attorneys, began to fall apart after an ill-fated merger in December 2006 with Brown Raysman Millstein Felder & Steiner LLP.

The firm voted to dissolve in October 2008 after the departure of several partners, as the firm failed to cobble together another merger. It filed for Chapter 7 in September 2009.

Geron represents himself. He is also represented by Daniel A. Schnapp of Fox Rothschild LLP.

Counsel information for Bridges was not immediately available.

The adversary proceeding is Geron v. Bridges, case No. 1:13-ap-01308, in the U.S. Bankruptcy Court for the Southern District of New York. The bankruptcy proceeding is In re: Thelen LLP, case No. 1:09-bk-15631, in the same court.