Looking for restitution
The former partners of bankrupt Cleveland law firm Arter & Hadden LLP knew the firm was insolvent two years prior to being shuttered in 2003, yet still improperly paid themselves $18.8 million from the firm’s coffers, a bankruptcy trustee has alleged in a complaint filed Sunday.
The complaint seeks restitution of $55 million from the partners and successive firms for “unwarranted capital distribution, improper expenditures, negligent financial reporting and depletion of assets.”
In addition, trustee Marc P. Gertz contends that the approximately 170 partners, along with their successor firms, failed to transfer back $32 million in case fees they had taken with them to their new firms, which opened in the same office space Arter & Hadden occupied. The new firms, Tucker, Ellis & West LLP and Bailey Cavalieri LLC, opened the day after Arter & Hadden shuttered in the former firm’s offices, with the same staff and furniture, the complaint alleges.
Also, the firm had about $3 million in questionable expenses, including an unnamed partners’ Arizona retreat that cost the firm $500,000 less than six months before Arter & Hadden closed.
A majority of the defendants named in the lawsuit work at Tucker Ellis and Bailey Cavalieri.
Tucker Ellis managing partner Bob Tucker is among the former Arter & Hadden officials named in the complaint. In a statement, he called the charges “inexplicable” and “based on mistaken conjecture, misinformation and misplaced cynicism.”
“The lawyers for the trustee have chosen to ignore the facts,” he said. “Their claims and accusations are simply wrong.”
In a phone interview, Mr. Tucker said the former partners of the firm did receive compensation for their work, but did not contribute to Arter & Hadden’s downfall.
“Those lawyers lost all of their investments in Arter & Hadden,” he said. “We lost all of our retirement benefits. There was no reason any Arter & Hadden partner would want the law firm to fail.”
While the suit says Tucker & Ellis had an office in Texas, Mr. Tucker said that was never the case.
“That’s an example of the misinformation the trustee has that pervades the entire complaint they have filed,” he said.
Irving B. Sugerman, an attorney representing Mr. Gertz, said the claims made in the filing will be substantiated in court. No hearing date has yet been scheduled. Mr. Sugerman said 36 former partners of Arter & Hadden had settled previously.
Officials at Bailey Cavalieri could not immediately be reached for comment Tuesday.
An attorney exodus undermined Arter & Hadden’s expansion drive in the 1990s, a campaign that saw the regional firm expand from 70 attorneys to 465 lawyers in California, Ohio and Washington, D.C. The departures left the firm with lagging revenue, unfunded pension obligations and other financial woes, according to the complaint.
In January 2004, a group of retirees pushed the firm into involuntary bankruptcy proceedings, saying they were owed unpaid retirement benefits.
The firm’s bankruptcy case is ongoing in the Northern District of Ohio, Eastern Division.
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