What will happen to profits from Girardi Keese pending cases?

As the saga of Thomas V. Girardi and his firm continued to unfold and both were ordered into Chapter 7 bankruptcy last week, one big question persists for his unpaid creditors: What will happen to the firm's pending cases, which are widely believed to be its biggest asset?

Elissa D. Miller, a partner at SulmeyerKupetz APC who was appointed by the U.S. Trustee to handle Girardi Keese's finances, said in an interview last week that she and her team are working to move the pending cases elsewhere, but declined to provide specific details. Asked whether she expects Girardi Keese attorneys to continue working on these cases, Miller said, "We are still working things out."

"At this point we are looking out for the interests of the clients and the firm," she said.

Girardi and Girardi Keese are facing a host of lawsuits filed by creditors who allege the attorney and his firm owe them sums totaling millions of dollars. Court filings indicate that creditors hope to be repaid with the profits that could be generated by the firm's pending cases.

Andrew Goodman of Goodman Law Offices APC, the attorney who filed bankruptcy petitions on behalf of Girardi's creditors, said in court filings that in a single case where Girardi Keese represents more than 8,000 clients who allege they were exposed to a months-long leak from a natural gas storage facility, the firm has told creditors that the gross settlement amount is expected to total $1 billion. In re: Thomas Vincent Girardi, 20-BK21020 (C.D. Cal Bankruptcy Ct, filed Dec. 18, 2020); In re: Girardi Keese, 20-BK12022 (C.D. Cal Bankruptcy Ct, filed Dec. 18, 2020).

But if Girardi Keese attorneys continue to be involved in the pending cases, even once Miller moves those cases to a new firm, that could complicate Girardi Keese's claims to the profits, said Peter M. Gilhuly, a bankruptcy partner with Latham & Watkins LLP. Gilhuly is not involved in the bankruptcy petitions.

"The Girardi firm has worked on several contingency claims for quite a while, and you could see the argument that they ought to be entitled to" some of the profits from the pending cases, Gilhuly said. "The trustee may well want to claim that." Even if some Girardi Keese attorneys continue to work on the pending cases, the new firm to which the cases have been assigned could potentially argue Girardi Keese is not entitled to the profits, Gilhuly said.

A landmark bankruptcy decision, Jewel V. Boxer, 156 Cal. App 3d 171 (Cal. Ct. App. 1984), held that attorney fees generated by contingency matters that were pending at the time a law firm dissolves need to be shared "by the former partners according to their rights to fees in the former partnership."

But a recent case, Heller Ehrman LLP v. Davis Wright Tremaine LLP, 2018 DJDAR 2052 (March 5, 2018), somewhat troubled Jewel's precedent by ruling that a dissolved law firm has "no property interest in the profits generated by its former partners' work on hourly fee matters pending at the time of the firm's dissolution."

Although Heller applies to hourly matters, Gilhuly noted that the state Supreme Court explicitly declined to rule on whether its ruling also applies to contingency matters -- suggesting it is an open issue. There is a small possibility, Gilhuly said, that a new firm handling Girardi Keese's pending cases will cite Heller to argue it does not owe Girardi Keese its profits.

"I'm not aware of a large-ish California law firm failing that involved significant contingency fee matters, so given that the Heller Ehrman case is only 2.5 years old, this might be the first very significant law firm failure that will kind of test it," he said.