Lawsuit Now Looms For THT –

When Testa, Hurwitz & Thibeault (THT) voted to disband last month, it was a model of efficiency. In particular, the firm said it had enough cash to reimburse all creditors, which would allow it to avoid the messy litigation that had marred previous law firm implosions (such as that of Brobeck, Phleger & Harrison). For all appearances, this was going to be a Smooth liquidation, no need for opposing counsel.

All of that recently went up in smoke, however, as eight former THT partners filed an involuntary Chapter 11 bankruptcy petition against THT. Each petitioner left THT between February 2001 and October 2004, which predates last December’s major exodus and the partnership’s consequential dissolution. If accepted by a U.S. Bankruptcy Court judge in Massachusetts, the petition would thrust THT’s liquidation proceedings into the public sphere, which could be both embarrassing and costly. “I would have never thought that it would be these guys who’d end up causing so much trouble,” said a former THT associate.

When each of the petitioners left, they agreed to five-year deferred payment plans for any money remaining in their capital accounts. Once THT removed its shingle from the doorway, however, some ex-partners began to worry that the capital account solvency could be in jeopardy, because they would be considered junior to other creditors such as landlords or vendors.

One such man was Edwin Miller, who joined Sullivan & Worcester last November. He has declined to comment on the case, but is said to have retained counsel, and then began soliciting other ex-partners who might have interest in filing a claim against THT. Seven signed on, including: Tom Beaudoin, David Davenport, Leslie Davis, Eric Deutsch, Gordon Hayes, John Hession and Richard Sanders.

“They basically were asking who was going to get what, and when,” explained a former partner who declined to join the group. “I felt that we should just line up behind George Thibeault – who is in charge of the liquidation – because he is a fair and capable person who is focused on maximizing returns.”

John Monaghan, a Holland & Knight partner who is representing Miller and company, says that Thibeault’s personal qualities are not at issue. What is, he says, is THT’s ability to pay. “We’ve seen the numbers,” he says, when asked why the partners felt compelled to file their petition.

Others close to the case suggest that the main number at issue could be a distribution made to “remaining” THT partners just prior to the dissolution. The payment was supposedly made to help partners deal with firm-related tax issues, as THT was a partnership rather than a corporation (a “an allocation for the purpose of disbursement”). Certain ex-partners, however, feel that the money was effectively used as a parting gift, and effectively helped such partners cut in front of other creditors.

It is worth noting, however, that almost everyone involved acknowledges that the remaining partners would be worse off if THT were ultimately unable to pay all its creditors, as their remaining capital accounts are particularly large. Petitioner Richard Sanders, for example, is owed just under $20,000, while some of the remaining THT partners are owed at least $1 million. The largest remaining capital account for a petitioner belongs to Eric Deutsche, with $504,220 plus interest.

THT will only say that it plans to “vigorously contest” the petition, and was apparently blindsided by the filing. Not only was it done without a preceding request for arbitration, but the firm also believes that any bankruptcy finding could cause all onetime THT partners to receive less money, rather than more.

Why? Because bankruptcy would automatically accelerate senior creditor demands, and the very prospect could cause others to scrap preliminary compromises. If nothing else, it certainly disrupts the ongoing liquidation process.

“If I was their counsel, I would have reminded them that they are the junior creditors here, and that they should wait their turn and hope for the best,” said one former THT attorney. “But, now I’m kind of curious to see how it all plays out.”

THT will be represented on the petition by law firm Hanify & King.