Jason M. Rudd, Esq. (pro hac vice) Counsel for Allan B ... · h. Analyzing, preparing and conducting asset sales, including artwork, office furniture, and equipment; i. Analyzing

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DIAMOND MCCARTHY LLP Jason M. Rudd, Esq. (pro hac vice) Christopher R. Murray, Esq. (pro hac vice) 909 Fannin, 15th Floor Houston, TX 77010 Telephone: 713-333-5100 Facsimile: 713-333-5199 [email protected] [email protected] Counsel for Allan B. Diamond, Chapter 11 Trustee for Howrey LLP KORNFIELD, NYBERG, BENDES & KUHNER, P.C. Eric A. Nyberg, Esq. (Bar No. 131105) Chris D. Kuhner, Esq. (Bar No. 173291) 1970 Broadway, Suite 225 Oakland, CA 94612 Telephone: 510-763-1000 Facsimile: 510-273-8669 [email protected] [email protected] Local Counsel for Allan B. Diamond, Chapter 11 Trustee for Howrey LLP

UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA

In re HOWREY LLP, Debtor.

Case No. 11-31376 DM Chapter 11 SECOND INTERIM REPORT OF CHAPTER 11 TRUSTEE ALLAN B. DIAMOND

Case: 11-31376 Doc# 978 Filed: 01/09/13 Entered: 01/09/13 09:24:08 Page 1 of 41

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Table of Contents

I. Introduction ............................................................................................................................ 4

II. Background ............................................................................................................................ 6

III. Estate Administration ............................................................................................................. 7

A. Trustee’s Retention of Professionals .................................................................................. 8

B. Compensation of the Trustee and His Professionals ........................................................... 8

IV. Business Operations ............................................................................................................... 9

A. Wind-Down Operations ...................................................................................................... 9

1. Staff Reductions and Management of Critical Staff ....................................................... 9

2. Closing Facilities and Cutting Costs ............................................................................. 10

3. Winding Down the Debtor’s Pension Plans .................................................................. 10

4. Downsizing Information Technology Infrastructure .................................................... 11

5. Tax Matters ................................................................................................................... 11

6. Cash Collateral Use and Negotiations with Citibank, N.A. .......................................... 12

B. Disposition of Records of Former Howrey Clients .......................................................... 12

C. Foreign Operations ............................................................................................................ 14

1. United Kingdom............................................................................................................ 14

2. Belgium ......................................................................................................................... 15

3. Germany ........................................................................................................................ 15

V. Asset Management ............................................................................................................... 16

A. Asset Recovery ................................................................................................................. 16

1. Accounts Receivable ..................................................................................................... 16

2. Contingency Fee Interests ............................................................................................. 17


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3. Equipment and Other Assets ......................................................................................... 23

B. Claims Investigation, Analysis and Recovery .................................................................. 23

1. Preference and Fraudulent Transfer Litigation ............................................................. 23

2. “Unfinished Business” Claims ...................................................................................... 24

3. Derivative Authority for the Committee to Prosecute Certain Conflict Firms and

Former Howrey Partners ....................................................................................................... 25

4. Other Potential Claims and Litigation .......................................................................... 27

C. Howrey Claims LLC ......................................................................................................... 28

D. Asset Disposition .............................................................................................................. 28

1. Office Furniture ............................................................................................................ 29

2. Art Collection Auctions ................................................................................................ 29

E. Defense of Claims ............................................................................................................. 30

1. Proofs of Claim ............................................................................................................. 30

2. SAP Motion for Administrative Expense Claim .......................................................... 30

3. The WARN Act and Warner Investments Adversaries ................................................ 31

VI. Recovery to Creditors and a Chapter 11 Plan of Liquidation .............................................. 32


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I. INTRODUCTION

Allan B. Diamond, the chapter 11 trustee (the “Trustee”) of the estate of Howrey LLP

(“Debtor” or “Howrey”) makes this Second Interim Report on the progress and status of the case.

Since the Trustee filed his First Interim Report on August 20, 2012 (Docket No. 765), the

Trustee, with his team of professionals and the Howrey staff, have continued to resolve the

numerous complex issues and successfully advanced this bankruptcy case by:

a. Negotiating extensions of the Debtor’s authority to use cash collateral;

b. Assessing, asserting and protecting the Debtor’s interests in various contingency fee cases, including collecting over $6.1 million in recoveries;

c. Aggressively collecting account receivables, resulting in approximately $6 million in recoveries to date;

d. Downsizing and relocating the Debtor’s Washington, D.C. office space and staffing to conserve estate resources and improve efficiency;

e. Finalizing the wind-down of the Debtor’s three pension plans;

f. Advancing the court-approved procedures for the disposition of voluminous physical and electronic client files;

g. Winding down the Debtor’s information technology infrastructure while preserving all critical data;

h. Analyzing, preparing and conducting asset sales, including artwork, office furniture, and equipment;

i. Analyzing extensive document and testimonial discovery from numerous parties to advance the prosecution and potential settlement of litigation claims against myriad third-parties, as well as conducting appropriate legal research, analysis and preparations for the commencement of legal proceedings that seek monetary recoveries;

j. Conducting extensive negotiations with numerous potential third party defendants that the Trustee believes are soon likely to result in significant settlements and recoveries for the Estate;

k. Seeking to enforce the automatic stay to ensure that individual creditors are not able to usurp the Trustee’s ability to reach complete resolution of claims against third parties in order to maximize the value of those claims for this estate;


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l. An objection to the administrative expense claims of SAP America, Inc. and investigating affirmative estate clams against SAP America, Inc.; and

m. Continuing to resolve numerous daily issues that arise in bankruptcy cases of similar complexity.

As detailed in this Second Interim Report, much has been accomplished in the five

months since the Trustee’s last report. The Trustee and his team continue to aggressively pursue

and monetize the Debtor’s assets, while striving to efficiently administer the estate, to provide

the maximum recovery for all the Debtor’s creditors.

As most administrative issues have been successfully resolved, the Trustee’s efforts are

currently focused on advancing the collection and monetization of the potential litigation claims

that represent the estate’s most valuable assets. It is anticipated that most of the value available

to creditors will come from the potential claims and causes of action that the Trustee is currently

advancing arising from: (i) Howrey’s interest in pending contingency fee cases; (ii) claims

against former partners who received distributions at a time when the firm was insolvent; (iii)

claims against former partners that departed with “unfinished business” and their successor law

firms that have retained profits belonging to the Howrey estate; and (iv) other potential litigation

claims against various third-parties. The chapter 11 process allows the Trustee the flexibility to

pursue the full-range of available options to recover and monetize these litigation assets as well

as resolve disputes with Howrey creditors and to craft an appropriate plan of liquidation.

The Trustee continues his commitment to protect the interests of former clients by,

among other things, ensuring that client records and files are preserved, administered and

ultimately disposed of in a way that provides notice and an opportunity to retrieve their files to

former clients while safeguarding the confidentiality of client information. Pursuant to the

procedures approved by this Bankruptcy Court, the chapter 11 process is allowing the Trustee to


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direct resources to ensure this critical job is handled consistently with the highest standards of

professional ethics.

This Second Interim Report is offered as a supplement and update to the Trustee’s First

Interim Report, monthly operating reports, status hearings and other filings with the Bankruptcy

Court. The Trustee will continue to file interim reports as this case advances and material

developments occur.

II. BACKGROUND

Prior to bankruptcy, Howrey was one of the largest law firms in the world. Founded in

1956, the firm grew to employ over 750 lawyers at offices in Washington, D.C., California,

Illinois, New York, Texas, Utah, Virginia and several foreign countries, including Belgium,

France, Germany, the Netherlands, Spain, Taiwan and the United Kingdom.

Howrey’s profitability suffered in the wake of the worldwide financial crisis and partners

began abandoning the firm. By March 2011, Howrey’s partnership formally voted to dissolve

the law firm. A Dissolution Committee was appointed to direct Howrey’s wind-down and

liquidation.

On April 11, 2011 (the “Petition Date”), three of Howrey’s creditors filed an involuntary

petition for bankruptcy under chapter 7 of the Bankruptcy Code in the United States Bankruptcy

Court for the Northern District of California, San Francisco Division (the “Bankruptcy Court”).

On June 7, 2011, the case was converted to a voluntary chapter 11 proceeding under the United

States Bankruptcy Code, thus allowing Howrey to continue as a debtor-in-possession. The

Dissolution Committee continued to direct the bankruptcy case on Howrey’s behalf until

Howrey’s secured lender, Citibank N.A., filed a motion to appoint a chapter 11 trustee to take

over administration of the case.


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On October 7, 2011, the United States Trustee’s Office of the Department of Justice

appointed Allan B. Diamond to serve as the chapter 11 trustee. On October 12, 2011, the

Bankruptcy Court approved that appointment. Immediately upon appointment, the Trustee

began to handle the affairs of the Howrey bankruptcy estate. The Trustee’s First Interim Report

detailed the Trustee’s efforts from his appointment through August 20, 2012. This Second

Interim Report describes the advancements since the filing of the First Interim Report. These

efforts are discussed below in the following groupings:

A. Estate Administration concerns the bankruptcy administrative aspects of the case, including selection and retention of professionals, review and analysis of all professional fee applications and all dealings with the Bankruptcy Court generally.

B. Business Operations refers to winding down Howrey’s business operations, including the (i) maintenance, assembly, protection, return, disposition and handling of all client and law firm records, files and data, (ii) closing Howrey’s worldwide offices and coordinating with court appointed officials from foreign countries, (iii) managing and completing the processes associated with all necessary tax returns, pension, healthcare and other insurance obligations, (iv) reducing and winding down all Howrey operational costs, including information technology systems, data centers, personnel, facilities, furniture, equipment, art work and other assets, and (v) managing Howrey’s wind-down staff.

C. Asset Management includes investigation, recovery and monetization of assets of the estate, including the prosecution, settlement and resolution of potential claims and causes of actions against former partners and third-parties, as well as liquidation, sale and disposition of assets.

D. Claims Administration and Litigation Defense encompasses handling and defending all types of claims against the estate, including WARN Act, professional liability, contract and other potential creditor claims.

III. ESTATE ADMINISTRATION

Upon his appointment, the Trustee began administering the Howrey estate. Given the

complexity of winding down an international law firm with thousands of former clients and

employees, the Trustee has been engaged in the efforts described below.


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A. Trustee’s Retention of Professionals

As detailed in the First Interim Report, the Trustee has carefully selected and successfully

secured Bankruptcy Court authority to retain legal, financial, accounting and other professionals,

including:

Diamond McCarthy LLP (“Diamond McCarthy”) to serve as general bankruptcy counsel.

Kornfield, Nyberg, Bendes & Kuhner, P.C. as local California counsel. Development Specialists, Inc. (“DSI”) as financial advisors, shared jointly with

the Official Committee of Unsecured Creditors (the “Committee”) to minimize costs to the Estate.

The Trustee has also retained specialized professionals in a number of areas, including:

The Adler Law Firm as special counsel for collection of Howrey’s prepetition accounts receivable.

On-Site Associates, LLC, an experienced accounts receivable collection agent for law firms.

The Eversheds law firm in the United Kingdom to reinstate the charter of Howrey’s UK LLP entity and advise the Trustee on wind-down options for Howrey’s London office.

Eichstaed & Lervold LLP accountants to complete Howrey’s required tax reporting and filings.

Baker Tilly Virchow Krause LP accountants to provide specialized accounting to complete the wind-down of Howrey’s three pension plans.

October Three Consulting Group LLC to provide actuarial services related to the pension plans’ wind-down.

The Belgium law firm of Philippe & Partners as special counsel to represent the Howrey estate in malpractice litigation filed in Belgium courts by a former client against Howrey and its Brussels, Belgium office.

B. Compensation of the Trustee and His Professionals

As with all professionals employed under section 327 of the Bankruptcy Code, and

pursuant to the Bankruptcy Court’s orders regarding compensation of professionals, the

Trustee’s professionals (with the exception of those retained on a contingency fee arrangement)

are compensated in arrears on a monthly basis for fees and expenses, subject to a 20% hold-back

of fees pending quarterly interim fee applications. The Trustee’s compensation is similarly


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subject to periodic payments subject to hold-backs. While the Trustee believes the estate will

recover assets sufficient to pay all administrative creditors in full, out of an abundance of caution

and to preserve cash in the estate, the Trustee’s professionals have voluntarily agreed to forego

collection of the 20% hold-backs of fees until additional assets are liquidated. Further, the

Trustee has not sought payment of any trustee fees to date.

The Trustee has previously disclosed that he is also the managing partner of the Diamond

McCarthy law firm. To ensure that the Howrey estate is not billed twice for the Trustee’s

services, both the Trustee and Diamond McCarthy keep detailed time records that distinguish

between legal services provided by Diamond McCarthy personnel and non-legal services that fall

under the Trustee’s administrative duties.

IV. BUSINESS OPERATIONS

A. Wind-Down Operations

The Trustee and his professionals continue to perform a wide range of necessary and

essential tasks for the benefit of Howrey’s estate. These include day-to-day management of

Howrey’s wind-down operations, as well as meetings with counterparties and other parties-in-

interest to reduce costs and streamline core functions. The Trustee and his professionals also

regularly respond to questions from the public, media and creditors regarding the status of the

case, their claims and their potential recovery.

1. Staff Reductions and Management of Critical Staff

Since the filing of the First Interim Report, the Trustee has continued to reduce the

estate’s operating expenses, decreasing the full-time staff by a further 25% since August 2012.

To control costs and streamline operations, the Trustee constantly reviews staffing requirements

to maintain a team that is flexible and efficient, while preserving institutional knowledge. As


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appropriate, the Trustee has transitioned full-time employees to serve on a part-time and as-

needed basis to address specific issues as they arise.

The Trustee and his professionals work closely with the Howrey staff and rely on their

dedication, expertise and institutional knowledge of Howrey to efficiently administer the estate

for the benefit of creditors.

2. Closing Facilities and Cutting Costs

As forecasted in the First Interim Report, in September, the Trustee successfully

completed the move of all Howrey staff and operations to a considerably smaller and cheaper

location in Washington, D.C. This move provided the estate ongoing savings of $34,700 per

month, reducing the estate’s office rent to $6,000 per month from the $40,700 per month cost

paid under the previous lease negotiated prior to the Trustee’s appointment. Further, in exiting

the larger space, the Trustee recovered over $41,000 in deposit refunds for the estate.

The Trustee negotiated a short six month term on the new Washington office space. By

March 1, 2013, the Trustee anticipates closing the Howrey office and vacating the Washington,

D.C. office space, further reducing costs in administering the estate.

3. Winding Down the Debtor’s Pension Plans

Since the First Interim Report, the Trustee’s team has worked with the pension

accountants and actuaries to submit all final reports and related governmental filings to complete

the wind-down and closure of Howrey’s three prepetition pension plans. All distributions have

been made and upon the regulators review and acceptance of these final fillings, the closure of

the Debtor’s pension plans will be complete. The Trustee does not anticipate any additional

costs related to the closing of Debtor’s pension plans.


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4. Downsizing Information Technology Infrastructure

As reported in the Trustee’s First Interim Report, the Trustee has successfully downsized

Howrey’s global information technology infrastructure while preserving all former client data

and all of the Debtor’s financial and operational electronic records. The Trustee and his team

eliminated the need for the Debtor’s massive data centers based in Virginia and Amsterdam,

Netherlands, reducing the monthly operating cost of Howrey’s information technology

infrastructure from over $100,000 to $12,000.

Since the wind-down of Howrey’s information technology infrastructure, the Trustee has

focused efforts on mining the resulting voluminous preserved data to support the development

and prosecution of the estate’s potential litigation claims as further detailed later in this report.

On November 15, 2012, The Bankruptcy Court approved the Trustee’s engagement of BDO

Consulting to advise the Trustee on best practices in harnessing the estate’s electronic data for (i)

the efficient investigation of potential claims; (ii) the streamlining of discovery expected in

upcoming litigation; and (iii) the general administration of the estate.

5. Tax Matters

With operations and partners in numerous states and foreign jurisdictions, Howrey

maintained a complex tax structure. After months of untangling Howrey’s complicated

accounting issues and resulting tax complexities, in September, the Trustee and his professionals

timely completed and filed Howrey’s 2011 federal tax filings and returns, including issuing 2011

K-1 forms to Howrey’s former partners. In addition, the Trustee and his tax advisors submitted

proper filings to taxing authorities in California, Utah, Texas, New York, the District of

Columbia and other jurisdictions to address tax claims, return submissions as well as other

related issues and disputes. The Trustee and his tax advisors continue to address tax issues and

claims as they arise.


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6. Cash Collateral Use and Negotiations with Citibank, N.A.

As well documented in this Bankruptcy Case, Howrey’s largest creditor, Citibank, N.A.

(“Citibank”), asserts a lien on substantially all of Howrey’s prepetition assets, including accounts

receivable and the cash on hand in the estate. As of the filing of this report, the Trustee

presented and Citibank approved an interim cash collateral budget extension which provided the

estate’s continued use of cash collateral through the end 2012. Since the filing of the First

Interim Report, the Trustee has successfully collected millions of dollars in additional recoveries

from contingency fee cases in which Howrey had an interest. These recoveries have allowed the

Trustee to reduce Citibank’s prepetition secured debt by almost $6 million since the last interim

report.

The Debtor’s ability to use Citibank’s cash collateral remains central to the successful

administration of this case. Accordingly, the Trustee and his professionals dedicate significant

time and resources to working with Citibank to ensure the Debtor’s continued access to cash

collateral. The Trustee has reached numerous agreements on a series of weekly and monthly

interim stipulations and revised budgets that have provided for the Debtor’s continued use of

cash collateral. Further, Citibank requests extensive reporting and data from the Trustee as part

of ongoing cash collateral negotiations. Currently, the Trustee is negotiating a further cash

collateral budget extension with Citibank for the first quarter of 2013.

B. Disposition of Records of Former Howrey Clients

As detailed in the First Interim Report and in other pleadings filed with this Bankruptcy

Court, Howrey holds hundreds of thousands of boxes of documents as well as hundreds of

terabytes of electronic files related to its representation of over ten thousand former clients. The

Trustee obtained Bankruptcy Court approval to carry out a comprehensive client file disposition

protocol that provided the opportunity for former clients to retrieve their files. Since the First


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Interim Report, the Trustee and Howrey’s staff continue to advance these procedures and

coordinate the return of paper and electronic files to clients.

To date, the Trustee has received approximately 870 responses from former Howrey

clients directing disposition of their physical and electronic records. Approximately 500 former

clients have requested files. Pursuant to the Trustee’s procedure for cost-sharing, the estate has

invoiced former clients approximately $92,000 to help cover the costs of the client files

disposition.

As reported in the First Interim Report, in June 2012 significant structural damage was

sustained at one of Recall North America’s (“Recall”) warehouses in Landover, Maryland.

Recall is Howrey’s largest record storage vendor. A substantial section of the warehouse roof

collapsed, compromising a significant number of stored documents and exposing them to the

elements. Since the First Interim Report, Recall has informed the Trustee that of the 62,000

boxes of Howrey documents impacted by the collapse, approximately 30,000 Howrey document

boxes were completely destroyed and will not be recovered. As a result, files belonging to

certain Howrey clients have been destroyed and cannot be returned. In addition, several hundred

Howrey document boxes sustained mold and moisture damage in the collapse and its aftermath;

Recall is attempting to cure this damage at its expense and return these files to the Trustee upon

completion of restoration efforts. Any Howrey client requesting the return of paper files

impacted by the Recall collapse will be notified by Recall once the Trustee and Recall process

their file release forms.

The Trustee, his professionals and Howrey’s specialized wind-down staff continue to

carry out the client file disposition plan. Subject to the impact of the Recall facility collapse on


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specific client files, the Trustee anticipates completion of the transfer and disposition of client

files in early 2013.

C. Foreign Operations

1. United Kingdom

Howrey’s wholly owned United Kingdom partnership (“Howrey UK”) operated

Howrey’s London and Paris offices. At the time of the Frist Interim Report, Howrey UK had

lost its registration with the Register of Companies and was not a party to any insolvency

liquidation or wind-down proceedings. Since that report, the Trustee had worked with his

Bankruptcy Court-approved UK counsel regarding options for the liquidation of Howrey UK and

determined that Howrey UK should be placed in a separate insolvency proceeding under UK

law.

The Trustee commenced proceedings in London to restore Howrey UK’s registration. A

putative creditor of Howrey UK, who has asserted a professional malpractice claim against

Howrey UK, also filed a competing application to restore Howrey UK’s registration. After a

court hearing, Howrey UK’s registration was successfully restored in October, 2012. Thereafter,

the Trustee commenced involuntary insolvency proceedings against Howrey UK and following a

further hearing, the Trustee’s application was granted and Howrey UK was placed by the UK

court into formal liquidation proceedings. It is anticipated that an U.K. official liquidator will be

appointed by the creditors in the near future. These proceedings are in their early stages and

although Howrey has a right to any surplus assets remaining upon the satisfaction of Howrey

UK’s creditors and related administrative expenses, at this time the Trustee is not able to predict

if, or when, Howrey will receive any funds from the liquidation of Howrey UK. There may be

additional proceedings in the U.K. related to the defense of the professional liability claim and

related Howrey insurance matters.


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2. Belgium

Prior to the Trustee’s appointment, Belgium authorities appointed Mr. Marc Dal as the

official administrator to conduct the liquidation of Howrey’s Belgium based assets and liabilities.

Mr. Dal continues to liquidate Howrey’s Belgium assets and administer claims related to

Howrey’s Belgium operations. The Trustee and Mr. Dal regularly communicate to coordinate

these liquidation activities and exchange information and data to support each other’s efforts.

Since the filing of the First Interim Report, a putative creditor of Howrey’s Belgium

office attempted to add the Trustee, on behalf of Howrey, as a party to his malpractice claim

litigation pending in Brussels. The Court has approved the Trustee’s employment of Philippe &

Partners as his special counsel in Belgium to represent the Trustee and Howrey estate in the

Belgium courts on this matter.

3. Germany

Certain creditors of Howrey’s German offices initiated secondary insolvency proceedings

against Howrey in Germany. A German court appointed Mr. Daniel F. Fritz as the liquidator for

Howrey’s German assets for the benefit of creditors with claims relating to Howrey’s former

offices in Germany. The Trustee and Mr. Fritz regularly communicate to coordinate these

liquidation activities and exchange information and data to support each other’s efforts. In

addition, PwC Germany, a putative creditor of Howrey Germany, filed a lawsuit against the

Trustee seeking to enjoin the Trustee from repatriating any funds from Germany to the U.S.

pending the resolution and satisfaction of PwC Germany’s claim. The Trustee has preliminarily

engaged German counsel to represent him and the Howrey Estate in protecting the interests of

the Howrey Estate in the German proceedings.


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V. ASSET MANAGEMENT

The Debtor’s primary assets include (i) outstanding accounts receivable, (ii) equipment,

art work and other personal property, (iii) interests in pending contingency fee matters, and

(iv) potential litigation claims. Each asset category is addressed below.

A. Asset Recovery

1. Accounts Receivable

The Trustee continues to fund administration of the Howrey estate primarily with

proceeds collected from prepetition accounts receivable with the consent of Citibank, which

asserts a lien on these proceeds as cash collateral. As noted, the Trustee works closely with his

collection professionals, including On-Site Associates LLC and the Adler Law Firm, to

aggressively and efficiently monetize the estate’s remaining accounts receivable. To increase the

efficiency of the collections process, the Trustee also developed a collections settlement protocol

whereby the Bankruptcy Court pre-approved settlement parameters and guidelines for accounts

receivable.

To date, the Trustee’s efforts have recovered almost $6,000,000 in account receivable

collections. These collection efforts continue, with the estate still holding millions of dollars in

outstanding accounts for collection. However, as collectable accounts are liquidated, the

remaining accounts will increasingly represent the most difficult collection targets. Accordingly,

the Trustee and his professionals have made the aggressive collection of accounts receivable an

urgent priority. The Trustee anticipates the collection of additional funds from accounts

receivable over the next several months, with collections slowing over time due to the natural

collection cycle. Certain of the accounts receivable to be collected are currently in arbitration

proceedings pending in venues across the United States and likely will take significantly longer


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to be resolved through the arbitration process. These matters are being handled by the Adler

Law Firm and other co-counsel as necessary.

2. Contingency Fee Interests

The Debtor’s interests in various contingency fee cases represent some of the estate’s

most significant assets, including those matters commonly referred to as the “Milk” cases and the

“Hispanic Farmers” cases, among others. The Trustee and his professionals have aggressively

pursued the advancement and collection of these contingency fee interests.

a) Milk Antitrust Litigation

Prior to Howrey’s vote of dissolution, Howrey represented plaintiffs in two class action

cases alleging violations of the antitrust laws. Shortly after the Howrey Dissolution Committee

was established but prior to the time that Howrey’s involuntary bankruptcy proceedings were

initiated, the former Howrey partners representing the class plaintiffs in these cases left Howrey

and joined the law firm of Baker Hostetler, LLP (“BH”), taking these two class action cases and

the clients owning such cases, among other cases and clients, with them to BH. An agreement

(the “Transfer Agreement”) was reached at that time between BH, on the one hand, and the

Dissolution Committee for and on behalf of Howrey, on the other, with respect to the allocation

between BH and Howrey of attorneys’ fees and expenses that may be awarded by courts in

connection with any future recoveries in these two class action cases.

In the first class action case, Allen v. Dairy Farmers of America, Case No. 5:09-cv-230 in

the United States District Court for the District of Vermont (“NE Milk”), a settlement had been

reached in principle with one defendant and was pending at the time of the Transfer Agreement

in March, 2011. Since that time, the settlement agreement has been fully executed, approved by

the court and consummated. Of the attorneys’ fees and expenses awarded by the court, lead class

counsel at Cohen Milstein has allocated approximately $2,400,000 to Howrey and BH


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collectively. The Trustee has negotiated an agreement with BH and Citibank whereby the

$2,400,000 has been deposited in an escrow account at Citibank, N.A. under the joint control of

the Trustee and BH, pending resolution of the allocation issues between them. The Trustee

currently is in negotiations with BH with respect to such allocation.

Moreover, in or about December 2012, the plaintiff class in NE Milk was certified

against the remaining defendant, Dairy Farmers of America (“DFA”). Although there are no

guarantees in this contingent fee litigation, the Trustee believes that class certification increases

the value of the NE Milk case to the Howrey estate. The Trustee continues to monitor the NE

Milk case on a daily basis, but does not expect substantial developments (i.e., additional

dispositive motions, trial, etc.) unless and until the SE Milk case concludes. The Trustee is

taking all actions to closely monitor the case and protect the estate’s interest in all potential

recoveries from the NE Milk matters.

In the second case, In re Southeastern Milk Antitrust Litigation, Master File No. 2:08-

MD-1000 (“SE Milk”) pending in the United States District Court for the Eastern District of

Tennessee, a settlement was reached with defendant Dean Foods in the early summer of 2011.

Issues related to class certification, however, subsequently arose and delayed final approval of

the settlement pending court appointment of separate counsel for a certain sub-class. In March,

2012, the delayed settlements (with Dean Foods, Southern Marketing Agency, Inc., and James

Baird) were preliminarily approved in the aggregate amount of $145,000,000. Those settlements

received final approval from the court on May 15, 2012. The settlements are structured with the

payment of $65,000,000 to be made upon consummation and the balance to be paid pro-rata each

year over the next four years (through 2016).


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On July 11, 2012, the court issued its order approving attorneys’ fees and expenses to all

class counsel in the total amount of approximately $48,000,000 in fees and $7,400,000 in

expenses. Bob Abrams, one of Howrey’s former partners who departed Howrey for BH, has

been approved by the Court to make the allocation of attorneys’ fees and expenses among the

various law firms acting as counsel for the plaintiffs. The allocation of fees and expenses for the

SE Milk case has not yet been determined. The Trustee anticipates that any funds allocated

collectively to Howrey/BH will be subject to negotiations between the Trustee and BH

(including, without limitation, all issues involving the March 2011 Transfer Agreement). Even

without negotiation, however, the Trustee anticipates the receipt of a substantial recovery in fees

and expenses from the SE Milk case.

The plaintiffs’ case against the remaining defendant, Dairy Farmers of America, is

currently set for trial in Tennessee on January 15, 2013. Accordingly, any recovery from the

remaining defendants in the SE Milk case is subject to the results of the trial, any appeals, and

other factors. The Trustee is taking all actions to closely monitor the case and protect the estate’s

interest in all potential recoveries from the SE Milk matters.

b) Hispanic Farmers Litigation

Prior to bankruptcy, Howrey represented several hundred individual Hispanic farmers

with claims against the United States Department of Agriculture for discrimination based on

race. Howrey represented named farmers in a putative class action case called Garcia v. Vilsack,

case number 00-CV-2445 and the companion case of Cantu v. United States, case number 11-

CV-00541, both in the United States District Court for the District of Columbia (the “DC

Court”). The plaintiffs claim liability of over $1 billion. Howrey accepted the representation of

these clients in these cases on a contingent fee basis. By the time of the bankruptcy filing,


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Howrey had invested approximately $30 million of time expense and out of pocket expenses in

the prosecution of these cases.

As noted in the First Interim Report, the Trustee removed Howrey from the

representation of the Hispanic farmers, and rejected Howrey’s contracts with the Hispanic farmer

clients, while still preserving the rights of the Howrey estate to pursue its claims to any potential

future recoveries, or funds established for the benefit of the aggrieved Hispanic farmers, based

on Howrey’s decade long efforts and contingent fee investment in the cases. In addition, a team

of law firms and consultants is now representing various plaintiff Hispanic farmers in these

litigation matters. The Trustee is coordinating and supporting their efforts.

In Cantu, the plaintiffs sought to compel the federal government to provide Hispanic

farmers with a settlement of their claims comparable to the settlements previously provided to

African American and Native American farmers. On December 11, 2012, the DC Court granted

the federal government’s motion to dismiss in the Cantu matter. The DC Court determined that

the plaintiffs lacked standing to obtain the relief they sought. The attorneys now representing the

Cantu plaintiffs are presently considering whether to appeal the decision.

In Garcia, the plaintiffs sought class wide redress for the discrimination of Hispanic

farmers by the U.S. Department of Agriculture. The DC Court denied class certification several

years ago, and the Garcia case was effectively stayed while the government’s motion to dismiss

was pending in Cantu and while the government finalized an administrative procedure by which

it would provide relief to some Hispanic farmers. On December 19, 2012, the DC Court

determined that each individual plaintiff in the Garcia matter who intended to continue litigating

their claims on an individual basis, rather than pursue relief through the government’s

administrative process, must notify the DC Court of their intent to do so by April 1, 2013.


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At this time, it is impossible to estimate with any certainty what recovery may result from

the Hispanic farmers litigation or other actions the Trustee may take to recover compensation for

the substantial efforts and expense incurred by Howrey and the Howrey estate for the benefit of

these Hispanic farmers. The Trustee will continue to safeguard Howrey’s investment and

interests in any right to compensation and recoveries.

c) The Online DVD Rental Antitrust Litigation

Howrey also continues to have a contingent fee interest in an antitrust class action

formally known as In re: Online DVD Rental Antitrust Litigation (Case No. 4:09-md-02029-

PJH, United States District Court for the Northern District of California). The Online DVD

Rental Antitrust Litigation is colloquially known as Netflix/Wal-Mart, named after two target

defendants. Like the Milk cases, Howrey lawyers working on Netflix/Wal-Mart moved from

Howrey to BH prior to the commencement of the involuntary bankruptcy proceeding.

The Trustee continues to monitor Netflix/Wal-Mart closely. Since his appointment, the

following activity has occurred in the case. First, Netflix won dismissal of the lawsuit on

summary judgment in November 2011. Plaintiffs timely appealed the district court’s summary

judgment ruling to the Ninth Circuit on December 20, 2011 (Case No. 11-18034). Briefing is

complete, but the Ninth Circuit has not yet set a date for oral argument and, based on the average

time of resolution in the Ninth Circuit and the complexity of this matter, the Trustee does not

expect a ruling for at least another twelve months after oral argument. The Trustee continues to

monitor the appeal, but cannot estimate the likelihood of success or the amount of money, if any,

that Howrey may recover by virtue of its representation of the plaintiffs’ class against Netflix.

Second, the district court gave final approval to the Plaintiffs’ settlement of claims

against Wal-Mart for $27,250,000 on March 14, 2012, with $6,812,500 of the award being paid


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as attorneys’ fees and $1,700,000 in expenses to class counsel. How much of this money would

be paid to Howrey has not been resolved. However, the entire attorneys’ fees award is also

pending in the Ninth Circuit, as multiple objectors have appealed the district court’s approval of

the attorneys’ fees award as excessive and/or prohibited by the Class Action Fairness Act

(“CAFA”). The objectors’ appeals have been fully briefed, but oral argument has not been set.

As with the Netflix appeal, at this time the Trustee does not expect a ruling on the various Wal-

Mart attorneys’ fees appeals within the next twelve months. In the event the attorneys’ fees

award is upheld, however, the Trustee expects a significant recovery to the Howrey estate.

c) Collection of the MidAmerican Energy Contingency Fee Matter

Since the First Interim Report, the Trustee successfully obtained Bankruptcy Court

approval for and closed on the resolution of Howrey’s contingency fee interest in insurance

related litigation asserted by Howrey’s former client MidAmerican Energy Company (the “MEC

Cases”). Prior to Howrey’s dissolution, the MEC Cases were transitioned to Perkins Coie LLP.

MEC and Perkins Coie resolved this litigation through confidential settlements, resulting in

contingency fees to be shared between Howrey and Perkins Coie. The Trustee and Perkins Coie

successfully negotiated an agreed division of the contingency fees between Howrey and Perkins

on a pro rata basis calculated from the professional fees each firm billed on the matter, resulting

in a recovery of over $600,000 to the Howrey estate. The Bankruptcy Court approved the

agreement on October 24, 2012, and the Trustee has collected the estate’s share of the

contingency fee funds.

d) Other Contingency Fee Cases

The Trustee continues to actively monitor several other contingency fee litigation matters

in which Howrey maintains an interest for collection opportunities. Any material developments

will be provided in supplemental reports and other filings with the Bankruptcy Court.


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3. Equipment and Other Assets

The Howrey estate also holds surplus server and computer equipment from the wind-

down of the data centers and the downsizing of the Howrey office. The Trustee is preserving

this equipment until all former client and Howrey data is safely preserved in other forms and is

then wiped from the equipment such that it cannot be retrieved. The Trustee has requested initial

offers to purchase this equipment and is assessing means to wipe the data stored on it. The

Trustee anticipates these procedures to be accomplished and a sale of this equipment by February

2013.

B. Claims Investigation, Analysis and Recovery

In addition to the expected significant proceeds from Howrey’s interest in the various

contingency fee matters discussed above, creditor recoveries in this bankruptcy case will be

significantly determined by the resolution of the estate’s potential claims against third parties,

including those against former Howrey partners and their successor law firms, potential breach

of contract actions and avoidance actions under the Bankruptcy Code. The Trustee and his

professionals are developing and pursuing all the estate’s potential litigation claims.

1. Preference and Fraudulent Transfer Litigation

Evidence available to and marshaled by the Trustee indicates that various former partners

of Howrey received payments and distributions either at a time when Howrey was insolvent

and/or otherwise in excess of amounts properly distributable at the time they were made. Such

over-distributions likely constituted fraudulent transfers, breaches of fiduciary duty, and breaches

of Howrey’s partnership agreement or are otherwise actionable. The Trustee’s financial and

legal advisors are completing a comprehensive analysis of these potential claims.

Specifically, the Trustee has initiated settlement negotiations with various former

Howrey partners who are at firms that the Trustee has identified as having received unfinished


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business. The Trustee also has identified additional groups, such as retired partners, partners

who went into government service or in-house, and partners who did not take Howrey matters

with them to new firms. The Trustee anticipates either settlements resolving these claims to be

forthcoming in the coming months or, barring any such amicable resolutions, litigation will

likely be commenced seeking recoveries on such claims for the estate.

In addition, Howrey made payments to certain creditors in the ninety-day period

preceding the Petition Date that the Trustee may recover as preferences under Bankruptcy Code

§ 547. The Trustee’s consultants and legal team have completed an initial analysis of the

potentially preferential payments and anticipate sending out demand letters to preference

recipients within the next thirty days to initiate collection for the benefit of the Howrey estate.

2. “Unfinished Business” Claims

The Trustee has been investigating and gathering information related to Howrey’s former

representation of clients in matters that were “unfinished” at the time that former Howrey

partners departed the firm taking such “unfinished business” with them to successor law firms.

In July 2012, the Trustee filed an omnibus motion for authority to issue Federal Rule of

Bankruptcy Procedure 2004 (“Rule 2004”) subpoenas to approximately seventy law firms that

may have received profits from Howrey’s unfinished business. The Bankruptcy Court granted

this motion and the Trustee has contacted and/or served most of the law firms for the production

of certain documentation, data and information related to Howrey’s unfinished business. This

discovery will allow the Trustee and his professionals to evaluate potential causes of action,

including unfinished business related claims.

At this stage, the Trustee has made settlement demands on approximately twenty to

twenty-five of the target firms, making bundled settlement demands to resolve both unfinished

business claims and excess distributions to former Howrey partners at those target firms. To


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date, the Trustee’s settlement demands exceed $50 million. The Trustee’s settlement discussions

are ongoing. As noted above, former Howrey partners and successor firms who refuse to settle

will be pursued in litigation.

3. Derivative Authority for the Committee to Prosecute Certain Conflict Firms and Former Howrey Partners

As stated above, the Trustee has planned and continues to pursue a strategy to recover

excess distributions from the potentially hundreds of former Howrey partners, and the 71

identified successor law firms to where they departed, with Howrey unfinished business. At the

time of the Trustee’s appointment and retention in this case, the Trustee publicly disclosed that

the law firm of Diamond McCarthy was representing one or more of its clients in litigation

against defendants who were represented by former Howrey partners now practicing at certain

successor firms and that such litigation was otherwise wholly unrelated to Howrey. Mr.

Diamond disclosed this potential conflict at the time of his appointment and Diamond

McCarthy’s retention. No parties objected to either Mr. Diamond’s appointment or Diamond

McCarthy’s retention on this ground.

Specifically, Diamond McCarthy represents the Provincial Government of Marinduque in

litigation pending in both the United States and the Philippines against Placer Dome, Inc. and

Barrick Gold Corporation (the “Conflict Case”) on a contingency fee basis.

Diamond McCarthy’s co-counsel in the Conflict Case is Snell & Wilmer LLP. The two

defendants in the Conflict Case, Placer Dome and Barrick Gold, were represented by, and

continue currently to be represented by, two former Howrey partners, Edward Han (who is now a

partner at Arnold & Porter LLP) and Martin Cunniff (now a partner at Arent Fox LLP). Snell &

Wilmer LLP, Arnold & Porter LLP, Arent Fox LLP, Edward Han, and Martin Cunniff


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(collectively, the “Conflict Parties”) are potential targets for (among other potential claims)

unfinished business and/or partner clawback recoveries by the Howrey estate.

In mid-July 2012, the Trustee received an email letter from Mr. Cunniff at Arent Fox and

on behalf of Ed Han of Arnold & Porter raising the issue of the Trustee’s potential claims against

them and how the Trustee planned to address the issues related to confidential and attorney/client

privileged information between these two former Howrey partners, their successor firms and

their respective clients in light of Diamond McCarthy’s continued representation of the

government of the Philippines. The Trustee promptly advised Mr. Cunniff that he was looking

further into the situation and would be back in touch shortly.

Unbeknownst to Mr. Cunniff, the Trustee had already consulted his counsel about this

matter. It was determined that the perception of a conflict may arise because of the Trustee’s

dual roles as Trustee for the Howrey chapter 11 estate, on the one hand, and managing partner

for Diamond McCarthy, on the other, the latter of which might put the Trustee in the position of

seeing/obtaining certain confidential information related to his firm’s representation of the

government of the Philippines in the Conflict Case. More specifically, third parties may

(wrongly) perceive that the Trustee might not aggressively pursue Howrey claims against the

Conflict Parties in order to not upset any negotiations between Diamond McCarthy attorneys and

the Conflict Parties concerning resolution of the Conflict Case. Although the Trustee was, and

is, confident that he could, and would, represent the interests of both of those entities without

showing favoritism to one or the other, some parties may (wrongly) believe that he favored

Diamond McCarthy’s contingency fee interest in the Conflict Case over the interests of the

Howrey estate in negotiating and/or litigating Howrey’s claims against the Conflict Parties. For


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that reason, the Trustee wished to avoid even the slightest appearance of any impropriety in

resolving the Estate’s claims against the Conflict Parties

Thus, after considerable analysis the Trustee and his counsel determined that the most

effective resolution to any perceived conflict of interest related to the Trustee’s pursuit of

information and data from the few successor firms at issue, yet alone the pursuit and resolution

of any proposed settlements with such firms (and their former Howrey partners), was to ask the

Committee to prosecute these claims against the subject firms and former Howrey partners

instead of the Trustee. Accordingly, the Trustee thereafter in late August, 2012 contacted lead

counsel for the Committee and asked whether the Committee would prosecute these select few

claims against the subject successor firms and former Howrey partners and, if so, whether that

assignment would be undertaken by lead counsel for the Committee.

The Trustee and his counsel made a full presentation to the Committee on this proposal in

mid-October 2012. Outside the presence of the Trustee and his counsel, the Trustee understands

that the Committee voted unanimously in favor of the Committee receiving derivative authority

to prosecute the Conflict Parties. The Trustee and the Committee then jointly filed a motion for

derivative authority on November 21, 2012. No party objected to the Derivative Authority

Motion. On or about December 11, 2012, the Court granted the motion.

4. Other Potential Claims and Litigation

The Trustee has also been evaluating various contracts entered into by the Debtor pre-

petition which have been breached by the respective counter-parties. The Trustee and his

professionals continue to undertake legal research, document review and analysis of these

potential claims and anticipate arriving at evaluations and assessments related to such claims in

the coming months, after which appropriate follow up action will be taken. Moreover, the

Trustee and his professionals are currently investigating various acts and events, that occurred


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both before the Petition Date and during the “gap” period prior to the order for relief, that may

have resulted in damages to the estate. It is anticipated that Rule 2004 examinations and

subpoenas will be sought in the near future with respect to former lawyers and employees of the

Debtor in order to determine and assess the viability of any claims for damages as a result of

such actions or transactions.

C. Howrey Claims LLC

On November 1, 2012, Howrey Claims LLC (“HC”) -- a claims trader that purchased a

$994.25 unsecured claim -- filed a putative class action as an adversary proceeding in this Court.

HC seeks to represent all persons and entities to whom the former Howrey partners have

allegedly incurred liability as alter egos of Howrey. The defendants to the HC complaint are the

former Howrey partners.

On November 15, 2012, the Trustee filed a Motion for an Order Enforcing the Automatic

Stay (the “Stay Motion”) with this Court, contending that claims asserted by HC are property of

the Howrey estate and seeking an order declaring that the HC complaint violates the automatic

stay and that HC and its counsel will be held in contempt if they do not withdraw the HC

complaint and refrain from taking any further action to pursue recoveries from Howrey’s former

partners as Howrey’s alter egos. The Stay Motion is currently scheduled to be heard by this

Court on January 11, 2013.

D. Asset Disposition

The Trustee’s primary goal is to maximize the value of the Howrey estate. This includes

disposing of assets of the estate in a manner that ensures their highest value. The Trustee has

undertaken to preserve and liquidate furniture, art, equipment and other assets of the estate. With

the down-sizing of the Howrey office space, the Trustee liquidated the majority of Howrey’s


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remaining office furniture and peripheral equipment pursuant to the de minimis asset sale

procedures approved by the Bankruptcy Court.

1. Office Furniture

On September 24, 2012, in accordance with the provisions of the Order Approving

Procedures for Sale and Disposition of De Minimis Assets, the Trustee provided an Asset Sale

Report to counsel to the Official Committee of Unsecured Creditors, counsel to Citibank, N.A.,

and the Office of the United States Trustee informing them that the Debtor liquidated the

majority of the office furniture located at 1201 Pennsylvania Avenue, Washington, D.C. for an

aggregate purchase price of $14,000. The Trustee has closed on the sale and collected the net

proceeds. The estate holds only a few pieces of remaining office furniture to support the

remaining Howrey staff. As part of the anticipated March, 2013 closing of the Howrey office in

Washington, D.C., the Trustee will liquidate these remaining furniture pieces.

2. Art Collection Auctions

Prior to the Trustee’s appointment, Howrey placed its remaining art work assets with five

separate art dealers, brokers and storage facilities in California, Illinois and Washington, D.C.

To consolidate and expedite the sale of the estate’s art collection, the Trustee consulted Bonhams

& Butterfields Auctioneers Corp. (“Bonhams”), a well-regarded auctioneer, to help assess the art

assets and formulate a comprehensive sales process. Since the First Interim Report, Bonhams

and the Trustee have completed this assessment and determined that it is in the best interest of

the estate to hold three regional sales in California, Illinois, and Washington, D.C.

The Trustee has selected Bonhams to execute a private auction in California. Another

well-respected auctioneer, Adam A. Weschler & Son, Inc. (“Weschler’s”), has been selected to

execute a private auction in Washington, D.C. Both auctioneers have advised the Trustee that

they plan to place the Debtor’s artwork in their respective auctions in the first six months of


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2013. The Trustee is currently drafting applications for Bankruptcy Court authority to retain the

auctioneers and for authority to sell the artwork free and clear of liens, claims, and interests.

These pleadings will be filed within the next two to three weeks. If approved, the proposed

auctions are expected to be completed early next year.

The Trustee has been advised that the artwork located in Illinois has a de minimis fair

market value and is not suitable for sale at auction and is currently in discussions with a local art

gallery to sell the pieces in a cost efficient and expeditious manner.

E. Defense of Claims

1. Proofs of Claim

Since the filing of the First Interim Report the Trustee as initiated an analysis of the

scheduled and filed proofs of claim in this case. The general bar date for proofs of claim passed

on October 11, 2011. As part of the plan formulation and confirmation process and before any

distributions to general creditors, the Trustee will complete a full analysis of all asserted claims

and will file objections where appropriate to ensure that no claims are improperly allowed.

2. SAP Motion for Administrative Expense Claim

On October 10, 2012, SAP America, Inc. (“SAP”) filed an application (the “SAP

Application”) seeking, among other things, allowance and payment of an administrative expense

claim in connection with the a certain software license agreement (the “SAP Administrative

Expense Claim”). The Trustee filed an objection to the SAP Application and advised that he is

currently investigating potential affirmative claims against SAP arising out of the pre-petition

relationship between SAP and Howrey (collectively, the “Trustee’s Affirmative SAP Claims”).

On November 16, 2012, counsel to the Trustee and counsel for SAP appeared at a

hearing on the SAP Application and advised the Court that they have reached a settlement in

principal, subject to documentation, to resolve the SAP Administrative Expense Claims and to


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preserve the parties’ rights with respect to the Trustee’s Affirmative Claims, pursuant to the

terms set forth in the settlement agreement. The Trustee and SAP are finalizing the settlement

agreement and the Trustee is continuing to investigate the Trustee’s Affirmative SAP Claims.

3. The WARN Act and Warner Investments Adversaries

On April 12, 2011, a former Howrey employee named Stephanie Langley brought a

putative class action against Howrey’s estate alleging violations of the WARN Act. This case is

pending before the Bankruptcy Court as adversary proceeding 11-03065. On August 19, 2011, a

former Howrey employee named Gail Adams filed a putative class proof of claim alleging

violations of the WARN Act. On October 1, 2012, Langley filed a putative class proof of claim

on behalf of herself and all members of her putative class. Also on October 1, 2012, Langley

filed a motion in the adversary proceeding seeking certification of her defined putative class, and

designation of her counsel as lead class counsel.

On October 15, 2012 the Bankruptcy Court held a status conference during which the

Bankruptcy Court directed the Trustee to convene a discussion with counsel for Langley and

counsel for Adams in an attempt to reach an agreement as to whether the WARN Act issues

would be addressed via an adversary proceeding or a proof of claim, and whether Adams and her

counsel, or Langley and her counsel, would be designated class representatives and counsel.

The Trustee convened that discussion, but was unable to negotiate a resolution with competing

class counsel. The Bankruptcy Court held another status conference on November 16, 2012,

during which the Bankruptcy Court set forth a briefing schedule for the parties to address issues

concerning class certification and selection of a class representative and counsel. The

Bankruptcy Court also ordered that, once those issues are resolved, the adversary proceeding

would be dismissed and the WARN Act claims would proceed through the proof of claim


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process. The Trustee anticipates the parties to fully brief the certification and representative

issues by the end of January 2013, with a decision from the Bankruptcy Court after that.

Prior to the Trustee’s appointment, the Debtor’s former counsel commenced litigation

arising from a non-residential lease agreement against Warner Investments, L.P. (“Warner”)

which is currently pending before the Bankruptcy Court in adversary proceeding 11-03170.

Warner has asserted claims against the estate and filed requests for payment of administrative

rent. In light of the current cash position of the estate, the Trustee and Warner have agreed to

stay the adversary proceeding and Warner’s administrative expense motion several times. Most

recently, the parties agreed to extend the stay to February 21, 2013.

VI. RECOVERY TO CREDITORS AND A CHAPTER 11 PLAN OF LIQUIDATION

The benefit of liquidating the Howrey estate in chapter 11, rather than chapter 7, is to

allow the flexibility and tools provided by the plan formulation and confirmation process for the

resolution of the estate’s potential litigation claims. It is too early in the case for the Trustee to

predict the recovery that will ultimately be paid to all creditors or at what point in time the Estate

would have sufficient funds to pay all administrative expense claims. However, the Trustee at

this time believes that ultimately there will be sufficient estate assets to satisfy all potential

administrative 1 and secured claims in full and provide a recovery to priority and general

unsecured creditors.

The Trustee presently holds approximately $600,000 in cash and significantly more in

unliquidated and contingent assets, including accounts receivable, potential litigation claims,

contingency fee interests and other assets described herein. Most, if not all, of the current cash

1 In addition to ongoing professional and operational expenses, the estate faces potential administrative expense claims in excess of $10 million from landlords and other potential claimants. While these administrative expense claims may be in dispute, if allowed, they could be entitled to the same priority as any other claims allowed under Bankruptcy Code § 503(b). In that event, there are currently insufficient liquid assets to immediately satisfy all of those administrative expense claims in full.


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on hand and many of these assets may constitute the collateral of Citibank, which has allowed

the Trustee to use its cash collateral pursuant to interim cash collateral orders, stipulations and

related budgets. Accordingly, the Trustee anticipates having sufficient funds to pay ongoing

administrative costs subject to budget limits.

The ultimate recovery to secured and unsecured creditors will depend primarily on two

factors: (i) the proceeds the Trustee recovers from the Debtor’s interest in the contingency fee

cases, including the Milk cases; and (ii) the recoveries the Trustee obtains from the potential

litigation claims described above.

As the Trustee continues to evaluate the assets of the estate, including potential litigation

claims, the full scope and potential distributions from the Howrey estate will become more

predictable within certain ranges. Until then, creditors and parties-in-interest benefit from a

careful approach that maximizes the value for the estate. The Trustee will supplement this report

with additional information as the case progresses.

Dated: January 9, 2013

/s/ Allan B. Diamond, Trustee Allan B. Diamond Chapter 11 Trustee of Howrey LLP and Jason M. Rudd, Esq. (pro hac vice) Christopher R. Murray, Esq. (pro hac vice) DIAMOND MCCARTHY LLP 909 Fannin, 15th Floor Houston, TX 77010 Telephone: 713-333-5100 Facsimile: 713-333-5199 [email protected] [email protected] Counsel for Allan B. Diamond, Chapter 11 Trustee for Howrey LLP


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Eric A. Nyberg, Esq. (Bar No. 131105) KORNFIELD, NYBERG, BENDES & KUHNER, P.C. Chris D. Kuhner, Esq. (Bar No. 173291) 1970 Broadway, Suite 225 Oakland, CA 94612 Telephone: 510-763-1000 Facsimile: 510-273-8669 [email protected] [email protected] Local Counsel for Allan B. Diamond, Chapter 11 Trustee for Howrey LLP


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CERTIFICATE OF SERVICE __X__ (CM/ECF) The document was electronically served on the parties to this action via the mandatory United States Bankruptcy Court of California CM/ECF system upon filing of above described document.:

SEE ATTACHED SERVICE LIST

__X__ (ELECTRONIC MAIL SERVICE) By electronic mail (e-mail) the above listed document(s) without error to the email address(es) set forth below on this date.


__X__ (UNITED STATES MAIL) By depositing a copy of the above-referenced documents for mailing in the United States Mail, first class postage prepaid, at Houston, Texas, to the parties listed on the Service List attached hereto, at their last known mailing addresses, on January 9, 2013.


__ __ (OVERNIGHT COURIER) By depositing a true and correct copy of the above referenced document for overnight delivery via Federal Express, at a collection facility maintained for such purpose, addressed to the parties on the attached service list, at their last known delivery address, on the date above written. __ __ (COURIER SERVICE) By providing true and correct copies of the above referenced documents [with copies of the supporting detailed invoices/attorney time records for the Final Fee Application] via courier delivery, to the following on or about ________________: __ __ (FACSIMILE) That I served a true and correct copy of the above-referenced document via facsimile, to the facsimile numbers indicated, to those people listed on the attached service list, on the date above written. /s/ Jason M. Rudd


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VIA CM/ECF: United States Trustee Minnie Loo, Esq. Donna S. Tamanaha, Esq. Office of the U.S. Trustee 235 Pine Street. 7th Floor San Francisco, CA 94104-3484 Email: [email protected] Email: [email protected] Chapter 11 Trustee Allan B. Diamond Diamond McCarthy, LLP

Two Houston Center 909 Fannin Street, Suite 1500 Houston, Texas 77010 Email: [email protected]

Counsel for the Chapter 11 Trustee Diamond McCarthy, LLP Howard D. Ressler, Esq. Email: [email protected] Stephen T. Loden, Esq. Email: [email protected] Jason M. Rudd, Esq. Email: [email protected] Kornfield Nyberg Bender & Kuhner P.C. Eric Nyberg Email: [email protected] Chris D. Kuhner Email: [email protected] Debtor’s Counsel Wiley Rein LLP

H. Jason Gold Valerie P. Morison Dylan G. Trache Email: [email protected] Email: [email protected] Email: [email protected] Murray & Murray Robert A. Franklin Craig M. Prim Jenny Lynn Fountain Email: [email protected] Email: [email protected]


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Email: [email protected] Duane Morris LLP Geoffrey A. Heaton, Esq. Email: [email protected] Aron M. Oiner, Esq. Email: [email protected] Law Offices of Latham & Watkins Kimberly A. Posin, Esq. Email: [email protected] Murray & Murray Craig M. Prim, Esq. Email: [email protected] Robert A. Franklin, Esq. Email: [email protected] Jenny L. Fountain, Esq. Email: [email protected] Official Committee of Unsecured Creditors Whiteford, Taylor & Preston LLP Bradford F. Englander, Esq. Email: [email protected] John F. Carlton, Esq. Email: [email protected] Justin P. Fasano, Esq. Email: [email protected] Counsel for The Irvine Company, LLC Allen Matkins, et al. Email: [email protected] Counsel for Creditor Citibank, N.A. Paul, Weiss, Rifkind, Wharton &

Garrison Larry Peitzman, Esq. Email: [email protected] Counsel for Creditor Protiviti, Inc. Pachulski, Stang, Ziehl & Jones John D. Fiero, Esq. Email: [email protected] Counsel for Creditor Oracle America, Inc. Buchalter Nemer Shawn M. Christianson, Esq. Email: [email protected] Counsel for Creditor U.S. Bank, N.A., Perkins Coie LLP


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as Trustee David J. Gold, Esq. Email: [email protected] Counsel for Attorneys’ Liability Assurance Perkins Coie LLP Society, Inc., A Risk Retention Group Alan D. Smith, Esq. Email: [email protected] Counsel for Creditors Advanced Discovery Trepel McGrane Greenfield LLP LLC, Give Something Back, Inc., Jan Brown Maureen A. Harrington, Esq. & Associates, Kent Daniels & Associates, Inc., Email: [email protected] L.A. Best Photocopies, Inc., Western Christopher D. Sullivan, Esq. Messenger Service, Inc. Email: [email protected] Counsel for BP/CGCENTER I, LLC Allen, Matkins, Leck, Gamble and

Mallory William W. Huckins Email: [email protected] Counsel for Creditor Warner Investment, L.P. Luce, Forward, Hamilton & Scripps Michael A. Isaacs, Esq.

Email: [email protected] Email: [email protected] Counsel for Creditor Dewey & LeBoeuf LLP Dewey and LeBoeuf Paul S. Jasper, Esq. Email: [email protected] Counsel for Creditor Iron Mountain Bartlett, Hackett and Feinberg Information Management Inc. Frank F. McGinn, Esq. Email: [email protected] Counsel for Creditor Hines REIT 321 DLA Piper LLP North Clark Street, LLC Frank T. Pepler, Esq. Email: [email protected] Counsel for Creditor Stephanie Langley Outten and Golden LLP Rene S. Roupinian, Esq. Email: [email protected] Counsel for Creditor Stephanie Langley Law Offices of James D. Wood James D. Wood, Esq. Email: [email protected]


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Counsel for Creditor Pension Benefit Office of the Chief Counsel Guaranty Corp. Lawrence F. Landgraff, Esq. Email: [email protected] Counsel for Interested Party Connecticut Schnader Harrison Segal and Lewis General Life Insurance Company Melissa Lor, Esq. Email: [email protected] Counsel for Interested Party Ad Hoc MacConaghy and Barnier Committee of Certain Former Howrey John H. MacConaghy, Esq. Partners Email: [email protected] Monique Jewett-Brewster, Esq. Email: [email protected] Counsel for Creditors Advanced Discovery McGrane LLP LLC, Give Something Back, Inc, Jan Brown William McGrane, Esq. And Associates, Kent Daniels and Associates Email: [email protected] Inc., L.A. Best Photocopies, Inc., Western Messenger Service, Inc. Counsel for Interested Party Connecticut Melissa Lor General Life Insurance Co. Email: [email protected] Counsel for Creditor Knickerbocker Seyfarth Shaw LLP Properties, Inc. XXXIII Scott Olson, Esq. Email: [email protected] Counsel for Creditor Banc of America Law Offices of Serlin and Whiteford Leasing & Capital, LLC Mark A. Serlin, Esq. Email: [email protected] Counsel for Creditor Texas Comptroller Bankruptcy & Collections Division of Public Accounts Kimberly Walsh, Esq. Email: [email protected] Counsel for Creditor 200 S. Main Street Ballard Spahr Andrews and Ingersoll Investors, LLC Rebecca J. Winthrop, Esq. Email: [email protected] Penny M. Costa, Esq. Email: [email protected] Counsel for Creditor Citibank, N.A. Peitzman Weg LLP

Larry Peitzman, Esq.


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Email: [email protected]

Counsel for Amy J. Fink Jones Day Robert A. Trodella Email: [email protected] VIA EMAIL: Counsel for Creditor Citibank, N.A. Paul, Weiss, Rifkind, Wharton &

Garrison Kelley A. Cornish, Esq. Email: [email protected]

Diane Meyers, Esq. Email:[email protected] Jacob J. Adlerstein, Esq. Email: [email protected]

Ballard Spahr LLP Matthew Moncur, Esq. Email: [email protected] EMC Corporation c/o Receivable Management Services Steven Sass, Esq. Email: [email protected] Ronald Rowland, Esq. Email: [email protected] Olin Corporation S. Christian Mullgardt Email: [email protected]

VIA U.S. MAIL: Richard Burdge, Esq. The Burdge Law Firm PC 500 S Grand Ave Ste 1500 Los Angeles, CA 90071


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Jeffrey C. Wisler, Esq. Connolly Bove Lodge & Hutz LLP 1007 North Orange Street Wilmington, DE 19899 Attorneys for Interested Party Connecticut General Life Insurance Company IKON Office Solutions Recovery & Bankruptcy Group 3920 Arkwright Road, Suite 400 Macon, GA 31210 EMC Corporation c/o RMS Bankruptcy Recovery Services Attn: President or General/Managing Agent P.O. Box 5126 Timonium, MD 21094-5126 Salter & Company LLC 4600 East-West Highway, Suite 300 Bethesda, MD 20814 County of Loudoun Virginia Belkys Escobar 1 Harrison St., S.E. 5th Fl. Leesburg, VA 20175-3102 Matura Farrington Staffing Services, Inc. 700 So. Flower Street, Suite 2505 Los Angeles, CA 90017 Guy Davis Protiviti Inc. 1051 East Cary Street, Suite 602 Richmond, VA 23219 George E. Shoup, III Development Specialists, inc. 6375 Riverside Drive, Suite 200 Dublin, OH 43017-5373 Kyle Everett Development Specialists, Inc. 235 Pine Street, Suite 1150 San Francisco, CA 94104


Jason M. Rudd, Esq. (pro hac vice) Counsel for Allan B ... · h. Analyzing, preparing and conducting asset sales, including artwork, office furniture, and equipment; i. Analyzing

Documents