Biglaw, Deferral Stipend, Dissolution, Heller Ehrman

Deferral Stipend Judgment Is a Moral Victory for Two Former Heller Ehrman Associates

Way back in 2008, back when people were wondering just how bad the recession was going to be for Biglaw, Heller Ehrman collapsed. When the firm dissolved, there was a lot of fear that it would be the first of many to fold.

While a few other firms also dissolved during the recession, we didn’t have an epidemic of dissolution across Biglaw. At the end of the day, it looks like only the firms under horrendous management paid the ultimate price.

Of course, many of the people who managed these firms into the ground landed on their feet and found new, high-paying legal jobs. Many of the associates and staff didn’t fare as well. Try getting a job in this economy when you are an associate with no experience who has already been laid off. In the immortal words of Akin Gump partner Steven Pesner, “the job market is not so good right now, in case you did not know.”

Given all that these people have been through, it’s nice to be able to report on a victory for two would-be Heller associates. Heller pushed back their start date and offered them a deferral stipend. Then the firm folded, and Heller never paid out that stipend.

Now, two years later, a California court has ruled that these two members of the Lost Generation should have been given priority when Heller came apart…

The two deferred associates are Kelly Seaburg and Havila Unrein. The were supposed to start on October 13, 2008, but were deferred until January 2009. Heller told them they’d get a $10,000 stipend for the delay.

Obviously their jobs never came through. Neither did the money. Bankruptcy Judge Dennis Montali (N.D. Cal.), the man who has been handling the Heller bankruptcy, thinks Seaburg and Unrein should have received their stipend. The Northern District of California Blog reports:

Ms. Seaburg and Ms. Unrein claim that they are entitled to statutory priority under 11 U.S.C. § 503(a)(4) because the stipends were, “wages, salaries or commissions….” Judge Montali explained:

“The foregoing arrangement had the effect of keeping Claimant on a form not unlike a retainer, viz., remain available from October to January and be paid $10,000 in three monthly installments before you show up at the office. Leave us and go elsewhere on a permanent basis, and don’t get paid. In the overall context of the history of Claimant’s affiliation with Debtor, Debtor’s prior treatment of their remuneration, and the context of the deferral letter, coupled with the policy arguments well-briefed by Claimants, satisfied the court that their claims are entitled to priority.”

Obviously, the $10,000 stipend it has taken them two years to claim a legal right to pales in comparison to the six-figure jobs they thought they signed up for. While other friends ended up with more stable employers, these two had the misfortune of buying whatever Heller was selling.

But at least through their efforts there is a court order that essentially says that firms can’t completely lie to deferred associates and then pretend like they don’t exist. There are some promises even a law firm has to keep.

Former Associates seek priorty in Heller Ehrman Bankruptcy [Northern District of California Blog]

Earlier: Anatomy Of A Dissolution: Heller Ehrman’s ‘AIG Moment’

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