Bankruptcy

Big Firm Files For Bankruptcy After $20 Million Goes Missing

Yet another once successful firm is seeking refuge in bankruptcy as it gasps its final breaths.

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For some law firms, bankruptcy is an unfortunate inevitability. Take, for example, the case of the once great Dewey & LeBoeuf. When the firm filed for Chapter 11 bankruptcy in 2012, it had about $315 million in liabilities and assets of roughly $193.2 million, leaving it with a giant deficit. Bankruptcy court is where failed firms go to die sad deaths.

It appears that yet another once successful firm is seeking refuge in bankruptcy as it gasps its final breaths thanks to the alleged dastardly deeds of one of its former partners.

Morris Schneider Wittstadt, a troubled residential real estate closing firm, filed for Chapter 11 protection on Sunday evening. When times were good, the firm employed 150 lawyers and 700 staff members, but now the firm has withered away to a shadow of its former self, with only five attorneys and 31 staff members remaining. The firm will reportedly be shutting down its operations, according to the Daily Report.

Sources told HousingWire that Morris Schenider’s employees learned of the firm’s failure in a conference call last Thursday. HousingWire also obtained an email from Sue Crouse, the firm’s director of human resources, sent prior to the bankruptcy filing. It’s ominous:

During the last week we have received formal written resignations (sent to multiple individuals), as well as, verbal notifications of pending resignation without a formal written resignation provided. To ensure we have accounted for all employees please respond to me with one of the following:

1) I have already submitted a formal resignation effective _____________.

2) I have not previously submitted my written resignation; however, I have found employment and will be resigning from the firm effective ________________.

3) I have not resigned and do not currently have a new position outside of the firm.

Crouse goes on to say that employees that have already resigned (or plan to resign) will be provided with separation materials on Monday or Tuesday. Crouse asks all employees to provide her office with their personal email, contact number and home address.

“For individuals who have not resigned and not secured employment outside the firm, you will either be assigned to the transition team or provided separation materials,” Crouse writes. “It is essential you communicate your status ASAP to me via email.”

What could have happened to cause Morris Schneider’s complete meltdown? The Wall Street Journal has more information on the firm’s sordid debt drama:

Morris Schneider’s troubles have been playing out publicly since last year, when [more than $20 million] was found to be missing from accounts linked to the firm’s real-estate business. The firm claims that former majority owner Nathan Hardwick tapped the firm’s accounts for his “personal use (including payments remitted directly to casinos and on account of private jets for the personal use of Mr. Hardwick, his girlfriend and family),” the firm’s executive managing partner, Mark Wittstadt, said in bankruptcy court papers.

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Last summer, the firm’s owners found a multimillion-dollar shortfall in its escrow accounts, and while Hardwick was pushed out and sued for embezzlement, he denies all of the allegations. Hardwick’s lawyer, Edward Garland, explained: “What happened here, that culminated in the collapse of Morris Schneider and Wittstadt, is really the result of a rash, unverified set of false allegations made against Nat Hardwick.”

As soon as the embezzlement news made its way around, Morris Schneider’s practice started drying up. A title company took over the firm’s title business, and Butler & Hosch took over the firm’s foreclosure business (the latter was obviously a mistake, since that firm closed up shop in May). According to Morris Schneider’s bankruptcy filing, the firm has less than $10 million in assets and more than $17 million in debts.

According to HousingWire, on Thursday, Morris Schneider’s employees were told that the firm would likely be unable to make payroll. Luckily, two of the firm’s retired name partners, Arthur Morris and Randolph Schneider, have volunteered to lend the firm money to cover employees’ unpaid wages to the tune of $200,000. At least they aren’t hanging their employees out to dry during this difficult time.

Here’s a statement from Morris Schneider Wittstadt, courtesy of the Daily Report:

“The majority of the former attorneys and staff who served as the backbone of the firm were able to find new jobs and the firm wishes them the best in their future endeavors,” said MSW in a statement. …

“This is a very sad and difficult circumstance for Morris Schneider Wittstadt, and we share in the disappointment and frustration of the parties involved,” said Mark Wittstadt, MSW’s executive managing partner, in the statement. “MSW was an extraordinary firm with many outstanding lawyers and employees, making this situation exceptionally disheartening.”

“After considering its relatively few options available, MSW chose Chapter 11 filing as a regrettably necessary step for the future of the firm,” the MSW statement said.

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Perhaps Morris Schneider’s most “extraordinary” and “outstanding” lawyer was the one who allegedly propelled the firm into monetary mayhem in the first place: Nathan Hardwick. Any law firm’s demise is sobering, but when the story comes complete with accusations of a multimillion-dollar embezzlement, it’s a rare feat. We’d offer our congratulations to Hardwick on that front, but given that so many people have lost their jobs, we’ll simply offer our condolences instead.

Atlanta Law Firm Missing $20 Million Seeks Chapter 11 [Wall Street Journal]
Morris Schneider Wittstadt Files for Bankruptcy [Daily Report]
Sources: Morris Schneider Wittstadt declaring bankruptcy, closing immediately [HousingWire]

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