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Thursday, July 19, 2007

Rider Bennett Goes Bust

Editor's note: The following article will appear in Monday's print edition of Minnesota Lawyer. We are posting it here as a special extra for our blog readers.

Rider Bennett files for Chapter 11 bankruptcy protection
By Barbara L. Jones/ barbara.jones@minnlawyer.com

Unable to reach an accommodation with its former landlord, the Rider Bennett law firm, which closed its doors at the end of May, is seeking Chapter 11 bankruptcy protection.

The petition, filed on July 12, was accompanied by motions for expedited hearing and other relief that would allow the firm to pay its remaining employees and other expenses. Rider Bennett has retained the Minneapolis law firm of Fredrikson & Byron to represent it, paying the firm a $75,000 retainer, which is held in trust.

According to the petition, Rider Bennett will have funds available for distribution to unsecured creditors, which number between 100 and 199. It lists both assets and liabilities of $100,000 to $100 million, with more detailed financial information to be forthcoming.

According to the motion papers, after the firm decided to cease operations it entered into a forbearance agreement with its bank, American Bank of St. Paul, to wind up on terms designed to maximize the value of the debtor’s assets.

The firm alleges that its landlord, City Center Associates, through its agent, Brookfield Properties, has sought to interfere with and impede the liquidation process.

“Brookfield’s litigation tactics have so far failed to derail the winding up but have resulted in the incurring of substantial, unnecessary expense and diverted the firm’s attention from its principal goal -- maximization of the value of its assets for all creditors. This case is brought in part to reduce the diversion of resources caused and likely to be caused by Brookfield’s tactics,” Rider argued in its motions.

Brookfield has reportedly sued Rider Bennett for about $11.5 million for rent. Brookfield also asked the court to appoint a receiver. Rider Bennett’s filings indicate that it will seek bankruptcy court approval to reject the lease, but concede that Rider owes a disputed, unliquidated amount for rent.

“We’re hoping to reach agreement with Brookfield on a plan of liquidation,” said Clinton Cutler, who is one of the bankruptcy attorneys representing Rider.

Rider decided to file the voluntary bankruptcy so that the landlord’s lien could be avoided as a preferential transfer, according to Steven Plunkett, the former managing partner of Rider. “Part of our role is to make sure all our creditors are treated fairly,” Plunkett said. The firm’s bank supports the filing, he added.

The strategy makes sense, said Madison, Wis., attorney James Sweet. The purpose of pursuing a Chapter 11 liquidation rather than a Chapter 7 is to allow the debtor to remain in control of the process, rather than have a trustee in charge, he explained. By filing the bankruptcy petition within 90 days of the lien, the firm can avoid the transfer and the landlord should be unsecured, he said.

Rider is also facing a $12 million fraud claim in Hennepin County District Court stemming from a case where a former Rider lawyer represented a husband in a divorce. (See, “Rider Bennett faces $12M fraud claim” in the May 21, 2007, edition of Minnesota Lawyer, password required.) The plaintiff in that case maintains that the Rider lawyer participated in a fraudulent effort to undervalue the husband’s business.

Plunkett said that the fraud claim was immaterial to Rider’s decision to file bankruptcy. The firm is represented in the fraud action by Lewis Remele of Minneapolis, who has previously indicated that the claim may be a casualty of the firm’s closure. Although the firm carries insurance to indemnify it against a negligence claim, there is a substantial retention amount that the firm would have to pay, said Remele.

Minneapolis attorney William Skolnick, who represents the plaintiff in the fraud case, said he had not decided whether to seek relief from the automatic stay imposed by the bankruptcy filing.

Rider’s complete schedules are due to the bankruptcy court on July 27. It has filed a list of creditors holding the 20 largest unsecured claims, which (excluding Brookfield and the fraud claim) total a little more than a half million dollars. As of the filing of the petition Rider owed its secured creditor, American Bank, a principal amount of $3.7 million plus interest, fees and costs.

The firm has asked the Bankruptcy Court to approve its use of about $40,000 to pay compensation to employees winding up t he company and another $73,000 to pay other expenses necessary to prevent irreparable harm to the estate.

The total value of the firm’s assets securing bank loans is about $11.3 million. Although some of the firm’s assets are contingent, “the Debtor believes that the asset value exceeds the amount owed the Bank by a significant amount,” the firm’s filings states.

The demise of the venerable law firm has been a sad event for the Minnesota legal community, but Plunkett was sanguine about the latest development.

“This is a part of doing business,” he told Minnesota Lawyer.


doglover said...

Can anyone tell me if a Minnesota prison inmate can declare bankruptcy while incarcerated?? If it's possible, how would he begin the process? Thanks in advance!

Anonymous said...

Does LAMP (Legal Assistance to Minnesota Prisoners) still exist?

You are going to have a hard time getting legal advice online. The bar frowns upon such things.

Anonymous said...

You might try one of the links compiled here by the American Bar Association.