Departing Heller Ehrman Partners Paid $7 Million
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Bankrupt law firm Heller Ehrman paid out more than $7 million to 35 departing or retiring partners in 2008.

The departures led to the firm breaking a loan covenant and having its accounts frozen, which precipitated its collapse.

The document also shows who Heller’s creditors could target as they seek to be paid through Heller’s bankruptcy. Creditors can try to reclaim payments dating back as far as four years.


Thomas Willoughby of Felderstein Fitzgerald Willoughby & Pascuzzi, who represents the creditors, says he will be looking at any payments that were made when the estate was insolvent, or distributions that “led to it being insolvent.”

The majority of the distributions, $5.3 million, went to 13 lawyers who received all of their capital because of a “change of status or termination.” The highest distribution went to senior of counsel Douglas Schwab, who received $920,000. Schwab retired in 2008 and was at Heller for more than 35 years.

Dissolution committee member Paul Sugarman and received $513,000.

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Some partners collected 25% of their investment in the firm, and 40 of them collectively left behind $8 million in capital. Lawrence Hobel is out the most cash, with $573,000 left behind.

To accumulate capital, Heller would withhold between 7 and 8.5% per year of each partner’s profits, and withholdings would stop after a maximum was reached. A partner reaching 65 and retiring or switching to senior status received all capital back.

Firms often take years to pay back capital contributions to partners who leave for other firms. In Heller’s case in 2008, partners were paid 25% of their capital upon departure, with the expectation that 25% a year would be distributed over the following three years. By June 1, however, the policy changed and partners who moved were told they would not begin to be paid until 2009.


Law firm Heller Ehrman pays out more than $7-million to 35 departing or retiring partners in 2008 and goes bankrupt. The law firm’s bankruptcy amounting to $5.3 million went to 13 lawyers who received all of their capital because of change of status or termination and the highest went to Douglas Schwab, who received $920,000 during his retirement in 2008, and served at Heller for more than 35 years.


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