Hearing Scheduled in Dispute over O’Melveny Fees in SonicBlue Bankruptcy

A federal bankruptcy judge in San Jose, Calif., has scheduled a hearing to determine whether O'Melveny & Myers should be able to collect $1.3 million in fees and costs for representing SonicBlue in its bankruptcy.

The hearing comes amid allegations that O'Melveny & Myers failed to disclose a potential conflict of interest until it applied for fees in the case, the Daily Journal reports (sub. req.). U.S. Bankruptcy Judge Marilyn Morgan said it doesn't appear there was an actual conflict, and tentatively set the fee hearing for October to sort out the firm's role in the classification of debt in a licensing dispute.

William McGrane, who represents a SonicBlue creditor, claimed O'Melveny should have disclosed its connection to Highbridge International, a firm that owned some of SonicBlue’s debt. He claims the relationship should have been disclosed during negotiations for a licensing deal between Intel Corp. and VIA Technologies Inc. The Daily Journal described VIA as a SonicBlue creditor, while the Recorder says SonicBlue had a licensing agreement with VIA that involved it in the case.

An O’Melveny lawyer, Suzzanne Uhland, was special counsel to SonicBlue in the licensing dispute between Intel and VIA, according to an account of McGrane’s claims in the Recorder. A waiver in the settlement benefited SonicBlue’s debt holders over VIA, but the judge was not told, according to claims summarized in the Recorder.

O'Melveny disclosed its client relationships in the VIA-Intel dispute in April. Morgan said the late disclosure was adequately explained, according to the Daily Journal story. "O'Melveny has adequately explained its delay in filing its disclosures," Morgan said. "None of the objecting parties have asserted there was an actual conflict of interest and it doesn't appear there was one."

O'Melveny & Myers spokeswoman Marjory Appel released this statement to the ABA Journal: “The upcoming hearing will give the court an opportunity to better understand the very complex facts surrounding the Intel-VIA license negotiations. We welcome this hearing as it will clearly demonstrate the value our work generated for the bankruptcy estate. We believe that any issues regarding our April 14 supplemental disclosures have been addressed."

The bankruptcy case has also caused problems for SonicBlue law firm Pillsbury Winthrop Shaw Pittman, which agreed to pay $7.6 million and forgo $2.4 million in fees to settle a trustee’s claim that it failed to disclose a conflict. The firm was kicked off the case two years earlier.

Updated on May 7 to include information that Judge Marilyn Morgan found no conflict by O'Melveny and to include the statement by O'Melveny's spokeswoman.