Ex-Partners' Suit Says Citibank Urged Personal Loans as Howrey Overspent Line by 'Incredible' $23M
In a case that could resonate with lawyers at other struggling legal shops, two former partners of Howrey are contending in a lawsuit in state court in California that Citibank urged them to take out personal loans to contribute capital after the law firm exceeded its $75 million line of credit by an “incredible” $23 million.
The April 2009 breach by Howrey of its lending agreement would have justified Citibank in recalling the credit line, contend ex-partners David Buoncristiani and Stephen O’Neal, who had joined the law firm the previous year. Instead, they allege, a bank official told them the law firm was on solid financial footing as they borrowed money to put in Howrey’s coffers, Reuters reports.
“I later found out that during this whole period of time … when I was being romanced by Citibank, that they had reason to believe—in fact, they knew—that Howrey was in default of material covenants, and they didn’t tell me that,” O’Neal said in a deposition in the case, which was filed in September 2011.
In filings in the San Francisco Superior Court case, Citibank says it wasn’t aware of the April 2009 breach until after it made the loans to Buoncristiani and O’Neal. The two men, who are now with Jones Day, are contesting repayment, arguing that they were victims of the bank’s fraud. The bank argues that the two have only their own negligence to blame and says it had no duty to warn them about their own law firm’s finances.
The California case is similar to <a href=”“http://www.abajournal.com/news/article/former_dewey_partner_alleges_he_and_others_were_fraudulently_induced_to_get/” title=”one filed against Citibank last year”>one filed against Citibank last year in federal court in New York by a former partner of Dewey & LeBoeuf.
The bank said it had no fiduciary duty to warn a partner about his own law firm’s finances, even if had known, as ex-partner Steven Otillar contended Citibank did, that the law firm was teetering on a shaky financial foundation.