SonicBlue Trustee Wants Pillsbury to Return $4.2M in Fees, Pay $11M in Damages
The trustee in SonicBlue’s bankruptcy is seeking disgorgement of fees and damages against two law firms connected to the case: Pillsbury Winthrop Shaw Pittman and Levene, Neale, Bender, Rankin & Brill.
Trustee Dennis Connolly contends Pillsbury, the former counsel for SonicBlue, failed to disclose important information about a possible conflict and prefernce payments received before the bankruptcy filing, the Recorder reports. And he claims Levene Neale, former counsel for the creditors’ committee, didn’t pursue actions in connection with the disclosure failures that would have put Pillsbury at risk, according to the story.
Connolly is asking Judge Marilyn Morgan to order Pillsbury to return $4.2 million in fees and pay $11 million in compensatory damages and possible punitive damages, the story says. He also wants the judge to order Levene Neale to return $1.2 million in fees and to pay $5 million in damages, the story says.
Connolly claims Pillsbury failed to disclose that it had told three hedge funds they would be repaid in full as senior bondholders if SonicBlue went bankrupt. Connolly contends the law firm could have been responsible for any shortfall in payment to the hedge funds, so it would have been motivated as SonicBlue counsel to make sure they were paid in full. The firm was kicked off the case in 2007 over the allegations. Connolly also contends Levene Neale failed to pursue claims against the hedge funds.
Connolly alleges Levene Neale persuaded the creditors’ committee not to pursue a preference action against Pillsbury for withdrawing fees, then sent an e-mail recognizing that Pillsbury had made a declaration about the payments that was incorrect as a matter of law, the story says. The e-mail also advised Pillsbury how it could avoid future preferential transfer exposure, Connolly said.
The lawyer for Pillsbury, Steven Schon, defended his client in an e-mail to the legal newspaper. “We are disappointed the complaint does not take into account the evidence favorable to Pillsbury or recognize that Pillsbury’s efforts benefited the estates and their creditors,” he wrote.
Connolly’s request came 10 days after a creditor’s lawyer asked the judge to refer Pillsbury partner William Freeman to the U.S. attorney’s office for possible prosecution for failing to disclose the fee withdrawals in the 90 days before the bankruptcy filing.
