Dewey, Davis Polk, Grant & Eisenhofer: Business of Law

Dewey & LeBoeuf LLP, the defunct law firm, collected $20.6 million in accounts receivable in July, bringing the total to $39.9 million since the bankruptcy began on May 28.

The firm spent $4.3 million in July, bringing net recoveries in the month to $16.3 million, according to an operating report filed Aug. 21 with the U.S. Bankruptcy Court in New York.

Given net collections and $23.6 million already on hand, Dewey was able to pay $25.7 million to the secured lender JPMorgan Chase Bank NA during July.

The operating report doesn’t lay out unbilled fees or accounts receivable. The balance sheet shows a receivable of $16.4 million representing disbursements and expenses incurred for clients.

Dewey has two official committees, one for unsecured creditors and the other for former partners. The firm once had 1,300 lawyers before liquidation began under Chapter 11 in May.

There was secured debt of about $225 million and accounts receivable of $217.4 million at the outset of bankruptcy, the firm said. The petition listed assets of $193 million and liabilities of $245.4 million as of April 30.

The case is In re Dewey & LeBoeuf LLP, 12-12321, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Oracle Must Face Suit Over Ellison Firm Buyout, Judge Rules

Oracle Corp. (ORCL)’s directors must face investor claims that they wrongfully agreed to buy Pillar Data Systems Inc., a company controlled by Oracle Chief Executive Officer Larry Ellison, a judge concluded.

The Oracle shareholders have raised legitimate questions about the company’s 2011 purchase of Pillar, a closely held provider of data-storage systems, and can proceed with their lawsuit against the board, Delaware Chancery Judge Leo Strine in Wilmington ruled yesterday. Ellison, Redwood City, California-based Oracle’s founder, owns a 55 percent stake in Pillar.

The investors properly raised questions about whether the purchase “was a legitimate deal and whether somebody could have gotten a better deal” for them, Strine said at a hearing.

Oracle, the world’s largest maker of database software, bought San Jose, California-based Pillar in June 2011 in a deal that required no compensation up-front and allowed for an “earn-out” payment based on Pillar’s performance during the next three years, according to a filing with the U.S. Securities and Exchange Commission.

Under the deal’s terms, the 68-year-old Oracle CEO’s $544 million investment in the data-storage startup was converted into preferred Pillar shares.

Those shares were canceled after the transaction closed in exchange for rights to receive a portion of the earn-out payment that may be made in 2014, the investors said in court filings earlier this year.

The investors, pension funds in Michigan and Pennsylvania that own Oracle shares, sued in Delaware last year challenging the decision to acquire Pillar. They filed so-called derivative suits against the board, which would return any recovery from insurance covering the company’s officers and directors to Oracle’s coffers.

The investors contend in court papers that Oracle directors improperly used company resources to “bail out” Ellison from his “horrible investment” in Pillar.

“Ellison got Oracle to agree to take over Ellison’s investment, fund Pillar Data for the next three years, and pay for that privilege by valuing Pillar Data at a point three years down the road,” the investors said in a April 27 filing. “In short, the transaction made no economic sense for Oracle. But it made a lot of sense for Ellison.”

Oracle’s directors, who include Ellison, said that the deal was structured in a way that required no immediate payment for Pillar to insure Ellison didn’t improperly benefit from the acquisition. The so-called earn-out payment only will be made if Pillar’s performance over a three-year period warrants it, they said.

At this stage in the transaction, “Oracle has paid nothing,” Michael Carroll, a New York-based lawyer for the software maker, told the judge yesterday. Investors shouldn’t be able to challenge the deal until it’s clear the earn-out payment will be made, Carroll, a partner at Davis Polk & Wardwell LLP, added.

Still, Oracle officials will have to spend money to cover Pillar’s operating expenses over the three years, and that damages investors, Stuart Grant, a lawyer for the Oracle shareholders, told Strine. Grant is a partner at Wilmington-based Grant & Eisenhofer PA.

The case is City of Roseville Employees’ Retirement System v. Ellison, CA6900, Delaware Chancery Court (Wilmington).

Madoff Trustee’s Customer Payment May Reach $2.4 Billion

The trustee liquidating Bernard L. Madoff’s bankrupt brokerage won court approval to make a second customer payment that may reach $2.4 billion, or seven times as much as the con man’s investors have received so far.

U.S. Bankruptcy Judge Burton Lifland in New York yesterday granted Irving Picard’s request to hold back less money from a fund created to compensate investors for Ponzi scheme losses. Some customers have demanded 9 percent interest on their money. Lifland’s ruling that Picard can reserve just 3 percent for interest means the payment to customers may be $1 billion larger than if he had to hold back the bigger amount, Picard has calculated.

Court challenges have tied up most of the $9.1 billion that Picard has raised since Madoff’s 2008 arrest, mostly through settlements. Picard has paid customers $336 million from the compensation fund, according to his website. His law firm, Baker & Hostetler LLP, meanwhile, has charged more than $300 million for liquidating Madoff’s brokerage.

The Madoff brokerage liquidation case is Securities Investor Protection Corp. v. Bernard L. Madoff Investment Securities LLC, 08-01789, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

For more, click here.

Empire State Building IPO Challenged by Legacy Investors

Al Weiner’s stake in New York’s Empire State Building came to him by way of his grandfather’s death in a 1950 train crash in Richmond Hill, Queens. His grandmother sued the Long Island Rail Road, and her lawyer was Lawrence Wien, a family friend.

The money from the settlement made the Weiners a natural call when Wien was reaching out to his network of friends and business associates in the early 1960s to buy what was then the world’s tallest skyscraper. The family and more than 2,000 others purchased shares of the Empire State Building under a syndication orchestrated by the lawyer and his partner, real estate investor Harry Helmsley.

Half a century later, that complex ownership structure may stand between Wien’s successors, Peter Malkin and his son Anthony, and their plans to form a real estate investment trust and take the Empire State Building public. The Malkins, who need 80 percent approval from the 3,300 units held by the legacy investors, are facing opposition by stakeholders like Weiner, who say they will be shortchanged in the deal and lose a steady income stream that is poised to jump in value, sacrificing safety for the vacillations of the stock market.

“My grandma said don’t ever sell these,” said Weiner, 53, who runs a business out of Jericho, New York, that sells artisanal cheeses to restaurants. “The checks come in like clockwork.”

As Bloomberg’s David Levitt reports, Peter and Anthony Malkin, Wien’s son-in-law and grandson, respectively, have taken notice. The entity they control, Malkin Holdings LLC, has filed four documents with the Securities and Exchange Commission in the last month disclosing efforts to reach out to stakeholders and saying that the dissident holders’ conclusions can’t be relied upon.

“We believe certain individuals are creating an environment of confusion through incorrect statements about” their company and the proposed transaction, the Malkins wrote in an Aug. 6 letter to investors. Distributions probably will increase more over time as part of the deal than if the Empire State Building was left as a standalone investment, they said.

The Malkins declined to comment for this story because of the quiet period for pending IPOs.

They are aiming to form the REIT, to be known as Empire State Realty Trust Inc. (ESRT), to gain greater efficiencies and access to capital, and because the Helmsley estate is liquidating its holdings following the death of Harry Helmsley’s wife, Leona. In addition to the 102-story tower, the REIT would include 18 other properties, ranging from midtown Manhattan office buildings to a development site in Stamford, Connecticut, that would be added to the legacy investors’ holdings.

The Malkins’ valuation firm, Duff & Phelps Corp., estimates the value of the entities that hold all the buildings to be included in the REIT at $3.99 billion. About $2.5 billion is from the Empire State Building.

The share sale stands to be the highest-profile REIT IPO since the 1990s, when big office landlords such as Boston Properties Inc. (BXP) and SL Green Realty Corp. (SLG) went public, said Lawrence Longua, director of the REIT Center at New York University’s Schack Institute of Real Estate.

Small investors such as Weiner own stakes in an entity called Empire State Building Associates LLC, which holds the deed to the Empire State Building. The investors are entitled to about half of the tower’s value -- one of the points of contention -- because the other half is assigned to the building’s sublease holder, according to an evaluation by Duff & Phelps.

The firm’s appraisal of the Empire State Building at $2.5 billion indicates that each of the 3,300 units, priced at $10,000 in 1960, would be worth about $330,000 today.

The small investors may lose close to half that amount after taxes should they take shares of the REIT, and then would have trouble finding an alternative place for their money that offers the same dependable returns, said Richard Edelman, a grandson of an original investor who receives payments as part of a trust. The Malkins have come up with an alternative to address the tax implications.

Another group of investors has sued, alleging “an imbalance and disparity of knowledge and economic power” between the Malkin and Helmsley interests and the small investors. Five separate lawsuits were consolidated into a single class action on June 27 in New York State Supreme Court in Manhattan. The lawsuit is “baseless,” Hugh Burns, a Malkin Holdings spokesman, said in an e-mail.

“I’ve been in other IPOs where there’s litigation and there’s incredible pressure to resolve it, because you can’t take a company public with that kind of overhang,” said Boris Dolgonos, a partner in the New York office of the law firm Jones Day, who has worked on several share sales and isn’t involved in the Empire State Building IPO. “Whenever there’s any kind of dissent or litigation the sponsor wants to have that resolved before taking it public.”

The class action is Leon Meyers v. Empire State Realty Trust Inc., 650607/2012, New York state Supreme Court (Manhattan).

For more, click here.

Moves

Former WellCare Executive Rejoins King & Spalding in Washington

John C. Richter, who had been the deputy general counsel at WellCare Health Plans Inc., is rejoining King & Spalding LLP as a partner in its special matters and government investigations practice in Washington on Sept. 4.

According to a statement from the firm, Richter will focus primarily on health-care investigations and cases involving whistle-blower cases.

Richter worked at WellCare for two years, supervising litigation, internal investigations and business contracting.

King & Spalding has 800 lawyers worldwide.

Tax Lawyers Join Crowell & Moring in Washington Office

Crowell & Moring LLP has expanded its tax practice with the addition of two partners in the firm’s Washington office.

Donald M. Griswold and Walter Nagel are moving their practices from Reed Smith LLP to Crowell & Moring, where they will provide counseling to Fortune 500 clients on state and local tax matters, including mergers and acquisitions, state tax planning, and audit defense and litigation. Griswold and Nagel will also be joined by an associate.

Griswold and Nagel are both on the adjunct faculty of Georgetown University Law Center. Two other tax attorneys, David B. Blair and David J. Fischer, joined the firm last month.

Crowell & Moring has about 500 lawyers representing clients in litigation and arbitration, regulatory and transactional matters.

To contact the reporter on this story: Ellen Rosen in New York at erosen14@bloomberg.net.

To contact the editor responsible for this story: Andrew Dunn at adunn8@bloomberg.net.

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