Three Firms Seek Fees From American Apparel: Business of Law

  • Dewey & LeBoeuf jury still deliberating on most counts
  • Fantasy sports companies lawyer up in regulatory probe

Sometimes law firms are counsel to bankrupt companies, but sometimes they’re unsecured creditors.

In the bankruptcy of embattled clothing manufacturer American Apparel Inc.; Skadden, Arps, Slate, Meagher & Flom LLP; White & Case LLP; and Paul Hastings LLP are among the latter.

The clothing company owes approximately $6 million in total to the three firms for legal services. At $3.8 million, Skadden’s claim ranks third among all unsecured creditors. White & Case, which says its owed $1.4 million, is also in the top 10. And Paul Hastings says it’s due just under $700,000 for its work for the company.

Over the years, Skadden represented the company in several matters, including a battle with controversial founder Dov Charney over reimbursement of legal fees after he was fired from the company. Charney lost that dispute in September. Among other matters, the Wall Street Journal reported last year that Skadden also represented the company when it was initially considering its restructuring options. Jones Day has been chosen to represent the company in the bankruptcy.

A White & Case spokeswoman, Francine Minadeo, declined to comment in an e-mail. The firm’s website, however, says partner Scott Hershman represented American Apparel’s directors “in connection with a dispute with the former CEO.” Hershman declined to comment on his role.

Paul Hastings has represented the company in matters including its defeat of Charney’s defamation suit in state court in California. A firm spokeswoman, Lindsey Meyers, declined to comment on the money owed.

American Apparel filed for court protection on Monday, putting it among the 10 largest apparel retailer bankruptcies in the past five years, according to data compiled by Bloomberg.

After the filing, the Los Angeles-based chain won quick court approval to tap into loans of as much as $90 million while it tries to reorganize its finances.

On Tuesday, U.S. Bankruptcy Judge Brendan Shannon in Wilmington, Delaware, gave initial approval to the $90 million in financing, saying it wasn’t typical to move so quickly in a case like this. But, he said, his decision “clears the runway” for the company to start taking care of bills, including payroll. American Apparelemploys about 8,500 people at its stores and factories, with about 7,000 in the U.S.

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Court News

Former Dewey Executives Still Not Out of the Woods as Jury Returns to Work

A jury considering fraud charges against three former senior executives at Dewey & LeBoeuf LLP was told by a judge to keep trying to reach a verdict after having failed to do so on most counts.

Manhattan District Attorney Cyrus Vance Jr. accused the firm’s former chairman, Steven Davis; its former executive director Stephen DiCarmine; and former chief financial officer Joel Sanders of cutting costs by mischaracterizing payments to lawyers, double-booking income, delaying expenses and asking clients to backdate checks. They face as long as 25 years in prison if convicted of the most serious charges.

The partial verdict came after a 3 1/2-month trial that featured testimony from more than 40 prosecution witnesses, including a former finance director who testified after pleading guilty, and none for the defense.

The jury found the three former law firm executives not guilty of some counts of falsifying business records, but on Wednesday the panel said it hadn’t reached verdicts on fraud, larceny and conspiracy charges. The DA has said the defendants’ actions eventually led to the biggest collapse of a global law firm.

The partial verdict underscores the difficulty prosecutors face as they seek to hold individuals accountable for corporate crimes. The Dewey case, while tried by the Manhattan district attorney, involves the type of fraud often pursued by the federal government.

If the jury fails to reach a verdict on the remaining charges, the prosecution will have two choices, according to Mark Stein, a partner at Simpson Thacher & Bartlett LLP.

“While the acquittals will stand, the DA can retry the remaining charges. Or the prosecutors could decide it’s not worth a retrial,” said Stein, who represents corporate clients in criminal and regulatory investigations. “But that’s unlikely because the DA’s office won’t want to waive the white flag in a high-profile case like this.”

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Internal Investigations

The multibillion-dollar fantasy sports-betting business, under new law-enforcement glare, is calling in the big playmakers.

FanDuel Inc. said Wednesday that it’s asking former U.S. Attorney General Michael Mukasey, now a partner at Debevoise & Plimpton LLP, to conduct a review of the company’s policies and standards. In addition, former Manhattan U.S. Attorney Michael Garcia, now a partner at Kirkland & Ellis LLP, will lead a newly created internal advisory board.

FanDuel’s outreach to the two attorneys, who were among the top U.S. prosecutors during the administration of former President George W. Bush, comes as it and rival DraftKings Inc.face scrutiny over a business that lets sports fans wager on athletes’ performances. On Tuesday, New York State’s top lawyer, Attorney General Eric Schneiderman, opened a probe into allegations that employees of the two companies may have used in-house data to place personal bets.

DraftKings, for its part, said it has hired former a U.S. attorney for Massachusetts, John Pappalardo, and a team from Greenberg Traurig LLPto conduct an internal review.

Both companies said Wednesday they’d received a request for information from Schneiderman. A spokeswoman for DraftKings, Sabrina Macias, said in a statement that the firm “will fully cooperate.” FanDuel said it looks forward to “speaking with regulators across the nation about how to define the right set of rules for our industry as it continues to grow.”

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