http://abovethelaw.com/2012/10/another-client-controversy-for-greenberg-traurig/#more-199709
There’s always something interesting going on over at Greenberg Traurig. Over the summer, we covered their capital call. Earlier in the year, we wrote extensively about the drama in Coquina Investments v. TD Bank, a case in which the firm got sanctioned. Last month, we mentioned in passing the firm’s quiet settling of claims brought by current and former NFL players alleging that the firm failed to warn them adequately about investing in an ill-fated Alabama casino project.
Today brings word of another client-related controversy over at Greenberg Traurig….
The story comes to us via the Palm Beach Post:
A former Greenberg Traurig lawyer, hired by West Palm Beach in 2010 to help the city decide whether to build a digital animation college downtown, issued a glowing nine-page report about the company being considered, Digital Domain, and its leader, John Textor.But the lawyer, New York-based Steven C. Beer, did not disclose that Greenberg Traurig lawyers in Boca Raton had been suing Textor for years on behalf of an unhappy Textor investor.Beer, an entertainment lawyer, wrote an analysis for the city that described Textor as imaginative, concept-driven and experienced within the worlds of corporate finance and banking. The city paid Greenberg Traurig $15,000 for Beer’s work.
So far, so good. But then there’s this:
Beer did not tell the city that pleadings signed by Greenberg Traurig’s Boca Raton lawyers, led by Marc Sinensky, were using other words to describe Textor, in lawsuits filed in 2004, 2007 and 2010.In an Aug. 12, 2010, complaint — filed four days before Beer agreed to represent West Palm Beach — Boca Raton investor Jeffrey Kukes accused Textor of breach of fiduciary duty and fraud, according to the lawsuit filed in Palm Beach County Circuit Court.Greenberg Traurig’s representation of Kukes and West Palm Beach has some legal experts wondering whether the firm did the right thing in taking on the city as a client back in 2010. This was when the city was trying to decide whether to pour millions of dollars in incentives, as well as deed over a prime piece of land, to Digital Domain Media Group for the creation of a film school collaboration with Florida State University.Steven Beer, who is now a partner at Franklin Weinrib Rudell & Vassallo, did not respond to the Palm Beach Post’s requests for comment. But Greenberg Traurig did issue a statement:We, of course, have a sophisticated conflict review system which was utilized in this matter, but commenting upon the details would require a prohibited breach of client confidentiality. However, let us be clear, there was no legal conflict. This was a very limited and brief engagement to produce a report summarizing the perception of the company in the entertainment industry, not a legal analysis nor adverse to any firm client.But according to West Palm Beach’s contract with Greenberg Traurig, the firm was hired to provide legal advice and services “relating to media/entertainment matters for possible ‘tent site’ transaction.” It’s hardly surprising that one would go to a law firm for legal analysis.And even if there was no actual conflict of interest, this doesn’t look great. The GT report could at least have included a disclosure or passing mention of the lawsuit by Jeffrey Kukes against John Textor, since the litigation by that point was publicly filed (as opposed to something merely being contemplated by a GT client, in confidential discussions with its counsel at the firm). From the Post:Anthony Alfieri, law professor and founder and director of the Center for Ethics and Public Service at the University of Miami School of Law, said there are other issues [besides lack of a conflict of interest]. The lack of disclosure about Greenberg’s work for Kukes “fails to communicate relevant information to a client you know is not confidential or privileged.”Other lawyers agreed. “There may have been a failure to disclose information … especially if it was public,” said West Palm Beach lawyer James Beasley. “You can’t represent a client and not tell them adverse information that you know of.”It’s worth noting that Steven Beer worked out of Greenberg Traurig’s New York office, while the lawyers handling the litigation between Kukes and Textor were based in Florida. It’s possible that the New York team might have been unaware of what their Florida colleagues were up to. This is not uncommon at firms as large and as geographically spread out as GT.Such are the perils of size. As we’ve said before, it isn’t easy being Green(berg).
and the matter with the former NFL players.....
http://www.dailybusinessreview.com/PubArticleDBR.jsp?id=1202571960459&Greenberg_pursues_settlements_with_NFL_players&slreturn=20120920102441
Greenberg Traurig has been quietly settling lawsuits and claims brought by more than 30 current and former NFL players who alleged the law firm and a West Palm Beach shareholder failed to warn them about investing in what turned out to be an unlicensed Alabama casino project.
The players, most of whom went to college in Florida, lost more than $40 million. Some lost their life savings.
Five suits were filed by Terrell Owens, a wide receiver and six-time Pro Bowl selection; Clinton Portis, a running back who played professionally for the Denver Broncos and Washington Redskins and in college for the University of Miami; Mike Peterson, a linebacker with the Atlanta Falcons; Roscoe Parrish, a wide receiver with the Buffalo Bills who also played college ball at Miami; and Duane Starks, a former cornerback with the Baltimore Ravens and others.
In addition, the Daily Business Review has learned that a lawyer for 28 other players, including former Pittsburgh Steelers, New York Giants and New York Jets wide receiver Plaxico Burress, San Francisco 49ers running back Frank Gore and former New England Patriots running back Fred Taylor, was preparing to file suit last year against Greenberg when the firm suggested entering mediation instead.
In a statement to the Review, Greenberg denied wrongdoing. But the firm acknowledged it was settling the suits and claims.
"We have always denied any wrongdoing or any responsibility for or involvement with the players' decisions to invest in this project," the statement said. "We have resolved most of the claims and are discussing resolution of the remaining ones. The terms of the settlements and the details of ongoing discussions are confidential."
The athletes sued or mediated with Greenberg and shareholder Pamela Linden. Greenberg is standing behind Linden. The firm's website said she is a member of its real estate group and represents developers and lenders with loan restructuring, analysis of defaults and development of residential, condominium, golf course, commercial and office properties. She served as secretary-treasurer of the Palm Beach County Sports Commission in 2011.
A Florida Bar spokeswoman said Linden has no Bar complaints or investigations against her.
Some of the players have also sued or threatened to sue Pro Sports Financial Inc., a former Fort Lauderdale financial adviser, and its principal, Jeffrey B. Rubin. They claim they were steered into investing money in the failed Country Crossing electronic bingo venture, which was closed down by Alabama state authorities.
'Dead Deal'
Alabama developer Ronnie Gilley, the creator of the bingo venture, has pleaded guilty to federal charges of trying to bribe legislators in exchange for passing a bill allowing a statewide vote on gambling. Now a key prosecution witness, Gilley is facing up to 27 years in prison.
Fort Lauderdale phone numbers for Pro Sports are disconnected. Rubin's attorney, Patricia Morales Christianson of West Palm Beach's Casey Ciklin Lubitz Martens & O'Connell, did not respond to emails or phone calls seeking comment by deadline.
The lawsuits filed in Miami-Dade, Broward and Palm Beach Circuit courts against Greenberg and Pro Sports claim Linden and Rubin failed to inform them the only legalized gambling in Alabama is for charity and NFL rules prohibit players from investing in gambling ventures.
In previous statements, Greenberg has said Linden advised the players on real estate and other matters, but only became involved in the gambling project well after it was set up. However, state corporate records show Linden signed incorporation papers in 2008 establishing ventures with Pro Sports employee Ed Rappaport, who also is also being sued by several players. The companies bear names like KL Miami Group LLC and JK Miami Group LLC, then list players like Kenard Lang and Jevon Kearse with Rappaport as the registered agent. Michael Simon of Boca Raton-based Simon & Sigalos said corporate listings coincide with the dates the players invested in the casino project.
According to the lawsuit filed by Terrell Owens, Greenberg and Linden were his attorneys since 2006 and Linden was granted power of attorney for him. Linden steered him to investing $2 million in the project, promising a 15 percent return, Owens alleges.
"Moreover, continuing into 2008, Owens reasonably believed that Defendants were his attorneys because Linden consulted on Owens' behalf with Owens' advisors at Pro Sports Financial, Linden organized the TO Miami Group LLC, as Owens authorized representative for his investment opportunity involving a real estate, resort, entertainment, dining and gaming project in Alabama, known as "The Country Crossing Casino," states the suit.
In Greenberg's answer, filed in December 2011, the firm states that Pro Sports referred Owens to Linden for a real estate matter and that Linden represented Owens "on one corporate matter, and from time to time on certain discrete matters, all unrelated to the Entertainment Project."
Elizabeth Kagan of the Kagan Law Firm in Fort Myers, who represents 28 NFL players, said she has been entering into confidential settlements with Greenberg Traurig and is exploring lawsuits against Pro Sports, Rubin and possibly financial institutions that may have wired funds from players without authorization. She declined to name any of the institutions.
Simon, who represents Parrish, Starks, Peterson and Owens, also has been settling his suits with Greenberg.
"The state shut down the bingo hall and seized the bingo machines and will never reopen the hall," Simon said. "The project's a dead deal. There's no one there willing to operate it."
Simon declined to say how much Greenberg Traurig settled for. He said he is still proceeding with actions against Pro Financial and Rubin.
Garnishment
Rubin's connections to athletes go back to his college days at the University of Florida, where he roomed with Mo Collins, who went on to become an Oakland Raider, Yahoo! Sports reported. Rubin rented a Golden Beach house in 1999, and Taylor, Burress and retired defensive end Jevon Kearse were among the offseason residents.
Another lawyer, Martin Simkovic of the Simkovic Law Firm in Miami, said his client, Portis,also received a settlement from Greenberg.
In August 2011, Broward Circuit Judge Robert Rosenberg entered a partial final judgment of $510,000 with prejudgment interest of $15,845 against Pro Sports and Rubin for Parrish. Rubin omitted items of personal property in a fact sheet for the court and then removed the items from his Lighthouse Point home last Oct. 26, according to an emergency motion filed by Simon the next month. Rubin allegedly used a U-Haul truck to remove property and conceal it "to avoid satisfaction of the partial final judgment," the motion said.
But Simon has had difficulty locating Rubin and garnished his BankAtlantic and Wells Fargo bank accounts.
BankAtlantic said it had a diamond ring in a safe deposit box, but Rubin said the ring was owned by Kearse, according to court records filed a year ago. The ring has since been returned to Kearse. The bank also said it had $100 of Rubin's money.
Wells Fargo turned over $268 of Rubin's money.
Simon also moved to garnish any trust accounts held by Greenberg Traurig on behalf of Rubin.
In its reply, Greenberg Traurig "denies that it had in its possession or control tangible or intangible personal property or money owed to the defendants at the time of service of the writ or at the time of the filing of this answer or at any time in between."
In another setback for Rubin, U.S. Bank filed a foreclosure suit in September 2010 on his waterfront house in Lighthouse Point, which was bought for $2.89 million in 2005.
Boxer's Claim
It wasn't just NFL players who lost money in the casino venture. Undefeated boxing champion Floyd Mayweather Jr. claims he lost $4 million on a loan to Pro Sports and Rubin in June 2010. His lawyer, Gary Fox of Stewart Tilghman Fox Bianchi & Cain in Miami, filed a lawsuit in Miami-Dade Circuit Court in June 2012 to recover the money, alleging Rubin told Mayweather the project "involved little risk."
Fox said he has been unable to locate Rubin.
"He is concealing his whereabouts," Fox said. "He's making himself scarce. We're obtaining alternative service of process on him in attempting to track him down and take his subpoena."
Meanwhile, another one of the casino investors who lost money, NFL cornerback Samari Rolle is facing foreclosure on his $4.5 million Delray Beach house. On Sept. 6, JPMorgan Chase Bank filed a foreclosure lawsuit against the former Florida State University player.
http://abovethelaw.com/2012/08/some-comments-on-capital-calls-and-a-closer-look-at-greenberg-traurigs/
As businesses go, the business of law isn’t extremely capital intensive. Most of the capital in Biglaw is really human capital. As one bankruptcy lawyer put it, “It’s incredible how fragile law firms are. Unlike a company, the principal assets walk out the door every night.”
But law firms do need some capital. Those fabulous offices — and fabulous associates, at $160,000 and up — don’t come cheap.
Firms can obtain the capital they need to operate through borrowing; but credit needs to be used judiciously, lest a firm go the way of Dewey & LeBoeuf. And partners make capital contributions to the firm, most notably when they buy intothe partnership.
But sometimes that capital isn’t enough. So firms issue capital calls to their partners, which brings us to today’s topic….
In the early months of the year, most firms cover operating expenses by using their partners’ existing capital and by drawing on a revolving line of credit from a bank (like Citigroup, which is very active in lending to law firms). As the year goes along, collections from clients fill the firm coffers, enabling the firm to pay down the bank line — and then pay bonuses out to associates, and profits out to partners.
There are several reasons why a firm might have to reach beyond these funding sources and issue a capital call to the partnership. If a firm is undercapitalized, perhaps due to problems with client collections, it might issue a capital call to improve its liquidity (although some observers argue that undercapitalization isn’t a widespread problem in the law firm world).
Sometimes bank lenders might ask a firm to make a capital call as a condition of renewing a line. Sometimes a firm might find itself short on capital after having to return capital to partners who have left the equity partnership — maybe because they got “de-equitized” by the firm, in an effort to improve the firm’s profit per partner figure, or maybe because they left for another firm. So firms with a lot of partner churn might find themselves needing to make capital calls. (This is explained in a nice primer on how partner capital works by Edwin Reeser, posted at JDSupra.)
When was the last time your current or former firm issued a capital call to the partnership? We’re interested in hearing from you, by email or by text message (646-820-8477). But we don’t expect to hear from many of you. Capital calls aren’t that common; according to consultant Bill Brennan of Altman Weil, the majority of firms do not have regular capital calls. So when a major firm makes a capital call, it makes headlines.
One firm that we do know has issued a capital call recently isGreenberg Traurig. As we mentioned yesterday, in a story about GT’s travails in the TD Bank case, the 1,700-lawyer firm is currently seeking a total of $24 million from its partners. Here’s more from Julie Kay of the Daily Business Review:The capital call, which was announced last month during a telephonic partner meeting, requires equity shareholders to contribute 1 percent to 5 percent of their salaries, according to a Greenberg lawyer who asked not to be identified. The contributions will be based on salary levels, with lesser-paid shareholders paying 1 percent and the highest-paid principal shareholders paying 5 percent.Dividing the number of equity partners by the capital call works out to an average payment of $76,923. The average profit per partner was $1.42 million last year, up 7 percent from the year before. The capital call would likely wipe out most of that increase.
(Well, don’t forget that the money for the call comes out of partner pockets, meaning that it’s after-tax money. So it’s a bit worse than that. Anyway….)
Richard Rosenbaum, Greenberg’s chief executive officer, said the capital call was not required by its bank and was strictly a desire by the firm to “add to our equity cushion.”“We have not raised capital in over 10 years and have long required more modest capital than most of our peers,” he said in a statement. “In light of the current uncertainty in U.S. and global markets, we recently did announce a capital raise for our shareholders, each paying in a modest amount over several years in order to further add to our equity cushion.“There was no current cash need or other requirement giving rise to this decision, one which is fully consistent with our conservative financial management and with what other well-managed businesses are doing in the current global economic climate.”This explanation isn’t terribly enlightening, I’m afraid. Rosenbaum seems to be saying, “Remain calm. We’re not doing this for any particular reason.” But considering that the firm hasn’t taken this step “in over 10 years,” there really ought to be some reason for doing it now, right?Blaming it on “current uncertainty in U.S. and global markets” seems like a bit of a stretch. All firms are affected by uncertainty in the financial system, but not all firms are making capital calls (although let us know if you know of other firms that are). And if GT truly boasts such “conservative financial management,” one would think that they’d already be prepared for whatever the world might have in store.In fairness to Greenberg Traurig, it’s not alone. The DBR notes:Greenberg is not the only law firm to ask for capital contributions from partners in recent years. DLA Piper, one of the nation’s largest law firms, issued a first-time capital call for its U.S. partners in 2009. At the time, the firm said the move was designed to decrease its reliance on bank credit during the recession and require partners to “have some skin in the game.”Some observers viewed the DLA Piper move as a bit desperate. It came around the time of other cost-cutting measures at the firm, including slashing partner pay and trimming associate salaries. But three years later, DLA seems to be doing just fine (setting aside the occasional plumbing problem). Maybe these measures helped to right the ship?Back to Greenberg Traurig. One has to wonder: what does management know about firm finances that the rest of us do not? Is it possible that collections aren’t as robust as the firm might have hoped? Will revenues come in behind budget? Has the firm been adversely affected by various recent, unfortunate developments? As the Review points out:[T]he firm has faced a number of financial and ethical issues in recent years. Greenberg laid off dozens of secretaries earlier this year and cut expenses by moving its Miami operations to smaller space last year.U.S. District Judge Marcia Cooke on Friday sanctioned Greenberg Traurig and TD Bank for discovery lapses in a case brought by investors with Ponzi-scheming ex-lawyer Scott Rothstein.In June, Greenberg and Quarles & Brady agreed to pay $88 million to settle a suit by investors who claimed losses in an alleged $900 million Ponzi scheme by a mortgage company.It seems that Greenberg is responsible for the lion’s share of that settlement sum, about $61 million. Even if most of that amount is covered by insurance, the firm might have a deductible or a co-pay, or it might face higher insurance premiums in the future.UPDATE (2:45 PM): Here’s what an equity partner at a different major firm told us: “Most very large firms are collectively self-insured by ALAS. Greenberg is likely raising capital to cover their portion of the liability, with the rest to be paid or bargained down by ALAS.”For additional insight into the Greenberg Traurig capital call, we reached out to our newest columnist,Anonymous Partner. Here’s what he had to say about the news:You should be all over the GT capital call…. There is something seriously wrong if they are taking such a step in my opinion, especially since GT is not the kind of firm that anyone would consider a true partnership in the Biglaw sense. Best case is that they are trying to flush out underperformers.I can only imagine how pissed people are over there. Anonymous Partner is happy he is not at GT today. Adding to buy-in debt or coming out of pocket for a capital call would really sting.Is the Greenberg Traurig capital call a sign of rougher times ahead? Or is all the media coverage of it just much ado about nothing?If you have information to share, about GT or any other firm making a capital call, we welcome it, by email or by text message (646-820-8477).UPDATE (8/10/12): A former partner of another law firm had this comment on capital calls:You probably already know this, but firms provide themselves with a cash cushion by paying partners only a fraction (usually somewhat more than half) of their total compensation in regular monthly payments (called draws). (If revenue is on target, partners catch up to their target compensation with special distributions.) Most large firms also rely on a line of credit to provide an additional cash cushion. Because partners have already paid a capital contribution in cash when they became partners, forever after that they expect to receive cash in large sums. The opposite is hubris.A cash call almost certainly means that the partners are not receiving any special distributions (so they are taking a big pay cut) and now have to shell out more. Grumpiness will abound. Because loyalty is often tenuous at large firms, and the memory of Dewey is fresh, watch for the rainmakers to head for the doors.
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