Lawyers: during financial meltdown, task of crisis control critical
by: Barbara Rabinovitz
Published: October 13, 2008
Post-Lehman, one Boston firm mobilizes team to aid clients
It was 7:30 on the morning of Monday, Sept. 15, less than six hours after Lehman Brothers met its demise in a New York bankruptcy court, when Edwards, Angell, Palmer & Dodge partner George Tichnor had a chance meeting in the Boston law firm's breakfast room with managing partner Walter G.D. Reed.
The two chatted about the fall of once-mighty Lehman and about the urgent e-mail messages that were fast filling mailboxes at Edwards Angell, many of whose clients were business entities that would be affected by the breakup of the $600 billion bank.
"Things were developing very quickly," Tichnor said last week as he recalled the rapid-fire sequence of events that occurred at his Back Bay firm that morning.
Within a half-hour of his conversation with Tichnor, Reed had organized what would be known early on as the Lehman Task Force. As several more dynastic dominos began littering the Wall Street landscape, the name became the Financial Crisis Task Force.
Its membership was drawn from Edwards Angell's considerable resources in the practice areas of debt finance (Tichnor), insurance (Alan J. Levin), municipal law (Walter St. Onge III) and restructuring and insolvency (John L. Whitlock and Jeanne P. Darcey).
Even though, at 8 a.m., the figurative ink was barely dry on Lehman's bankruptcy petition, the global impact of such a court filing was readily apparent. Reed took note and extended the Lehman Task Force's reach by enlisting as additional members Larry Henin, in the firm's New York office and in close proximity to the U.S. Bankruptcy Court for the Southern District of New York where Lehman's petition was filed, and Vivien Tyrell of EAP&D's office in London where European affiliates of Lehman had been put into a U.K. insolvency administration.
"He just felt that, rather than random e-mails flying about, we needed a body to communicate some of the client issues and the potential conflicts," Tichnor said, referring to his boss's decision to organize the task force.
Additional client issues and potential conflicts would surface as the American International Group insurance company, Merrill Lynch & Co. financial services firm and Washington Mutual - all EAP&D clients - were taken over and reconfigured.
"This affects the entire transactional economy," Tichnor said, a note of ruefulness in his voice.
Having been immersed in the nitty-gritty of their assignment for several weeks, Tichnor, along with restructuring/insolvency specialists Whitlock and Darcey, detailed for Lawyers Weekly the task force's experiences in focusing swiftly and solely on clients affected by the Lehman bankruptcy and the collapse of other financial institutions.
Exactly one month since its formation, the task force remains on high alert with no letup in the pace of its activity. "We meet when we have reason to meet, which is very frequently," Tichnor reported.
‘The same pot of assets'
With Lehman torn apart by the bankruptcy filing, EAP&D clients - municipalities, banks, other underwriters - that may have been doing business with the investment bank now find themselves united in a creditor relationship. Or, as Tichnor put it, "you have an insolvency situation in which business partners have competing claims to the same pot of assets."
That situation has created something of a hornet's nest for Edwards Angell and other large law firms with similar client bases.
"With the crisis in collectability and enforceability and support obligations in financial institutions, the result is law firms get put in awkward places," Tichnor said. "You can wake up overnight and find that [client] engagement that looked OK now has clients in opposite relationships with each other. It's somewhat unprecedented."
Indeed, the crisis has been something of a wake-up call for large corporate law firms, accustomed to relatively combat-free representation of the business community's seemingly rock-solid members.
"Now we've discovered that a lot of financial institutions are in a state of adversity to each other because of this crisis," Tichnor said.
Determining what EAP&D's clients' rights and responsibilities are in a bankruptcy on the scale of Lehman's is one area the task force lawyers have been called on to assist with.
"In this type of proceeding, there are a lot of sections of the bankruptcy code that are different than the ordinary Chapter 11 type of [reorganization] proceeding because of the investment nature of the proceeding," Jeanne Darcey said. "People were also trying to figure out whether the Lehman entity they dealt with was involved."
Further complicating the already convoluted situation was the news (two days after the bankruptcy filing) that Barclays Bank of London was negotiating to buy the assets of Lehman's principal operating subsidiary.
"On Wednesday [Sept. 17], the Bankruptcy Court approved the procedure for the sale, and a hearing was held that went into Saturday morning," Whitlock said, recalling the unrelenting speed with which cataclysmic financial transactions took place that fateful week. "The judge approved the sale to Barclays. Some of our clients may have been affected by that; others had relationships with other subsidiaries."
Darcey conceded that clients' questions about that sale to Barclays, of which she said there had been "quite a few," may not be easy to answer.
"The process went so quickly it's not known what assets may have been involved in the sale," she said.
‘Some long days'
As its name implies, the task force does not have the permanency of a department within Edwards Angell. Whitlock said he expects it will remain in existence "for a while" depending on how the financial crisis evolves.
"There are going to be disputes generated by this credit crisis over a pretty long time," Tichnor said, "and so long as there are disputes, there will be a reason to continue to function" as a crisis-management task force.
Adding to the ever-churning turn of events during the past few weeks was the $700 billion federal rescue plan, also known as a bailout, passed by Congress and signed by the president 10 days ago.
"People are spending time ... trying to figure out this bailout legislation," Whitlock said before its Oct. 3 passage. "At this point, it's still unclear what the clients' questions will be, but the size is likely to produce questions."
And throughout the month, the stock market has gyrated wildly. As a result of those gyrations, Whitlock was not anticipating that non-institutional EAP&D clients who had invested in Lehman would seek out the services of the law firm's task force.
"Individual stockholders are probably least likely to need our help because they're probably out of their money," he said.
As for clients not in any way associated with Lehman or any of the other failed companies, Whitlock said he and others on the task force are still servicing them, although he admitted "it's made for some long days."