When General Growth Properties filed for bankruptcy in April, it was the largest real-estate failure in US history. The case really got interesting late last year when the REIT switched lawyers midstream and continued to entertain when the company found itself in the unique position of having investors fighting to lend it money.
After the jump, the winner of the DIP fight, the trustee’s objection to one BigLaw firm and the judge’s ties to another.
General Growth really did have a hot property and ultimately chose a lending group led by Farallon Capital Management with a $400 million package that featured low collateral requirements.
Farallon maintains a relatively low profile, but it’s one of the largest hedge funds in the world, with $20 billion under management. Founder Thomas Steyer is also a managing director at private-equity fund Hellman & Friedman, but the interesting bio piece here is that he got his start at Goldman Sachs. The other two contenders to provide the DIP funding were led by Bill Ackman’s Pershing Square Capital, which already owned 25% of General Growth when it filed, and Steyer’s former colleagues from Goldman Sachs.
The back-and-forth between Farallon and Pershing Square is an interesting tale, but the latest issue with the lawyers may overshadow it. As we wrote a few months ago, General Growth dumped Sidley & Austin for Weil Gotshal and Kirkland. Between the two firms, all of the General Growth companies were supposed to be represented, notwithstanding the two massive firms’ conflicts issues.
But US Trustee Diana Adams isn’t happy with that arrangement. She has filed an objection,
claiming the firm is conflicted and that two qualified co-debtors counsel will perform “excessive and duplicative services” and increase costs “exponentially” for General Growth.
According to an 18-page motion filed with U.S. bankruptcy judge Allan Gropper in Manhattan, Adams and trial attorney Greg Zipes claim that Kirkland and Weil have similar levels of bankruptcy and business reorganization expertise that precludes the need for both firms to be retained by the debtor.
Adams also specifically cites two “disqualifying conflicts” that several Kirkland clients have with six General Growth subsidiaries. According to a copy of Kirkland’s engagement letter filed with the bankruptcy court, one of those conflicts involves of counsel Kenneth Starr, who is representing Los Angeles-based developer Caruso Affiliated Holdings in unrelated civil litigation against a General Growth mall in Glendale, Calif.
The firms claim the conflicts have been cleared by the client. Gropper is himelf a BigLaw veteran, having spent almost 30 years at White & Case, so he should have a pretty good handle on managing conflicts at a megafirm. His decision is expected later this week.
Weil happens to have recent experience with this sort of objection. Just last week, it overcame another trustee’s objections to the firm’s acting as co-counsel in the Trump Casinos bankruptcy.
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