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In a closely watched law firm bankruptcy case, the California Supreme Court yesterday held that dissolved firms aren’t entitled to a portion of unfinished hourly fee matters that departing partners take with them to new firms, the American Lawyer reported. “Any expectation the law firm had in continuing the legal matters cannot be deemed sufficiently strong to constitute a property interest allowing it to have an ownership stake in fees earned by its former partners, now situated at new firms, working on what was formerly the dissolved firm’s cases,” wrote Justice Mariano-Florentino Cuéllar in a unanimous opinion. The underlying case stems from Heller Ehrman’s 2008 dissolution. The trustee charged with unwinding the Heller estate sued 16 law firms that recruited partners after the firm filed for bankruptcy, claiming that the estate was owed profits from ongoing hourly matters that partners took with them. All but four of the firms settled. The four remaining firms — Orrick, Herrington & Sutcliffe; Jones Day; Davis Wright Tremaine; and Foley & Lardner — won a ruling in 2014 from U.S. District Judge Charles Breyer of the Northern District of California, who found that attorneys and firms don’t have a property interest in ongoing client matters. In yesterday’s opinion, Justice Cuéllar wrote that the Heller estate was asking for an interest in matters that it didn’t work on and that, in fact, it couldn’t work on since it had ceased operation. “In doing so, it seeks remuneration for work that someone else now must undertake,” Cuéllar wrote. “Because such a view is unlikely to be shared by either reasonable clients or lawyers seeking to continue working on these legal matters at a client’s behest, Heller’s expectation is best understood as essentially unilateral.”

The second-largest U.S. nursing home operator, HCR ManorCare, will file for chapter 11 protection in the coming days and transfer ownership to its landlord, Quality Care Properties Inc., the latest sign of distress in the senior housing industry, Reuters reported. Quality Care, a real estate investment trust, announced the agreement on Friday, saying that it would become the full owner of Toledo, Ohio-based ManorCare’s skilled nursing, assisted living, hospice and homecare businesses across the United States. Shares of Quality Care, which will give up its REIT status, jumped 23.4 percent to $15.55 on the New York Stock Exchange. HCR ManorCare had owed its landlord more than $300 million in rent, according to regulatory filings. It is one of several large U.S. nursing home chains that have struggled to keep up with rent payments due to changing Medicaid and Medicare reimbursements for nursing homes, rising costs and low occupancy rates.

A court filing shows that a key Cenveo Inc. creditor has threatened to “dig under every rock to find ‘dirt’ on” the family that controls the bankrupt commercial printer unless second-lien bondholders come out better than expected in the chapter 11 proceedings, WSJ Pro Bankruptcy reported. Earlier this month, Brigade Capital Management LP called for an examiner to be appointed to investigate the propriety of Cenveo’s prearranged bankruptcy plan. The New York-based investment firm, which has stakes in both Cenveo’s top-ranking and second-lien bonds, said it doesn’t support the company’s debt-cutting proposal. Brigade says it is unhappy about “potential insider transactions” that could benefit the family that runs the public company, among other things. Cenveo on Tuesday filed a response with the U.S. Bankruptcy Court in White Plains, N.Y., saying that Brigade and its advisers have repeatedly said that, if Brigade does not recoup enough on its second-lien debt, then it would “embroil the company in costly litigation.” Cenveo filed for chapter 11 protection earlier this month after reaching a deal with most of its other top-ranking lenders, who are set take control of the company.

The Catholic Diocese of St. Cloud will become the fourth Minnesota Catholic institution to declare bankruptcy following a flood of clergy sex abuse claims, the Minnesota Star Tribune reported. Its announcement reinforced Minnesota’s position as the state with the largest number of bankruptcies related to clergy sex abuse. It follows dioceses in New Ulm and Duluth, as well as the Archdiocese of St. Paul and Minneapolis, which filed for chapter 11 in 2015. The St. Cloud diocese is facing 74 claims of clergy sex abuse. Thirty-one clergy serving 30 parishes are accused of abusing children over the decades.

The Supreme Court on Feb. 27 ruled in Merit Management Group, LP v. FTI Consulting, Inc. (16-784) that the only relevant transfer for purposes of the §546(e) safe harbor is the transfer that the trustee seeks to avoid. ABI Editor-at-Large Bill Rochelle talks with Prof. Bruce Markell of the Northwestern Pritzker School of Law and Prof. Ralph Brubaker of the University of Illinois College of Law about their perspectives on the impact of the Supreme Court's ruling. Click here to listen.

GreenTech Automotive Inc., an electric car maker co-founded by former Virginia Gov. Terry McAuliffe, has filed for bankruptcy, seeking protection from creditors after having raised $141.5 million from hundreds of investors under a program allowing immigrants to qualify for permanent U.S. residency, the Wall Street Journal reported. The car maker, which had a manufacturing plant in Mississippi but was based in northern Virginia, filed for chapter 11 protection Monday in U.S. Bankruptcy Court in Alexandria, Va. GreenTech’s lawyer Norman D. Chirite blamed the bankruptcy filing on several factors, including a series of “negative articles” in 2013 by a conservative online publisher, as well as lawsuits filed by investors and state and local governments in Mississippi, where a planned investment of $1 billion and 1,500 jobs never panned out. From 2009 to 2013, under McAuliffe’s chairmanship, GreenTech received $141.5 million from 283 individuals in the EB-5 program, which offers immigrant investors the chance to qualify for permanent U.S. residency by investing in efforts to create U.S. jobs. GreenTech, McAuliffe and Anthony Rodham — Hillary Clinton’s brother, who was the chief executive of a company involved in GreenTech’s EB-5 fundraising — are defendants in an investor lawsuit now pending in Virginia federal court. Another group of Chinese investors who each invested $500,000 as part of the EB-5 program, sued the company in Virginia state court last year and were awarded $7.6 million, bankruptcy record shows.

Resolving a split of circuits, the Supreme Court ruled unanimously yesterday in Merit Management Group LP v. FTI Consulting Inc. that the so-called safe harbor under Section 546(e) only applies to “the transfer that the trustee seeks to avoid,” according to a special analysis from ABI's Bill Rochelle. In other words, using a bank as an escrow agent does not preclude a trustee from recovering a constructively fraudulent transfer under Section 548(a)(1)(B), when the trustee is seeking to recover from the ultimate recipient of the transfer but not from an intermediary bank. The Supreme Court had been asked to resolve a split of circuits and decide whether the safe harbor applies when a financial institution is only a “mere conduit.” Instead, the unanimous opinion by Justice Sonia Sotomayor decided the case on a different and broader ground. The opinion may lead to a rethinking of safe harbor cases and might open the door to suits that previously were believed to rest comfortably within the safe harbor.