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A Minnesota liberal arts college that was once a beneficiary of Tom Petters’s largesse will return $600,000 of the $3 million it received, the Wall Street Journal reported today. The College of St. Benedict, of St. Joseph, Minn., in 2003 proudly announced a $3 million gift from Petters, a local businessman, to renovate the school’s 1,078-seat auditorium. The facility was renamed the Petters Auditorium in honor of Petters’s parents. His mother was an alumna of the women’s college, while his father graduated from its brother school, St. John’s University. When Petters was arrested and charged with operating a Ponzi scheme that bilked investors out of several billion dollars. Following his arrest, his business empire — which once encompassed Polaroid and Sun Country Airlines — filed for bankruptcy protection. Officials overseeing the companies’ wind-downs has since sued those to whom Petters made payments of what was ultimately determined to be stolen funds, including charities and other organizations like College of St. Benedict (which ultimately renamed Petters Auditorium). With litigation to recover $2 million of the donated funds reaching as high as a U.S. appeals court, the College of St. Benedict and the bankruptcy trustee demanding the return of the funds participated in mediation in February. The talks yielded a settlement in which the college joined the ranks of other organizations that have agreed to return a portion of their funds.

In a decision likely to influence future litigation over failed law firms, a federal judge in San Francisco ruled that the defunct Heller Ehrman LLP has no right to profits from unfinished legal work its ex-partners brought to their new firms, the Wall Street Journal reported today. U.S. District Judge Charles Breyer yesterday rejected the theory behind those claims — which bankruptcy trustees have used to recover millions on behalf of creditors left in the lurch when law firms fail — and dismissed the Heller trustee's lawsuits against law firms Davis Wright Tremaine LLP, Jones Day, Foley & Lardner LLP and Orrick, Herrington & Sutcliffe LLP. "Heller ceased to be able to represent its clients, leaving them with no choice but to seek representation elsewhere," Judge Breyer wrote in his order. "Defendants came to the rescue of these clients and provided them with legal services on ongoing matters…. Defendants did the work that generated the fees at issue here. With the defendants those fees should stay." The decision could bolster arguments made by big law firms that hired partners from bankrupt rivals, then pushed back against claims for the profits from legal work that originated at the failed firms. Forcing partners' new employers to pay the money back to a failed firm's creditors, they say, unfairly restricts lawyers' mobility and clients' right to hire whatever lawyers they please. Judge Breyer's ruling goes against a position taken earlier this year by the bankruptcy judge overseeing the Heller case, who rejected attempts to dismiss the unfinished-business claims. Law-firm bankruptcy trustees say unfinished legal work is an asset that rightfully belongs to the failed firm, citing a 1984 case out of California that involved the breakup of a four-partner firm called Jewel, Boxer & Elkind.

The bankruptcy trustee unwinding defunct law firm Dewey & LeBoeuf LLP has brought new allegations against two former Dewey executives in a lawsuit seeking the return of more than $21.8 million the two allegedly were paid as the law firm “fell deeper and deeper into insolvency,” the Wall Street Journal reported today. The amended complaint, filed in bankruptcy court on Monday against Dewey’s former executive director, Stephen DiCarmine, and ex-chief financial officer, Joel Sanders, comes six months after Dewey trustee Alan Jacobs first sued the pair. The updated suit incorporates criminal and civil allegations brought against DiCarmine and Sanders in March by the Manhattan district attorney’s office and the Securities and Exchange Commission. Those actions, which also charge Dewey’s former chairman, Steven Davis, and a former lower-level employee, claim that Dewey employees used fraudulent accounting methods to cover up the state of Dewey’s finances for several years leading up to the firm’s 2012 collapse. All four have denied wrongdoing.

Coldwater Creek Inc. has adjusted its chapter 11 payout plan but still faces a fight with unsecured creditors over its offer to give them seven cents to nine cents for each dollar they are owed, Dow Jones Daily Bankruptcy Review reported today. Coldwater Creek's lawyers filed a revised chapter 11 plan on Friday reflecting better-than-expected results from the women's clothing retailer's bankruptcy auction and asked for an Aug. 7 confirmation hearing to lock the plan in place.

The personal injury lawyers repeatedly painted as the villains in Garlock Sealing Technologies' chapter 11 case are hitting back, claiming that the company is in fact the one withholding evidence, the Rochester (N.Y.) Democrat & Chronicle reported today. The asbestos personal injury claimants’ committee last week filed a motion in bankruptcy court asking Judge George Hodges to revisit a ruling early this year about Garlock's financial obligations to people suffering from asbestos-related health claims. "Garlock has committed a fraud upon the court," the committee wrote in a memorandum supporting its motion, claiming that the Palmyra company cherry-picked evidence that it presented to Hodges — the same legal chicanery Garlock has accused attorneys of. The fight revolves around a ruling by Judge Hodges in January that the company would likely have to pay no more than $125 million to settle any current and future mesothelioma claims against it — mesothelioma being a rare cancer of the lining around the lungs. A pair of bankruptcy committees of attorneys representing plaintiffs or future plaintiffs against Garlock had argued for a figure in excess of $1 billion. The Wayne County gasket and seal maker has been a defendant in literally thousands of asbestos-related lawsuits dating back decades. But when it filed for chapter 11 bankruptcy protection in June 2010, it cited a recent wave of substantial verdicts against it in mesothelioma cases. In his January ruling, Judge Hodges said that Garlock had demonstrated that numerous other manufacturers were almost surely far more responsible for any mesothelioma cases than would have come from the relatively small doses of low potency asbestos once associated with Garlock's seals and gaskets. He also was particularly condemning of plaintiff legal tactics, writing that as a number of other large thermal insulation companies went bankrupt, and attorneys began suing Garlock more, "evidence of plaintiffs' exposure to other asbestos products often disappeared (and) certain plaintiffs' law firms used this control over the evidence to drive up the settlements demanded of Garlock."

Lawyers representing asbestos claimants in Garlock Sealing Technology LLC's chapter 11 case are lobbying to reopen an issue that a bankruptcy judge decided earlier this year, which reduced the company's asbestos liability to $125 million from the $1.3 billion plaintiffs' lawyers sought, Dow Jones Daily Bankruptcy Review reported yesterday. The committee representing personal injury claimants says that Garlock withheld crucial evidence, which amounts to fraud on the court. In a 63-page motion, the committee argued that Garlock had or could have had access to information it claimed not to have access to during its pre-bankruptcy settlement negotiations.

A business founded by “American Sniper” Chris Kyle, who claimed to be the most lethal sniper in U.S. military history and who was killed on a Texas shooting range last year, has filed for bankruptcy ahead of an upcoming movie about his life, the Wall Street Journal reported today. The bankruptcy of Craft International LLC, which was filed on Friday, could sort out a messy ownership fight between Kyle’s widow, Taya, and investors owed more than $2.6 million. The Dallas company primarily trains police officers, SWAT teams and the military on how to handle “austere environments and situations,” according to its website. But it also sells merchandise with Craft’s skull-shaped logo surrounded by these words: “Despite what your Momma told you violence does solve problems.” The “American Sniper” movie, which is being directed by Clint Eastwood and stars Bradley Cooper as Kyle, is filming now and could put a valuable spotlight on the logo.

The debate over who deserves to profit from work that originated at a law firm that collapsed comes to a head on Wednesday when New York's highest court will hear arguments in cases stemming from the bankruptcies of Coudert Brothers LLP, which went under in 2005, and Thelen LLP, which closed in 2008, the Wall Street Journal reported today. A decision by the New York Court of Appeals will provide clarity into how much money, if any, should flow back to defunct firms' creditors, including those of the biggest U.S. law-firm failure ever, Dewey & LeBoeuf LLP. At issue is whether the estates of bankrupt law firms have stakes in so-called unfinished business, the assignments taken by partners to a new firm as their old firm dissolves. Bankruptcy administrators have long argued that the failing firms have valid claims. But partners at the nation's top law firms say that client business isn't a commodity that can be bought and sold. They say that clients have the freedom to choose counsel, and lawyers — and their new employers — shouldn't be punished for sticking with an assignment after a law firm collapses.

Anadarko Petroleum Corp.'s agreement to pay $5.15 billion to clean up nuclear fuel and other pollution moved one step closer to reality yesterday after receiving a bankruptcy judge's approval, Reuters reported yesterday. The agreement reached in April, touted by the U.S. Department of Justice as the largest-ever environmental cleanup recovery, resolved a lawsuit against Anadarko and its Kerr-McGee unit from creditors of Tronox Inc., the paint materials maker that was once a subsidiary of Kerr-McGee. The lawsuit, which was joined by the DOJ, alleged that Tronox's 2009 bankruptcy was caused by the environmental liabilities it took on when Kerr-McGee spun it off in 2005. It said that the spinoff was a scheme by Kerr-McGee to get the liabilities off its books and make itself a more attractive takeover target for Anadarko, which acquired it in 2006.

A group of creditors attempting to force defunct consumer law firm Jacoby & Meyers Bankruptcy LLP into chapter 11 protection are urging a court to rule that bankruptcy is the best way to protect unhappy clients left in the lurch by the firm’s demise, the Wall Street Journal reported today. In a court filing on Tuesday, creditors like online document service Legal Zoom say that “the total lack of disclosure and transparency” surrounding the firm’s December 2013 closure prompted them to file an involuntary bankruptcy petition against the firm in March. Jacoby & Meyers Bankruptcy was formed in June 2012 as an alliance between national consumer firm Jacoby & Meyers LLC — which lent its well-known brand name to the partnership — and the bankruptcy practice of Chicago lawyer Thomas Macey. A year and a half later, Jacoby & Meyers Bankruptcy closed and put itself into the hands of a trust intended to liquidate the firm and repay its debts. Creditors say that the firm’s trustee isn’t going far enough and would like to see the firm unwound through bankruptcy.