Quinn Emanuel Urquhart & Sullivan is facing a demand from an aircraft parts maker’s bankruptcy trustee to pay back $6.3 million that the law firm received for its work on litigation involving Delta Air Lines Inc.
The complaint, filed Feb. 17 by Super98 LLC’s Chapter 7 trustee in the the U.S. Bankruptcy Court for the Central District of California, also seeks a declaration that Quinn Emanuel doesn’t have a valid attorney’s lien on the money it received. The lien would allow the firm to use it as a defense to the trustee’s payment claim.
The trustee’s demand stems from contingency fees paid to Quinn Emanuel in December 2018 for representing the company in a lawsuit against Delta over purchasing contracts. They payment was made days before an involuntary bankruptcy petition was filed against Super98.
Trustees appointed in Chapter 7 bankruptcy cases administer the estate’s assets for creditors. They have the ability to sue to recover payments made to a creditor within 90 days before the bankruptcy is filed, discouraging the debtor from “preferring” one creditor over other claimants.
The trustee alleges that the payments to Quinn Emanuel were a preferential transfer and are recoverable for the benefit of all creditors. The law firm also failed to properly notify Delta of an attorney’s lien the law firm held against Super98, as required by Illinois’ Attorneys Lien Act, the trustee said.
Some of the payments came from litigation finance firm Bentham IMF, which had helped Super98 make payments to Quinn Emanuel. The majority of the funds, $5.75 million, came from a success-based fee agreement Quinn Emanuel received after Super98 and Delta reached a settlement in October 2018.
The Super98 trustee is also seeking the return of a $2 million payment made to Bentham within 90 days before the Super98 bankruptcy.
Quinn Emanuel did not respond to a request for comment.
“We believe the Trustee’s claims to be entirely without merit, and we will be defending ourselves vigorously,” Allison Chock, Bentham IMF’s U.S. chief investment officer, said in a statement.
Super98 signed a contract to sell drag reduction parts to Delta in 2014, according to the complaint. Super98 sued Delta in 2016, alleging the airline had breached its contract.
Super98 stopped paying its monthly bills to Quinn Emanuel around September 2016, the complaint said. By the end of February, it owed the law firm more than $1.2 million.
In a success-based payment structure they worked out in 2017, Super98 agreed to pay 40% of Quinn Emanuel’s standard hourly rates each month. But if the litigation netted more than $5.8 million, Quinn Emanuel would receive 160% of its standard bills.
By December 2017, the company owed Quinn Emanuel more than $1.8 million. The law firm connected Super98 with Bentham, which agreed to put $1 million into a client trust account.
As the bills racked up, Super98 and Quinn Emanuel agreed to another payment model. The law firm would receive 200% of its standard rates for work performed after April 1, 2018 if the lawsuit led to an award of more than $5.7 million.
After Super98 and Delta reached a settlement in October, 2018, Super98 agreed to pay Quinn Emanuel $6 million in fees. The complaint said the settlement amount is confidential.
Quinn received $5.75 million on Dec. 7, 2018, triggering the trustee’s allegation of preferential transfer.
The trustee also seeks $184,590 paid to Quinn Emanuel from Bentham’s funds.
The trustee said Quinn Emanuel sent an attorney’s lien notice in August 2017, addressed to a deputy general counsel at Delta who had stopped working at the airline months earlier.
The complaint also said the lien notice was not sent by registered or certified mail, which is required under Illinois’ attorneys lien act.
The case is Namba, Chapter 7 Trustee v. Quinn Emanuel Urquhart & Sullivan, LLP, Bankr. C.D. Cal., No. 9:20-ap-01023, complaint filed 2/17/20.