Remnants of the recession are keeping Orange County bankruptcy lawyers busy.
And it’s little wonder.
For the first nine months of 2009, U.S. bankruptcy filings reached 1.4 million, up nearly 35% from the same period a year earlier.
Perhaps more revealing, the first three quarters of last year were on pace to handily surpass yearly bankruptcies during the height of the previous recession from 2000 to 2002.
“Bankruptcy filings are at an all-time high,” said Greg Doan, who runs San Clemente-based bankruptcy firm Doan Law Firm LLP along with his sons. “And our local economy has been one of the worst-hit areas in the country.”
According to the latest data from Bankruptcy Court for the Central District of California, which includes OC, filings were up almost 71% through the first nine months of 2009.
“We’ve been extremely busy in the past 12 months as families and individuals try to cope with losing their jobs (and with) weak real estate valuations and other catastrophic events that take place in all types of economic cycles,” Doan said.
In terms of filing numbers, the bulk of activity continues to come from individuals, according to lawyers.
Things on that side are so strong that Doan Law Firm plans to add more offices this year. It now has 14 across Southern California.
The firm is looking to open offices in Fresno and other parts of Central California, according to Doan. He also expects to increase the number of lawyers at the firm, now around 20.
“We’re still seeing a lot of people coming through our doors who’ve lost their jobs or a key secondary source of income,” Doan said. “Any time a family member is out of work, whether it’s the primary or secondary wage earner, keeping up with bills can be a real problem.”
Doan, who started the business in 1993, has five sons working with him as consumer bankruptcy lawyers.
“Even though we strongly feel that the economy remains in a precarious position, we’re a small Orange County-based business that is definitely in the expansion mode,” he said.
Doan said he expects another jump in local bankruptcy filings in 2010.
“Those are going to be driven by a higher proportion of low- to moderate-income consumers,” he said. “That’s largely due to the fact that more adjustable-rate mortgages—taken out at the height of the real estate boom five years ago—are scheduled to reset in the next several months.”
Consumers aren’t the only ones using bankruptcy provisions to stay afloat these days.
“Demand for bankruptcy work is definitely up in the business market,” said Marc Winthrop, a business bankruptcy lawyer at Newport Beach-based Winthrop Couchot PC.
Winthrop, whose firm has represented several well-publicized business bankruptcies in the county, said that last year’s rise is set to carry over into 2010. But he sees some subtle shifts in clients.
“Initially, a lot of residential homebuilders were filing bankruptcies,” Winthrop said. “We had our share of that business. Now, we’re seeing a pickup in the commercial building area.”
Winthrop Couchot’s roster of high-profile clients remains full. It’s representing Irvine-based SunCal Cos., a master developer that saw several projects fall into bankruptcy in 2008 and continues to battle with former financier Lehman Brothers Holdings Inc., which is working through bankruptcy.
Winthrop Couchot also is representing Irvine-based Bacchus Development, a developer of small office buildings for sale that filed for bankruptcy last year.
John Gantes, who ran 110 restaurants in four states from his Rancho Santa Margarita-based Breckenridge Group, is another source of business.
Gantes filed for personal bankruptcy and bankruptcy for several of his businesses late last year.
Diverse Clients
“When you’re a legal business boutique, you’re able to develop a broad base of clients,” Winthrop said. “So we’ve been able to work with all types of companies operating in segments undergoing restructuring such as retail, restaurants, healthcare and real estate developers.”
The firm usually works with companies or wealthy people undergoing some sort of reorganization or restructuring. Much of its work involves out-of-court settlements known as workouts.
This year, Winthrop said he expects to see more of those types of legal issues show up among retailers.
“A lot of retailers rely on the holiday shopping season to generate a bulk of their sales,” he said. “With a still recovering economy, we’re expecting to see more enter the new year trying to find legal help to hopefully reach out-of-court solutions.”
The surge in bankruptcies also is spilling over to broad-based business lawyers with experience in complex corporate issues, said Ron Rus, a partner at Rus, Miliband & Smith PC in Irvine.
“There has been a considerable amount of work for all types of lawyers who understand business insolvency and related litigation,” Rus said.
An increase in demand for out-of-court resolutions and corporate liquidity issues will keep practices busy in the coming year, he said.
Expanding Practice
“There has been a lot of debt restructuring going on outside of court,” Rus said. “If you work with more complex businesses, then bankruptcy in times like these can be a bigger part of a firm’s practice.”
Rus, Miliband & Smith doesn’t consider itself as a group of purely “debtor lawyers,” he said.
Still, the firm has been a major player in some of the biggest bankruptcies in the county and region.
Clients have included: Irvine-based New Century Financial Corp., which in 2007 became the biggest subprime mortgage lender then to declare bankruptcy; Santa Clarita Valley-based developer LandSource Communities Development LLC, which filed for bankruptcy in 2008; Irvine-based mortgage lender First Alliance Corp., which filed for bankruptcy in 2000; and Charles Keating’s American Continental Corp. and its Irvine-based Lincoln Savings and Loan, which went bankrupt in 1989.
Rus, Miliband & Smith also represented a consortium of cities in the county of Orange’s 1994 bankruptcy.
“We do complex litigation with a lot of moving parts,” Rus said. “Some of those include aspects of insolvency.”
He pointed to Irvine investment company DFJ Italia Inc., which collapsed in 2000. It reportedly lost local investors more than $45 million and operated as a suspected Ponzi scheme.
“We sued several banks on behalf of the bankruptcy trustee overseeing the failed operation,” Rus said. “That all arose out of a fraud case that ended up as a bankruptcy.”
