TO THE HONORABLE ALLAN L. GROPPER, UNITED STATES BANKRUPTCY JUDGE:

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1 YANN GERON, CHAPTER 7 TRUSTEE c/o Fox Rothschild LLP 100 Park Avenue, Suite 1500 New York, New York (212) Hearing Date: October 19, 2011 Hearing Time: 10:00 a.m. UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK x In re : Chapter 7 : THELEN LLP, : Case No (ALG) : Debtor. : x DECLARATION OF TRUSTEE IN FURTHER SUPPORT OF HIS MOTION, PURSUANT TO BANKRUPTCY RULE 9019, FOR AN ORDER APPROVING STIPULATIONS RESOLVING TRUSTEE S CLAIMS ASSERTED AGAINST CERTAIN FORMER PARTNERS OF THE DEBTOR TO THE HONORABLE ALLAN L. GROPPER, UNITED STATES BANKRUPTCY JUDGE: Yann Geron (the Trustee ), as chapter 7 trustee of the estate of Thelen LLP (the Debtor ), the above-captioned debtor, as and for his declaration, pursuant to 28 U.S.C (2) (the Declaration ), in further support of his application for an order, pursuant to Bankruptcy Rule 9019, (a) approving settlement agreements between the Trustee and certain former partners of the Debtor, (b) finding that such settlements are in good faith, and (c) barring certain claims against Settling Partners (the Motion ), respectfully sets forth and represents: 1. As detailed in the Motion, my investigation into the Debtor s pre-petition financial affairs revealed that the estate possesses various theories of claims and causes of action against former equity partners of the firm, including certain contract claims based upon the Debtor s partnership agreement(s) against most or all of the Debtor s former equity partners arising primarily from compensation they received in 2007 and 2008 as well as their failure to

2 meet capital requirements (collectively, all potential claims and causes of action against former partners are referred to hereinafter as the Claims ). 2. The estimated aggregate value of the Claims against the Debtor s former partners exceeds $17 million 1. Of this amount, approximately $15 million represents alleged over-compensation received by the partners in violation of the relevant partnership agreements, approximately $1 million represents unpaid capital contribution requirements, and approximately $1 million represents unpaid loans and other advances made by the Debtor on behalf of the partners for a variety of reasons, including, but not limited to, payment of health insurance and other personal expenses. 3. After engaging in lengthy discussions and negotiations with a group of approximately 100 of the Debtor s dissolution partners who are collectively represented by the law firm of Klestadt & Winters, I came to a consensual resolution of the Claims with 93 2 of the partners in this group (the Settling Partners ), which have been memorialized in individual settlement agreements. 4. The negotiations with the group of 100 partners involved a full discussion and detailed analysis of the facts and law underlying the Claims, and the defenses which the Settling Partners asserted in response to the Claims. The Motion seeks bankruptcy court approval authorizing me to finalize the contemplated settlements. 1 This figure is exclusive of claims which arise from or under the unfinished business doctrine analyzed in Jewel v. Boxer, 203 Cal. Rptr 13 (Cal. Ct. App. 1984) (the Jewel Claims ), and takes into consideration certain alleged contractual off-sets. 2 This number may change slightly in light of certain developments with specific partners included in the 100 partner group, including the possible addition of partners who may opt into the settlement, adjustments for a small number of hardship cases, and a small number partners who may opt out because the claims against them were de minimus. In the end, none of the group of 100 partners have rejected the proposed settlement structure. 2

3 5. Although the settlement agreements contain a strict confidentiality provision, in response to recent inquiries regarding the settlement parameters, I have discussed with counsel to the Settling Partners releasing more details concerning the proposed settlement parameters. This declaration addresses the following: (i) the underlying economics of the proposed settlements, (ii) the most favored terms provision, and (iii) the contemplated third-party bar. a. The Underlying Economic Benefit of the Settlements 6. The Trustee estimated aggregate value of the Claims against the Settling Partners is $7,135, Of this amount, approximately $6,396,000 represents alleged overcompensation received by the partners in violation of the relevant partnership agreements, approximately $586,000 represents unpaid capital contribution requirements, and approximately $153,000 represents unpaid loans and other advances made by the Debtor on behalf of the partners for a variety of reasons, including, but not limited to, payment of health insurance and other personal expenses. The aggregate contemplated settlement amount to be paid by the Settling Partners is $4,980, Therefore, generally, the proposed stipulations represent an aggregate recovery of approximately 70% 5 of the face value of the Claims against the Settling Partners. 7. Among other factors, the proposed settlements take into consideration each Settling Partners share of equity points in the Debtor during the relevant periods, corresponding capital contribution requirements, and other relevant financial information 3 See footnote 1. 4 To the extent the settlement is approved by the Bankruptcy Court, this amount is subject to a 5% early payment discount for partners who pay the full settlement amount within two business days after an order approving the settlements becomes a final and non-appealable order. 3

4 developed from the Debtor s records. The aggregate settlement payments to be made by the Settling Partners include certain discounts on account of the claims relating to overcompensation and capital contribution requirements, while providing for repayment in full of the personal loan balances. b. The Most Favored Terms Provision 8. The most favored terms clause was included as part of the settlements as a means of assuring all partners of egalitarian treatment with respect to settlement of the Claims. Specifically, this provision provides that as Trustee, I will not enter into any settlement with any other former partner of the Debtor on terms materially less favorable to the Debtor s estate, viewed in the totality of the circumstances, than those contained in the settlement agreements with the Settling Partners. 9. I recognize that not all of the partners against whom I am asserting Claims are identically situated to the Settling Partners. Accordingly, the most favored nations clause was carefully drafted in order to allow me necessary flexibility to assess factual and legal issues raised by other partners which were not relevant or applicable to the Settling Partners, while at the same time, providing a method to equalize the ultimate concessions granted with respect to future settlements. 10. Simply put, the most favored terms provision does tie my hands as estate fiduciary in the process of determining the valid legal starting point for the estate contractual claims against each partner. For purposes of settlement only, I have been willing to defer analysis of fraudulent conveyance claims against partners in favor of analysis of contract-based 5 As noted in footnote 2 above, this number may change slightly because of certain final adjustments in the partner group participating in these settlements. 4

5 claims. Therefore, the initial analysis of the claims against each partner, solely for settlement purposes, is a strict numbers-and-cents exercise. 11. The most favored terms provision in the proposed settlement ensures that the group of Settling Partners are not economically disadvantaged by settling first, while conversely, it ensures that partners who settle later are not strategically benefitted by delaying resolution of their claims. The most favored terms provision publicly and contractually recognizes the practical reality of this case: I will not provide any partner with a greater economic advantage over another partner as a result of tactics or delays. c. The Contemplated Third Party Bar 12. I have received several inquiries (primarily from other former partners of the Debtor) regarding the scope of the anticipated third party releases. It appears that these parties are concerned that the contemplated release is overly broad and will release direct claims that these entities may have against the Settling Partners. 13. As detailed in the Motion, the release language was carefully tailored so as to release only direct claims held by the Trustee, the Debtor or its estate (with the exception of the Jewel Claims), against the Settling Partners, or third party claims which are derivative of those claims. There is nothing specific or implied in the settlement agreements which would release direct claims of third parties against the Settling Partners. This is not a recognition that those claims exist, nor is this process of settlement approval intended to provide a forum for the recognition of those alleged third-party claims. This release constitutes the recognition that all settling partners, whether settling now or settling later, should gain the benefit of knowing that third parties will not be able to prosecute claims against them which are being released by me as the estate s chapter 7 trustee. 5

6 14. Certain partners have raised with me issues relating to claims against management of the Debtor, and the effect of the release of those claims under the proposed stipulations. First, I am not aware of evidence strongly supporting such claims. Second, I have significant questions as to damages which the estate may be able to collect on account of such alleged claims. Third, to the extent such third party claims theoretically exist, they may be barred by the doctrine of in pari delicto. Fourth, I believe such claims play into the internal disputes at Thelen leading to the firm s demise, and any such litigation would play out issues which should be resolved and closed as part of this chapter 7 process. 15. Finally, the third party bar will be offered to all settling partners. This provision would ultimately inure to the benefit of all former partners who settle with the Trustee, not just the Settling Partners. 16. Based upon the foregoing, I have concluded that the contemplated settlements are reasonable, represent a sound exercise of my business judgment, and are in the best interest of the Debtor, its estate and creditors, and request that they be approved by the Court. Pursuant to 28 U.S.C (2), I declare under penalty of perjury that the foregoing is true and correct. Executed: New York, New York October 12, 2011 s/ Yann Geron Yann Geron, Chapter 7 Trustee c/o Fox Rothschild LLP 100 Park Avenue, Suite 1500 New York, New York (212)