Heller Ehrman LLP

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UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re 	) Bankruptcy Case
) No. 08-32514DM
HELLER EHRMAN LLP, 	)
)
Debtor. 	) Chapter 11
___________________________________)
MEMORANDUM DECISION ON OBJECTIONS
TO PRIORITY STATUS OF CLAIMS
On October 22, 2010, the court heard argument on the
objections of the liquidating debtor, Heller Ehrman LLP
(“Debtor”)to $10,000 priority claimed under Bankruptcy Code
section 507(a)(4) by Kelly Seaburg (“Seaburg”)and Havila Unrein
(“Unrein”, and collectively with Seaburg, “Claimants”). 	Debtor
appeared through counsel; Unrein appeared telephonically on her
own behalf; Seaburg submitted the matter on the papers.
Following argument the court took the matter under advisement
to review the documents and consider the arguments of the parties.
For the reasons that follow, the objections to priority of
Claimants’ identical claims will be overruled, and as there are no
other objections to the allowance of either claim, both will be
allowed as priority claims in the amount of $10,000.
There are no facts in dispute. 	The only issue before the
court is whether a $10,000 “stipend” promised because Claimants’
Signed and Filed: October 26, 2010
________________________________________
DENNIS MONTALI
U.S. Bankruptcy Judge
________________________________________
Entered on Docket
October 27, 2010
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
Case: 08-32514 Doc# 1820 Filed: 10/26/10 Entered: 10/27/10 15:21:15 Page 1 of
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start date on the job as associate attorneys or bar applicants at
Debtor was being deferred for three months constitutes “wages,
salaries or commissions”, and thus carries statutory priority.
The deferral letter of August 27, 2008, (“deferral letter”)
confirms an original employment date of October 13, 2010 and a new
employment date of January 19, 2009. 	It is clear, however, 	that
the Claimants had already been employed, as they were paid $12,000
stipends to help them with expenses while taking the bar
examinations months earlier. 	Those earlier stipends were treated
as taxable income by all parties; more importantly, Debtor issued
Earnings Statements to each Claimant.
From the foregoing the court is satisfied that in the context
of the deferral letter the reference to “the original employment
date”, “the new employment date” and “the delay in your
employment” can only mean the date on which the employee was to be
present and ready to work. 	It does not mean that the Claimants’
relationship with the Debtor was something that takes them out of
the favored class of claimants entitled to
§ 503(a)(4) priority.
If this were not the case, the court must determine just what
the Claimants were from the date of the deferral letter on. 	Had
no prior relationships existed, perhaps they were at best
independent contractors. 	But that is not the case. 	Each had
been a summer associate, each was offered and accepted employment,
each was paid a stipend reported as gross pay and noted on Form W-
2 as “Wages, tips and other comp.”, each had federal income tax
and social security amounts withheld.
The deferral letter merely extended the time for Claimants to
Case: 08-32514 Doc# 1820 Filed: 10/26/10 Entered: 10/27/10 15:21:15 Page 2 of
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“come to work” and promised them more money to make up for the
delay. 	That Debtor chose not to withhold federal income tax and
social security from that second stipend as taxable is of no
moment. 	What is significant is that while Claimants were
permitted to take on temporary employment during the deferral
period, they forfeited any unpaid portion of the second stipend if
they took full time employment elsewhere.
The foregoing arrangement had the effect of keeping Claimant
on a form not unlike a retainer, viz., remain available from
October to January and be paid $10,000 in three monthly
installments before you show up at the office. 	Leave us and go
elsewhere on a permanent basis, and don’t get paid. 	In the
overall context of the history of Claimant’s affiliation with
Debtor, Debtor’s prior treatment of their remuneration, and the
context of the deferral letter, coupled with the policy arguments
well-briefed by Claimants, satisfied the court that their claims
are entitled to priority.
For the foregoing reasons, Debtor’s objections will be
OVERRULED. 	The court is concurrently issuing separate orders
allowing Seaburg’s and Unrein’s claims as priority claims in the
amount of $10,000 each.
**END OF MEMORANDUM DECISION**
Case: 08-32514 Doc# 1820 Filed: 10/26/10 Entered: 10/27/10 15:21:15 Page 3 of
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COURT SERVICE LIST
Kelly A. Seaburg
1740 NE 86th St., #212
Seattle, WA 98115
Havila Unrein
16011 10th Ave. NE
Shoreline, WA 98155
Case: 08-32514 Doc# 1820 Filed: 10/26/10 Entered: 10/27/10 15:21:15 Page 4 of
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