Petters and Hecker cases: Who will pay their lawyers?

With two separate ongoing divorce proceedings, a $767 million bankruptcy case, a mushrooming criminal case and a tragicomic inability to stay out of judicial crosshairs, you’d think onetime auto mogul Denny Hecker would constitute a one-man stimulus plan for Twin Cities lawyers.

But last week both of the attorneys working on Hecker’s month-old criminal case asked U.S. District Court Magistrate Judge Susan Nelson to allow them to withdraw from his case. The attorney handling Hecker’s civil cases has asked to be excused from one of the family court matters and says he doesn’t know whether he will continue to represent Hecker in the other two cases.

The popular perception of a complex white-collar criminal case is of a bottomless font of billable hours for the attorneys involved. But the reality is often far different: The massive swindles and Ponzi schemes that have dominated local and national headlines for the last year have revealed just how hard it can be for the lawyers handling them to get paid.

This time last year, the highly regarded attorneys defending Tom Petters asked to withdraw from that case, complaining that prosecutors were objecting to payment of their fees. U.S. District Court Judge Richard Kyle denied their request, noting that the law gave him the power to order them to stay on the case for free if he deemed it prudent. Ultimately Petters’ lawyers were paid by a corporate insurance policy.

And paid handsomely: With Petters’ sentencing a month away, to date their fees have added up to more than $3 million.

Tom Petters
Photo by Bill Kelley
Tom Petters

At the national level, last fall after the U.S. Securities and Exchange Commission froze the assets of R. Allen Stanford, accused of masterminding a $7 billion Ponzi scheme, a frustrated federal judge in Texas threw up his hands and appointed a public defender, making his defense the taxpayers’ liability.

Now Hecker, who is accused of defrauding lenders out of millions of dollars, wants a federal judge to appoint a public defender to represent him. Hecker pleaded not guilty Feb. 11 to fraud, conspiracy and money laundering charges. Nelson is scheduled to preside over a hearing on the matters Monday.

Right to effective counsel
So when can a lawyer withdraw from a case? “The main issue is whether it prejudices the defendant,” said Richard W. Painter, who teaches ethics at the University of Minnesota Law School. “You have the right to effective counsel. If you don’t have effective counsel, any conviction is going to be thrown out. And that’s the judge’s job — to ensure effective representation.”

In some circumstances a lawyer is required to withdraw when representation would force the attorney to violate rules of professional conduct; when he or she is too ill to do the job; or when the defendant fires them. 

Generally speaking, an attorney may ask to withdraw if the lawyer believes their client is using their services improperly, insists upon an imprudent strategy or can’t fulfill their obligations to the attorney, including payment for services rendered.

It’s this last point that becomes particularly sticky in cases involving financial fraud. Ordinarily attorneys simply ask for a sizable retainer up front, but things get more complicated when the defendant is both claiming bankruptcy and charged with stealing large sums of money.

Earlier this week, several counts of bankruptcy fraud were added to the list of charges Hecker faces. In June, Hecker filed for bankruptcy, seeking to rid himself of $767 million in debt. Since then, he has repeatedly been called to court to explain how he has continued to spend lavishly on travel, country club memberships and gifts. The trustee in that case has accused Hecker of hiding assets and the judge has refused to allow him to discharge $83 million he owes Chrysler Financial.

Denny Hecker
Denny Hecker

In his motion to withdraw, one of Hecker’s two defense attorneys, Bill Mauzy, said the terms imposed by the bankruptcy court have made it impossible for him to get paid. “Defendant has had several months to secure payment as required under the fee agreements, but has been unable to due in large part to the unexpected, and indeed cataclysmic, impact of an $83 million non-discharageable judgment against him in bankruptcy court,” Mauzy argued.

Hecker’s other criminal attorney, Marsh Halberg, told the judge he had yet to file a formal notice of appearance, the court document in which an attorney commits to representing a defendant. In a letter delivered to Nelson last week, Halberg said Hecker’s case had “not yet reached a critical stage, as charges have just been filed.”

Last week, the Hennepin County District Court judge presiding over Hecker’s divorce from his fourth wife, Tamitha Hecker, refused to allow Hecker to tap a retirement account for $100,000 to use as a retainer for the attorneys in his criminal case. Hecker had argued that he had no other assets to use to finance his defense.

In his order denying Hecker’s request, Jay Quam noted that he had “heard the same refrain several times before,” only to learn that Hecker continued to spend large sums of money on posh vacations and other luxuries “that would be out of the question if his claim of poverty were true.”

‘Indigent as a matter of law’
Jon May is chair of the white collar crimes section of the National Association of Criminal Defense Lawyers. He’s not familiar with either of the Minnesota cases, but said that any number of circumstances can leave an affluent defendant “indigent as a matter of law.” When someone is a party to both criminal and bankruptcy cases, as many alleged fraudsters are, the bankruptcy court may have issued injunctions to keep them from spending money that could be used to pay creditors. The government may be seeking to forfeit a defendant’s assets as ill-gotten gains.

There are occasions where a federal district court can compel a bankruptcy court to free up funds for lawyers in other proceedings, May said. “Certainly the bankruptcy court has the discretion to make money available to [criminal] lawyers,” he explained. “They regularly make money available to lawyers to litigate bankruptcies. If they didn’t, that would cause bankruptcy proceedings to grind to a halt.”

When faced with a lawyer’s request to withdraw, judges in criminal cases also try to balance the reason for the request with the need to keep cases moving, said the U of M’s Painter. “A judge is going to want to hear reasons why the lawyer wants to get out if the defendant doesn’t want a substitution of counsel,” he said.

In pleadings filed last year, Petters’ lead attorney, Jon Hopeman, said he signed onto the case because he had assurances from prosecutors that they would not oppose payment of his fees. Several months into the case, however, the U.S. Attorney’s Office began objecting, arguing that the legal fees would deplete assets that should be forfeited and used to compensate victims. Prosecutors also hinted they might seek to “claw back” any attorneys fees Hopeman and Petters’ other attorneys could not prove Petters paid using money not obtained via a criminal enterprise.

Hopeman and his co-counsel, Paul Engh, argued that Petters’ defense would require a year of hard work on their part, as well as paying a staff of lawyers and paralegals to comb through millions of pages of evidence in the case.

In his order rejecting Hopeman’s argument, Judge Kyle concluded that the attorneys’ withdrawal would both delay the case and require more of Petters’ dwindling assets to be used to pay new lawyers to duplicate legal work already done.

“From the outset, defense counsel — experienced criminal attorneys — had to know that the prospect of forfeiture and claw back could rear its head,” Kyle wrote. “Indeed, the potential for forfeiture exists in nearly all criminal cases involving financial frauds, where the taint of funds paid to an attorney cannot be fully known.”

Kyle assured the attorneys he would sign off on “reasonable” fees — in this case topping $450 an hour — but pointed out that he had the authority to order the lawyers to continue pro bono if he thought is necessary.

“Part of being a lawyer is you are required sometimes to represent people for free,” said Ted Sampsell-Jones, a professor at William Mitchell College of Law in St. Paul. “One of your ethical obligations is to accept a certain number of court-appointed cases.”

Sampsell-Jones is curious to see how Nelson handles Hecker’s request for a public defender. Last summer, the trustee in Hecker’s bankruptcy case filed a complaint against his girlfriend, Christi Rowan, alleging she helped the former car dealer hide assets. Last week, Hecker told the Star Tribune that Rowan has a public defender.

The federal court docket does not list Rowan as a defendant in any pending criminal cases. If she were, and she was represented by a lawyer in federal defender Katherian Roe’s office, Hecker’s representation might eventually be assigned to one of the private attorneys who take cases that pose conflicts for the federal defender’s office.

“You have a constitutional right to an attorney,” said Sampsell-Jones. “Denny Hecker is not going to go unrepresented.”

Beth Hawkins writes about education and other topics.

You can also learn about all our free newsletter options.

Comments (9)

  1. Submitted by Francis Ferrell on 03/11/2010 - 12:17 pm.

    Don’t you love it? Truth is really stranger than fiction. No ersatz legal reality{?} show couldn’t be scripted better than the Hecker and Petters multiple court cases now pending in the Minnesota and Federal courts.

    The old adage of the “best defense money an buy” seems a bit overworked, at present, since the attorneys involved are not getting paid their legal expenses or fees. These high priced legal eagles seem to be chafing at the bit when the prospect of working ‘pro bono’ is looming.

    Maybe, the legal talent involved should take a lesson or two from the Public Defenders Office who daily work with ‘indigent’ defendants. If innocence can’t be proven beyond a reasonable doubt etcetera, plea bargain and make a deal for a lesser sentence regardless of innocence or guilt. Short, sweet, and efficient justice. Just keep those cases moving.

    It’s hard to civilly or legally think of presumption of innocence for Hecker or Petters when they bamboozled millions of dollars in fraudulent schemes. The only winners in these cases will be Petters or Hecker as they enjoy time as guests of society in the accommodating Federal or state ‘iron-city’ hostelries awaiting their arrival.

    Unfortunately, nobody will truly win in these fraud cases. At the present legal pace, the victims will be hard pressed to recoup any of their losses; the courts will be tied-up in legal knots for years; the defendants will accept no responsibility for all or any apparent wrong doing; the media circus will pontificate ad nausea; and, the attorneys won’t make their usual cut of the legal action.

    The true losers in these trials will be society and the countless innocent victims who will probably never have their say in these legal machinations.

    Our legal system will suffer by the complexities of these and the other fraud cases. However, if clear thinking judicious minds see through and past the intricate legal messy minefields that now persist, maybe society as a whole will learn to deal with these issues in a more enlightened Constitutional manner.

    Oh, well, this commentary is my donated two-cents each toward the ad hoc Hecker and Petters defense funds. My personal piggy bank is now empty. Monetarily I am legally indigent if I have to go to court but I am rich in spirit, happiness, and family. Maybe, that’s the lesson for the times; “Simplicity”.

  2. Submitted by Dave Eldred on 03/11/2010 - 03:33 pm.

    “These high priced legal eagles seem to be chafing at the bit when the prospect of working ‘pro bono’ is looming.”

    This is an easy statement to make given the relatively high salaries commanded by top-flight white collar defense lawyers such as the ones representing Hecker and and Petters. However, the reality is that cases with a scope as wide and broad as Hecker’s or Petters’ could easily consumer multiple attorneys and staff for multiple years. Even for well-compensated attorneys, that is a significant chunk of income to sacrifice — many of the attorneys here are solo practitioners. Asking them to essentially work for free for two years is not reasonable.

    I have much respect for both state and federal public defenders, who scramble under small budgets to provide the best defense possible to indigent clients. However, at the end of the day, they are paid every two weeks for their work (albeit inadequately). It is quite another thing to ask a private lawyer to donate a couple of years of work to represent a criminal defendant.

  3. Submitted by Beth Dhennin on 03/11/2010 - 04:52 pm.

    Pro Bono; pro bono; pro bono! Need I say it again?

  4. Submitted by Tim Larson on 03/11/2010 - 10:06 pm.

    Who will pay their lawyers?

    The bigger question is who will get the top bunk.

  5. Submitted by Neal Gendler on 03/11/2010 - 10:49 pm.

    While most of us working (or retired) stiffs can summon little sympathy for someone who is paid $450 an hour, Dave Eldred is right. Even those of us in the lower income altitudes would be aghast at being asked to work for months or even a year or two for free.

    And it’s worse for lawyers; while most big-name attorneys can make huge hay while the sun shines, they also have rents and staffs to pay — in addition to copying costs that probably exceed some workers’ incomes. No matter what they’ve made in previous years, asking — or requiring — them to fund not only the cost of a legal practice but the burden of representation in a case with multiple plaintiffs, multiple charges and hundreds of thousands of pages of documents is simply and plainly unfair.

    At the same time, though, I would hate to see the complex Hecker cases dropped onto the overloaded plates of public defenders. It would be, as one judge said, a waste of legal time — doubtless coming at the expense of representing those who probably never in their lives could have afforded an attorney.

    So what’s the answer? If I had one, I wouldn’t keep it a secret.

  6. Submitted by Dean Carlson on 03/12/2010 - 07:30 am.

    There’s another route Hecker could take. He could cop a plea. Based on what I have read in the newspaper, the feds have Hecker dead to rights. And it looks like his dead father in law did him no favors. He should plea down his sentence and serve his time.

    Petters thought he was above the law and could “sell” his way out of his charges. A 300 year sentence is now facing him, even with his $450/hour team of lawyers. The same fate is headed Denny Hecker’s way too.

  7. Submitted by Dave Eldred on 03/12/2010 - 03:35 pm.

    Problem is, I can’t imagine the feds offered Petters any sort of deal that would have given him a chance to get out of jail alive (not saying I blame them, he earned it) — so why not go for broke at trial? To Petters, what’s the difference between copping to a 30 year sentence or going to trial and getting a 300 year sentence? Might as well shoot for acquittal.

  8. Submitted by Wally Carr on 03/13/2010 - 07:24 am.

    These attorneys were not required to take the cases in the first place. Now that they have started, they are not being allowed to drop them.

    So why do they have to put in all those hours in examining documents and putting together complex filings? If you are a plain working stiff, you do not get all those hours no matter how complex your case might be. You get as many hours as your house and savings might be worth. And the Courts have no problem at all calling it Justice.

    In these cases, there is a lot more money on the table, so the lawyers seem to me to be advancing the hours, then wanting to cut to the front of the line to get paid before the fraud victims and suppliers get paid.

    I say tough luck, you made a bad business decision. You saw a big pile of money and couldn’t grab enough of it to make it pay.

  9. Submitted by Dave Eldred on 03/13/2010 - 10:55 am.

    I’m a bit distrubed by the number of people who feel that certain people are not entitled to the legal defense guaranteed to them by the Constitution.

    The problem, in my eyes, is not that rich people generally get a good legal defense. The issue is that the indigent frequently do not, thanks to underfunded public defenders who are overwhelmed with work. That is the problem that needs to be solved.

Leave a Reply