Sunday, May 26, 2002

Builder's fall lifts lawyers to big payday

Erpenbeck litigation brings millions in attorney billings

By James McNair,
and Patrick Crowley,
The Cincinnati Enquirer

        Erpenbeck customers are praying to save their homes. The builder's lenders are setting up reserves for loan losses. Real-estate title companies are assessing their financial exposure.

        And the lawyers are racking up the billable hours.

        In just over a month, the collapse of the Erpenbeck Co. and its spillover to more than 20 Ohio, Kentucky and Indiana banks has mushroomed into a billings bonanza for the Tristate's legal community.

        As lawsuits and allegations fly, pushing claims and loan delinquencies over the $75 million mark, the scandal is dredging up memories of the Home State Savings Bank failure of 1985 and even the deadly Beverly Hills Supper Club fire of 1977, both of which opened the litigation spigots.

        “This is payday time for lawyers,” said Bert Ely, a Washington, D.C., banking consultant and former bankruptcy examiner. “They must be salivating because of all the litigation involved.”

        At a time when Greater Cincinnati is dealing with the lingering recession, a high-tech shakeout and downtown office-market dislocations, the lawyer fest could also give a lift to the central business districts of Cincinnati and Covington.

        About 75 of the region's best — and highest-paid — lawyers are already involved with countless associates and paralegals. Lawyers with expertise in banking, real-estate and business law were the first to answer the hot lines, followed by the trial lawyers. With the FBI hovering in the background, top criminal-defense lawyers are now signing on. The bankruptcy bar made its debut Thursday.

Click here for all Enquirer reports on Erpenbeck Co.
If you have any additional information on the business dealings of the Erpenbeck Co. or Peoples Bank of Northern Kentucky - or on the involvement of any parties not yet identified in our coverage - please email Enquirer business reporter James McNair at or Kentucky Enquirer reporter Patrick Crowley at
        The Erpenbeck Co., Erpenbeck family members and company employees have locked up at least eight lawyers between them.

        A. William “Bill” Erpenbeck, the company's former president, has retained two well-known criminal defenders, Glenn Whitaker of Cincinnati and Burr Travis of Florence. His brother Jeff, who took over the company in March, hired the late bank felon Marvin Warner's former lawyer, Mike Barrett of Cincinnati, while sister Lori has hired former federal prosecutor Pat Hanley of Covington.

        The firm is represented by two of the city's biggest law firms — Graydon, Head & Ritchey for civil matters and Dinsmore & Shohl for bankruptcy.

        The other entity spinning in the Erpenbeck vortex — Peoples Bank of Northern Kentucky — has also become a fountain of billable hours for lawyers.

        Its primary lawyer, Mark Arnzen of Covington, has practically become Peoples' in-house counselor. Because of the overwhelming amount of work, Mr. Arnzen drafted Greenebaum, Doll & McDonald of Covington to supply backup lawyers on banking and real-estate law and for civil trial work. It was at Greenebaum's 20th-floor riverfront office where 38 people, mostly lawyers and bankers, held the Erpenbeck version of the Mideast peace talks.

        “It's a lot like what's happening with Enron,” Mr. Ely said.

        “The problem you have in this situation is you have so many parties hurt — home buyers, banks, title companies, subcontractors. It's like a big, messy bankruptcy where you have a lot of claimants, different corporate entities, different degrees of priority of claims, two states with different sets of laws and a debtor that doesn't have any money.”

        The case screams for a global settlement, Mr. Ely said. But some creditors and lawyers will be conciliatory, while others will play hardball with their demands.

        “It'll be almost like what's going on in Argentina, where a few holdout creditors make it difficult to make a global settlement that spreads the pain around,” he said.

Bank bucks
        For the most part, the biggest law firms find themselves entwined in the Erpenbeck-Peoples affair by virtue of their representation of the big banks involved, such as Firstar, Bank One, Provident Bank and PNC Bank.

        Because those client relationships put those law firms in a particular camp in the swirl of litigation, they won't be able to help every Erpenbeck victim who comes along, lawyers say. That will produce a trickle-down effect for small and midsized firms, they say.

        “There is going to be a ton of legal work,” said Mark Elsener, a Cincinnati lawyer who represented the Ohio Division of Financial Institutions in the Home State Savings debacle. “I think it'll be difficult to find a law firm that does not have representation of a client in it somewhere.”

        Mr. Elsener said the Erpenbeck-Peoples case is highly unlikely to surpass the scope of the Home State Savings case, which led to a $129 million bailout by Ohio taxpayers and 15 years of litigation that concluded in 2000.

        “At one point in Home State, there were over 195 pieces of litigation in 15 states,” he said. “It had to be hundreds of millions of dollars.”

        “There are firms that really don't care for the high-profile cases, but I'd say there are fewer of them now than 20 years ago,” said John Norwine, executive director of the Cincinnati Bar Association.

        “Firms are very competitive now for clients and for the best attorneys and if they're taking on high-profile cases, they might find it easier to get attorneys to join their firm,” he said.

        For Covington lawyer Brandon Voelker, 29 and just two years out of law school, the Erpenbeck case has given him an opportunity to work with one of the nation's best-known plaintiff's lawyers, Stan Chesley of Cincinnati.

        May 9, Mr. Voelker sued Peoples Bank of Northern Kentucky on behalf of Charles and Sherry Mitchell of Independence. The couple had bought an Erpenbeck home for $198,000 only to discover later that the company didn't use the money to pay off the construction loan on the house, leaving them with two mortgages.

        It was an auspicious act on Mr. Voelker's part. Mr. Chesley had been contemplating legal action for Erpenbeck homeowners when he heard about Mr. Voelker's lawsuit. The two hooked up, and the result was a class-action suit that could represent upwards of 200 home owners.

        “You learn about class-action lawsuits in law school, but there really aren't that many out there once you start working as a lawyer,” Mr. Voelker said. “So being able to work with someone like Stan Chesley, who is known not just on a local level but a national level for his work on class-action suits, is really a great experience.”

        Representing Bill Erpenbeck on a $258,399 bad-check charge has been doubly involving for Florence defense lawyer Burr Travis. Some of his time has gone into representing his client. But more time has gone to dealing with reporters.

        “I had nine calls (Wednesday) alone,” Mr. Travis said. “Two from The Enquirer, two from two different reporters at The Post, one from The Recorder and one from each of the four TV stations in Cincinnati.

        “But I don't mind,” he said. “I know they are just doing their job. And I always try to call back. I hate seeing "could not be reached for comment' in the press.”

        As one phalanx of lawyers entrenches itself for Erpenbeck and Peoples Bank battles to come, another expects to be pressed into service for home buyers who are going to school on Erpenbeck's business practices.

        Fort Thomas lawyer Jeff Sanders, who does not represent a client in the Erpenbeck case, said the case will be a windfall for lawyers who do residential real-estate work.

        “Transactional costs in property closings, which are high anyway, are going to increase because people aren't going to buy or sell (property) without having an attorney present,” Mr. Sanders said. “They are going to be concerned about somebody cooking the books or stealing their money.”


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