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Entered on Docket

October 27, 2010


GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA

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2 Signed and Filed: October 26, 2010

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4 ________________________________________
DENNIS MONTALI
5 U.S. Bankruptcy Judge
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6 UNITED STATES BANKRUPTCY COURT
7 NORTHERN DISTRICT OF CALIFORNIA
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In re ) Bankruptcy Case
9 ) No. 08-32514DM
HELLER EHRMAN LLP, )
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Debtor. ) Chapter 11
11 ___________________________________)
12 MEMORANDUM DECISION ON OBJECTIONS
TO PRIORITY STATUS OF CLAIMS
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On October 22, 2010, the court heard argument on the
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objections of the liquidating debtor, Heller Ehrman LLP
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(“Debtor”)to $10,000 priority claimed under Bankruptcy Code
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section 507(a)(4) by Kelly Seaburg (“Seaburg”)and Havila Unrein
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(“Unrein”, and collectively with Seaburg, “Claimants”). Debtor
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appeared through counsel; Unrein appeared telephonically on her
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own behalf; Seaburg submitted the matter on the papers.
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Following argument the court took the matter under advisement
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to review the documents and consider the arguments of the parties.
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For the reasons that follow, the objections to priority of
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Claimants’ identical claims will be overruled, and as there are no
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other objections to the allowance of either claim, both will be
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allowed as priority claims in the amount of $10,000.
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There are no facts in dispute. The only issue before the
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court is whether a $10,000 “stipend” promised because Claimants’
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Case: 08-32514 Doc# 1820 Filed: 10/26/10 Entered: 10/27/10 15:21:15 Page 1 of
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1 start date on the job as associate attorneys or bar applicants at
2 Debtor was being deferred for three months constitutes “wages,
3 salaries or commissions”, and thus carries statutory priority.
4 The deferral letter of August 27, 2008, (“deferral letter”)
5 confirms an original employment date of October 13, 2010 and a new
6 employment date of January 19, 2009. It is clear, however, that
7 the Claimants had already been employed, as they were paid $12,000
8 stipends to help them with expenses while taking the bar
9 examinations months earlier. Those earlier stipends were treated
10 as taxable income by all parties; more importantly, Debtor issued
11 Earnings Statements to each Claimant.
12 From the foregoing the court is satisfied that in the context
13 of the deferral letter the reference to “the original employment
14 date”, “the new employment date” and “the delay in your
15 employment” can only mean the date on which the employee was to be
16 present and ready to work. It does not mean that the Claimants’
17 relationship with the Debtor was something that takes them out of
18 the favored class of claimants entitled to
19 § 503(a)(4) priority.
20 If this were not the case, the court must determine just what
21 the Claimants were from the date of the deferral letter on. Had
22 no prior relationships existed, perhaps they were at best
23 independent contractors. But that is not the case. Each had
24 been a summer associate, each was offered and accepted employment,
25 each was paid a stipend reported as gross pay and noted on Form W-
26 2 as “Wages, tips and other comp.”, each had federal income tax
27 and social security amounts withheld.
28 The deferral letter merely extended the time for Claimants to

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Case: 08-32514 Doc# 1820 Filed: 10/26/10 Entered: 10/27/10 15:21:15 Page 2 of
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1 “come to work” and promised them more money to make up for the
2 delay. That Debtor chose not to withhold federal income tax and
3 social security from that second stipend as taxable is of no
4 moment. What is significant is that while Claimants were
5 permitted to take on temporary employment during the deferral
6 period, they forfeited any unpaid portion of the second stipend if
7 they took full time employment elsewhere.
8 The foregoing arrangement had the effect of keeping Claimant
9 on a form not unlike a retainer, viz., remain available from
10 October to January and be paid $10,000 in three monthly
11 installments before you show up at the office. Leave us and go
12 elsewhere on a permanent basis, and don’t get paid. In the
13 overall context of the history of Claimant’s affiliation with
14 Debtor, Debtor’s prior treatment of their remuneration, and the
15 context of the deferral letter, coupled with the policy arguments
16 well-briefed by Claimants, satisfied the court that their claims
17 are entitled to priority.
18 For the foregoing reasons, Debtor’s objections will be
19 OVERRULED. The court is concurrently issuing separate orders
20 allowing Seaburg’s and Unrein’s claims as priority claims in the
21 amount of $10,000 each.
22 **END OF MEMORANDUM DECISION**
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Case: 08-32514 Doc# 1820 Filed: 10/26/10 Entered: 10/27/10 15:21:15 Page 3 of
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1 COURT SERVICE LIST
2 Kelly A. Seaburg
1740 NE 86th St., #212
3 Seattle, WA 98115
4 Havila Unrein
16011 10th Ave. NE
5 Shoreline, WA 98155
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