The saga of Minnesota businessman Tom Petters played out in separate St. Paul courtrooms Thursday, with a federal district court judge telling Petters' criminal defense attorneys they can't quit, even though they haven't been paid yet for any work they've done this year, and a federal bankruptcy judge reopening the auction for Petters' Polaroid Corp. -- again.
U.S. District Court Judge Richard Kyle expressed little sympathy for the financial pinch affecting Petters' lawyers, Jon Hopeman and Paul Engh. The pair said that because they haven't been paid, they've had to cut back on investigators, associate attorneys and expert witnesses as they prepare for Petters' trial, now expected to begin this summer.
"Once you're in there you don't get out without approval from the court," Kyle said. "The fact that you're not paid is not a reason to say you're walking."
Though he hasn't ruled yet, Kyle suggested Petters' attorneys would have to tough it out. If he had to appoint new counsel, Kyle noted, trial preparation would begin anew, delaying the case as Petters remains in federal custody.
"You're obligated to represent your client," Kyle said.
Petters, 51, of Wayzata, has been in the Sherburne County jail since his arrest in October on charges of fraud, money laundering and conspiracy.
Hopeman and Engh had appealed to Kyle after a magistrate judge rejected their efforts to get federal prosecutors to guarantee they wouldn't go after their fees for restitution to victims if Petters is found guilty of running a $3.5 billion Ponzi scheme.
Engh said defense attorneys are facing a potential "financial disaster." In earlier motions, Petters' attorneys have said his defense could cost as much as $5 million. Federal prosecutors have argued that Petters must use personal assets to pay such costs and couldn't dip into assets from codefendants or his corporate entities, most of which are in bankruptcy.
"There's an economic reality here," said assistant U.S. Attorney John Marti. "There's only so much money out there. We've said fees can't be paid with funds that were obtained by fraud."
Hopeman's law firm, Felhaber Larson Fenlon & Vogt, has been paid more than $500,000 for representing Petters in 2008 but hasn't been paid for work done this year. Engh is an independent attorney who joined the defense team in December.
Kyle said he'd issue a written ruling on the defense attorneys' fees and other pending motions by Monday.
Meanwhile, the slugfest continues over Polaroid, one of Petters' most valuable companies. Bankruptcy Judge Gregory Kishel ordered the two competing bidders to face off in court next Thursday in a third -- and supposedly final -- round of bidding for the instant-photo pioneer.
PLR Holdings, a joint venture of Hilco Consumer Capital of Toronto and Boston-based Gordon Brothers Brands, supposedly won the auction with an improved bid of $72.6 million. But New York private equity firm Patriarch Partners topped that by nearly $3 million in a bid it filed Thursday morning, after the deadline had passed. Hilco objected.
However, Jim Lodoen, attorney for the Petters estate in bankruptcy, supported Patriarch's bid, saying it was higher and retains about 70 employees in Polaroid's Minnetonka offices. Lodoen presented a petition signed by at least 30 Polaroid employees in support of Patriarch's latest bid. Some 20 Polaroid employees gathered at the federal courthouse in Polaroid shirts and hats to lobby for their jobs.
Over Hilco's objections, Kishel decided the top consideration was getting top dollar for Polaroid.
Jennifer Bjorhus 612-673-4683 David Phelps • 612-673-7269