09:54 PM EST on Sunday, January 16, 2005

Associated Press

An attorney who envisioned a statewide law firm is now mired in a $16.9 million bankruptcy case.

From 1998 to 2002, Ron Sheffer grossed $2.6 million, according to court records. Eventually 40 lawyers and 125 employees — Lt. Gov. Steve Pence, former U.S. Attorney Joe Whittle and ex-Attorney General Chris Gorman among them — worked in Sheffer's offices from Paducah to Lexington.

But former partners and other attorneys say Sheffer's enterprise foundered because he tried to grow too big too fast, then gambled that a fee from a single case could save the firm.

Legal experts say Sheffer's bankruptcy is unusual because he and his partners borrowed so much money from banks based on what they thought they would earn later, an uncommon practice for law firms, said bankruptcy trustee William Stephen Reisz and other lawyers.

"How he persuaded banks to loan that much money is the craziest thing I ever saw," Reisz said.

Now, a judge has refused to discharge Sheffer's debt, a rarity in bankruptcy cases. The denial, if upheld on appeal by U.S. District Judge John G. Heyburn II, would allow creditors to try to collect all Sheffer's debts.

Sheffer's firm faltered in the late 1990s and eventually closed all its offices except the one in Louisville. All of the partners left except for Sheffer and his son John, who also filed for bankruptcy.

In court papers, Sheffer's attorney, J. Baxter Schilling, defended his client as a victim of a "business transaction which through no fault of his own went awry."

The transaction was a whistleblower case filed by a former chief financial officer against Columbia/HCA Healthcare Corp. Sheffer's firm expected it would yield a $20 million legal fee, according to court records, but the firm netted less than $900,000 when the client, without the advice of counsel, settled in May 2003.

Sheffer filed for bankruptcy the next month, listing assets of $1 million and liabilities of $16,971,067.

Sheffer, a former Western Kentucky quarterback, is still highly regarded as a trial lawyer, say other attorneys. But former partners and other lawyers say Sheffer made several missteps in trying to build a statewide firm.

Reisz said Sheffer pledged salaries to too many high-priced lawyers, then had to borrow money to pay them when expected revenues did not materialize. Former partner Peter Lewis of Owensboro, who also was forced into bankruptcy, said Sheffer opened offices before there was work to support them.

Other lawyers said he made too many decisions on his own.

"Once you're a quarterback, you are always a quarterback, and that is the way he conducted his affairs," said former bankruptcy judge Merritt S. Deitz Jr. of Henderson, who said he was recruited to join the firm but declined.

Schilling said Sheffer did consult with other partners about personnel moves.

In court filings, Sheffer is also accused of fraud by two banks and the trustee, in part for transferring $66,000 to his wife, Anne, in the 35 days before he filed for bankruptcy.

In a sworn deposition, Sheffer, said he mainly did it to protect against someone levying against his personal account. He later testified that his wife transferred the money without his knowledge or consent, adding that she handled their finances during their 44-year marriage.

Bankruptcy Judge Joan Cooper said his revised testimony lacked credibility and concluded the transfers were "for the very purpose of putting those funds beyond the reach of his creditors."

Sheffer also is accused of transferring his lavish Louisville home and condominiums to his wife in 1999 but then listing them as his own assets on financial disclosure forms. Sheffer has said in court papers that he transferred the homes to his wife on the advice of an estate planner.

Sheffer still lives in the Louisville home owned by his wife, and still drives a $699-a-month leased Mercedes, according to court records. But Schilling said Sheffer has sold interests in three thoroughbred horses, and his wife has sold a condo in Arizona.

Schilling said Sheffer and his son tried to cover the firm's debts, paying off about $3 million to creditors before they took bankruptcy.

Sheffer also has settled with his largest creditor, National City Bank, to which he agreed to pay $100,000 and to surrender about $1.4 million in fees.