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by Vault Law Editors | May 03, 2010


A looong look in The Times at the controversy brewing over the huge fees being collected by lawyers, consultants, and accountants in connection with the recent mega Chapter 11 cases: Chrysler, GM, WaMu, and, especially, Lehman Brothers. The fees in the Lehman case already exceed $730 million and are inevitably heading up to and beyond $1 billion. The article has much fun with the particulars of the bills: $263,000 for photocopies in four months! $2,100 in limo rides by one partner in one month! $2.54 for gum! etc. But what is most “shocking” in the article is the public and vitriolic fight over what constitutes proper billing practices in bankruptcy cases.

According to one school of thought, there is something “unique” (meaning “slightly crooked”) about the culture of bankruptcy. According to former MoFo bankruptcy partner and current law prof Nancy B. Rapoport: “I don’t think professionals cheat the client, but in a number of ways they can talk themselves into doing things that they wouldn’t do for clients outside of bankruptcy. … If you send eight people to a hearing because there is an outside chance they might have to speak at that hearing and you try that outside of bankruptcy the client will go ballistic.” Not to mention the $500/hour the junior associates are being billed out at while they fiddle with their BlackBerries at unnecessarily crowded hearings.  This situation “violates any sense of proportion,” according to Kenneth Feinberg, the D.C. lawyer whom the court appointed to monitor fees associated with the Lehman bankruptcy. “This is a very important test case; it’s bigger than just Lehman.” What is being “tested” is whether the fee examiners in this huge Chapter 11 cases can rein in the costs. Among other things, Feinberg wants to end the practice of law firms submitting invoices which include the time billed in preparation of the invoice. (The Times describes this as “akin to a doctor charging a patient to prepare a bill after expensive, complex surgery.”) According to Feinberg, “Lawyers don’t charge for invoice preparation except in bankruptcy … I’ve prepared bills my entire professional life. You don’t charge a fee. Most people would argue that charging anything is inappropriate.” (Milbank Tweed has charged $148,426 just to compile its bills and time records.)

Moreover, Feinberg et al. argue that the massive fees associated with these cases reduce the money left over for creditors. While Weil Gotshal has billed the Lehman estate for more than $164 million to date, the proposed reorganization plan pays unsecured creditors less than 15 cents on the dollar.

Of course, on the other side of this debate are the bankruptcy lawyers and other professionals. Weil’s Harvey Miller—invariably referred to as the “dean of the bankruptcy bar”—comes out swinging:  “The legal skill we used to sell Lehman’s North American capital markets business to Barclays saved 10,000 jobs and preserved the business itself, capturing value that otherwise would have been lost.” On Feinberg’s suggestion that Weil cut its fees: “Mr. Feinberg doesn’t know what he’s talking about … We don’t generally give discounts. Just because bankruptcy has been the hot legal area for the last 19 months doesn’t demand you cut fees.” According to Bryan Marsal of the restructuring specialists Alvarez & Marsal, “The size of this case justifies the size of the fees.” Marsal estimates that his firm’s work has boosted the recovery value for Lehman creditors by up to $5 billion. He characterizes the work of fee examiners as “hooey.”

Usually, BigLaw partners are bland and circumspect in speaking to the media. Not the 77 year-old Harvey Miller. In response to the GM bankruptcy’s fee examiner’s recommendation that Weil make a 5 percent reduction in its rates: “[The examiner] is way off base … He perceives himself to be a sage, giving advice to the world, and that is not his role.”

-posted by brian


Filed Under: Law

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