In journalism, there are certain go-to stories that one writes around big events. At Halloween, everyone writes the “most popular costume” story. At Christmas, it’s the “most popular toy” story. At Thanksgiving, it’s the “how the community is giving back” story.
Over the last two years, a recurring event has been “the big bankruptcy.” And it seems that the journalistic go-to is the “how much are the greedy lawyers making off of this” story. We’ve seen it with the GM bankruptcy, the Tribune bankruptcy, and the Chrysler bankruptcy. Yesterday, the New York Times applied the story model to the Lehman bankruptcy, but they got pay czar Kenneth Feinberg to weigh in — and lay into the firms working on the case: Weil, Jones Day, and Milbank.
“It violates any sense of proportion,” says Kenneth Feinberg, the Washington lawyer who serves as the “pay czar” for banks bailed out by the government and whom the court appointed last June to monitor fees associated with the Lehman bankruptcy. The court asked him to participate after concerns were raised in the news media about the soaring fees in the Lehman case.
“Unemployment is over 9 percent, and to be paying first-year associates $500 an hour angers the public,” he observes. “People read about all of this and say that lawyers and the legal system are one more example of Wall Street out of control.”
The article outlines the fees that have outraged — tangential Nationwide Perk Watch: Weil attorneys get limo transport — and the new limits that have been placed on bankruptcy attorneys on the case. No first class for you!
The NYT claims that bankruptcy fees have been spiraling out of control and that the watchdogs from the United States Trustee’s office have dropped the ball on reining them in. Former bankruptcy lawyers — Nancy B. Rapoport, previously at MoFo and Robert White, a former bankruptcy partner at O’Melveny & Myers — contributed to the criticism.
It’s not just lawyers who have racked up the $730 million bankruptcy bill for Lehman. Accountants and restructuring experts are to blame as well, but it’s the legal types who bear the brunt of the criticism. Some of the outrageous lawyer fees outlined by the NYT:
- “Weil, Gotshal & Manges paid one car-service company alone more than $500 a day as limo drivers cooled their heels waiting for meetings to break (and this in a city overflowing with taxis).”
- “Jones Day partner, William Hine, claimed more than $2,100 for late-night rides home in one month.”
- “Milbank, according to court filings, charged $148,426 just to compile its bills and time records — a move akin to a doctor charging a patient to prepare a bill after expensive, complex surgery.”
- $48 to leave a message
- $263,000 for photocopies in four months
Photocopies, really? Time to go digital, my friends.
The NYT also threw in mention of some of Weil’s ridiculous fees from the GM bankruptcy for good measure:
Lawyers from Weil, which has accounted for nearly $16 million of fees in that case, put in for $364.14 in dry cleaning as well as more than a week at the Sherry-Netherland hotel in Manhattan last summer, where one lawyer’s room cost $685 a night.
Working for Weil is sounding better and better.
Meanwhile, Weil has pocketed $164 million from its work on the Lehman bankruptcy deal. Former O’Melveny parter Robert White told the Times about the nefarious secret buried at the heart of Biglaw: lawyers like to find reasons to bill!
“There’s clearly pressure on people to create more revenue,” says Robert White, a former bankruptcy partner at O’Melveny & Myers who retired in 2006 after practicing for 35 years. At one deposition he attended last year, each law firm sent two or three lawyers when one would have sufficed. “They were just sitting there on their BlackBerrys and talking to other people,” he said.
(Note: Unclear why he attended a deposition last year if he retired in 2006.)
To be fair, BlackBerrys do keep lawyers working at all times even if they’re having down time at a deposition. That is the beauty of those little things. (Let’s hope for the sake of argument that they were emailing about matters related to the case at hand and not working on — and billing for — emails in another matter.)
In their defense, those working on the Lehman bankruptcy say that they should be able to recover $4 – $5 billion for Lehman creditors, and that the bankruptcy is huge and incredibly complex — they have to figure out what the heck derivatives are, after all:
Lawyers and restructuring pros who are picking up the pieces of companies swamped by the bankruptcy wave say that their fees are well deserved and that their services help make the bankruptcy process more efficient. And they say the pay is more than made up for by a tidier resolution of a financial debacle — or, as in G.M.’s case, the revivification of a wounded company.
[Weil bankruptcy partner Harvey] Miller adds that those derivatives, even today, are taking up a lot of time and energy. “We’re still in the process of unwinding them,” he says, “which raises all sorts of difficult and novel legal issues.”
Still, Feinberg is cracking down. Here are some new fee rules for those working on the bankruptcy:
- “Air travel must be in coach class only.”
- “Ground transportation is limited to $100 a day, and only after 8 p.m.”
- “Hotel rooms are capped at $500 a night.”
- “Photocopy charges are limited to 10 cents a page.”
- “Late meals can’t be more than $20 each.”
If firms violate those guidelines, they forfeit 50% of the disputed amounts. At some point after that, “the full amount will automatically be deducted.” We imagine lawyers won’t stand for that violation of their “bill” of rights, though. Weil partner Harvey Miller says:
“If you had cancer and you were going into an operation, while you were lying on the table, would you look at the surgeon and say, ‘I’d like a 10 percent discount,’ ” he explains. “This is not a public, charitable event.”
Meanwhile, Feinberg himself has upped his fees. He got the court to increase his monthly budget from $75,000 to $250,000 in order to monitor activity on the case.
Who Knew Bankruptcy Paid So Well? [New York Times]