%1

A quirk in federal law made going bankrupt in Alabama and North Carolina cheaper than in any other state, spurring a lawsuit that says the government has been overcharging everywhere else and violating the Constitution, Bloomberg News reported. The U.S. government increased the fees it charges the largest bankrupt companies for chapter 11 filings by over 700 percent in 2017, but let debtors in those two states keep on paying the older and cheaper fees, according to a Louisiana hospital chain that sued on April 3. The vast discrepancy meant the federal government overcharged companies struggling with insolvency by about $155 million last year, according to the lawyer who filed the suit. The court case, which seeks to be certified as a class action for an estimated 600 to 1,000 members, demands that the fee increase be declared unconstitutional and that the U.S. give refunds. The fees help fund the U.S. Trustee Program, a unit of the Department of Justice that serves as a watchdog over bankruptcies.

The judge presiding over the Archdiocese of Agana bankruptcy case is questioning the legal fees sought by an attorney who specializes in extracting maximum settlements from insurance companies, the Guam Daily Post reported. Ford Elsaesser, the bankruptcy attorney for the Archdiocese of Agana, asked the court for approval to hire James Murray of the Philadelphia law firm of Blank Rome LLP during a motions hearing Friday in the District Court of Guam. Murray leads Blank Rome's insurance recovery practice. His normal fee is $1,025 an hour. He has agreed to provide a 25 percent discount if he is hired to recover damages from the insurance companies who provide liability coverage for the archdiocese. That would bring his rate down to $755 an hour. Legal fees on Guam generally range from $150 to $300 an hour. "When I first saw those fees, I was shocked," said Chief Judge Frances Tydingco-Gatewood of the District Court of Guam. She said this is not New York City, "that's way too much money." Elsaesser acknowledged that Murray's rates are "substantially" above local legal fees, but he said Murray's "specialty is unique." Edwin Caldie, the attorney for the unsecured creditors' committee, said that the victims are aware of the fees and comfortable with the choice of Murray. The committee represents the victims and they have the right to challenge any settlement agreements. However, Tydingco-Gatewood expressed concern about the precedent, saying that the rate she agrees to "could change the landscape" for legal fees on Guam. The judge took the matter under advisement and said she would issue her decision next week.

Justice Department officials are escalating their battle to collect fees from bankrupt companies with their appeal of a Texas judge’s recent decision that some businesses are exempt from the higher fees ordered by federal lawmakers in late 2017, WSJ Pro Bankruptcy reported. Justice Department officials on Feb. 21 asked a federal judge to review a Feb. 8 ruling from U.S. Bankruptcy Judge Ronald King, who ruled that the once-bankrupt owner of Old Country Buffet, Ryan’s and other buffet-style restaurants could pay a smaller amount of fees for using the federal court system. In his 13-page ruling in the U.S. Bankruptcy Court in San Antonio, Judge King said that it would be unfair for Buffets LLC to pay higher quarterly fees under a new federal law that took effect months after the company declared bankruptcy in 2016. Federal lawmakers who voted to increase fees starting Jan. 1, 2018, didn’t specify whether the higher rate would apply to companies that had filed for bankruptcy protection before that date. Judge King said that applying the higher rate to companies already in bankruptcy would violate constitutional protections of due process.

Fees are continuing to pile up in the Sears bankruptcy, and Weil, Gotshal & Manges, the storied retail giant’s lead law firm, is under the spotlight, the American Lawyer reported. The firm caught the attention of the New York Post over a single paralegal’s busy month: 431 hours, billed at $405 per hour. That’s more than 14 hours for every day of the month. It’s also more than the billing rate for some partners at large firms. And it tops the rate earned by a number of attorneys, including shareholders, at McAndrews, Held & Malloy, the Chicago firm handling trademark issues for Sears in the Manhattan bankruptcy case. Still, the total billed by Weil’s paralegals in November—just over $500,000—is just a small sliver of the firm’s total November bill of over $10 million. The majority of that bill—$5.6 million—came from over 60 associates billing at rates between $560 and $975. Twenty-three partners and 10 Of Counsel attorneys, billing at between $1,600 and $1,025 an hour, combined to contribute $3.8 million in bills.

McKinsey & Company, a consulting firm whose conduct in bankruptcy cases has already drawn the attention of two judges, was accused yesterday before a third judge of improperly receiving and concealing payments from a client on the verge of bankruptcy, the New York Times reported. This raised the prospect that the judge overseeing the case could order the return of tens of millions of dollars in fees earned by the consulting company. Signs that something could be wrong at the client company, SunEdison, began to surface after its board hired an outside firm to investigate unrelated employee claims that managers were misstating cash flows. The outside company, FTI Consulting, described an email exchange between a McKinsey consultant and a SunEdison executive, discussing how McKinsey was going to be paid for the work it had already done for the company. Ultimately, there was an agreement that McKinsey would not keep billing SunEdison itself; instead, it would call back its unpaid bills and redirect them to four solar-energy projects that SunEdison had set up for various customers. But there was a problem: McKinsey had not done any work for them. The accusations against McKinsey were contained in a pleading filed yesterday in bankruptcy court in Manhattan by a SunEdison creditor who has made a series of accusations of misconduct against McKinsey. The creditor, the retired turnaround specialist Jay Alix, asserted to Judge Stuart M. Bernstein that McKinsey had used the four projects — whose financing was separate from that of SunEdison and would not be affected by the bankruptcy — to remove any risk of the court finding out that McKinsey pulled money out of the company just before it went bankrupt.

Sears has survived the Great Depression and world wars. Whether the 126-year-old retailer stays afloat or goes out of business now hinges in part on paying for the enormous bill piled up by going broke, Reuters reported. The fate of Sears Holdings Corp. highlights a harsh reality of U.S. bankruptcy — it requires armies of pricey specialists in a system driven by an outcome, not costs. Sears today will consider bids for its assets, including a last-ditch $5 billion proposal by chairman and controlling shareholder Eddie Lampert. To ensure his chances of outbidding proposals to liquidate the chain, Lampert last week agreed to assume more than $600 million in additional liabilities that Sears has incurred since filing for bankruptcy protection last October.