Detroit Emergency Manager Kevyn Orr's office said yesterday that Detroit has paid almost $23 million in fees to lawyers, consultants and financial advisers through Oct. 1, including nearly $11 million to law firm Jones Day, which is representing the city in bankruptcy court, Reuters reported today. Detroit, which is awaiting a decision from a federal bankruptcy judge to determine if it is eligible for bankruptcy protection, has agreed to pay more than $60 million to more than a dozen firms aiding in its restructuring efforts, Orr's office said. Through Oct. 1, the city has paid $4.59 million to Conway MacKenzie, a Detroit area restructuring firm, and $4.17 million to accounting firm Ernst & Young. Accounting firm Plante Moran was paid $1.5 million through Oct. 1 and investment banking firm Miller Buckfire was paid $1.2 million.
In a unanimous decision related to the Thelen bankruptcy, a three-judge federal appellate panel ruled Friday that a New York appeals court should decide whether the remnants of law firms that dissolve in the state have an ownership right to fees earned from hourly matters taken by their former partners to new firms, American Law Daily reported today. Writing for the panel, U.S. Court of Appeals for the Second Circuit Judge Gerard Lynch underscored the importance of creating clarity on the issue, saying that "the bankruptcy of major law firms is, sadly, a phenomenon that has occurred with distressing frequency in recent years." In addition to Thelen, other Am Law 200 firms to fail in recent years include Heller Ehrman, Howrey, and the biggest of them all, Dewey & LeBoeuf, which filed for chapter 11 protection in May 2012. In each case, trustees seeking to recover funds for creditors have pressed "unfinished business claims" against firms that inherited income-generating work when they hired lawyers from the failing firms. Friday's ruling stems from a closely watched case brought by Thelen trustee Yann Geron against Seyfarth Shaw, which hired 11 partners from the firm following its October 2008 dissolution. (The firm filed for chapter 7 bankruptcy protection in New York a year later.) In addition to seeking an unspecified amount of money from work those partners took to Seyfarth, Geron argues that a waiver the partners signed once the firm knew it was dissolving in an effort to shield themselves from unfinished business claims should be considered a constructive fraudulent transfer. In September 2012, U.S. District Judge William Pauley handed Seyfarth Shaw a win in the case, ruling that the unfinished business doctrine does not apply to a dissolving law firm's pending hourly fee matters. Thelen appealed Pauley's decision, and the Second Circuit panel heard arguments from both sides in early October.
A lawyer tasked with reviewing advisers' fees in Eastman Kodak Co.'s bankruptcy yesterday gave his blessing to more than $240 million in bills, priming them for court approval next week, Reuters reported yesterday. Fee examiner Richard Stern recommended approval of about $235.8 million in fees and another $7.2 million in expenses, according to an report filed with the court yesterday. The fees on Tuesday will go before Bankruptcy Judge Allan Gropper who, absent any objection from Stern, is likely to approve them. In his report, Stern said Kodak fees were reduced by about $8.2 million through consensual deals.
The U.S. Trustee Program's effort to crack down on the fees corporate bankruptcy lawyers charge quietly took effect this month, though time will tell how attorneys and judges alike react to the new rules, the Wall Street Journal reported today. Attorneys representing large corporate debtors in chapter 11 are now subject to additional disclosures about their billing rates and practices. Department of Justice officials who monitor bankruptcy filings for fraud and abuse are encouraging the disclosures in their review of legal fees, which in many corporate restructurings add up to many millions of dollars. The new rules apply only to attorney fees in large chapter 11 cases filed on or after Nov. 1. The U.S. Trustee Program has engaged in outreach, such as discussing the guidelines at various conferences and workshops as well as encouraging bankruptcy judges to make the guidelines part of their court’s local rules, which would obligate bankruptcy lawyers to comply. “The U.S. Trustee Program is seeking compliance, not litigation,” said Clifford J. White III, the program’s director. “If we all approach this process with a desire to comply—and with recognition that the statutory standards require this information—then the process will be speedy and fair, and will gain public confidence.”
Robert Fishman of Shaw Fishman Glantz & Towbin LLC in Chicago, the attorney deciding how much lawyers and other professionals should get paid for shepherding Detroit through its record bankruptcy, gets his first batch of bills to review today, Bloomberg News reported. Fishman’s job, as the rare fee examiner to be appointed in a municipal bankruptcy, is to inspect and approve, or reject, bills that so far total about $19 million and may reach $60 million under contracts approved by the city. Fishman, a past president of the American Bankruptcy Institute, is the only fee examiner appointed in the recent spate of large municipal bankruptcies, including cases in California and Alabama. Bankruptcy Judge Steven Rhodes has instructed lawyers and other advisers to submit their first set of bills today, and to include details explaining what they did and how long it took, broken down into six-minute increments where necessary. The city has agreed to pay 85 percent of the monthly bills and withhold the rest while Fishman prepares a preliminary report about each firm.
The court-appointed administrator in charge of winding down MF Global Holdings Ltd. is concerned about the “exorbitant” defense fees being rung up by lawyers defending Jon Corzine and other former executives and managers in a securities fraud lawsuit, the Wall Street Journal reported today. “Defense fees incurred to date exceed $40 million, a figure that has never been adequately explained or justified and which suggests duplication of efforts among the Individual Insureds’ professionals,” lawyers for the administrator said in a Friday court filing. Bankruptcy Judge Martin Glenn last month denied the executives’ request to use an additional $10 million in insurance money, saying he wanted to wait until an appeal from MF Global customer Sapere Wealth Management was heard. The executives are asking the judge to reconsider his decision.
Even as it wrestles with the $18 billion of debt that has overwhelmed it, Detroit has already been billed more than $19.1 million by firms hired to sort through that debt, search for ways to restructure it and now guide the city through court, the New York Times reported today. That does not include more costs that the city is expected to bear for the support staff for its state-appointed emergency manager, and for another set of lawyers and consultants to represent city retirees. The uncharted scale of Detroit’s bankruptcy — it is the largest municipal bankruptcy filing in the nation’s history in terms of both the city’s population and its debt — suggests that it may also become the costliest, experts say. City officials offer no estimate for a final tab, but some bankruptcy experts say that the collapse could ultimately cost Detroit taxpayers as much as $100 million. As of last week, 15 firms had contracts with the city that could total as much as $60.6 million, city records show.
Residential Capital LLC, the mortgage lender controlled by government-owned finance company Ally Financial Inc., wants to pay a $2 million bonus to its chief restructuring officer for shepherding the company through bankruptcy, Dow Jones Newswires reported yesterday. ResCap said in a court filing that Lewis Kruger, a bankruptcy lawyer at Stroock & Stroock & Lavan, who took over in February to lead ResCap's restructuring efforts, deserves a "success fee" for hashing out the terms of a far-ranging settlement with ResCap's creditors and its corporate parent. The success bonus comes on top of Kruger's $895 hourly fee for work tied to ResCap's bankruptcy. The CRO's appointment came at a time when ResCap's restructuring was clouded in uncertainty as creditors argued that the mortgage lender's board couldn't be trusted to aggressively negotiate a settlement with Ally.
Sen. Chuck Grassley (R-Iowa) is requesting a probe into the Department of Justice’s initiative to overhaul how attorneys are paid in large chapter 11 cases, the Wall Street Journal reported yesterday. Starting Nov. 1, attorneys representing large corporate debtors in chapter 11 will be subject to additional disclosures and rules when it comes time to submit their legal fees for bankruptcy court approval. U.S. Trustee Program officials hope that the guidelines will help combat the perception that lawyers take advantage of a company’s crisis to charge expensive fees. Grassley in a letter yesterday asked Congress’s investigative arm, the U.S. Government Accountability Office, to review whether the new fee guidelines will “prevent excessive fees in the future and, if not, whether legislation is needed to address this problem.” http://blogs.wsj.com/bankruptcy/2013/09/09/senator-requests-probe-of-ne…
In a courtroom packed with dozens of lawyers yesterday, the judge presiding over the Montreal, Maine & Atlantic Railway’s bankruptcy proceedings expressed concern that attorneys’ fees will suck the company dry of funds before victims of last month’s deadly train derailment in Quebec can be compensated, the Morning Sentinel reported yesterday. “What’s concerning me is a run-up of administrative expenses that would make operation of the railroad impossible,” said Hon. Louis Kornreich. “There’s not a lot of extra revenue.” If legal fees drain the company of its cash, nothing will be left to compensate victims of the accident on July 6, in which an unmanned train loaded with crude oil rolled downhill into the town of Lac-Megantic, Quebec, derailed and exploded, killing 47 people and destroying 40 buildings in the heart of town. The court-appointed trustee is Robert J. Keach, who also serves as co-chair of ABI’s Commission to Study the Reform of Chapter 11 and is a former ABI president. He has assumed all responsibility for managing the company’s finances, and his firm, Bernstein Shur, will represent the railroad in court. “It’s certainly conceivable that this case is administratively insolvent as we stand here,” Keach said. The bankruptcy case is complex because it spans two countries and is connected to a human tragedy with numerous victims. In addition, it involves a railroad, which by federal law cannot be shut down.
