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Category: Bankruptcy Fees / Expenses

NALFA Podcast with Bankruptcy Fee Examiner Robert M. Fishman

April 17, 2017

NALFA hosts a podcast series on attorney fee issues.  We talk with thought leaders, attorney fee experts, and attorney fee newsmakers who’ve helped shape and influence the jurisprudence of reasonable attorney fees.  NALFA interviews members, faculty, judges, law professors, in-house counsel, and others on a range of attorney fee and legal billing issues.

NALFA’s third podcast features an interview with NALFA member and bankruptcy fee examiner Robert M. Fishman.  Robert Fishman is a partner at Shaw Fishman in Chicago.  The NALFA podcast with Robert Fishman focused on his background and his work in bankruptcy cases.  Robert Fishman has represented a range of clients and stakeholders in bankruptcy proceedings.

Fishman discusses the role of the bankruptcy fee examiner, the stakeholders in bankruptcy cases, and his work as a fee examiner in the large City of Detroit Chapter 9 bankruptcy case.  Fishman also discusses the effectiveness of bankruptcy mediation and shares his thoughts on the U.S. Trustee Program and their billing guidelines.

“These podcasts are the perfect broadcast format to discuss attorney fee and legal billing issues,” said Terry Jesse, Executive Director of NALFA.  “In addition to his work, Robert Fishman also shares his philosophy of examining fees and expenses in large Chapter 11 Cases,” concluded Jesse.  Click on the link below to listen to the NALFA podcast:

https://soundcloud.com/thenalfa/nalfa-podcast-with-bankruptcy-fee-examiner-robert-m-fishman

Nortel Creditors Challenge $4M in Fees in Chapter 11 Case

March 20, 2017

A recent Law 360 story by Matt Chiappardi, “Nortel Creditors Seek $4M Cut to Indenture Trustee Fee Bid,” reports that two hedge funds that held senior notes issued by a Nortel Networks Inc. unit pushed the Delaware bankruptcy court to cut their indenture trustee’s roughly $8 million attorney fee request in half, arguing that Delaware Trust Co. didn’t properly discharge its duties.

During a daylong hearing in Wilmington, PointState Capital LP and Solus Alternative Asset Management LP argued that roughly $4 million of Delaware Trust’s fee request comes from work connected to the defunct telecom’s official committee of unsecured creditors, the massive allocation dispute to decide how to divide $7 billion in sale proceeds among Nortel’s global units, fighting to protect its legal fees, or other duplicative efforts, none of which benefited the noteholders directly.

The hedge funds argued that as an indenture trustee, Delaware Trust has a duty of undivided loyalty to its constituency, but didn’t manage its professionals in such a way that limited the scope of their work to tasks directly benefiting the noteholders, and is looking for an outsized fee that doesn’t comport with its role in the case.

Arguing for the hedge funds, attorney James C. Tecce of Quinn Emanuel Urquhart & Sullivan LLP stressed that the dispute was not about the “qualifications, caliber or integrity” of the counsel Delaware Trust retained, but how the trustee chose to utilize them and whether the fee request, some of which could be taken out of their recoveries, now pending is reasonable.

“This is not an objection we took lightly,” Tecce told U.S. Bankruptcy Judge Kevin Gross.  “The duty was not properly discharged … [professionals] were not managed in a way to avoid duplicating expenses.”  Delaware Trust countered that its fee bid was indeed reasonable, calling the Nortel case “unprecedented, complex and massive,” and arguing that it, and its predecessor Law Debenture Trust Co. of New York, “carried the torch” for the noteholders throughout the eight-year-long case.

Decisions about where to focus efforts were prudently made on a day-to-day basis throughout the case, and that work ultimately led to the noteholders receiving a full recovery on their roughly $300 million in claims, Delaware Trust attorney Daniel A. Lowenthal of Patterson Belknap Webb & Tyler LLP said in court.  “The irony is that now that they are receiving a 100 percent recovery, they now object to the amount of the work done,” Lowenthal said.  “These are the same holders who demanded we not sit on the sidelines.”

The issue stems from an objection the hedge funds lodged against Nortel’s Chapter 11 plan, which Judge Gross confirmed in January, not to the strategy itself, but to the fees, and how it plays out could have wide-reaching implications for indenture trustee fees in bankruptcy cases.

Indenture trustee attorney fees that are not covered by a debtor’s estate are typically paid by the noteholders or charged against their recoveries, but the hedge funds argue that the full amount of such costs are not reasonable when the indenture trustee is also working as a member of a statutory committee with different or overlapping constituents.

The hedge funds additionally argue that the indenture trustee is mischaracterizing its arguments, claiming that they object to its decision to sit on the unsecured creditors committee when they only take issue with charging fees for work there.  They also contend that the indenture trustee hadn’t kept the hedge fund in the loop about the expenses, only springing them at the end of an eight-year case.

Delaware Trust took issue with that argument, asserting that the noteholders were informed about the expenses at periodic intervals during the case.  Judge Gross did not rule, but did question whether the hedge funds were engaging in a “hindsight exercise.”  He said he would issue a decision in writing shortly.

The fee dispute is only one of several vestiges left hanging after Nortel came to a major peace deal that allowed for confirmation of a Chapter 11 plan earlier this year for a case that has been pending since 2009.  The major sticking point was how to divide more than $7 billion raised in asset sales, a good potion of it intellectual property transactions, among the various Nortel units around the globe, a dispute that was adjudicated through an unprecedented simultaneous cross-border trial in Delaware and Toronto in 2014.

Professional fees throughout the case have been estimated to exceed $2 billion, making it one of the most expensive Chapter 11 cases in history.  The case is In re: Nortel Networks Inc. et al., case number 1:09-bk-10138, in the U.S. Bankruptcy Court for the District of Delaware.

NALFA Quoted in ALM’s Daily Business Review

March 1, 2017

NALFA was quoted in the ALM’s Daily Business Review (DBR), the leading source of daily legal and business news in South Florida, in a news story by Monika Gonzalez Mesa, “Are Florida Billing Rates on the Rise? It Depends”.  The story reads:

At least six large Florida-based law firms raised their billing rates in 2016 and plan to do so again this year.  But the higher rates may not be typical for Florida firms across the board.

In a survey conducted by ALM, Akerman, Greenspoon Marder, Holland & Knight and Shutts & Bowen all projected that they will raise hourly billing rates by more than 3 percent in 2017, as they did in 2016.  Greenberg Traurig also said it raised billing rates by more than 3 percent in 2016 but expects the percentage increase to be lower this year.  And Carlton Fields reported that it, too, raised its billing rates in 2016, although the increase was not as high.  It says it plans to raise them again this year.

But many variables go into determining billing rates, and the upswing does not necessarily represent an overall trend for Florida law firms, lawyers say.  Billing rates vary widely with location, market competition, complexity of practice, demand for that practice and the individual lawyer's experience.  Firms strive to find the rate that covers overhead without turning off clients while still keeping the firm attractive to valuable existing talent and potential recruits.

"It's hard to get a general consensus on billing rates because they tend to be geography focused and practice driven," said Terry Jesse, executive director of the National Association of Legal Fee Analysis, a Chicago-based nonprofit.

Bankruptcy court records, however, can provide a snapshot of billing rates because attorneys are often required to list their rates when representing clients in bankruptcy.  ALM Legal Intelligence collected 2016's hourly billing rates for partners, associates, of counsel and paralegals from these published rates in the 20 largest federal bankruptcy jurisdictions.  The Daily Business Review compiled a Florida list based on this data, offering a view of billing rates in the state.

The largest group of Florida attorneys in the list reported rates in the $200 to $350 an hour range.  The next biggest block provided rates that ranged between $350 and $500 an hour.  A smaller but still significant tier billed $500 or more per hour.

Among the highest paid attorneys were Greenberg Traurig partner Paul Keenan, who billed $765 an hour, Paul Singerman, co-chairman of Berger Singerman, who reported a rate of $695 an hour, and Robert Furr, founding partner of FurrCohen, who listed his rate at $650 an hour.

"I know guys that charge even more than that—a lot more," said I. Mark Rubin, an attorney in Jacksonville, who was included in the top-tier of the list with a billing rate of $575.  "Our clients are willing to pay for our services because they can't get the type of representation we give anywhere else."

Rubin represents groups of small investors who were caught up in aggregated-investor building-purchase schemes in the early 2000s.  Many of the deals involved fraud and left seniors without access to their life savings.  Rubin said he was included in the 2016 ranking because he used bankruptcy court to keep a 30-story building from falling into the hands of a predatory lender.

Bankruptcy billing rates, however, don't necessarily reflect billing rates for other practice areas, lawyers say.  Often, bankruptcy cases involve limited funds and limited recovery, so when deciding what to charge, lawyers have to consider that their compensation—especially in trustee and debtor cases—will also be limited.

"Bankruptcy traditionally has higher hourly rates, not only because of the complexity, but because of the risk that lawyers have to take on," said Luis Salazar, managing partner at Salazar Jackson in Coral Gables.

Bankruptcies make up about 25 percent of Salazar's practice now, but seven years ago, when the economy was doing poorly, it was perhaps as much as 50 percent, he said.  "For our market I don't think you're seeing much increase in bankruptcy billing rates because the demand is not there," he said.

Salazar is listed as charging an hourly rate of $500 in 2016.  Now, he says, his hourly billing rate has gone up to $550.  But much of his work, he says, is now based on a flat fee or alternative fee agreement.

Another reason billing rates in bankruptcy cases may not accurately reflect the rates attorneys charge in other practice areas is that bankruptcy attorneys are not as constrained by the power and weight of market competition.  In bankruptcy court, it is judges who approve the billing rates.

"The [bankruptcy] rates tend to be a little higher than they would be in the market because you have a judge looking over the rate as opposed to the competitive market," said Gary Mason, founding partner at Whitfield Bryson & Mason in Washington, D.C.

Bankruptcy billing rates do offer a window into legal fees.  But they are a very small part of the market overall, lawyers say, making it difficult to extrapolate rates throughout the industry from that data alone.

In fact, legal billing rates vary significantly and depend largely on the practice area and the complexity of a case, attorneys say.

"If it tends to be very complex work, the rates are going to be higher—and generally the larger firms do that [kind of work]," Mason said.  "But you'll usually find smaller boutique firms that have similar high rates because they have specialized expertise."

In South Florida, lawyers say the highest hourly rates are in specialty areas: complex cross-border, mergers and acquisitions, antitrust litigation, project finance, international taxation and international arbitration.

"The highest rates we see in Florida pretty much max out at around $850 locally, but you do have a small cadre of Miami-based partners working on national major market matters who charge New York rates—over $1,000 per hour," said Joe Ankus, president of the Florida-based legal recruiting firm Ankus Consulting.

Ankus says that firms tell him what they expect their lawyers' rates to be when they hire lateral partners.  "While $765 is definitely in the top five-to-ten percent of rates for all of the South Florida legal market, it is not considered high for an AmLaw Top 25 firm with an office in Florida," he said.  "It would be closer to middle-of-the-road, depending on the practice area."

At the global firm Holland & Knight, a market analysis and information gathering process begins a few months before the firm implements a rate change.

"We try to gather as much information and market data as possible," said Holland & Knight Operations and Finance partner Douglas Wright.  "We use market data compiled by large accounting firms and other consultants to analyze and evaluate our rates.  We spend a lot of time poring over the data."

The distilled information is then shared with practice leaders, who further discuss current market considerations and demand for each lawyer in determining a rate, he said.

"From all of that process, we develop a rate for each individual lawyer, which is an attempt, again, to balance market considerations, client considerations, and to make sure the firm is in a position to demonstrate the value proposition that it brings to our clients," Wright said.

According to Jesse of the National Association of Legal Fee Analysis, antitrust litigation is generally the most expensive litigation, and white-collar defense also has a high hourly rate.  Bankruptcy tends to be more straightforward, he said, but the more complex the litigation, the higher the hourly rate.

"The lowest rates out there tend to be insurance defense rates because the insurance companies will give them a book of business," Jesse said.  "There tends to be a difference in how plaintiffs attorneys bill and defense attorneys bill.  Defense work tends to be on hourly-based, while plaintiffs attorneys can bill on a contingency."

Last month, the rates law firms charge for their services grabbed the public's attention in Florida when the state revealed that four law firms had billed $97.8 million since 2001 for their work representing Florida in a battle with Georgia over water rights.  According to a spreadsheet obtained by the Miami Herald and the Tampa Bay Times, Latham & Watkins charged $395 an hour for lawyers with three years or less experience, $575 an hour for lawyers with between three and ten years of experience and $825 an hour for work performed by partners.  Foley & Lardner charged $220 an hour for associates with five years or less experience, and $450 an hour for partners.

While hourly billing rates are not likely to disappear any time soon, lawyers say that over the past few years, clients have become savvier at looking for predictability, efficiency and good value.  For longer projects, they want to know what alternatives they have.  Salazar said his firm embraced the change and created a system based on project management methods from other industries to zero in on what clients are looking for.

"Most of the work we're doing now is either project billing-based or flat fee-based or some sort of alternative fee," he said, "For bankruptcy, there's still an hourly fee approach, but for nonbankruptcy matters, including commercial litigation, transaction and the compliance work we do, clients are really seeking some alternative billing basis."

Best Practices Strengthen Your Standing in Legal Fee Analysis

February 5, 2017

Legal fee analysis is the comprehensive review and analysis of attorney fees and costs in an outside legal matter.  Professionals who routinely perform outside legal fee analysis include attorney fee experts, special fee masters, bankruptcy fee examiners, fee dispute mediators, and legal bill auditors.  Once known as legal auditing, a rather groundless, self-qualifying, and haphazard field, legal fee analysis has now matured and expanded into a new fully developed practice area of law, thanks in part to organization and professionalization.

Any new field of analysis, let alone one that deals with the sometimes contentious aspects of legal fees, requires some manner of professional ethics.  Emerging professions, like legal fee analysis must be grounded by some degree of qualification and some elements of generally accepted principles.  Indeed, professional standards can help ensure that professionals within a given field are qualified, competent, and ethical.

As part of our mission, NALFA has established Best Practices in Legal Fee Analysis.  This professional code of conduct was developed over several years with input and consensus from thought leaders from across the profession.  These peer review driven standards strengthen the legal fee analysis profession by ensuring integrity in the process and reliability in the results.  These best practice measures promote values such as ethics, independence, and professional development.  These best practice measures represent the mainstream of legal fee analysis.

As a 26 U.S.C. § 501(c)(6) organization, NALFA's statutory obligation is to improve the lines of business within the legal fee analysis profession.  Yet some old vestiges from the legal auditing era still remain.  As such, we encourage all professionals who routinely review and analyze outside legal fees or legal billing entries to read, understand, and follow Best Practices in Legal Fee Analysis.  Following these best practice measures only strengthens your standing within the legal fee analysis community.  We'd also encourage clients of outside legal fee analysis to choose a professional who follows Best Practices in Legal Fee Analysis.

For more on Best Practices in Legal Fee Analysis, visit http://www.thenalfa.org/Best-Practices/

Caesars Bankruptcy Winds Down with $150M in Legal Fees and Counting

January 13, 2017

A recent American Lawyer story, “With $150M and Counting in Big Law Bills, Caesars Bankruptcy Approaches Finish Line,” reports that, the clock is ticking on a lucrative piece of work for lawyers at Jones Day, Kirkland & Ellis and Proskauer Rose as the $18 billion bankruptcy of Caesars Entertainment Corp.’s operating arm approaches a possible end.

Combined with Winston & Strawn, whose work for a court-appointed examiner in the case is finished, those four Am Law 100 firms have already billed $150 million for their time through September, the latest available report in the U.S. bankruptcy court docket in Chicago.  All told, Las Vegas-based Caesars has spent more than $354 million on restructuring professionals and law firms from January 2015 through November 2016.  By law, the debtor also pays the legal bills for most of its creditors.

Kirkland & Ellis, which represents Caesars Entertainment Operating Co., has billed more than $70 million in the case.  Winston & Strawn charged nearly $32 million for its work.  Proskauer, which represented a group of unsecured creditors, has billed around $25 million.  And Jones Day, going to bat for a group of second-lien junior bondholders, has a tab of roughly $24 million, according to court filings.

For context, the fees represent between 3 to 4 percent of Kirkland’s, Proskauer’s and Winston & Strawn’s 2015 gross revenue, respectively.  Jones Day’s fee requests represent a little more than 1 percent of the firm’s gross revenue that year.

But there may be an end in sight for Caesars’ legal bills.  Following a tumultuous hearing in the Windy City, a confirmation hearing is set for Jan. 17 over a hard-fought plan for Caesars to exit Chapter 11 proceedings that began two years ago this month.  The confirmation hearing, scheduled for two days, could bring to an end a complex bankruptcy fight that has drawn concessions from the private equity owners of Caesars; allegations that the bankrupt entity was looted before the filing; and still faces an objection from a representative overseeing the case from the U.S. Department of Justice’s Trustee Program.

Caesars bankruptcy emerged from the troubled private equity buyout of what was Harrah’s Entertainment Inc. in 2008 by Apollo Global Management LLC and TPG Capital Management LP.  The deal, valued around $28 billion, was paid for mostly in debt.

After months of fighting to hold onto their stakes in Caesars, Apollo and TPG agreed in September to surrender equity valued at nearly $950 million in the proposed deal.  The private equity firms were also pressured into concessions by claims from junior bondholders that Caesars transferred the ownership of more profitable properties out of its operating arm to create a “good Caesars,” the publicly traded Caesars Entertainment, and a “bad Caesars,” the bankrupt operating company.

Richard Davis, a former Weil, Gotshal & Manges partner known for his role in the Watergate prosecution, was appointed by the bankruptcy court to assess those claims.  In his March 2016 report, Davis concluded that Caesars could be liable for damages ranging from $3.6 billion to $5.1 billion as a result of transactions that damaged the insolvent operating company.  He charged a little more than $1.3 million for time and expenses, according to court records.

Caesars’ parent company eventually agreed to put more than $5 billion into its subsidiary’s restructuring plan as part of a deal that would shield it from suits by junior bondholders related to the pre-bankruptcy transactions.  After months of wrangling, Caesars told the court in December that more than 90 percent of creditors approved of the deal, which it said is more than needed for a court to confirm the plan.

Unsecured creditors, represented by Proskauer, would receive 66 cents on the dollar, the company said in a September release.  Junior bondholders, advised by Jones Day, would receive the same amount.

The confirmation hearing later this month will focus on the last objection to the plan’s approval, lobbed by the U.S. Trustee, which serves as a watchdog for bankruptcy cases.  Among the trustee’s complaints is that the settlement provides an overbroad release from litigation claims related to the bankruptcy.

In court, Kirkland’s lawyers agreed to limit the confirmation hearing later this month to the trustee’s objections after initially planning a broader hearing that U.S. Bankruptcy Judge A. Benjamin Goldgar said would have taken nearly a month and could have resulted in him scuttling the plan.

After saying he was “distressed” by the prospect of such a long confirmation hearing and having to wait “a very long time” to issue a ruling, Goldgar left the full courtroom in the Chicago Loop and asked the lawyers for all parties to spend 30 minutes working out a solution.

It’s unclear what such a delay would have meant for the case or the company.  In May, Caesars’ solvent parent company warned that it may also have to enter Chapter 11 if the case wasn’t resolved in a timely manner.

Jeffrey Zeiger, a Chicago-based complex litigation partner at Kirkland, assured the judge upon his arrival that the lawyers were prepared for a narrow confirmation ruling focusing on the trustee’s points.  “It seems now that we really will have a brief and efficient hearing,” Goldgar said.

Fee Analysis: Energy Bankruptcy Cases

January 9, 2017

A recent Texas Lawbook article, “Exclusive: Legal & Financial Advisers Feast on Bankruptcy Fees from the Oil Patch,” reports that, when times were good in the oil patch and crude was selling...

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Top Attorney Fee Headlines of 2016

January 2, 2017

NALFA News Blog covers important news on attorney fees and legal billing matters, including state and federal attorney fee jurisprudence throughout the U.S.  Here are some of the most consequential...

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Unpaid Legal Bills in Vaping Bankruptcy

September 27, 2016

A recent American Lawyer story, “In Vaping Bankruptcy, No Smoke, But Plenty of Unpaid Legal Bills,” reports that NJOY Inc., one of the nation’s largest electronic cigarette makers, filed for...

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