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Category: Bankruptcy Fees / Expenses

Will Hourly Rates for Elite Firms Rise More in 2020?

July 31, 2020

A recent American Lawyer story by Samantha Stokes, “Will Billing Rates for Elite Firms Rise More in 2020?” reports that in the midst of a recession, big restructuring law firms such as Kirkland & Ellis and Weil, Gotshal & Manges continue charging premium billing rates—close to $2,000 per partner—months after the firms’ regular rate increases.  With another rate increase possibly right around the corner this year, some law firm and restructuring observers say they don’t expect many discount pressures or pushback on ballooning rates in bankruptcy court.  But rate hikes in 2020 are not a done deal, they add.

Weil said in court filings that the firm typically raises rates once per year, while Kirkland said it typically increases the hourly rate of its professionals twice a year.  Kirkland, which has earned a significant portion of the work so far in large pandemic-era bankruptcies, raised its hourly billing rates Jan. 1, according to court documents filed in the Neiman Marcus bankruptcy.  Among others, the firm is also advising JCPenney and Chesapeake Energy in their Chapter 11 cases.

From May 7 to Dec. 31 of last year, Kirkland partners were charging $1,025 to $1,795; counsel were charging $595 to $1,705; and associates were charging $595 to $1,105.  Now, both Kirkland partner and counsel rates top out at $1,845—an increase of 2.7% and 5.9%, respectively—while associate hourly rates reach upward of $1,165—a 3.6% increase.  Weil, another bankruptcy powerhouse that is handling the J.Crew and Brooks Brothers bankruptcies, also upped its rates in the last year, according to court documents filed in the J.Crew case.

As of October 2019, partners and counsel are now billing $1,100 to $1,695—the upper rate a 5.9% increase from the previous high of $1,600—while associates are charging $595 to $1,050—the upper rate a 5.5% increase from the previous high of $995 that officially pushed some Weil associates over the $1,000 per hour mark.  For example, in May, partners charged up to $1,695 per hour and associates charged up to $1,050 for work done in the J.Crew bankruptcy, according to the first monthly fee statement.

Akin Gump Strauss Hauer & Feld, another top bankruptcy firm that earned work on the Chesapeake Energy Chapter 11 restructuring, increased some rates in January 2019, according to court documents filed in the ongoing but pre-pandemic Sears bankruptcy.  At the time, the highest partner rates at Akin Gump rose 3.5%, up to $1,755 per hour; highest counsel rates rose 7.2%, up to $1,420 per hour; and highest associate rates rose 5.4%, up to $975 per hour.

According to Akin Gump’s 20th monthly fee statement, filed May 30 this year, in the Sears bankruptcy—where it is representing the committee of unsecured creditors—partner, counsel and associate rates are still on par with what the firm charged a year and a half ago.  Overall, if these big firms raised their hourly rates in 2020 just as much as previous years, the partners could be charging up to $1,895 at Kirkland, $1,795 at Weil and $1,815 per hour at Akin Gump, while associates could bill up to $1,205 at Kirkland, $1,110 at Weil and $1,105 an hour at Akin Gump.

Restructuring and legal market observers have mixed opinions on whether firms will seek further rate increases this year—and by how much—although all agree that top bankruptcy firms will likely end the year with higher fees than any other given year.  Mark Medice, a law firm management consultant at LawVision who focuses on financial performance and data science, said he doesn’t think firms will have an annual adjustment to bankruptcy billing rates in 2020.  Citing the Great Recession as an example, he said he didn’t see many firms increase their rates at the onset of the recession to capitalize on increased demand for bankruptcy services and that billing rates actually dipped in the years following the recession.

“Demand [for bankruptcy practices] tends to go up when there are downturns, but as a general rule, law firms do not adjust their rates upwards during those times,” he said.  In the coming months, he said he believes it’s more likely that firms will see higher realization rates and will reduce write-downs.  Currently, firms like Kirkland, Weil, Akin Gump and others usually ask for 80% of the total fees they bill every month, according to monthly fee statements.

Lynn LoPucki, a restructuring law professor at UCLA Law, also said rate increases every year aren’t a done deal, but if they do occur, there are few stakeholders in bankruptcy court that will keep rate increases in check.  “Nobody’s controlling the fees,” he said.  “If you’re a debtor, you’re not going to control the fees because you’re spending other people’s [the creditors'] money.”

Some creditors, who are last in line to get paid, may begin objecting to large firm fee applications, he said.  A group of vendors, for instance, pushed back in late 2019 on the millions Weil billed in the Sears bankruptcy, but the judge overruled objections.  “There will be creditors that try to push back because the rates are so great, and the response of judges to that is to be to toss them some scraps,” LoPucki said.  In the bankruptcy of aerospace-parts manufacturer Wellman Dynamics Co., for instance, an Iowa bankruptcy judged in 2017 called Weil’s fees "staggering" and cut its multimillion-dollar payment in half, according to the Wall Street Journal.  A U.S. trustee found Weil also overbilled mortgage servicer Ditech last year.

While judges are required to review every fee in a Chapter 11 case, LoPucki said he believes they are not inclined to object to rising rates, even during a recession.  If bankruptcy judges begin to say no to fee increases, “firms will start taking their cases to different courts,” he said, meaning less interesting work for judges as well as fewer filing fee dollars flowing into a jurisdiction.  “Fundamentally, this situation can’t change, because if one judge in one city says no to the fees, the cases just go to a different city,” LoPucki said.  “It’s hard to get across what a totally insane system this is.”

More Bankruptcy Fees with Rise in Retailer Restructuring

July 14, 2020

A recent Law.com story by Samantha Stokes, “Kirkland Sees More Restructuring Fees With Latest Retailer Bankruptcies” reports that the restructuring department at Kirkland & Ellis just got busier with the Chapter 11 filings Aug. 2 of two more retailers, Lord & Taylor and Tailored Brands.  Lord & Taylor, the country’s oldest department store, filed for Chapter 11 protection in the Eastern District of Virginia. In court paperwork, it said it owed between $100 million and $500 million to between 200 and 299 creditors.  Tailored Brands, which owns clothiers Men’s Wearhouse and Jos. A. Bank, filed Chapter 11 paperwork hours later in the Southern District of Texas.  The company said it owed between $1 billion and $10 billion to between 25,000 and 50,000 creditors.

Kirkland is representing both companies in court proceedings, while Kutak Rock is local counsel for Lord & Taylor in Virginia, and Jackson Walker is local counsel for Tailored Brands in Texas.  There are no law firms among either company’s 30 largest unsecured creditors.  Partners Joshua Sussberg, Christopher Marcus, Aparna Yenamandra and James Sprayregen are leading the Kirkland team for Tailored Brands. Court filings as of Monday afternoon didn’t yet reveal the Kirkland lawyers working on the Lord & Taylor case.

Lord & Taylor and Tailored Brands are only the latest victims of the coronavirus pandemic’s devastating effect on the economy, which has sent several struggling retailers into bankruptcy since early May.  In many cases, Kirkland has been behind the scenes helping them restructure their debts. Kirkland is also advising Neiman Marcus and J.C. Penney through their Chapter 11 proceedings.

A large bankruptcy can generate tens of millions of dollars in fees for the firms lucky enough to land work on the case. Kirkland, which secured $56 million in fees last year for leading Toys “R” Us through bankruptcy, generated $25 million in advance payments from Neiman Marcus and J. C. Penney.  Both the Lord & Taylor and Tailored Brands court proceedings will likely generate hefty fees for Kirkland, whose lawyers charge a premium.  Top billing partners and of counsel at Kirkland are charging up to $1,845 an hour, while top billing associates are charging up to $1,165.  The firm requested nearly $2.5 million in attorney fees for work done for Neiman Marcus in May, according to its first monthly billing statement.

As of March, Sussberg billed $1,635 an hour, according to the final fee application in the Barneys New York bankruptcy.  Although Kirkland has landed roles on multiple of the pandemic-era bankruptcies, some companies have turned to rival firms for restructuring work.  Weil, Gotshal & Manges is handling the J.Crew and Brooks Brothers bankruptcies, Latham & Watkins is advising health retailer GNC, and Haynes and Boone is leading discount retailer Tuesday Morning through Chapter 11 proceedings.

The Nation’s Top Attorney Fee Experts of 2020

June 24, 2020

NALFA, a non-profit group, is building a worldwide network of attorney fee expertise. Our network includes members, faculty, and fellows with expertise on the reasonableness of attorney fees.  We help organize and recognize qualified attorney fee experts from across the U.S. and around the globe.  Our attorney fee experts also include court adjuncts such as bankruptcy fee examiners, special fee masters, and fee dispute neutrals.

Every year, we announce the nation's top attorney fee experts.  Attorney fee experts are retained by fee-seeking or fee-challenging parties in litigation to independently prove reasonable attorney fees and expenses in court or arbitration.  The following NALFA profile quotes are based on bio, CV, case summaries and case materials submitted to and verified by us.  Here are the nation's top attorney fee experts of 2020:

"The Nation's Top Attorney Fee Expert"
John D. O'Connor
O'Connor & Associates
San Francisco, CA
 
"Over 30 Years of Legal Fee Audit Expertise"
Andre E. Jardini
KPC Legal Audit Services, Inc.
Glendale, CA

"The Nation's Top Bankruptcy Fee Examiner"
Robert M. Fishman
Fox Rothschild LLP
Chicago, IL

"Widely Respected as an Attorney Fee Expert"
Elise S. Frejka
Frejka PLLC
New York, NY
 
"Experienced on Analyzing Fees, Billing Entries for Fee Awards"
Robert L. Kaufman
Woodruff Spradlin & Smart
Costa Mesa, CA

"Highly Skilled on a Range of Fee and Billing Issues"
Daniel M. White
White Amundson APC
San Diego, CA
 
"Extensive Expertise on Attorney Fee Matters in Common Fund Litigation"
Craig W. Smith
Robbins Arroyo LLP
San Diego, CA
 
"Highly Experienced in Dealing with Fee Issues Arising in Complex Litigation"
Marc M. Seltzer
Susman Godfrey LLP
Los Angeles, CA

"Total Mastery in Resolving Complex Attorney Fee Disputes"
Peter K. Rosen
JAMS
Los Angeles, CA
 
"Understands Fees, Funding, and Billing Issues in Cross Border Matters"
Glenn Newberry
Eversheds Sutherland
London, UK
 
"Solid Expertise with Fee and Billing Matters in Complex Litigation"
Bruce C. Fox
Obermayer Rebmann LLP
Pittsburgh, PA
 
"Excellent on Attorney Fee Issues in Florida"
Debra L. Feit
Stratford Law Group LLC
Fort Lauderdale, FL
 
"Nation's Top Scholar on Attorney Fees in Class Actions"
Brian T. Fitzpatrick
Vanderbilt Law School
Nashville, TN
 
"Great Leader in Analyzing Legal Bills for Insurers"
Richard Zujac
Liberty Mutual Insurance
Philadelphia, PA

Demand Grows for Hourly Rate Data in Big Bankruptcy

May 26, 2020

A recent Legaltech News story by Rhys Dipshan, “Reorg Launches New Database to Bring Big Data Analytics to Bankruptcy Fees” reports that the recession is already choosing its winners and losers: The once-strong appetite for M&A work is increasingly being replaced by a growing demand in bankruptcy services.  And due to efforts started in advance of the current economy, some in the legal tech space are looking to capitalize on this new opportunity.

Financial intelligence provider Reorg has announced the launch of its Legal Billing Rates Database, which aims to provide corporations and law firms with benchmarks regarding outside counsel’s bankruptcy fees.  The goal is to help general counsel and other corporate officers make informed bankruptcy hiring decisions, as well as help law firms competitively set their rates.

Darby Green, Reorg’s senior director of product, strategy and innovation, explained that the database pulls interim, monthly, and final fee applications from U.S. Bankruptcy Court dockets in the Southern District of New York and the District of Delaware, which she called the “preeminent jurisdictions for these types of large Chapter 11 [bankruptcy cases].”  She noted that “the attorneys involved in these [cases] come from all over … and also fee examiners expect that from jurisdiction to jurisdiction you’re not changing your fee, so it can become a good place to get an overall sense of what these fees look like.”

To be sure, while demand for bankruptcy services has grown in recent weeks, the new database was not built in response to the current market.  “When you build a data science-driven tool, it actually takes a very long time to do; we’ve been working on this behind closed doors for more than a year,” Green said.

She added that the development was “really a time-consuming process” given the need to structure docket data that was obtained via PACER.  For example, “even something as simple as figuring the department [took time].  Since every law firm is structured a little bit differently, you’re not going to necessarily find ‘bankruptcy lawyers’ at every firm, you might find ‘restructuring,’ you might find ‘financial insolvency,’ etc.”

Of course, Reorg is far from the only company offering legal spend or bankruptcy analytics, with LexisNexis, Bloomberg, Wolters Kluwer, Bodhala and Brightflag, among others, competing in the market.  What’s more, legal research providers such as Fastcase and Casetext are also planning on expanding their bankruptcy analytics and services.

Green, however, believes that where Reorg stands out is in its sole focus on bankruptcy fees.  “Our understanding is that we are the only company that is applying machine learning and this type of analysis to bankruptcy dockets.  There are a lot of providers looking at district court dockets, but what is unique about us is that because we’re so focused on the high yield and stress and distress markets that we are really embedded in bankruptcy dockets, and that provides an advantage,” she said.

Associate Hourly Rates Inch Over $1K in Big Bankruptcy

May 22, 2020

A recent American Lawyer story by Samantha Stokes, “Associate Hourly Billing Rates Surge Past $1K as Firms Snap Up Bankruptcy Work” reports that the coronavirus pandemic quickly upended the economy and sent already struggling companies into free-fall, with retailers such as J.Crew, Neiman Marcus and J.C. Penney among those filing for Chapter 11 protection in recent weeks.  Recent court filings highlight the avalanche of fees these new cases are already generating for Big Law restructuring practices.

Take J.Crew, which was the first major retailer to succumb during the pandemic.  In the 90 days leading up to the company’s Chapter 11 petition May 4, it paid or advanced its lawyers at Weil, Gotshal & Manges close to $12 million, according to court papers filed this week seeking formally to hire the firm as debtor’s counsel.  The Weil team is led by New York partner and restructuring practice co-chair Ray Schrock.

The fees were bolstered by the firm having just recently increased its hourly rate for lawyers and paraprofessionals alike.  Signaling a new era, some Weil associates are now billing more than $1,000 per hour—a milestone that was surpassed only about a decade ago at the level of Big Law partners—making it one of the first firms to break that pricey barrier.

Weil said in the J.Crew filing that it had increased its standard billing rates in October 2019.  Members and counsel are now billing from $1,100 to $1,695 at the firm; associates are billing $595 to $1,050; and paraprofessionals are billing between $250 and $435 per hour.  Previously, the firm’s rates topped out at $1,600 for partners and $995 for associates, according to the filing.

While the partner and associate rates stand out, the paraprofessional fees can add up too.  Last November, when the firm billed $10 million for one month of work on the Sears bankruptcy, a single paralegal’s billings added up to 431 hours at $405 per hour—more than 14 hours for every day of the month.

Weil isn’t the first firm whose associate rates have topped $1,000 per hour, and its rates aren’t even the highest.  When Kirkland & Ellis signed on to represent Barney’s New York—one of last pre-pandemic retail bankruptcies—it said in a filing that associates’ rates reached $1,125 per hour.  At Skadden, Arps, Slate, Meagher & Flom, at least two associates working on the McClatchy newspaper company bankruptcy have also billed over $1,000 per hour.

Efforts to reign in ballooning law firm fees have received little traction in recent years, though creditors, shareholders and employees occasionally raise alarms.  A group of small Sears creditors awaiting payment filed an objection to Weil’s fees in that company’s Chapter 11 late last year.  Weil, which did not respond to a request for comment, is just one of a growing gaggle of fee-earning firms in the new retail bankruptcies filed so far in May.  Neiman Marcus and J.C. Penney both turned to Kirkland & Ellis in those cases, though the firm has yet to disclose pre-petition fees.