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Category: Bankruptcy Fees / Expenses

US Trustee: You Can’t Seal Attorney Fees in Chapter 11

April 24, 2019

A recent Law.com by Rose Krebs, “US Trustee Says White Eagle Can’t Keep Fee Bids Sealed,” reports that the Office of the U.S. Trustee told the Delaware bankruptcy court that insurance policy investor White Eagle Asset Portfolio LP should not be allowed to file under seal the fees to be paid to a special litigator the company wants to retain in its Chapter 11 to handle some insurance disputes.  The trustee asserts White Eagle has failed to show that information relating to compensation to proposed special counsel Reed Smith LLP is “protected as confidential commercial information” under bankruptcy code and should not be made public so that "creditors and other parties of interest" can review the fees.

“If such relief is granted, it would effectively mean that almost any objection a creditor or other party in interest may have to Reed Smith’s compensation would have to be made now, as an objection to the retention application, rather than upon review of Reed Smith’s fee applications,” the objection said.  And objecting to the fees is not possible now because the fees are unknown since they were filed under seal, the trustee asserted.  “Retention applications of all kinds, with all sorts of financial arrangements, are routinely filed in bankruptcy cases without any portion of them being sealed.  There is no reason to make an exception in this instance,” the objection said.

Last month, in a motion that was redacted in parts, White Eagle said it wanted to hire Reed Smith as special litigation counsel as the firm represents White Eagle’s nondebtor parent Emergent Capital Inc. in some insurance disputes and “may represent the debtors to the extent they have any claims.”  Compensation information was redacted in the motion, and White Eagle filed a separate motion asking the court to keep under seal terms of Reed Smith’s proposed deal claiming they include “sensitive commercial information” that is protected from having to be released per bankruptcy code.

“In light of the contentious nature of the litigation disputes the firm is handling, it is of critical importance to the debtors that the details of the fee structures set forth in the application be kept confidential so that other parties in the litigation disputes may not use the information contained therein to gain a strategic advantage over the debtors and other parties,” White Eagle asserted.

The trustee countered that White Eagle has not shown that the information should remain under seal.  The trustee cited case law findings that during Chapter 11 proceedings “a debtor’s affairs are an open book and the debtor operates in a fishbowl.”  In an objection filed last month, White Eagle’s lender LNV Corp. and its agent CLMG Corp. argued the proposal to hire Reed Smith as special counsel is an attempt by nondebtor parent Emergent to “transfer obligations from itself to the debtors without any commensurate benefit to the debtors’ estates.”

The case is In re: White Eagle Asset Portfolio LP, case number 1:18-bk-12808, in the U.S. Bankruptcy Court for the District of Delaware.

PG&E Legal Bills Already Top $84M in Chapter 11 Case

April 2, 2019

A recent The Recorder story by Xiumei Dong, “PG&E Legal Bills Already Top $84M for Chapter 11 Case,” reports that four outside law firms have billed Pacific Gas and Electric Co. at least $84 million for legal services related to the company’s January bankruptcy filing.  The utility company disclosed its legal spend in a series of court filings last month, as it sought approval from U.S. Bankruptcy Judge Dennis Montali to continue employing the law firms.  PG&E is seeking to retain Cravath, Swaine & Moore; Weil, Gotshal & Manges; Jenner & Block; and Keller & Benvenutti as its legal advisers for the Chapter 11 proceedings.

PG&E listed more than $50 billion in estimated liabilities when it filed for Chapter 11 protection.  According to the court docket, Montali is scheduled to consider PG&E and the firms’ motions at a hearing April 9.  The utility giant said it has paid Cravath, which is PG&E’s lead coordinating counsel in wildfire-related matters, roughly $75.7 million leading up to the bankruptcy filing.  According to court papers, PG&E’s payments to Cravath included a $10 million retainer from which the firm had drawn only about $3 million.

The firm intends to apply the rest of the retainer to any outstanding amounts for PG&E-related costs that it did not bill for before the filing, or as credit toward any services arising after the filing, the filing said.  In addition to representing PG&E in Chapter 11 proceedings, Cravath has advised the utility for over a year on corporate governance, strategic transaction and financing matters, court documents said.

Last year, PG&E hired a team from Cravath, including chairman Evan Chesler and litigation partners Timothy Cameron, Kevin Orsini and Damaris Hernández, as defense counsel in 200-plus suits stemming from fires in Northern California.  The company also turned to Wilson Sonsini Goodrich & Rosati and Quinn Emanuel Urquhart & Sullivan to handle those cases.

Cravath worked closely with Weil on PG&E restructuring alternatives, but Weil billed far less.  According to another court filing, Weil received over $4.7 million from PG&E in the 90 days leading up to the company’s bankruptcy filing, and also has a remaining balance of $1.5 million on a fee advance from PG&E, which the firm said it will use to pay for the outstanding amounts that it did not bill for before the filing.

PG&E has hired Chicago-based Jenner & Block as special corporate defense counsel for state and federal regulatory matters during the Chapter 11 proceedings.  Jenner & Block is also handling a criminal case involving PG&E, connected to a natural gas explosion that occurred in the city of San Bruno, California, in September 2010.  According to the court filing, PG&E has paid the firm $3.57 million during the year leading up to the Chapter 11 filing.

San Francisco based Keller & Benvenutti is also representing PG&E in bankruptcy court.  Since May 2018, the firm has advised PG&E on legal and financial matters regarding potential liabilities resulting from 2017 and 2018 Northern California wildfires.  Court papers said the firm has received $383,635 in the 90 days before the Chapter 11 filing.

In separate court documents supporting PG&E’s motion, the court papers also revealed the hourly rate of the four firms.  Cravath attorneys are charging at rates of $415 to $1,500 per hour, while Weil attorneys charge $560 to $1,600 per hour.  Jenner & Block attorneys charge PG&E at hourly rates ranging from $400 to $982 and Keller & Benvenutti attorneys are charging at $400 to $800 per hour.

Legal Fees in Puerto Rico Bankruptcy Under Review

March 13, 2019

A recent Caribbean Business story by Eva Llorens Velez, “Legal Fees in Puerto Rico Bankruptcy Drop,” reports that the examiner of fees charged by lawyers and professionals in Puerto Rico’s bankruptcy said fees have dropped to $71 million for the June to September period compared with the previous four-month period.  Fee examiner Brady C. Williamson resubmitted to the court a proposed order imposing additional standards to collect fees.  He also proposed an order setting procedures for interim compensation, all of which he said could be tackled in the omnibus hearing set for April.

At the Dec. 19, 2018, omnibus hearing, the court denied without prejudice the fee examiner’s motion to impose additional presumptive standards.  The new proposal incorporates comments from professionals.  However, it maintained a 5 percent a year limit on rate increases for partners/shareholders and a 7 percent-a-year presumptive limit on “step,” or seniority, increases for associates.

Through the interim period that ended in September, firms subject to the Puerto Rico Oversight, Management and Economic Stability Act’s (Promesa) fee-review process have requested more than $306 million in total interim compensation, at least $5.9 million of the total attributable solely to rate increases, Williamson said.  “That is the amount requested to date that, with or without specific client and Court approval, is the direct result of increases in the hourly rates charged at the outset of each professional’s engagement,” he explained.

Through the third interim period (February through May 2018), the collective and cumulative rate increases totaled almost $4 million.  While the 2018 cost increases for the 50 largest firms exceeded 7 percent, according to a Citi report, Williamson said the goal is not to try to regulate professional revenue or profit, but to suggest boundaries for prospective hourly rate increases that comply with Promesa’s reasonableness standards and seek to manage both the immediate and long-term impact on the cost of the proceedings.

At the December hearing, the court noted the “unique situation” presented to professionals by these proceedings, asking the fee examiner to reconsider the initial rate increase recommendations and noting a 2 percent annual rate of inflation in New York, where most of the law firms are located.

The fee examiner said the Feb. 15 decision by the U.S. Court of Appeals involving the composition of the Promesa-established fiscal oversight board for the island “does not conclude that constitutional litigation, nor have all of its consequences yet been felt or appreciated,” and that he “already has engaged professionals on the continuing need to avoid duplicative efforts with further appeals or related activity involving the legislative and executive branches of the federal or Commonwealth governments.”

Williamson also said a particular difficulty inherent in Promesa’s Title III structure, given the board’s role as debtor representative, has been identifying the “client” of each financial adviser.  For example, Deloitte Financial Advisory Services and Ernst & Young LLP are both financial advisers to the commonwealth, with Ernst & Young LLP reporting to the board and Deloitte FAS reporting to Puerto Rico’s Fiscal Agency and Financial Advisory Authority (Aafaf by its Spanish acronym).  Many financial professionals, whether working for a flat fee or an hourly fee, provide advice on one or more aspects of a debtor’s finances.  However, for example, Ankura Consulting Group is the financial adviser to the Puerto Rico Electric Power Authority and no other debtor.

Paralegal Billing Draws Scrutiny in Sears Bankruptcy

January 25, 2019

A recent The American Lawyer story by Dan Packel, “Weil Fees in Sears Bankruptcy Shine Light on Big Billers: The Paralegals,” reports that, 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 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.

Paralegal Keri Grant, from Weil’s corporate department, put more hours into the bankruptcy than anyone else at the firm for the month of November, the period covered by its second monthly fee statement in the case.  Grant’s Herculean effort involved hours on weekends and Thanksgiving Day, along with 19 and a half hours on Black Friday, and led to a final bill of $174,514.50.  But Grant is only one of seven Weil paralegals who bill at over $400 an hour.  Kathleen Lee, of the business financing and restructuring group, took the top mark at $420.  And the lowest rate of the 13 paralegals billing for the matter is $240.

That puts all of the Weil paralegals in the highest billing bracket tracked by the National Association of Legal Assistants in its 2018 survey on utilization and compensation: those billing more than $215 an hour.  Twelve percent of NALA respondents fell into that range, up from 8 percent in the organization’s 2016 survey.  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. Of these lawyers, business financing and restructuring partner Jacqueline Marcus has been busiest, billing just short of 225 hours for November at $1,375 per hours, for a total of $309,000.

Weil has attracted criticism in the past for its hefty bankruptcy fees.  In 2017, an Iowa judge overseeing the bankruptcy of aerospace-parts manufacturer Wellman Dynamics Corp. cut the firm’s million-dollar payment in half after calling the bill “staggering,” according to The Wall Street Journal.  But it isn’t the only firm charging Sears rates north of $1,000 an hour.

Paul Weiss is also in the mix for the debtors in the Sears case, billing a total of $2.8 million for the month.  Five partners billed between $1,455 and $1,560, with securities litigation and enforcement group co-chairwoman Susanna Buergel putting in the most work: 109 hours.  Two of the three of counsel attorneys topped that figure and earned between $1,125 and $1,160 an hour.  Collectively, these senior lawyers billed just over $1 million.  Associates at the firm, who together scraped past that figure, falling just short of $1.1 million, billed between $640 and $1,030 an hour.  The firm’s staff attorneys, paralegals and other nonlegal staff are all lumped into the same category in its filing, pulling in between $345 and $480 hourly.

Wachtell Lipton Rosen & Katz, which has spent over a decade serving as general corporate counsel to the company, also has a small slice of the bankruptcy work, billing over $463,000 from the middle of October through the end of December.  Its three partners on the job each billed at $1,400.  Partners and counsel together put in 372 of the 383 hours the firm logged over that period.  And the firm’s sole paralegal on the matter?  She put in 15 minutes at $275 an hour.

Intellectual property boutique McAndrews Held & Malloy billed a similar figure for its work on Sears’ trademarks, tallying nearly $467,000 for the same interval.  This combined a mixture of fixed-fee work for preparing and prosecuting new trademark applications and monitoring key trademarks, flat-fee work for preparation, filing and prosecution of patents around the globe, and some additional hourly work.

In its hourly billings, the firm’s most handsomely compensated attorney, shareholder Chris Winslade, charged a rate of $560.  Other partners and shareholders billed at between $332 and $464, while a patent agent and the firm’s associates billed at between $264 and $330.  The firm’s eight paralegals all billed at $184, putting them in the top quartile of the NALA findings.

Companies Fight Over Defense Fees in Puerto Rico

January 9, 2019

A recent Law 360 story by Rick Archer, “High Court Grants Win to Social Security Atty in Fee Row,” reports that Ambac Assurance Corp., Whitebox Multi-Strategy Partners and the Bank of New York Mellon are sparring in a Puerto Rico federal court over who will pay for Mellon’s defense against Ambac and Whitebox’s claims that it mismanaged the island’s sales tax bonds.  In court papers BNYM argued that, under the terms of the plan restructuring the debt of Puerto Rico’s sales tax corporation, Ambac and Whitebox need to set money aside against the possibility they will be required to pay its defense costs, while Ambac and Whitebox argued BNYM is not owed indemnification against their claims by anyone.

Bond insurer Ambac and senior bondholder Whitebox filed suit against Mellon in 2017, alleging it had mishandled its duty as the trustee for the bondholders of the Puerto Rico Sales Tax Financing Corp., or COFINA, by failing to declare a default before April 2017.  In November, the court sent a plan to restructure nearly $18 billion of COFINA’s debt to a creditor vote.  Under the terms of the plan, Ambac and Whitebox dropped their negligence-based claims against Mellon but retained their claims of gross negligence and intentional misconduct, according to court papers.

At issue is a provision of the plan that calls for the court to determine at the plan confirmation hearing how much Ambac and Whitebox should be required to post as bond or how much should be withheld from their plan distributions to reimburse Mellon if it wins the lawsuits.  In its reservation of rights, Mellon argued the suits “lack merit” and that it has a senior, secured claim for indemnification for legal expenses from COFINA.  It said the plan places the burden of that indemnification on Ambac and Whitebox as a matter of fairness to keep those costs from being deducted from the recoveries of the bondholders who had completely dropped their legal claims as part of the reorganization plan.

“The plan recognizes that COFINA and the other beneficial holders should not be penalized for the intransigence of Whitebox and Ambac in continuing to pursue the lawsuits despite an otherwise global settlement,” it said.  Ambac and Whitebox, however, argued in their motion that neither case has been resolved and no fees have been awarded yet and that BNYM is not entitled to advance payment.  They also argued under the terms of the bond resolution COFINA, rather than Ambac or Whitebox, is obligated to indemnify BNYM.

“Moreover, even if COFINA’s indemnity obligations were somehow assumed by Ambac and Whitebox, the plain language of the resolution is clear that BNYM does not have the right to be indemnified in respect of claims for gross negligence, willful misconduct or intentional fraud, which are the only claims that Ambac and Whitebox will assert in the actions post-confirmation,” they said.

The restructuring case is In re: Commonwealth of Puerto Rico, case number 3:17-bk-03283, in the U.S. District Court for the District of Puerto Rico.