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Category: Bankruptcy Fees / Expenses

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.

Judge Remands Denial of $30M in Attorney Fees in Tribune Bankruptcy

December 11, 2018

A recent Law 360 story by Rose Krebs, “Denial of $30M Attorneys’ Fee Claim in Tribune Ch. 11 Tossed,” reports that a Delaware federal judge overturned a 2015 bankruptcy court order denying Wilmington Trust Co.’s $30 million unsecured claim for post-petition attorneys’ fees in the Tribune Media Co. Chapter 11 that was confirmed in 2012.  In a memorandum order, Judge Richard G. Andrews remanded the matter back to the Delaware bankruptcy court for further consideration, ruling that post-petition attorneys’ fees can be an allowable unsecured claim.

“I agree with the position adopted by every court of appeals faced with this question; [the bankruptcy code] does not limit the allowability of unsecured claims for contractual post-petition attorneys' fees,” Judge Andrews wrote.  Appeals courts have “have unanimously rejected [Tribune Media’s] position and have allowed unsecured claims for contractual attorneys' fees that accrued post-filing of the bankruptcy petition,” the decision said.

In November 2015, U.S. Bankruptcy Judge Kevin J. Carey allowed Tribune to reject Wilmington Trust’s claim, which Tribune had argued was unreasonable given how many of the activities were duplication of work other creditors performed.  The issue stemmed from an unsecured claim Wilmington Trust, as indenture trustee for a group of unsecured bondholders, lodged in the Tribune case seeking $30.3 million in post-petition attorneys' fees and litigation costs.

Wilmington Trust maintained that its fees should be paid because the indenture agreement provided for payment of reasonable fees and expense reimbursement.  “We think that the district court has made a decision that is consistent with the majority of courts that have addressed the issue,” Wilmington Trust’s attorney, James W. Stoll of Brown Rudnick LLP, told Law360.

In his order, Judge Andrews noted that there have been some cases in bankruptcy and district courts that have disallowed attorneys’ fees as unsecured claims, but that he had “nothing new to add to this debate.”  “I merely note that I cannot conclude that [the bankruptcy code] ‘expressly’ disallows the claims at issue here,” the order said.

Tribune — owner of its namesake newspaper in Chicago, as well as the Los Angeles Times and a host of other newspapers and television stations — filed for Chapter 11 protection in 2008 following a disastrous leveraged buyout a year earlier that saddled the media conglomerate with roughly $13 billion in debt.  Tribune's Chapter 11 plan was confirmed in July 2012 and the company exited bankruptcy in December of that year.

The appellate case is In re: Tribune Co. et al., case number 1:15-cv-01116, in the U.S. District Court for the District of Delaware.  The bankruptcy case is In re: Tribune Co. et al., case number 1:08-bk-13141, in the U.S  Bankruptcy Court for the District of Delaware.

U.S. Trustee Seeks More Attorney Fee Info in Sears Bankruptcy

December 7, 2018

A recent Law 360 story by Rick Archer, “US Trustee Faults Fee Info in Sears’ Request for IP Law Firm,” reports that the U.S. Trustee’s Office has asked a New York bankruptcy court to reject Sears Holding Corp.'s request to retain boutique law firm McAndrew Held & Malloy Ltd. to handle intellectual property matters unless it gets more information on what the firm will be paid.  In an objection, U.S. Trustee William Harrington said that, among other inadequacies, Sears’ request states McAndrews would receive a range of flat fees for a list of IP-related services but fails to assign specific payments to specific services.  “Accordingly, without more specific disclosure regarding the flat fee and the flat fee services, it is impossible to determine if the retention of McAndrews is reasonable,” he said.

Once one of the nation's largest retailers, Illinois-based Sears entered bankruptcy in October to reshape its physical footprint and reduce a debt load of more than $11 billion created by years of consecutive net revenue losses, store closings and unsuccessful efforts to adapt to a changing retail world.  After closing 142 of the 700 Sears and Kmart stores still in business, the company said it hopes to sell about 400 earnings-positive stores along with other potentially viable sites and assets including intellectual property while under Chapter 11 protection.

Two weeks ago, Sears applied to retain McAndrews, a Chicago-based IP firm, to handle trademark, copyright, patent and domain name issues.  The application said McAndrews has been Sears’ IP counsel for more than six years.  “By virtue of such prior engagement, McAndrews is intimately familiar with the facts and history of the company’s IP assets and coordinates the filing of IP applications in foreign jurisdictions.  The compensation proposed by McAndrews is at or below comparable rates in the IP market,” it said.

The application said Sears was proposing to pay a fixed fee of $43,750 a month, a flat fee of between $750 and $11,000 for a list of specific IP-related services, such as trademark and copyright registration, and an hourly rate for any other services.  The company also asked for permission to put $130,000 in retainers in trust to be paid to McAndrews in the event that it fails to pay any future invoices from the firm.

In his filing, Harrington said he was objecting on the grounds the application only gives the range of flat fees and does not give a specific fee for each of the specified services.  He also said the application “inexplicably” asks McAndrews be allowed to waive the requirement to file time records in six-minute increments for the fixed and flat fee services and that McAndrews had not shown why it should have a retainer in trust.

The case is In re: Sears Holding Corp, case number 7:18-bk-23538, in the U.S. Bankruptcy Court for the Southern District of New York.

$11.5M in Attorney Fees in Sears Bankruptcy…So Far

November 23, 2018

A recent American Lawyer story by Brian Baxter, “Wachtell, Weil Unveil Legal Bills, Hourly Rates for Bankrupt Sears,” reports that the two high-powered firms earned more than $11.5 million from the insolvent retail giant before its recent Chapter 11 case.  Two weeks after Sears Holdings Corp. stumbled into bankruptcy, the storied retail giant’s Chapter 11 case has revealed the cost of some of its many outside lawyers.  Weil Gotshal & Manges landed the lead role as Sears’ bankruptcy counsel once the company slipped into insolvency in the strategic locale of White Plains, New York, on Oct. 15.  In the 90 days before its Chapter 11 petition, Sears paid $10.15 million to Weil, according to a declaration filed with the bankruptcy court on Oct. 26 by Ray Schrock, co-chairman of Weil’s business finance and restructuring department.

Schrock, who joined Weil in 2014 from Kirkland & Ellis, is working with fellow New York-based bankruptcy partners Jacqueline Marcus, Garrett Fail and Sunny Singh in advising Sears.  Schrock helmed a Weil team that handled the 2015 bankruptcy of The Great Atlantic & Pacific Tea Co. Inc., a proceeding that eventually led to the demise of the grocer better known as A&P.

Earlier this year, Schrock and Weil picked up lead roles on the bankruptcies of fashion jewelry retailer Claire’s Stores Inc. and supermarket chains Tops Markets LLC and Southeastern Grocers LLC.  Singh, who made partner at Weil last year and is known for having worked day and night on a team advised on the bankruptcy of now-defunct Lehman Brothers Holdings Inc., is also involved in the Chapter 11 cases for Tops Markets and Southeastern Grocers.  Marcus, who made partner at Weil a decade ago, is another seasoned bankruptcy lawyer.

Schrock’s declaration states that Weil partners and counsel are billing Sears between $1,075 and $1,600 per hour for their services, while associates from the firm are working at hourly rates ranging from $560 to $995.  Prime Clerk LLC, a bankruptcy claims administrator started by former Weil bankruptcy partner Shar Waisman, is serving as a claims and noticing agent for Sears’ Chapter 11 case.

Wachtell Lipton Rose & Katz, which said in court papers that it has spent more than a decade serving as general corporate counsel to Sears on a variety of matters, is now seeking to serve as special bankruptcy counsel to the company.  Wachtell, whose billing practices remain a continuous subject of interest in Big Law, stated in court papers filed Monday that partners and of counsel at the firm are billing Sears between $950 to $1,400 per hour for their services, with associates working at hourly rates ranging from $500 to $925.

In the 90 days before its Chapter 11 petition, Sears paid nearly $1.4 million to Wachtell, according to a bankruptcy court filing by the firm seeking employment on behalf of the suburban Chicago-based company.  A declaration filed by Wachtell restructuring and finance of counsel Amy Wolf states that the firm has not done work for former Sears CEO Edward Lampert, who resigned from Sears earlier this month, his hedge fund ESL Investments Inc. or any of its affiliates on any matter since June 2015.

Haynes and Boone counseled Lampert’s ESL back in 2013 on the reduction of its stake in Sears, which has not turned a profit since 2010.  Former ESL general counsel William Harker, a former corporate associate at Wachtell who is now a co-founder and president of hedge fund Ashe Capital Management LP, also once worked in Sears’ office of the chairman and served on the board of directors of Sears Canada.  Wachtell advised Sears on its $11 billion merger in 2004 with Kmart Holding Corp.  The firm then helped Sears defeated a long-running class action suit stemming from that ill-fated retain industry combination.

Bankruptcy court filings show that James Bromley, a prominent bankruptcy partner at Cleary Gottlieb Steen & Hamilton in New York, is advising Lampert’s ESL in Sears’ bankruptcy case, along with fellow restructuring partner Sean O’Neal and litigation counsel Andrew Weaver.  Akin Gump financial restructuring partner Ira Dizengoff has been hired to advise an official committee of unsecured creditors in Sears’ Chapter 11 case.  DLA Piper, which Sears’ board has retained as real estate counsel, has not yet filed billing statements with the bankruptcy court.

Sears, whose general counsel is Stephen Sitley, earlier this month added former Skadden Arps corporate restructuring lawyer Alan Carr as an independent member of its board.  Carr is now a partner and CEO at Drivetrain LLC, a New York-based turnaround management firm.  Sears, which in bankruptcy has listed more than $10 billion in liabilities against $1 billion in assets, plans to close hundreds of stores in an effort to stay in business.