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The NALFA

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Category: Practice Area: Bankruptcy / Restructuring

NALFA Members Quoted in Bloomberg Story on Billing Rates

June 10, 2022

A recent Bloomberg Law story by Roy Strom, “Big Law Rates Topping $2,000 Leave Value ‘In Eye of Beholder’” quoted two NALFA members, John D. O'Connor of O'Connor & Associates in San Francisco and Jacqueline S. Vinaccia of Vanst Law LLP in San Diego, on a news story on hourly billing rates.  His story reads:

Some of the nation’s top law firms are charging more than $2,000 an hour, setting a new pinnacle after a two-year burst in demand.  Partners at Hogan Lovells and Latham & Watkins have crossed the threshold, according to court documents in bankruptcy cases filed within the past year.  Other firms came close to the mark, billing more than $1,900, according to the documents.  They include Kirkland & Ellis, Simpson Thacher & Bartlett, Boies Schiller Flexner, and Sidley Austin.

Simpson Thacher & Bartlett litigator Bryce Friedman, who helps big-name clients out of jams, especially when they’re accused of fraud, charges $1,965 every 60 minutes, according to a court document.  In need of a former acting US Solicitor General? Hogan Lovells partner Neal Katyal bills time at $2,465 an hour.  Want to hire famous litigator David Boies?  That’ll cost $1,950 an hour (at least).  Reuters was first to report their fees.

Eye-watering rates are nothing new for Big Law firms, which typically ask clients to pay higher prices at least once a year, regardless of broader market conditions.  “Value is in the eye of the beholder,” said John O’Connor, a San Francisco-based expert on legal fees.  “The perceived value of a good lawyer can reach into the multi-billions of dollars.”  Law firms have been more successful raising rates than most other businesses over the past 15 years.

Law firm rates rose by roughly 40 percent from 2007 to 2020, or just short of 3 percent per year, Thomson Reuters Peer Monitor data show.  US inflation rose by about 28% during that time.  The 100 largest law firms in the past two years achieved their largest rate increases in more than a decade, Peer Monitor says.  The rates surged more than 6% in 2020 and grew another 5.6% through November of last year.  Neither level had been breached since 2008.

The price hikes occurred during a once-in-a-decade surge in demand for law services, which propelled profits at firms to new levels.  Fourteen law firms reported average profits per equity partner in 2021 over $5 million, according to data from The American Lawyer.  That was up from six the previous year.

The highest-performing firms, where lawyers charge the highest prices, have outperformed their smaller peers.  Firms with leading practices in markets such as mergers and acquisitions, capital markets, and real estate were forced to turn away work at some points during the pandemic-fueled surge.  Firms receive relatively tepid pushback from their giant corporate clients, especially when advising on bet-the-company litigation or billion-dollar deals.

The portion of bills law firms collected—a sign of how willingly clients pay full-freight—rose during the previous two years after drifting lower following the Great Financial Crisis.  Collection rates last year breached 90% for the first time since 2009, Peer Monitor data show.  Professional rules prohibit lawyers from charging “unconscionable” or “unreasonable” rates. 

But that doesn’t preclude clients from paying any price they perceive as valuable, said Jacqueline Vinaccia, a San Diego-based lawyer who testifies on lawyer fee disputes.  Lawyers’ fees are usually only contested when they will be paid by a third party.

That happened recently with Hogan Lovells’ Katyal, whose nearly $2,500 an hour fee was contested in May by a US trustee overseeing a bankruptcy case involving a Johnson & Johnson unit facing claims its talc-based powders caused cancer.  The trustee, who protects the financial interests of bankruptcy estates, argued Katyal’s fee was more than $1,000 an hour higher than rates charged by lawyers in the same case at Jones Day and Skadden Arps Slate Meagher & Flom.  A hearing on the trustee’s objection is scheduled for next week.  Hogan Lovells did not respond to a request for comment on the objection.

Vinaccia said the firm’s options will be to reduce its fee, withdraw from the case, or argue the levy is reasonable, most likely based on Katyal’s extensive experience arguing appeals.  Still, the hourly rate shows just how valuable the most prestigious lawyers’ time can be—even compared to their highly compensated competitors.  “If the argument is that Jones Day and Skadden Arps are less expensive, then you’re already talking about the cream of the crop, the top-of-the-barrel law firms,” Vinaccia said.  “I can’t imagine a case in which I might argue those two firms are more reasonable than the rates I’m dealing with.”

USTP Balks at Hourly Rate in J&J’s Chapter 11 Bankruptcy

May 24, 2022

A recent Bloomberg Law story by James Nani, “DOJ Balks at J&J Unit’s Plan to Hire Katyal at $2500 an Hour” reports that the Department of Justice’s bankruptcy watchdog is opposing a bankrupt Johnson & Johnson unit’s proposal to retain former acting solicitor general Neal Katyal at nearly $2,500 an hour to work on its Chapter 11 case.

LTL Management LLC, which was created by the healthcare giant to house and limit its liability from its talc products, is proposing to retain Katyal, a partner at Hogan Lovells US LLP, at a rate as high as $2,465 an hour, the US Trustee said in its objection.   Hogan Lovells’ hourly rates for its partners are “significantly higher” than the rates of the seven other law firms LTL Management has retained, the US Trustee said.  LTL hasn’t shown the rates are reasonable or in the best interest of the bankruptcy estate, the Trustee said.   Katyal would act as special appellate litigation counsel for LTL, according to LTL’s application to hire Katyal.

Earlier this month, the U.S. Court of Appeals for the Third Circuit agreed to hear several appeals by asbestos victims who are trying to end LTL’s bankruptcy.  The Third Circuit’s review will include the New Jersey bankruptcy court’s decision earlier this year denying tort claimants’ motion to dismiss the Chapter 11 case.  The tort claimants argue LTL’s bankruptcy—which would address lawsuits from its talc product users who allege they developed cancer—was filed in bad faith.

LTL told the bankruptcy court it needs experienced counsel in connection with the appeals. Hogan Lovells “provides exceptional appellate litigation services,” LTL said.  In light of the appeal’s complexity and “anticipated intensity,” hiring Hogan Lovells is “appropriate and warranted,” LTL said.  The US Trustee argued that law firms LTL has already retained, such as Jones Day and Skadden Arps Slate Meager & Flom LLP, have helped the company and are familiar with the case.  But their hourly rates are lower, it added.

SCOTUS to Rule on Chapter 11 Bankruptcy Fee Increases

January 10, 2022

A recent Reuters story by Maria Chutchian, “Supreme Court to Determine Constitutionality of Bankruptcy Fee Increases,” reports that the U.S. Supreme Court said it will review a dispute over a recent increase in fees that Chapter 11 debtors are required to pay the federal government.  The issue, which stems from a 2017 law that hiked the government fees that most large companies in bankruptcy must pay, has divided top appellate courts across the country.

The law's imposition of higher fees in most, but not all, U.S. bankruptcy courts has caused uncertainty over the legal status of around $324 million in fees imposed under the law, according to the U.S. Trustee, which serves as the U.S. Department of Justice’s bankruptcy watchdog.

The underlying lawsuit was brought by Alfred Siegel, the trustee who oversaw Circuit City’s liquidation process.  He argued that the 2017 law violated the U.S. Constitution’s Bankruptcy Clause, which requires bankruptcy laws to be uniform, because it hiked fees for Chapter 11 debtors in most states but failed to do the same for Alabama and North Carolina.  Those two states use a different government entity, known as the Bankruptcy Administrator program, to perform similar duties as the U.S. Trustee in large corporate bankruptcies.

The law was eventually amended to include Alabama and North Carolina, but Siegel argued in his September petition to the Supreme Court that companies that filed for Chapter 11 in those two states were still permitted to go several months without being subject to the same fee increases that were imposed in the other states.  The government argued in its response that the constitution’s bankruptcy clause gives Congress flexibility in creating new statutes that govern bankruptcy court administration.

The law has been challenged in several districts with conflicting outcomes.  The 4th U.S. Circuit Court of Appeal, which ruled in Siegel's case, and the 5th Circuit have upheld the law while the 2nd and 10th Circuits have deemed it unconstitutional.  Though they oppose each other’s interpretation of the law, the U.S. Trustee and Siegel both asked the Supreme Court to weigh in on the case.

USTP Asks Supreme Court to Review $324M Bankruptcy Fee Matter

December 11, 2021

A recent Reuters story by Marla Chutchian, “Government Asks Supreme Court to Review $324M Bankruptcy Fee Fight,” reports that the U.S. Department of Justice’s bankruptcy watchdog is urging the U.S. Supreme Court to take up a dispute over bankruptcy fees Chapter 11 debtors are required to pay the government that has divided top appellate courts across the country.

Solicitor General Elizabeth Prelogar said in a brief on behalf of the U.S. Trustee program that the high court should review the matter to resolve confusion over the fees created by the conflicting rulings.  She also argued the court should find that a 2017 law increasing government fees that many Chapter 11 debtors must pay complies with the U.S. Constitution’s Bankruptcy Clause, which requires bankruptcy laws to be uniform.  The law's imposition of higher fees in most, but not all, U.S. bankruptcy courts has caused uncertainty about the legal status of around $324 million in fees imposed under the 2017 law, according to the U.S. Trustee.

The dispute stems from a lawsuit filed by Alfred Siegel, the trustee who oversaw Circuit City's liquidation process.  He claims the law violated the uniformity requirement by increasing U.S. Trustee fees for Chapter 11 debtors in most states but failed to do the same for two states that use a different government entity, known as the Bankruptcy Administrator program, to perform similar duties in overseeing large corporate bankruptcies.

Siegel argued in a September petition to the Supreme Court that the alleged disparity forced the Circuit City liquidating trust to pay substantially higher fees than it had in prior years, while Chapter 11 debtors in North Carolina and Alabama, the states with the alternative program, went several months without being subject to the same fee increases.  North Carolina and Alabama opted in 1986 for the Administrator program.

While the U.S. Trustee opposes Siegel’s view of the law, it agrees that the Supreme Court should review the case.  The law has been challenged in several districts with conflicting outcomes – the 4th and 5th U.S. Circuit Courts of Appeal have upheld the law while the 2nd and 10th Circuits have deemed it unconstitutional.

The government argued that the constitution’s uniformity requirement does not restrict Congress’s ability to amend U.S. Trustee fees.  Additionally, it said, the bankruptcy clause gives Congress flexibility in creating new statutes that govern bankruptcy court administration.  “There is no basis for concluding that any of those administrative variations are unconstitutional,” the government said in Wednesday’s filing.

The case is Alfred Siegel v. John Fitzgerald III, U.S. Supreme Court, No. 21-441.

USTP Opposes Chapter 11 Fees for MTE Service Providers

August 20, 2021

A recent Law 360 story by Jeff Montgomery, “US Trustee Opposes Ch. 11 Fees For MTE Service Providers”, reports that the Office of the U.S. Trustee opposed a $2 million fee award for the ad hoc committee of service providers in MTE Holdings LLC's contentious Chapter 11 in Delaware, arguing that the committee failed to show how it benefited the estate.  Several other participants in MTE's case, including MTE itself, had also opposed the request, asserting that the committee failed to show that its efforts were for the benefit of any constituency "other than its own members."

No official committee of unsecured creditors was formed in the case, with the ad hoc group asserting rights under liens.  An insufficient number of creditors agreed to serve in a traditional unsecured creditor capacity, the trustee observed.  The debtors waded through complex disputes, the trustee wrote, including a push for the appointments of a Chapter 11 trustee and a new board, chief restructuring officer and other key figures, as well as the appointment of a mediator.

"There is nothing in the mediator motion, or in the ad hoc committee's motion for substantial contribution, that indicates that the ad hoc committee played a role in negotiating the appointment of a mediator," the trustee objection said, adding separately that "Creditors are presumed to act in their own interest until they satisfy the court that their efforts have transcended self-protection."  Committee members failed to show they acted beyond self-interest, the trustee wrote, or filed motions that duplicated those of the other groups in the case.

"Importantly, the motion fails to present any evidence that the ad hoc committee's actions permitted the reorganization to proceed with a minimum of litigation, keeping costs low and hastening the reorganization by, for example, ensuring that key parties were satisfied with the direction of the case," the trustee wrote.  MTE's own objection went further, arguing that "voicing support for work already done by other creditors or constituencies hardly rises to the lofty level of 'substantial contribution.'"

The committee presented a different picture in its motion, which included a request for more than $1 million in fees for its counsel from Potter Anderson & Corroon LLP.  "With no official committee of unsecured creditors appointed in these cases, the ad hoc committee stepped in and led the charge on behalf of all statutory lienholders," the group's motion said.  Its actions were said to have "ultimately resulted in the filing of a plan of reorganization, which benefited all interested parties and the debtors' estates."  A decision on the motion is pending.