A recent Law 360 story by Aaron Keller, “Paul Hastings, Others Seek $9.9M in Kwok Ch. 11 Case Fees”, reports that Paul Hastings LLP and six other law firms and professional services organizations have filed applications seeking more than $9.9 million in fees and expenses in the global Chapter 11 saga of Chinese exile Ho Wan Kwok, leaving the cost of the two-year-old case at well more than $30 million.

Leading a recent spate of interim expense requests is one for $6.9 million for services rendered between Sept. 1 and Dec. 31, 2023, by Paul Hastings LLP, where Chapter 11 trustee Luc A. Despins and most of his team of attorneys are partners, of counsel or associates.  Paul Hastings is also seeking $718,000 in expenses in the Kwok case over the same period.

The lead attorneys' fee request, filed in the U.S. Bankruptcy Court for the District of Connecticut, adds to the nearly $21.8 million in combined fees and expenses Paul Hastings has already been paid to litigate the complex case.  "Given the vast network of companies affiliated with the individual debtor, and the fact that these companies or their assets are located around the world, the trustee's investigation was, and continues to be, extensive," the firm noted in its application.

Despins recently told U.S. Bankruptcy Judge Julie A. Manning that Kwok's financial empire and myriad challenges filed by Kwok's associates and relatives have slowed his asset recovery operation and added significantly to the cost of the case.  Local and conflicts counsel at Connecticut law firm Neubert Pepe & Monteith PC filed a recent bid for close to $1 million in fees and nearly $35,000 in expenses, citing more than 2,470 hours of work on the case between Sept. 1 and Dec. 31.

Neubert Pepe attorneys played a key role in Despins' recent blitz of approximately 200 avoidance actions in the Kwok case, and the firm's work on those filings, which hit the docket before a Feb. 15 deadline, is not fully included in its recent application.  Previous asset recovery maneuvers, such as the sale of a luxury yacht connected to Kwok, helped pay for additional investigations that led to the clawback claims, Despins has said.

Its hourly rates in the $500 and $600 range, as indicated in the filings, are a fraction of the rates in the $1,675 to $1,975 per hour for lead attorneys at Paul Hastings, a key reason why Despins said in a recent court hearing that the firm's assistance in the case would result in significant savings for the Kwok estate.

A recent Law 360 story by Alex Wittenberg, “Kidde-Fenwal’s Ch. 11 Fee Examiner Oks $20.4M for 15 Firms”, reports that the fee examiner appointed in fire-suppression company Kidde-Fenwal's Chapter 11 case has recommended that a Delaware bankruptcy judge approve $20.4 million in pay for 15 firms working on the proceedings, after they agreed to cut their requested compensation by about $333,000.

In a report submitted, examiner Diana G. Adams detailed interim fees requested by law firms and others working on behalf of Kidde-Fenwal Inc., its unsecured creditors committee and an ad hoc group of governmental claimants.  The fees cover work conducted from Aug. 1 to Oct. 31 by professionals for the debtor and the creditors committee, and work done from mid-May or June 1 to July 31 by firms representing the ad hoc group.

U.S. Bankruptcy Judge Laurie Selber Silverstein ordered the appointment of a fee examiner in July to help avoid duplication of efforts by counsel for unsecured creditors in the case.  Kidde-Fenwal is one of the companies at the center of massive multidistrict litigation over the sale and use of toxic firefighting foams.

The debtor's attorneys, from five separate firms, requested about $9.61 million in total for their work during the period and agreed to reduce their fees to $9.49 million following discussions with Adams, according to the report.  Sullivan & Cromwell LLP stands to be the highest-paid firm representing the debtor, with reduced fees of $5.27 million and an hourly rate of $1,347.

Seven firms representing unsecured creditors asked for $10.1 million in total and agreed to reductions of about $187,000. Brown Rudnick LLP's reduced fees for representing the committee amount to about $4.05 million.  Three companies working for the ad hoc committee of governmental claimants would reap $1.01 million after cuts of around $23,000.

Kidde-Fenwal filed for Chapter 11 protection in May 2023, saying it faced more than $1 billion of liability tied to claims arising from a former subsidiary's manufacture and sale of aqueous film-forming foam.  The chemical foams have given rise to thousands of lawsuits alleging the companies caused lingering pollution of public waterways and aquifers, and to billions of dollars in toxic exposure claims tied to cancers, thyroid diseases, elevated liver enzymes and decreased fertility among those exposed.

After Judge Silverstein ordered the appointment of an examiner in July, Kidde-Fenwal asked the court to approve its request to pay the ad hoc group of governmental claimants, an atypical arrangement.  The debtor said doing so was necessary in part because of prohibitions against government-entity membership in regular unsecured creditor committees.

A recent Law 360 story by Daniel Connolh, “US Trustee Moves to Reverse ‘Tainted’ Jackson Walker Fees”, reports that, in the ethics fallout involving former U.S. Bankruptcy Judge David R. Jones of the Southern District of Texas and his undisclosed intimate relationship with a Jackson Walker LLP bankruptcy partner, the federal agency that oversees the bankruptcy court system filed multiple motions to strip millions of dollars in fee awards from the firm.  Writing that "all orders awarding fees and expenses are tainted and should be set aside," the U.S. Trustee's Office for the region that covers the Southern District filed motions to undo fee awards in at least 11 cases, including the bankruptcies of J.C. Penney Co. and Neiman Marcus.

The trustee, Kevin Epstein, cited Jones' cohabitation with Elizabeth Freeman, a former Jackson Walker bankruptcy partner who now leads her own small firm.  The relationship was recently revealed through litigation and media reports, and led to a formal ethics complaint filed Oct. 13 against Jones, who has resigned.  "Judge Jones' secret relationship with Ms. Freeman created an unlevel 'playing field' for every party in interest in every case Jackson Walker had before Judge Jones, including this one, and in Jackson Walker cases mediated by Judge Jones," Epstein wrote in Thursday's motion in the J.C. Penney case.

In the J.C. Penney bankruptcy alone, Judge Jones had signed orders compensating Jackson Walker for its work as debtor's local counsel and awarded about $14,000 in expenses and about $1.1 million in fees, including about $286,000 billed by Freeman, according to a summary compiled by the U.S. Trustee's Office.  The precise dollar amounts of all the proposed fee reversals weren't immediately clear, but one section of Epstein's motion describes the general scope.

"Judge Jones presided over at least 26 cases, and perhaps more, where he awarded Jackson Walker approximately $13 million in compensation and expenses while Ms. Freeman was both a Jackson Walker partner and living with him in an intimate relationship.  This includes approximately $1 million in fees billed by Ms. Freeman herself in 17 of those cases."  The U.S. Trustee's Office has filed proposed orders that call for the previous orders approving Jackson Walker's fees and expenses to be vacated.  If approved, parties would have 120 days to object to Jackson Walker's fees and expenses, and a hearing would take place.

The U.S. Trustee's Office has also moved to block a $1.3 million fee award to Jackson Walker in at least one case — the GWG Holdings Inc. bankruptcy — in which Judge Jones acted not as presiding judge, but as a mediator.  A recent document filed by the trustee highlights several other cases in which Judge Jones acted as mediator, rather than as judge.  Property records show that Judge Jones and Freeman had jointly owned a house in Houston since 2017. Earlier, Freeman had served as Judge Jones' law clerk.

In a previous interview, Wilkinson said the law firm first learned about a potential relationship between Freeman and Jones in March 2021, and took steps including consulting outside ethics counsel.  Wilkinson had forwarded an emailed statement: "Our firm acted in a timely fashion once we learned of this issue, including conducting a full inquiry and consulting independent outside ethics counsel for their guidance.  From the time we first learned of this allegation Ms. Freeman was instructed not to work or bill on any cases before Judge Jones.  We are confident that we acted responsibly."

The U.S. Trustee's recent filings say Jackson Walker didn't act responsibly.  "Notwithstanding Jackson Walker's admitted knowledge of the secret relationship between its partner, Ms. Freeman, and Judge Jones no later than March 2021, Jackson Walker never disclosed that relationship in any pending or subsequently filed case during the following 21 months while Ms. Freeman was a partner — or thereafter when she was working as a Jackson Walker contract attorney on bankruptcy cases after leaving Jackson Walker," Epstein wrote in the motion, which was signed by Millie Aponte Sall, assistant U.S. trustee.

And at least one court document suggests that Freeman was still indirectly participating in cases for Jackson Walker that were pending before Judge Jones after March 2021, by consulting with other attorneys.  A Fifth Circuit ethics complaint said that whether or not Freeman directly participated in a case before Judge Jones, she still stood to gain money.  The U.S. Trustee's Office has filed motions seeking to undo Jackson Walker's fees and expenses in the following cases, all in the U.S. Bankruptcy Court for the Southern District of Texas:

J.C. Penney Co. Inc., et al., case number 20-20184
Neiman Marcus Group Ltd. LLC, case number 20-32519
Westmoreland Coal Co. et al., case number 18-35672
Whiting Petroleum Corp., case number 20-32021
Stage Stores Inc., case number 20-32564
Chesapeake Energy Corp., case number 20-33233
Covia Holdings Corp., case number 20-33295
Tug Robert J. Bouchard Corp., case number 20-34758
Mule Sky LLC, case number 20-35561
Seadrill Partners LLC, case number 20-35740
Katerra Inc. et al., case number 21-31861

A recent Law 360 story by Hilary Russ, “Kirkland Lands $28M in Fees in Crypto Broker Voyager Ch. 11”, reports that a New York judge approved nearly $89 million in fees for lawyers and other professionals — including $28 million for debtors' counsel Kirkland & Ellis LLP — working on the bankruptcy case of defunct crypto broker Voyager Digital, despite an outburst from an angry creditor.

U.S. Bankruptcy Judge Michael Wiles granted the final fee applications from 17 different law firms, financial advisers, investment bankers, agents, consultants and tax services providers employed by the debtors and the official committee of unsecured creditors.  An additional $1.3 million was granted to cover total professional expenses since the start of the case.

Amid the spectacular crash of the cryptocurrency industry, Voyager filed for Chapter 11 protection in July 2022 after crypto hedge fund Three Arrows Capital defaulted on a $650 million loan, casting the brokerage and trading platform into a liquidity crisis.  In April, the company pivoted to a liquidation of its $1 billion in assets after a purchase agreement with Binance.US collapsed.

Plan administrator Paul Hage is now liquidating remaining crypto assets for Voyager customers who did not make full withdrawals, with more than 500,000 checks to go out to creditors in coming weeks, his lawyer Darren Azman said during a telephonic hearing.  In the next couple of weeks, ex-Voyager clients should also be able to access a new customer portal, similar to a revamped Voyager app, where they can find their historical transaction information and get updates.  "We're working very hard on this," Hage said during the hearing. "It is not an insignificant undertaking."

Professional fees have been garnering increased attention in the extremely complex crypto cases.  Fees in five big crypto bankruptcy cases — FTX, Voyager, Celsius Network, BlockFi and Genesis Global — have topped $700 million altogether since last year, according to a New York Times analysis published last week.  The final fee requests in Voyager's case did not face any objections.  But two former clients of the platform, who represented themselves during a hearing, questioned some aspects of professionals' work and unsuccessfully requested a delay in payouts.

A recent Law 360 story by Rick Archer, “FTX Examiner Says $200M in Fees ‘Remarkable’ But Justified”, reports that the fee examiner in the FTX Chapter 11 case has told a Delaware bankruptcy judge that the professionals in the case have racked up more than $200 million in bills since November, a figure she said was "remarkable" but justified by the chaos created by the cryptocurrency giant's collapse.  In a report, fee examiner Katherine Stadler said the charges so far from the law firms and financial consultants retained by FTX and its unsecured creditors are for the most part justified by the professionals' scramble to deal with the "smoldering heap of wreckage" left by FTX.

"Without question, the fees incurred to date are remarkable, but so is the professionals' performance," Stadler said.  FTX filed for bankruptcy on Nov. 11 after weeks of turmoil caused by the failure of its FTT digital token, which led to a run on the bank as customers rushed to withdraw their cryptocurrency holdings from the platform.  Subsequent internal investigations revealed that about $65 billion in FTX assets were transferred to Alameda Research — a cryptocurrency hedge fund founded and controlled by former FTX CEO Sam Bankman-Fried — through a back door in the platform, leaving a shortfall in customer funds.

Stadler said the size of the case and the alleged role of management malfeasance in the collapse were both unremarkable.  "What makes these cases extraordinary, however, is the largely unregulated financial system in which the debtors (and other similar financial technology companies) operate, combined with their global scope, the complete absence of corporate records, and the non-existence of even the most basic corporate governance," she said.

As a result, the firms involved found themselves in an "'all-hands-on-deck' crisis," she said, resulting in missteps like deploying teams that later proved to be too large and retaining experts that ultimately were not needed, but nothing "wholly unreasonable in the moment."  "They did not have the luxury of carefully considering staffing decisions, developing the most efficient teams, or deploying resources with military precision," she said.

The report specifically dealt with the first 90 days of the case, during which 242 attorneys billed nearly 35,000 hours, Stadler said.  She reported that a total of about $88.8 million in fees and expenses had been billed through Jan. 31, including $42.1 million from FTX counsel Sullivan & Cromwell LLP and $28.5 million from its financial adviser, Alvarez & Marsal. Paul Hastings LLP, lead counsel for the unsecured creditors committee, billed $5.5 million. The committee's forensics investigation consultant, AlixPartners, billed $3.2 million.

Stadler recommended that a total of $85.1 million in fees and expenses be approved at the fee hearing scheduled for June 28.  She also recommended that a $2.4 million bill from Ernst & Young for tax services for FTX be deferred to the next fee application period, saying she had not completed her review, and said the other firms had stipulated to about $1.3 million in reductions of their bills.

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