By Nick Brown
NEW YORK, Nov 2 (Reuters) - Despite their strong opposition,
law firms would still have to disclose extensive details
about billing practices under the latest proposals to overhaul
how lawyers are compensated when they handle bankruptcies.
The latest draft, issued on Friday, keeps proposals that
would force law firms to compare their bankruptcy rates to those
used in other legal work and to calculate the added cost of any
increase imposed in the middle of a case.
The guidelines are being drawn up by the U.S. Trustee
Program, the Justice Department arm that oversees how companies
spend money in court-supervised restructurings. They are aimed
at reining in legal fees seen as inconsistent with the broader
Bankruptcy fees, which in large cases routinely reach
hundreds of millions of dollars, have long been under scrutiny
by regulators such as the trustee's office. That is because the
money is paid out of the bankrupt firm's estate, so the more
money paid to lawyers, the less is available for creditors.
In the liquidation of Lehman Brothers Holdings - the largest
Chapter 11 case ever - fees paid to lawyers, accountants,
financial advisers and other professionals have topped $1.6
Bankruptcy courts, which must approve all professional fees,
are the final arbiters when it comes to compensation for
lawyers. But the trustee's office, charged with overseeing
compliance with bankruptcy laws, can object and argue that fees
The trustee's fee overhaul was first proposed last November
and Friday's draft followed a feedback period in which law firms
and other industry professionals offered criticism.
While the guidelines are far-reaching, a particular point of
contention had been disclosures that show legal fees are in line
with market rates. Law firms argued the requirements constituted
Unchanged from the earlier draft, firms would have to
disclose and calculate the cost of rate increases and offer data
comparing them to fees charged in non-bankruptcy legal work.
The new draft is not a carbon-copy of the old, however.
Instead of having to disclose their highest, lowest and average
rates, law firms would be required only to disclose a blended
average of their rates to account for the widespread use of
alternative, non-hourly billing measures.
Another controversial aspect of the guidelines was the
proposed imposition of non-binding budgets, which firms feared
would make details of their billing agreements public.
The trustee's office stands by its budget proposal in the
new draft, but makes clear that budget details would be redacted
to protect privileged information.
The latest version carries a comment period through Nov. 23,
after which the trustee's office will issue final guidelines.
Courts will not be required to enforce them, but the trustee's
office hopes they will serve as a compass in assessing fees,
Cliff White, director of the trustee's office, told Reuters.
"We'll be quite conscientious and vigorous in seeking to
uphold these guidelines," White said on Friday. "They are a
statement of how we think (bankruptcy) statutes should be
The latest draft would raise the threshold to apply the
guidelines from cases in which debtors had combined assets and
liabilities of $50 million, to cases in which debtors had at
least $50 million in both assets and liabilities.
The trustee's office is also now calling for large law firms
to delegate certain tasks to co-counsel if they can be done more
cheaply by a smaller firm, a directive left out of the prior
The change was a response to a handful of comments,
including from bankruptcy lawyer Albert Togut, who argued that
greater use of co-counsel could be a huge cost-saver in big
"It's not anybody pointing a finger at the big firms saying
you did something wrong," Togut told Reuters on Friday. "But as
long as you've got a co-counsel in the case, that co-counsel
should be utilized."
Law firms will have some time to familiarize themselves with
the new proposal. According to Friday's draft, the final
guidelines, once issued, will become effective on July 1.
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