WASHINGTON, June 4 (Reuters) - The bankruptcy lawyers who
handle the biggest U.S. corporate restructurings responded with
hostility on Monday to new scrutiny of their fees, which can
reach hundreds of millions of dollars at the expense of
The lawyers told officials of the Justice Department they do
not want to keep a budget, they do not want to disclose details
of their billing practices and they do not want to justify
expenses under $500.
The lawyers tried to make their case on the 7th floor of
Washington's Justice Department at a rare public meeting called
to consider whether bankruptcy fees are inflated, unjustified or
The airing of ideas took place amid tales of limousine rides
and clothing put on expense accounts, and in the face of
questions about what exactly lawyers do to bill at rates up to
and above $1,000 an hour.
In one recent example, during the two-and-a-half-year
restructuring of Lehman Brothers, payments to the law firm Weil
Gotshal & Manges totaled $383 million, according to a securities
filing in March.
Legal fees are at issue also in the bankruptcy of MF Global
Holdings Inc, whose estate has paid $17 million to lawyers in
four months, according to court filings on Monday.
Bankruptcy lawyers bill at higher rates than lawyers in most
other specialties, although the reason is in dispute. The top
billers say the market values their experience and knowledge in
restructuring companies such as Chrysler Group LLC. Critics say
it is because managers of bankrupt companies are less aggressive
than other clients in asking for discounts.
The Justice Department's U.S. Trustee Program is considering
changes designed to impose what it considers financial
At Monday's meeting, lawyer Richard Levin said the data that
the U.S. Trustee Program wanted to collect about hourly rates
would be useless. He said legal billing records often were
inaccurate because he and colleagues forgot to write down time
they spent on cases.
"Lawyers are notoriously bad at administrative tasks,
including putting data in properly," said Levin, a partner at
Cravath, Swaine & Moore in New York and vice chairman of trade
group the National Bankruptcy Conference.
In bankruptcy cases, lawyers' fees are at the mercy of the
bankruptcy courts. Lawyers submit applications for compensation
and objections may come from creditors, many of whom lose out in
a bankruptcy, or from trustees, who are federal officials.
The final decision on fees is up to a bankruptcy judge,
guided by what U.S. law says is "necessary" and "reasonable."
The U.S. Trustee Program wants to know whether law firms
inflate their rates in bankruptcy cases - for example, by using
more lawyers than necessary, or by dragging their feet - knowing
they are unlikely to be challenged by the court.
"It cannot possibly be, can it, that everyone works through
budgets except bankruptcy lawyers?" asked Clifford White,
director of the Executive Office of U.S. Trustees.
Damian Schaible, one of five private lawyers who answered
questions in person from White and his staff, said the process
of budgeting was often useless, especially in the context of a
legal team working on an unpredictable bankruptcy.
"How can anyone budget in the real world what they're going
to spend?" asked Schaible, a partner at Davis Polk & Wardwell in
New York, dismissing budgets also in personal bankruptcies.
LARGE FIRMS' DNA
Big law firms, which can throw scores of lawyers at a single
case, cannot help but splurge on a major bankruptcy, said Albert
Togut, managing partner of a boutique law firm that specializes
"It's in their DNA that, when they approach a project, they
bring every resource at their disposal to the project," he said.
He urged the trustee staff to make a change that would
encourage greater use of small, specialized law firms.
There has been a disproportionate number of major bankruptcy
cases in recent years - including Lehman, General Motors,
Washington Mutual - and the proposed new scrutiny from the U.S.
Trustee Program is aimed at big cases, those with combined
assets and liabilities of $50 million or more.
But there is disagreement even on that threshold. A group of
118 law firms opposed to the trustee proposal wants to set the
line at $250 million.
A lawyer was scheduled to speak on behalf of those 118 firms
on Monday, but he did not appear. D.J. "Jan" Baker of Latham &
Watkins had, in written comments, assailed the trustee proposal
as illegal and wasteful.
Baker preferred to meet in private, White said, adding that
he was disappointed by the absence.
"Private meetings do not afford the level of transparency
that today's meeting will provide," he said early on.
Baker did not respond to a request for comment later on
(Reporting by David Ingram; Additional reporting by Nick Brown;
editing by Howard Goller and Andre Grenon)
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