Tuesday, June 5, 2012

Why do bankruptcy lawyers charge $1,000 an hour?

By Martha C. White, msnbc.com contributor

Big bankruptcies mean big bills.

According to court filings cited by the Wall Street Journal, lawyers who worked on Chapter 11 restructurings for companies like Eastman Kodak Company and the parent company of American Airlines sometimes earned more than $1,000 an hour.?Balancing the claims of workers, shareholders, vendors and other creditors in Chapter 11 litigation is complicated.?The Justice Department isn't sure that the job is worth what some lawyers charge, though.

At a meeting Monday, members of the DOJ's United States Trustee Program discussed proposed guidelines aimed at explaining how and why legal fees in corporate bankruptcies can hit four figures an hour. USTP representatives also heard from law firms, trade groups representing them and other bankruptcy professionals, organizations that object to the agency's plan. Approximately half a dozen presenters representing industry interests spoke at the morning meeting and responded to questions from a panel of program officials.?

In prepared remarks delivered at a meeting of the National Bankruptcy Conference last November, USTP director Clifford J. White III said?that in contrast to other types of corporate legal work, for which attorneys often discount their fees or accept less per hour if they are on retainer, bankruptcy lawyers tend to charge their full hourly rate. "We are concerned that ... bankruptcy professionals are allowed to charge rates above what they charge non-bankruptcy clients," White said.

Under the new guidelines, which would affect Chapter 11 filings by companies with $50 million or more in assets,?law firms would have to provide rate comparisons of how much they charge for Chapter 11 cases versus other work, stop rounding billable time up to the nearest half hour, disclose fee applications in an open electronic data format and work within predetermined budgets.

The legal industry is not a fan of these new guidelines. In numerous comment letters submitted to the USTP in advance of today's meeting, law firms and other related bankruptcy service providers enumerated their objections. ?

A letter from law firm Foley & Lardner LLP said the Chapter 11 market was already competitive enough. "[P]roposed counsel is inevitably asked about billing rates, expertise, staffing, expense reimbursement policies, and is quite often asked for a discount from the quoted rates" when meeting with prospective Chapter 11 clients, it said. Other letters?said having to disclose how much these law firms charged, along with budgets including details about financial and human resources devoted to a restructuring, was tantamount to being forced to share trade secrets or could violate attorney-client privilege.?

"[P]reparation of?a meaningful budget and staffing plan may disclose confidential or otherwise privileged issues and such disclosure may not be in the best interests?of?the estate," the comment letter submitted by the?Association of?Insolvency and Restructuring Advisors said.

The National Bankruptcy Conference argued that the guidelines would saddle attorneys with burdensome administrative costs. "[T]he broad new requirements that would be imposed under the Proposed Fee Guidelines are likely to add to the cost of the Chapter 11 cases to which they apply, due to the additional compliance obligations they would impose," it said.?

Whether or not the USTP was swayed by some or all of these arguments remains to be seen. Following today's meeting, the agency said it will evaluate the comments and issue final guidelines. Agency spokeswoman Jane Limprecht said there was no timetable for issuing those guidelines, only that, "We'll review all of the suggestions."

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