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Bankruptcy Fees

posted by Adam Levitin

Bankruptcy fees in megacases are getting some media attention.  I can't say whether Weil's fees have been too high or not, I think a little context would help.  Stating the billing dollars alone makes things look shocking, but how many attorney hours were involved?  I'm guessing that cost/attorney hour is actually relatively low compared with other high-end transactional or litigation work.  There might be a reasonable complaint about the cost of top-end legal services, but it makes little sense to single out bankruptcy attorneys.  You've gotta pay the gravedigger if you don't want the corpse putrefying in the street. 

Bankruptcy is the only area of law, other than class actions, where attorneys' fees are subject to court approval.  And because of this, in part, bankruptcy professionals' fees have long been subject to an unspoken spirit of economy.  Top bankruptcy attorneys are reluctant to break the $1000/hr billing mark, which their corporate and litigation counterparts have long ago crossed.  While there are sometimes unseemly items on bankruptcy fees applications, such as first-class seats, what the article missed is that there are a lot of costs for which debtor's counsel does not bill.  There are plenty of costs that get written off by debtor's counsel, if only to avoid the pain in the ass of haggling about them in court. 

There's also tremendous wasted transaction costs involved with court review of billing.  I once witnessed the sorry sight of a bankruptcy judge raising sua sponte the question of whether debtor's counsel was paying too much for airline tickets based on his own on-line research into ticket prices.  Somehow the judge didn't get that by extending the hearing for half an hour, he caused several additional hours of billing for the debtor's counsel, the committee's counsel, and various creditors' counsels.  The debtor's counsel agreed to eat a couple thousand dollars, but the hearing probably cost the estate far more than that. 

I know that the appearances of high professionals' fees in bankruptcy cases are unsightly, but when viewed in the context of biglaw practice, I don't think it is anything so remarkable.  I'm hoping that we'll get some thoughts from Stephen, our resident fee expert.


You incorrectly write: "Bankruptcy is the only area of law, other than class actions, where attorneys' fees are subject to court approval."

Also subject to court approval are fees in fee shifting statutes (EEO cases and EAJA, for example). Indeed, the Supreme Court just ruled on one of these cases...

In addition, courts must approve fees for Social Security cases.

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