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The Economics of Lehman

posted by Stephen Lubben

So Lehman has commenced yet another adversary proceeding, this time to recover a preference. The alleged preference is for $206,000.

The complaint has three attorneys on it:  two partners and an associate. The associate bills out at $630 per hour

If the defendant can spend more than 325 hours on discovery -- about four weeks (using the standard 80 hour workweek in NYC) -- who is going to try the case?

(And that's assuming the partners never look at the adversary again -- and ignoring time already spent on the case).


Isn't that the purpose of litigation? The lawyers get all the money? See Charles Dickens "Bleak House" :-)

But see, only S.D. of New York and Deleware lawyers are sophisticated enough to do preference litigation in these Chapter 11 cases.

So clearly, it should be worth it to the unsecured creditors, who's interests they are looking out for.

I am an attorney in the Mountain West.

I do not understand how anyone can justify a $630 hourly rate for an associate and an almost $1,000 rate for a partner.

Who is regulating this? The estate does not care much. Creditors lose a lot. The estate pays the attorneys, lessening the amount the estate to distribute (perhaps even more than the actual claim). Judges are reluctant to challenge the rates.

This is a broken market.

There are complex planning issues in a case this large that may warrant the oversight of one of the nations best attorneys with those hight hourly rates.

A simple preference action like this is not one of those. I am sure they could have found lawyers willing to handle this action that charge rates of around $300 per hour.

Most preference actions I've seen result in a quick settlement so Lehmen Bro Estate will probably come out a head in this action. We will see.

A cynical view would be that firms use preference actions in large cases to keep junior associates busy and train them, and to churn the estate a bit for fees. I am still waiting to see a creditor plan that requires competitive bidding for legal work on all the recovery litigation, or perhaps calls for contingency fees.

I guess if you really ask the Partners in charge they would point the fingers at the investment bankers and traders, ask how much the MD's at Lehman got.

Stephen, you should know better than this. Have you ever seen 325 hours of discovery on a preference action such as the one alleged here, or even a trial? I would be surprised if this action cost more than 10K to investigate and file. Note also that transitioning such a matter to a firm with lower rates will involve transition/setup costs, and at every step in the decision tree leading up to the filing of this complaint it may well have been the rational decision to keep taking the incremenal action (research, phone call, demand letter, and then form complaint). Your implication is grossly unwarranted.

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