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Chapter 11 Fees Go Mainstream

posted by Stephen Lubben

The NY Times has an editorial this morning on the UST's proposed fee guidlines.


I has been suggested that these type of linchpin lawfirms like to "hide" their earnings in various ways, such as acquiring large art collections. The law firm representing Wells Fargo Bank has a large art collection. The bank ,as reorganization trustee, and bankruptcy trustee, has acquired sufficient income (about $700 million of investors' money)arising from its role(corporate trust services) before and after American Business Financial Services(a NASDAQ corp)filed for bankruptcy. 6 months before the company filed(Jan. 2005) WellFargo "restructured" thousands of investors' investments, converting long term investment notes to 1/2 preferred stock and 1/2 senior notes due in 2007!

I'm so tired of reading about greedy crooks.

I was having a hard time grasping how the EOUST could prescribe rules "for bankruptcy judges to use" in considering fees, which is what the editorial says. A quick glance at the rules themselves, however, shows they are designed for the UST Program, not the courts -- as one would expect.

Of all the things that could be the subject of an NYT editorial, I would rank this pretty low, although it does fit in with their obsession about the extent to which other Americans now make so much more money than journalists do.

The Lehman fees have to be measured against the size of the case. As a percentage of the amount of debt taken out of the system, which is what the law is meant to achieve, they were pretty low. Honestly, Weil, with whom I am not affiliated in any way, is as efficient a firm as there is.

The statement that this kind of information is "required" as the NYT states, but has just been ignored by judges, is ridiculous. Among the information the UST asks for is what is the lowest rate you charged any client (which literally is 0 for pro bono and spec work). That is clearly not even relevant under 330, let alone a requirement.

As for budgeting, no one who does this for a living would seriously believe that you can equate what you do for ordinary civil litigation, often concerning fixed, past events, in front of judges who often rule on the papers and enforce the rules of evidence in court, where you at least represent one half of the decision makers regarding settlement, to budgeting for large bankruptcies that have to respond in real time to changing business conditions and changes in the holders of your debt, in which dozens of people have different agendas, and each one has an equal right to litigate any issue they feel like, where judges rarely rule on the papers but rather handle most objections by letting an objector take discovery and make a record, where you never know which procedural rules the judge will disregard, where people who obviously are totally out of the money are nevertheless given carte blanche to drag the case out, and where the settlement negotiations that need to occur to get the case over are often between parties whom the debtor's counsel's does not represent.

The UST uses these guidelines when reviewing DIP counsels' fee applications and deciding whether to object. The courts I've seen tend to ride along with the UST's objections.

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