Judge in Lehman bankruptcy backs $158 mln in professional fees

Wed Nov 14, 2012 5:45pm EST

* Another $985 mln set for hearing on Nov. 29

* Total professional fees have reached $1.8 billion

* Fee committee paying close attention to rate increases

By Nick Brown

NEW YORK, Nov 14 (Reuters) - A bankruptcy judge on Wednesday approved about $158 million in lawyers' and other fees in Lehman Brothers' liquidation, a first step toward final approval more than $1 billion in professional fees, a lawyer for Lehman's fee committee said on Wednesday.

Judge James Peck allowed the fees at a hearing in U.S. Bankruptcy Court in Manhattan, attorney Katherine Stadler told Reuters. Stadler represents the committee that oversees fee requests and objects to those it deems unreasonable.

Wednesday's hearing covered $157.86 million split between 25 law firms and other professionals. That included about $80 million to Alvarez & Marsal, which managed Lehman's assets during bankruptcy, and about $40 million to Houlihan Lokey, financial adviser to Lehman's creditors' committee.

Lehman Brothers Holdings Inc filed for bankruptcy in September 2008 at the height of the financial crisis.

Total fees in the case, the largest-ever Chapter 11 bankruptcy, are about $1.8 billion, though only about another $985 million is subject to court approval, Stadler said.

That portion, slated to be heard at another hearing on Nov. 29, includes two of the highest earners in the case: law firms Weil Gotshal & Manges and Milbank Tweed Hadley & McCloy, counsel to Lehman and its creditors' committee, respectively.

Those firms remain at odds with the fee committee over aspects of their fee applications. Stadler said the committee is "optimistic" it can resolve the issues by the Nov. 29 hearing.

Spokeswomen for both law firms did not respond to requests for comment on Wednesday.

Part of the dispute could center on rate increases requested by lawyers at Weil and Milbank over the course of the four-year case. Such mid-stream rate hikes have received particular scrutiny from the Lehman fee committee.

In a June memo, the committee told professionals it would question rate increases in certain circumstances and would consider imposing its own formula to determine appropriate rate increases based on cost-of-living and market data.

The fee committee in court papers cited a "very restrained" legal market in which rate increases have slowed, yet certain associates at Weil and Milbank raised rates 40 to 60 percent during the Lehman case, according to the firms' interim fee applications.

Rate hikes are also a hot issue among bankruptcy regulators. The U.S. Trustee Program, the Justice Department arm that oversees how companies spend money in bankruptcy, is pushing new guidelines that could require law firms to be more accountable for rate increases.

The guidelines, proposed earlier this year, would compel firms to show why an increase is warranted and how much it would cost the bankruptcy estate.

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Comments (2)
StuartMaue wrote:
These fees seem to be outrageous and I feel the fee committee does not have the necessary tools to effectively audit all these fees and expenses against the court billing protocols. Rate increases are only a small part in the overall cost of this bankruptcy but is a part of the overall process to make sure these fees and documented expenses are in compliance with the US Bankruptcy billing guidelines. I would be willing to guess that no expense receipts have been requested nor furnished even through expenses have been in the tens of millions of dollars. Someone and it looks like the office of the US Trustee needs to get this entire situation under control and in line with financially responsible reality. The process in a chapter 11 bankruptcy is no more complicated then a litigated intellectual property case and the hourly rates are much lower even within the same firm. Every chapter 11 bankruptcy should have a comprehensive legal cost control program in place because it is not only the right thing to do it is only the only financially responsible thing to do in order to effectively pay the most amount of money to the creditors. This case can still be salvaged if the final fee applications were all audited against the courts own billing guidelines which is the only way al, parties will be assured that these fees are fair and reasonable.

Nov 15, 2012 1:22am EST  --  Report as abuse
StuartMaue wrote:
These fees seem to be outrageous and I feel the fee committee does not have the necessary tools to effectively audit all these fees and expenses against the court billing protocols. Rate increases are only a small part in the overall cost of this bankruptcy but is a part of the overall process to make sure these fees and documented expenses are in compliance with the US Bankruptcy billing guidelines. I would be willing to guess that no expense receipts have been requested nor furnished even through expenses have been in the tens of millions of dollars. Someone and it looks like the office of the US Trustee needs to get this entire situation under control and in line with financially responsible reality. The process in a chapter 11 bankruptcy is no more complicated then a litigated intellectual property case and the hourly rates are much lower even within the same firm. Every chapter 11 bankruptcy should have a comprehensive legal cost control program in place because it is not only the right thing to do it is only the only financially responsible thing to do in order to effectively pay the most amount of money to the creditors. This case can still be salvaged if the final fee applications were all audited against the courts own billing guidelines which is the only way al, parties will be assured that these fees are fair and reasonable.

Nov 15, 2012 1:22am EST  --  Report as abuse
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