Do bankruptcy lawyers bill illegally?
In the past few weeks, we've all marvelled at the huge amounts Jones Day, Schulte Roth & Zabel, and Weil Gotshal & Manges have billed in the country's two most-watched Chapter 11 cases (Chrysler for Jones Day and Schulte Roth, Lehman Brothers for Weil Gotshal). But we have to admit we haven't stopped to ponder - are those fees illegal? According to a new study co-authored by UCLA bankruptcy law professor Lynn LoPucki, the answer might be yes. LoPucki and his co-author, fellow UCLA prof Joseph Doherty, essentially argue that bankruptcy judges allow lawyers to bill their debtor clients for months at a time before submitting those billing statements to the judge for approval. That goes against the federal bankruptcy code, the study argues, and it has allowed legal fees to increase faster than inflation rates. Judges in theory have the option of objecting to those bills and demanding law firms pay back some of the money, but "payments are harder to reverse than to prevent," the study says.
May 07, 2009 at 08:03 PM
2 minute read
In the past few weeks, we've all marvelled at the huge amounts Jones Day, Schulte Roth & Zabel, and Weil Gotshal & Manges have billed in the country's two most-watched Chapter 11 cases (Chrysler for Jones Day and Schulte Roth, Lehman Brothers for Weil Gotshal). But we have to admit we haven't stopped to ponder – are those fees illegal?
According to a new study co-authored by UCLA bankruptcy law professor Lynn LoPucki, the answer might be yes. LoPucki and his co-author, fellow UCLA prof Joseph Doherty, essentially argue that bankruptcy judges allow lawyers to bill their debtor clients for months at a time before submitting those billing statements to the judge for approval. That goes against the federal bankruptcy code, the study argues, and it has allowed legal fees to increase faster than inflation rates. Judges in theory have the option of objecting to those bills and demanding law firms pay back some of the money, but "payments are harder to reverse than to prevent," the study says.
Nancy Rapoport, a law prof at UNLV, said that judges approve the fees without thorough scrutiny "because they are overwhelmed, especially in the big cases." She agrees with LoPucki "that the foxes are guarding the henhouse, because lawyers don't want to challenge other lawyers' fees."
One of the titans of the bankruptcy bar did not let the study stand unchallenged. Martin Bienenstock of Dewey & LeBoeuf told Bloomberg that LoPucki "is wrong conceptually and legally," and that "the legislative intent of the Bankruptcy Code's fee provisions is that bankruptcy lawyers should be compensated" promptly. He explained that in many bankruptcy courts, lawyers submit monthly invoices to the debtor, which then pays the invoice amount as long as the US trustee does not object to it. The judges review the payments every three or four months, Bienenstock says. The system is set up to "avoid judges spending time on fee hearings every month."
So who's right? LoPucki or Bienenstock?
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