Three US law firms are in a dispute over fees on the mammoth US bankruptcy of Lehman Brothers – which has already generated $300m (£200m) in legal costs – after their fees were reduced by marginal amounts, writes The Am Law Daily

The fees dispute gained momentum earlier this week when three firms – Milbank Tweed Hadley & McCloy, Jones Day and Curtis Mallet-Prevost Colt & Mosle – filed papers protesting the Lehman fee committee's reductions of their bills for the period of 1 June 2009 through the end of September 2009.

The cuts are small in the context of the total billings to date in the Lehman matter. In the case of Curtis Mallet, for instance, the committee, headed by Kenneth Feinberg, the Obama administration's bailout pay czar, slashed the firm's $4.8m (£3.2m) bill for that four-month period by about $178,000 (£118,000).

The firm protested, saying the cuts were too large, and Feinberg agreed to put about $29,000 (£19,000) back onto the firm's bill, court records show.

Other firms made similar protests. Jones Day, which billed the Lehman estate $9m (£6m) over the same four-month period, objected to Feinberg's move to cut its bill by roughly $412,000 (£274,000). Among Feinberg's findings: the firm spent nearly $8,000 (£5,300) on business-class or first-class flights when its lawyers were supposed to fly economy, and the firm exceeded the $20 (£13.30) per person limit on overtime meals by nearly $2,500 (£1,660) over those four months.

But Jones Day refused to give up that money without a fight. The firm sent Feinberg detailed papers arguing the initial $9m bill should be slashed only by about $174,000 (£116,000), court records show. Feinberg again compromised, settling last week on a reduction of $293,000 (£183,000).

However, Jones Day filed papers on Tuesday (16 March) in which it labelled Feinberg's reasoning "opaque". This came on the same day as a Milbank motion in which the firms reserved their right to argue later on for the higher fee amounts.

The main dispute – in terms of controversy and dollars – centres on how much it costs firms to prepare their bills in the case. Jones Day's recent application for fees and expenses, for instance, ran nearly 700 pages. The costs for preparing bills are sent to Lehman's estate.

Of the $412,000 Feinberg removed from Jones Day's bill, about $122,000 (£81,000) covered the firm's work in preparing the fee application, court records show.

The firms that filed papers this week are arguing that Feinberg's committee is ignoring precedent by imposing a strict cap on how much firms can charge for the preparation of their bills. The committee had ruled earlier that the costs firms claim for the preparation of their bills could amount to no more than 1% of their total bill, court records show. The firms claim that is draconian, since judges typically set the cap at 2.5%-5% of a firm's total bill.

Feinberg has yet to respond to the papers filed this week, and the timetable for any resolution is unclear.

Despite the reduction, Lehman promises to be one of the most lucrative bankruptcy mandates in legal history with 15 firms having already billed the estate more than $300m. A bankruptcy filing in February showed that Weil Gotshal & Manges had billed $149.5m (£100m) in the 16 months since Lehman's 2008 collapse.

Lehman's bankruptcy hit the headlines again last week when a report by the court-appointed examiner criticised the bank's senior management and auditor Ernst & Young in connection with alleged accounting manipulation to flatter Lehman's finance strength. Attention has focused on Linklaters after it emerged that the firm provided an opinion letter under UK law, though there is no suggestion the firm acted unethically or was wrong in law.

The Am Law Daily is the website of The American Lawyer, Legal Week's US sister title.