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March 17, 2010 5:00 PM

The Brewing Dispute Between Law Firms and Lehman's Fee Committee

Posted by Zach Lowe

Fifteen law firms have billed the Lehman Brothers estate more than $300 million in total fees and expenses since Lehman filed for bankruptcy in September 2008. By almost any standard, that's a lot of money. But the cash pouring in hasn't stopped the key firms involved from protesting aggressively when the fee committee monitoring the case moves to slash their bills, even if the proposed cuts amount to a fraction of a percent of the firms' total requested fees.

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 June 1, 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 $4.8 million bill for that four-month period by about $178,000. The firm protested, saying the cuts were too large, and Feinberg agreed to put about $29,000 back onto the firm's bill, court records show.

Other firms made similar protests. Jones Day, which billed the Lehman estate $9 million over the same four-month period, objected to Feinberg's move to cut that $9 million bill by roughly $412,000. Among Feinberg's findings: the firm spent nearly $8,000 on business-class or first-class flights when its lawyers were supposed to fly coach, and the firm exceeded the $20 per person limit on overtime meals by nearly $2,500 over those four months. But Jones Day wasn't going to give up that money without a fight. The firm sent Feinberg detailed papers arguing the initial $9 million bill should be slashed only by about $174,000 instead of the proposed $412,000, court records show. Feinberg again compromised, settling last week on a reduction of $293,000.

Jones Day did not relent. The firm filed papers on Tuesday in which it labeled Feinberg's reasoning "opaque." It joined a Milbank motion, also filed Tuesday, in which the firms reserve their right to argue later on for the higher fee amounts. 

Lawyers at Jones Day, Milbank, and Curtis-Mallet did not immediately respond to requests for comment.

The biggest head-scratcher in all of this? The main dispute--in terms of controversy and dollars--centers 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. It takes an enormous amount of work to put something like that together and include all the detail Feinberg and his committee demand. That time costs money, and the firms bill that cost to Lehman's estate.

And the cost is huge. Recall that Feinberg initially cut about $412,000 from the Jones Day bill. Of the $412,000 of (alleged) fat Feinberg found, about $122,000 covered the firm's work in preparing the 700-page fee application, court records show. Likewise, nearly $83,000 of the $295,000 or so Feinberg wanted to slash from Jenner & Block's bill for the same four-month period came out of the costs Jenner claimed for preparing that very bill.

To summarize: The argument about law firm bills centers on how much the firms are billing to prepare their bills. Get your head around that. 

But it's a serious issue, and 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. Early on in the case, the committee ruled that the costs firms claim for the preparation of their bills could amount to no more than 1 percent of their total bill, court records show. The firms claim that is draconian, since judges typically set the cap at somewhere between 2.5 and 5 percent of a firm's total bill, court records show.

Feinberg has yet to respond to the papers filed this week, and the timetable for any resolution is unclear. We'll keep you posted.

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