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February 25, 2011 10:14 AM

Legal Fees Pile Up in Recession's Biggest Bankruptcies

Posted by Claire Zillman

Don't let the stabilizing market fool you. The massive bankruptcies that shaped the financial meltdown continue to generate substantial attorneys' fees. 

Lehman Brothers's crossing of the $1 billion legal fee threshold in October certainly captured our attention, but the recession's other top pending corporate bankruptcies (based on assets at the time of filing) also resulted in big paydays for attorneys, according to this special report from The National Law Journal, a sibling publication.

The mammoth legal fees in the Lehman bankruptcy case stem from huge liabilities, a large docket of related litigation, and the complex legal work related to derivatives, the company's business structure, and insolvency cases in other countries, the NLJ reports.

The leading beneficiary of the work has been turnaround firm Alvarez & Marsal, which is handling Lehman's liquidation and serving as interim management of what remains of the company. The firm earned fees and expenses totaling $393.4 million through the end of December, the NLJ reports. 

Lehman lead debtor's counsel Weil Gotshal & Manges raked in a total of $254.6 million in legal fees through December of last year, according to a monthly operating report. The firm's top billing partners on the case are litigators Peter Gruenberger ($990/hour) and Edward Soto ($950/hour), who'd raked up fees of $799,000 and $545,000 as of December 2010, respectively. 

Milbank, Tweed, Hadley & McCloy, lead counsel to the unsecured creditors committee, has collected $89.9 million in fees and expenses through December 2010; and examiner's counsel Jenner & Block has picked up $57.9 million in fees.

The two dozen law firms regularly involved in the Lehman case have also collected million or tens of million of dollars for their work. 

"You can't not be involved in Lehman," Goodwin Procter partner Manny Grillo told The National Law Journal. "It's the one case where there are probably not necessarily enough lawyers to go around." Grillo's firm represents several creditors in the Lehman case.

The megabankruptcy runner-up during the recession was General Motors: four GM entities filed for bankruptcy in June 2009, listing $82.3 billion in assets and two times that amount in debt. GM's business enterprise emerged from Chapter 11 protection within 30 days, but the bankruptcy case continues to dispose of various claims against the former corporation. The bankruptcy proceedings earned lead debtor's counsel Weil about $32 million in fees (not including 10 percent of the fees that are held back). Kramer Levin Naftalis & Frankel, which represented GM's unsecured creditors committee, picked up $5.6 million. 

With $32.9 billion of assets and $8.2 billion in debt, Washington Mutual filed for bankruptcy on September 26, 2008, a day after the Federal Deposit Insurance Corporation sold WaMu's banking subsidiaries to JPMorgan for $1.9 billion. Because the bank holding company's remaining assets were the company's good will--not tangible assets--the case's legal fees resulted from battles that centered on finding money to give out to creditors, the NLJ reports.

Weil served as debtor's counsel on this case too, pocketing some $34 million in fees through December, according to a monthly operating report filed in the bankruptcy. Counsel for the unsecured creditors committee Akin Gump Strauss Hauer & Feld and Pepper Hamilton have earned fees worth $16.1 million and $2.4 million, respectively, according to the NLJ's review of court documents.

The NLJ's report also looks at the bankruptcy filings of real estate company Thornburg Mortgage Inc. and commercial real estate finance company Capmark Financial Group Inc., and the related fees. Click here for NLJ's full report.

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