The Work

December 17, 2009 2:17 PM

Multimillion Dollar Fee Requests Have Some Questioning Big Bankruptcy Bills

Posted by Brian Baxter

Bankruptcy rates are a popular topic in the world we cover and always command great interest. Today's news on the subject is no different. The latest fee requests in the bankruptcies of Nortel Networks and Bernard L. Madoff Investment Securities are boosting the bottom lines of two Am Law 100 firms. It might be good news for the lawyers, but not everyone is happy about it.

Nortel Networks, once the largest company in Canada by market value, saw its profits plunge after the tech bubble burst in 2000. The Am Law Daily reported on Nortel's Chapter 11 filing a year ago, when Cleary Gottlieb Steen & Hamilton landed the assignment as lead debtors' counsel.

The months that followed were busy ones for a Cleary team led by James Bromley, head of the firm's global bankruptcy and restructuring practice. Cleary advised Nortel on several asset sales, including deals with Nokia, Ericsson, and Avaya (Bromley was named a Dealmaker of the Week in August), and the firm helped its client slap down objections to one of those sales by Verizon.

This week a bankruptcy court in Delaware approved Cleary's tenth fee application in the nearly year-old case. The filing brings Cleary's total requested fees and expenses to almost $44 million as of October 31, according to court documents. (That's about 0.5 percent of the $965 million in gross revenue the firm took in in 2008.)

The fee request caught the attention of some billing watchdogs Web sites, including All About Nortel and Billing World, both of which point out that Cleary's fee requests account for most of the $51.3 million in bankruptcy bills being paid by the company. Still, no formal objections have been filed to the fee requests.

That's not the case in the liquidation of BLMIS. Two days before Thanksgiving, trustee Irving Picard and his firm Baker & Hostetler requested $22 million in interim fees and expenses for the five months of work between May 1 and September 30. A bankruptcy court in Manhattan previously approved $15 million in interim fees for Picard and his firm.

Picard, appointed trustee in the wake of Madoff's arrest a year ago this month, said the most recent fee request included a 10 percent discount off the firm's billable rates. That explanation apparently wasn't good enough for Phillips Nizer partner Helen Chaitman, a Madoff victim herself who has been covered in this space before for her representation of hundreds of other spurned investors.

Bloomberg reports that Chaitman is among those leading the objections to Picard's fee request, claiming that the trustee shouldn't be paid until BLMIS customers are repaid in full.

"[Baker & Hostetler] is deliberately acting to delay and frustrate the payment of customer claims, even to the point of misrepresenting the law to destitute customers who cannot afford to retain their own counsel," Chaitman wrote in a court filing. "Such misrepresentation is grounds for denial of fees."

A spokesman for Picard declined to comment to Bloomberg. Earlier this year Picard and his team spoke at length to The New York Times about the work involved in evaluating claims by Madoff victims--it's a process that appears to be getting increasingly contentious.

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