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December 16, 2011 6:46 PM

Over Trustee's Objections, Former Howrey Bankruptcy Counsel to Get Paid in Full

Posted by Sara Randazzo

In a single declarative sentence, U.S. bankruptcy court judge Dennis Montali captured the essence of what was at issue during a nearly two-hour hearing Wednesday over professional fee applications in the Howrey bankruptcy: "This is not an ATM machine."

That observation notwithstanding, the Howrey estate spit out fees in abundance as the sometimes contentious hearing came to a close. Wiley Rein collected one of the largest sums, with Montali approving the full $1.03 million the firm requested for its work as debtor's counsel in the Howrey case from June to October.

By way of background: Howrey entered involuntary Chapter 7 bankruptcy in San Francisco in April, less a month after dissolving. The case was converted to a Chapter 11 proceeding in June; at the urging of the estate's largest creditor, Citibank, it got put in the hands of Chapter 11 trustee Allan Diamond of Diamond McCarthy in October

Montali approved Wiley's $1 million payment over the objections of Diamond, who was represented in court by fellow Diamond McCarthy partner Steve Loden. Loden offered several reasons for why the firm shouldn't get all it had requested, including that "this estate cannot afford it." (Diamond, who attended the hearing by phone, was apparently ill.)

Wiley's fee request wasn't the only one to draw the trustee's opposition. In fact, Loden said that, for now, none of the five professional service firms who worked on the case before Diamond stepped in should be allowed to collect more than 80 percent of their requested fees.

Three other professional firms—Silicon Valley bankruptcy boutique Murray & Murray, the solo practice of former Howrey partner Richard Burdge, and accounting firm Salter and Company—agreed to accept the 80 percent for the time being. Murray's total bill for acting as Wiley Rein's local counsel came to $119,235. Burdge billed $22,562 for his efforts to collect outstanding debts. Salter billed $632,560. (Read more on those bills in The Am Law Daily's previous coverage of the bankruptcy here).

Financial adviser Protiviti, whose $1.15 million fee request was the case's largest professional services bill, also saw Montali approve its entire application over Diamond's objections. Both Wiley Rein and Protiviti have already received partial payments for their work on the matter, and Montali authorized the two firms to draw down on their retainers to get the rest.

In the case of Wiley Rein, the firm's $500,000 retainer will cover the $364,000 it's still owed, and Montali told Wiley partner H. Jason Gold that he can also keep an additional roughly $68,000 from the retainer for a supplemental fee application the firm is expected to file. Even with its retainer, Protiviti is still due $65,000. To that, Montali said, "It is what it is."

That Montali approved the fee requests doesn't mean Diamond can't raise more serious objections to those fees, recoup them once the bankruptcy concludes, or even bring malpractice claims against Wiley or the other advisers in the future. Without getting into specifics, the parties discussed those possibilities during the hearing. At one point, the attorneys and Montali noted that Greenberg Traurig is now being sued for its work in the Heller Ehrman bankruptcy, even though it has already been paid.

Montali raised a few of his own concerns about the Wiley Rein and Proviti applications. He lightly chastised Wiley Rein for not following the proper format in its application and for not providing enough detail about certain expenses, such as why multiple attorneys were involved in things that could have been handled by one lawyer. 

As first noted by the Washington Business Journal, Montali also poked fun at a line item in the Protiviti application identified as "earthquake." While not listing any associated fees, the item pointed out that the company's work on the case had been disrupted on August 23 by an unexpected East Coast temblor.

Citibank's counsel, Kelley Cornish of Paul, Weiss, Rifkind, Wharton & Garrison, also objected to Wiley and Protiviti being allowed to collect their full fee requests. Cornish, who also attended the hearing by phone, expressed frustration that, by her count, $11 million from Citibank's cash collateral has been used to fund the case since it began. Since November 1, she said, less than $500,000 in new accounts receivable had been collected.

As Diamond and his team resolve who gets paid how much for work down before the trustee's appointment, they are also scrambling to immerse themselves in other issues and figure out how to bring new money into the estate.

Diamond recently filed applications to hire San Francisco attorney Joel Adler, who has worked on several other law firm bankruptcies, and On-Site Associates to try and recover the some $36.8 million in outstanding accounts receivable. Montali said that hiring Adler was a promising step: "We need to turn Adler loose on them. He's got his ways."

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