Judge Denies $4.2M in Bonuses for Northwest Bankruptcy Lawyers

Vinnee Tong

The Associated Press

September 12, 2007

Bankruptcy lawyers for Northwest Airlines Corp. were denied $4.2 million in end-of-case bonuses Tuesday, with a judge saying their average rates of about $500 an hour had already provided adequate compensation.

U.S. Bankruptcy Judge Allan Gropper rejected a $3.5 million bonus for Northwest Airlines' lead law firm, Cadwalader, Wickersham & Taft, which ushered the airline out of bankruptcy in May. A law firm representing creditors, Otterbourg, Steindler, Houston & Rosen, was denied a $700,000 bonus.

Gropper said that for the attorneys to deserve a so-called fee enhancement, their work should have a remarkable result that couldn't be expected from lawyers being paid their regular fees.

A flight attendants union as well as the U.S. Trustee and a creditor-turned-shareholder objected to the bonuses, arguing they were unjustified. Those groups said Northwest's bankruptcy had not produced a remarkable result, since its share price has dropped 22 percent since the company emerged from court protection on May 31.

The Association of Flight Attendants also objected on the grounds that pilots and flight attendants took pay cuts and schedule changes to help the airline out of Chapter 11.

Since emergence, Northwest has suffered a rise in delays and cancellations due to a rash of absenteeism among pilots. The company improved its record in August by running fewer flights and offering pilots better schedules and bonuses for perfect attendance.

The Cadwalader and Otterbourg firms, along with 22 other law firms and advisers involved in the bankruptcy, did get approval for their regular fees and expenses. Gropper approved a total bill of $118.8 million in fees and $5.4 million in expenses.

Cadwalader earned $35.4 million in fees and $2.2 million in expenses. As a comparison, Northwest spent $18.4 million on outside legal counsel in 2004, the year before it filed for bankruptcy, according to attorney Bruce Zirinsky of Cadwalader.

Otterbourg got about $7 million in fees and $210,231 in expenses.

Gropper delayed ruling on bonus requests from financial advisers FTI Consulting and Lazard Freres & Co. FTI has asked for $1 million, on top of $6 million in fees. Lazard seeks $3.5 million on top of $5.2 million in fees, arguing that a bonus had been negotiated at the start of the case.

Northwest shares were up 19 cents at $18.47 Tuesday.

AP Business Writer Josh Freed in Minneapolis contributed to this report.