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Everything about the Enron Corp.’s bankruptcy is outsized: the politics, the personalities, the business complexity, the debt. So, too, the legal bills. Legal Times sifted through 3,000 pages of court documents filed so far by seven law firms and accounting giant Ernst & Young. The result is eye-opening: Over the bankruptcy’s first two months, an army of some 425 lawyers and accountants, and another 125 professionals, ran up nearly $18 million in fees and another $1.2 million in expenses. And that’s only for work done by a partial group of firms in only the first weeks of the case. In the words of one New York lawyer working for Enron: “Nothing about this case is normal.” The already enormous legal bill for the biggest bankruptcy in history hasn’t drawn much attention yet. That is likely to change. DAY ONE The billing begins on Dec. 2 — the day the Enron Corp. filed for bankruptcy. Legal Times pored over some 3,000 pages of fee applications for work done from Dec. 2 through Jan. 31 by eight key firms involved in the Enron bankruptcy — seven law firms and accounting firm Ernst & Young. That’s eight firms, two months, more than 400 lawyers and accountants and 125 paralegals and staff. The lawyers billed for 35,375 hours of work. The fee request for all the lawyers and other professionals totaled $17,985,338 — plus another $1,198,416 in expenses. Even beyond the big picture, the numbers are startling. Weil, Gotshal & Manges, lead counsel to debtor Enron, logged 14,835.5 hours in December alone, for a total of $6.2 million. Milbank, Tweed, Hadley & McCloy, lead counsel to the creditors’ committee, put in 1,612 hours that month, to the tune of $660,146. In January, though, the firm roughly tripled that, billing $2 million for 4,120 hours. Four other firms representing Enron put in their fair share as well. New York’s LeBoeuf, Lamb, Greene & MacRae filed for fees of $1.3 million for December and January, while Houston’s Andrews & Kurth submitted bills for $1.9 million. New York’s Cadwalader, Wickersham & Taft billed $284,000 over the two months, and New York’s Togut, Segal & Segal billed $261,000 in December. Wilmer, Cutler & Pickering spent 6,810 hours on the case in December and January, investigating Enron and producing the so-called Powers report. Wilmer’s 26 lawyers and eight staff generated $3 million in fees over the two months. Ernst & Young, brought in as auditors and restructuring consultants, billed $1.8 million for December and January. The 48 accountants and restructuring advisers billed at rates similar to the law firms and put in more than 4,000 hours. Together, the eight firms spent $492,515 on travel, $54,475 on meals, and $154,663 on computer research. Like everything else in the Enron epic, these numbers will come under scrutiny. Approval or adjustment is ultimately the responsibility of U.S. Bankruptcy Judge Arthur Gonzalez, and it is U.S. Trustee Carolyn Schwartz’s job to review the filings and make recommendations to the court. The spotlight on the bills could get a lot brighter. On March 20, Texas Attorney General John Cornyn requested an independent fee examiner. The next day, Judge Gonzalez announced he will soon assemble a committee to set procedures for bill submissions, draft budgets, and make recommendations to the court. It is still unclear what role the committee will play, and Schwartz could not be reached for comment by press time. Appointing a fee examiner is not unusual in large bankruptcy cases, nor is a careful review of the lawyers’ roles. In 1994, when he was a U.S. trustee, Gonzalez recommended to a bankruptcy judge that Weil Gotshal be disqualified from a large Chapter 11 proceeding because of conflicts of interest. The judge let Weil Gotshal stay on the case, but the firm had to pay $800,000 for an independent examiner to review the alleged conflicts. A fee examiner or committee in the Enron case, if appointed, would likely complicate matters. “If there is an examiner, there will almost certainly be fee cuts,” says Lynn LoPucki, a bankruptcy professor at the University of California in Los Angeles. “The question is how they’ll come about and whether they’ll be substantial.” He points out that, in terms of total fees applied for versus fees paid out, New York courts cut more severely than courts in the rest of the country (excluding Delaware, which handles roughly 50 percent of the country’s bankruptcies). According to recent research, average lawyers’ fees in major bankruptcies amount to about 1 percent to 2 percent of the companies’ assets. For Enron — the largest bankruptcy ever, with assets valued at almost $50 billion — that ratio would project a range of $500 million to $1 billion in fees before the case is finished. – Wheatly Aycock CHECK, PLEASE “Bill the client.” For law firms laboring among the ruins of the Enron Corp., it seems that no phone call is too brief, and no administrative cost too small, to pass along to the embattled and bankrupt energy trader. At the same time, several firms working on Enron have racked up huge hotel bills and other travel and transportation expenses during the no-holds-barred effort to untangle Enron’s finances and get the company into bankruptcy court. At least one firm has billed for the time a $450-an-hour associate spent reading The New York Times and The Wall Street Journal. Another firm billed $160 for the 12 minutes a partner spent “sending” the firm’s own retention papers to co-counsel. Yet another firm installed 12 lawyers at a Four Seasons hotel for three weeks. Law firms as a rule bill their time in infinitesimal increments, with partners at large corporate firms commanding hourly fees of $500 and up. And there’s nothing unusual about firms passing many of their expenses along to clients. Yet in the Enron bankruptcy, thanks to to which creditors and shareholders can expect to lose billions of dollars, some big firm billing practices look a bit rapacious. “It is understandable that anyone is concerned that the [fees] are in the millions,” says Wilmer, Cutler & Pickering managing partner and bankruptcy expert William Perlstein. But, he says, the steep legal costs reflect the magnitude of the case — Enron’s bankruptcy is the largest in U.S. history, in terms of assets — and its ultra-fast pace. According to court filings, Wilmer Cutler, which was retained by Enron to investigate the company’s collapse, passed along to Enron the $56,000 tab for “out of town lodging” — most of it at Houston’s Four Seasons hotel. “We got a rate,” says Wilmer partner William McLucas. He says the hotel discounted its rooms for the firm to about $230 per night. Adds Perlstein: “Living in any hotel for weeks on end is not glamorous.” The bankruptcy court filings of several other firms involved in the Enron case opens other windows on law firm economics. Firms have charged for time spent preparing their own bills and analyzing their own potential conflicts, for example — a practice they say is permitted under the bankruptcy code. More striking, perhaps, are the expenses several firms have racked up working on Enron matters. Weil, Gotshal & Manges, Enron’s lead bankruptcy counsel, billed $455,000 in expenses — during December alone. Of that total, a whopping $89,799.18 was spent for online research. Just over $98,000 went for travel and meals. Weil Gotshal’s expenses are by far the highest of any of the seven firms that have filed fee statements for December and January. But expenses amounted to a relatively modest 7 percent of the firm’s total fees, which were $6.2 million. Measured another way, Weil Gotshal’s travel and meal expenses work out to about $660 for each of the 149 firm lawyers who worked on Enron. By comparison, bankruptcy boutique Togut, Segal & Segal racked up enormous expenses in December. The 10-lawyer New York firm, which represents Enron as co-counsel with Weil Gotshal, billed a mere $261,000 in legal fees for the month, with only eight lawyers working the case. The firm also charged up $36,242 in expenses, including $30,900 for “meals; lodging; ground transportation; and airfare.” That works out to almost $3,900 per lawyer. Name partner Albert Togut says the firm had little choice when it came to the costs. “The client called us [on Dec. 3] and said, ‘We need you down here,’” says Togut. “We literally hung up the phone with other clients and put on a plane every free body we had to go down to Houston. We went down to do the equivalent of triage.” With no time to shop for deals, the firm’s lawyers paid full airfare, even though, as Togut stresses, “we all travelled coach.” When it came to booking hotel rooms, Togut lacked Wilmer Cutler’s clout. Togut Segal partner Frank Oswald says the firm got rooms at the Four Seasons, “where the Weil guys were.” But, he says, “we’re a small firm, and we don’t travel much.” Despite an effort to obtain a discount by registering under Enron’s name, Oswald and his colleagues had to pay rack rates of about $320, plus tax, per room for each of the four nights the eight lawyers were in Houston. When Togut Segal lawyers returned to Houston later in the month, they bunked down at the Hyatt. But the Togut Segal lawyers, like the Wilmer Cutler lawyers, say they were working to the point of collapse, not living the good life on their client’s tab. And Togut’s fee statement certainly contains details that bear this out. On Jan. 17, for example, Albert Togut went out to dinner while working late on Enron matters. He dutifully expensed his entire $20 tab from the Tick Tock Diner on Eighth Avenue in Manhattan. – Otis Bilodeau KELLI WALSH’S LOST WEEKEND And you thought your job was hard. Consider the work that Weil, Gotshal & Manges associate Kelli Walsh put in on the Enron Corp. bankruptcy in the month of December. From Dec. 2 to Dec. 31, Walsh billed 371.5 hours. That averages out to more than 12 hours a day, seven days a week — setting a pace for 4,500 hours a year. So much for weekends and holidays. “I guarantee no one alive could keep up that pace,” she says. “It’s not sustainable.” When Weil Gotshal, the lead bankruptcy counsel for Enron, was rounding up lawyers to work on the case, Walsh, a 31-year-old senior associate in the firm’s Dallas office, says she had no idea what was in store. With clothes packed for just two days, she flew off gamely to Houston on Nov. 28. Enron’s bankruptcy filing came early in the morning on Sunday, Dec. 2. For Walsh, that meant working straight — as in nonstop, as in no sleep — from the morning of Saturday, Dec. 1, until the evening of Monday, Dec. 3, fueled, she says, “by the constant stream of energy and lots of caffeine.” In large part, Walsh’s role in the first few weeks was to help set up Weil Gotshal’s war room, a command center where all the calls flowed in and work was assigned. “She was a gatekeeper for 40 lawyers,” says Frank Oswald, a partner at Weil Gotshal co-counsel Togut, Segal & Segal, who singles Walsh out as one of the hardest-working lawyers on the case. Walsh credits her husband, a nonlawyer, with helping hold her personal life together during the Enron maelstrom. For example, he did her Christmas shopping and came to visit in Houston with fresh clothes from home. (Walsh squeezed in time to have dinner with him.) “He used to be a consultant and travelled a lot,” she says. “He’s very understanding.” And — in what must be considered above and beyond the call of duty — he even filled in for her as the host of a friend’s baby shower that she was too busy to throw. While Walsh says she worked every day in December, she did manage a quick trip to Los Angeles to spend Christmas with her family. “I worked on the plane,” she says, and she worked once she arrived, though she only billed two hours on Christmas Day. Since December, her hours have mellowed somewhat. She and her husband even took a weekend trip to San Francisco recently. Still, she says, the Enron experience has been a “once-in-a-lifetime opportunity. … It’s exciting. There’s so much to be done, and a lot of teamwork involved.” When it’s all over, she says, she envisions a long vacation “somewhere far away, and lots of fruity drinks.” Walsh is hardly the only Weil Gotshal lawyer clocking incredible hours. Partner Brian Rosen worked almost as much, billing 360.6 hours in December — equal to a rate of 4,387 hours a year. “That set a new high-water mark for me,” says Rosen, who joined Weil Gotshal in 1984 and made partner in 1990. “My wife, a former attorney, was understanding, my kids, a little less so,” he says. In particular, Rosen says his children, ages 11 and 8, were not pleased that the family had to scrap plans for a ski trip over the holidays. When the New York-based partner flew to Texas at the start of December, he says, he did not expect an extended stay. “But at the outset, no one knew the transaction with Dynegy would be terminated,” he explains. “It wasn’t in the emergency mode it turned into.” He wound up on team Enron, he says, because in late October or early November, he was asked to look into “a small matter in Texas.” Wryly, he adds, “It mushroomed.” For Rosen, the days immediately following the bankruptcy filing were the most intense. “In the first two weeks, I worked essentially 20, 21 hours a day,” he says. “It was all-encompassing. There was so much to be working on.” Since December, he says, his hours have “gotten a little bit better.” “I’ve taken off a Saturday here and there,” he says. Sounding almost guilty, he adds, “I just stole three days with my kids and wife.” At Milbank, Tweed, Hadley & McCloy, which represents the Enron creditors’ committee, associate John Franchini was the top biller, according to fee statements filed with the bankruptcy court. Franchini billed 431.3 hours between Dec. 12 and Jan. 31 — an average of 8.5 hours each day, seven days a week. At that pace, he’d bill an impressive 3,102 hours a year. A 1995 alum of Fordam University School of Law, Franchini referred inquiries to a firm spokesman, who could not be reached for comment. Luc Despins, the lead Milbank partner on Enron matters, billed 304.1 hours during the same period. Wilmer, Cutler & Pickering’s piece of the Enron pie, preparing a major report on behalf of a special committee of the Enron board, was “pretty grueling,” according to lead partner William McLucas. Wilmer’s legal team headed to Texas on Jan. 2 and didn’t return to Washington until February. The top billers include partner Joseph Brenner, who racked up 569.8 hours between Dec. 2 and Jan. 31; partner Charles Davidow, who hit 505.3 hours; and associate Reed Brodsky, who billed 549.1 hours. McLucas, who was working on other cases as well, billed 344 hours to Enron over the same period. “It was not glamorous,” says McLucas. Nights at the hotel were often spent writing up interview notes, he says. “There were very few meals in restaurants, and very few evenings when people walked out the [Enron] building before 8 or 9 p.m.” – Jenna Greene ENRON’S HOUR TOWN From Milbank, Tweed, Hadley & McCloy partner Trayton Davis at $725 per hour to Weil, Gotshal & Manges associate Michael Hartl at $150, the Enron Corp. bankruptcy has revealed nearly 400 lawyers’ billing rates at top firms. Since Enron filed for bankruptcy on Dec. 2, one law firm’s rates have been successfully challenged in the case. An Enron insurer balked when Enron sought court permission to retain litigator Stephen Susman, of Houston’s Susman & Godfrey, at his “standard rate” of $900 an hour. Susman agreed to reduce his rate to $500, according to court records. But several of the firms in the case charged well above $500 per hour with no objections. Hourly rates at New York firms topped out at just above $700. At Milbank, Davis and Frank Puleo commanded $725, while Luc Despins fetched $695. Weil Gotshal’s Ira Millstein, James Quinn, and Thomas Roberts all billed at $700 per hour. Skadden, Arps, Slate, Meagher & Flom, which in February was authorized as special counsel to Enron, lists a partner billing rate range of $480 to $695 per hour. Ernst & Young’s Jacob Blank billed at $700, and six others charged $650 or above. Bruce Zirinsky of Cadwalader, Wickersham & Taft fetched $650 per hour, and John Klauberg at LeBoeuf, Lamb, Greene & MacRae billed at $600. Togut, Segal & Segal’s Albert Togut charged $620, and Hugh Ray, head of the bankruptcy practice at Houston’s Andrews & Kurth, billed at $500 per hour. For top-tier bankruptcy lawyers, billing rates have climbed “smartly” in recent years, says Wilmer, Cutler & Pickering managing partner William Perlstein. But, he says, the rise is proportional to the rate increase in other areas of specialized corporate legal work like capital markets, securities enforcement, and mergers and acquisitions work. But aside from the hourly rates, what makes the figures on the first round of Enron fee filings so high is the amount of time put in by the top partners. For instance, Weil Gotshal’s Roberts, at $700 an hour, put in 205.8 hours in December for a total of $144,060. Similarly, Milbank’s Despins billed 304.1 hours at $695 each over two months, generating $209,735. “There was no time to let issues percolate … by having more midlevel people take a first look at things and refer them up to partners,” says Melanie Gray, a partner at Weil Gotshal who herself generated $150,700, or 301.4 hours at $500 per hour. “Decisions had to be made on a time-crunched basis, and they were made at the partner level.” Wilmer Cutler’s Perlstein agrees that the “phenomenally compressed time frame” of the bankruptcy filing contributed to the high legal fees. “You’re really seeing the top-end players, particularly at the beginning of the case,” he says. Most associates ran in the $200 to $400 range. Milbank’s associates billed between $200 and $480 per hour, and Wilmer Cutler’s at $245 to $445. Togut, Segal & Segal rated associates at $165 to $425, and LeBoeuf at $170 to $415 an hour. – Wheatly Aycock

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