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In the first four months of the Enron bankruptcy case, 12 law firms amassed nearly $64 million in fees and expenses, according to compensation applications filed with the court. Unique in size, complexity, scope and visibility, the Enron case and its fees are not off the charts — at least not yet — say bankruptcy experts, some of whom predict that lawyer bills may add up to hundreds of millions of dollars during the life of the case. Counsel have already poured tens of thousands of hours into the case, some of them billing at rates topping $700 an hour. Don’t be blinded by the appearance of staggering fees, say bankruptcy experts and academics. “I think it’s a mistake to simply focus on these numbers in the abstract,” says Professor Randal Picker, who just wrapped up teaching a course on the Enron bankruptcy at the University of Chicago Law School. Corporate dissembling and labyrinthine partnerships created Enron’s scandal, and lawyers are now trying to unravel the morass of deals. “There was an intent to make the transactions less than clear,” he says. “Sorting through this is going to be a huge mess and it’s going to be horribly expensive.” He is one of the experts who thinks the fees could reach into the hundreds of millions of dollars. Hitting those heights may not take long. If attorneys maintain their current pace, lawyers’ bills will top $190 million before the year is out. Under federal bankruptcy law, those firms that are authorized by the court to submit bills stand high on the ladder of those who actually get paid, since the bills count as “administrative expenses” associated with resolution of the case. That is what happens under bankruptcy law, even though in a case like Enron’s thousands of former employees and shareholders have lost millions of dollars and have no guarantee of getting it back. “It always looks bad, the attorneys and the accountants getting in first and getting paid,” says Geoffrey C. Hazard Jr., legal ethics professor at the University of Pennsylvania Law School. Yet those $700-plus hourly fees represent what the market will bear for top talent working on the toughest cases, he says. And cutting those rates would not likely mean more money in the pockets of Enron’s pensioners. “This is going to be very, very big. I wouldn’t be surprised if this got to be $250 million before it was done,” Hazard says of the fees. FOUR BIG FIRMS Four firms account for roughly three-fourths of the $64 million tab submitted to the U.S. Bankruptcy Court for the Southern District of New York. Three of them are New York-based. Weil, Gotshal & Manges, which represents Enron, billed $26,010,376; Milbank, Tweed, Hadley and McCloy, which represents the unsecured creditor’s committee, $8,998,237; and Skadden, Arps, Slate, Meagher & Flom, which also represents Enron, $6,578,598. The fourth firm, also representing Enron, is Houston’s Andrews & Kurth, Mayor, Day, Caldwell & Keeton, which billed $6,894,336. Assigning a virtual legal armada to the case, Weil Gotshal devoted more than 50,000 attorney hours to Enron during the four months, the work of 92 partners and counsel and 177 associates. Hourly rates hit $700 for three of the firm’s lawyers: Ira M. Millstein, James W. Quinn and Thomas A. Roberts, the lead partner on the case. “We’re talking about the largest and most complex bankruptcy in history,” says Roberts, head of Weil Gotshal’s corporate department. Roberts is working on issues arising from Enron’s divestitures, restructuring, asset sales and governance matters. “I anticipate that there will be larger and even increasing legal bills,” says Roberts, noting that lawyers have to unravel the transactions consummated by thousands of subsidiaries. He says that Enron intends to come up with a proposal “that would allow this thing to wrap up as soon as possible,” assuming it wins approval of the other parties. At any given time, the 1,000-attorney firm has a core team of 15 to 20 lawyers assigned to the case, Roberts says. According to the firm’s filings, Weil Gotshal’s attorney hours fell into six categories: business and finance restructuring, corporate work, litigation, business and securities litigation, tax and trade practices and regulatory work. An average nine-to-five worker would have to toil nearly six months to match the time that Weil Gotshal partner Brian Rosen devoted to Enron from Dec. 2, 2001 through March 31, 2002: 1,094.9 hours. Yet Rosen was outpaced by associate Kelli M. Walsh, who put in 1,334.4 hours on the case during the same time frame. That comes to about 78 hours a week. The firm also billed 10,324.3 hours for law clerks and support staff; some law clerks commanded hourly rates of $190, and that rate hit $175 for some librarians. Expense sheets underscore the sheer bulk of the case. Weil Gotshal’s court filing fees alone amounted to $33,751.51, and photocopies cost $612,425.60. With top counsel asking $725 per hour, Milbank Tweed billed 21,227.9 hours for attorneys and support staff, with seventh-year associate John Franchini topping the list with 960.6 hours billed at $459 apiece. Though the firm does not have a strictly defined “core team” assigned to the Enron case, Steve Blauner, of counsel at Milbank Tweed, says the label applies to any Milbank lawyer putting in, on average, 35 hours per week or 140 hours per month, during a given quarter. Nor does Blauner see the attorney fees unfairly siphoning off resources from the pot: “The numbers are large, there’s no denying that. The size of the numbers are only meaningful in relation to the scope of activity. … I think the fees reflect the extraordinary activity in the case.” And Blauner does not see counsel’s pace slacking off anytime soon, in part because counsel have the difficult task of trying to match complex assets with the many debts and then determining how much Enron owes its creditors. “I would expect that the level of activity has been maintained,” he says, referring to the time that has elapsed since the December-March billing period. As for the third firm on the list, Andrews & Kurth’s fee application says that the firm cut its fees by $30,851 before submitting its application for $6.6 million. That figure represents 19,899.52 hours for bankruptcy-related work and 1,143.8 hours involving matters not directly involved with the bankruptcy case, according to the firm’s application. $500-AN-HOUR CAP At least one firm — Houston’s Susman Godfrey — agreed to a court order capping its top hourly rate at $500. The firm agreed to the cap as a way to deflect opposition to its application to represent Enron as special counsel, says partner Kenneth Marks. This became an issue because of the $900 hourly rate of Susman Godfrey name partner Steve Susman, Marks explains, noting that the Enron creditors’ committee was one of the objectors to Susman Godfrey’s application to handle Enron’s Employee Retirement Income Security Act (ERISA) and securities litigation. The firm deflated the opposition by agreeing to a $500-an-hour cap. “It allowed us to short-circuit the debate,” says Marks, who adds that the firm did not have time to lose, since the bankruptcy and ERISA litigation were moving forward. For the four months in question, the firm billed $200,908.57 in fees and expenses. According to the procedure set up by the bankruptcy court, none of the firms will see all of the money at once. Under the rules, firms get 80 percent of a monthly bill if 35 days pass without an objection filed with the court, according to a January 2002 court order. Marks says that 120-day summary statements filed at a later date seek approval of all fees, and that while objections are also possible at that juncture, usually most of the money has been paid by then. “It is theoretically possible that you might have to give some of the money back,” he says. Asked whether Weil Gotshal anticipates a court-imposed cut in fees, Roberts responded “I certainly hope not.” MONEY WELL SPENT? Whether these millions of dollars have been well spent is as difficult to parse as the essence of Enron’s own operations, bankruptcy experts say. Enron differs from other massive bankruptcies because of the murkiness of the company’s deals, says Robert Rasmussen, professor at Vanderbilt University School of Law. “You don’t have the opacity that you have in Enron,” which had more than 3,000 related entities. “The first question is, what to do with Enron itself?” says Rasmussen. “What are they going to do with the assets?” Another key question: What is the actual value of Enron? Since Enron’s value is a moving target, no one yet knows whether the lawyers’ fees are out of line, says University of Pennsylvania Professor David Skeel. “In big cases, the fees turn out to be 3 to 4 percent of the total value of the company,” Skeel explains. When Enron filed for bankruptcy, some estimates pegged the company’s value at $50 million. Estimates have fallen dramatically since then. “Are the attorneys wasting a lot of time? Are they spending a lot of time trying to preserve assets that really can’t be preserved?” These are Skeel’s questions, and he says no one will have the answer until the case is over. “There’s really nothing that looks outrageous at this point,” but the picture could change in a year’s time, he says. Related chart: Enron Bankruptcy Legal Costs Staff reporters Andrew Harris and Arthur McCune contributed to this story.

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