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U.S. Bankruptcy Judge Arthur J. Gonzalez has approved more than $55 million in fees and expenses billed to Enron Corp. by lawyers, financial advisers and other consultants during the first four months of the company’s year-old bankruptcy. The fees were reviewed by a court-appointed committee headed by retired bankruptcy Judge Joseph Patchan, which approved about 95 percent of the charges. There were no objections to the committee’s recommendations at the Thursday hearing before Gonzalez, of the Southern District of New York. Enron’s lead counsel, New York’s Weil, Gotshal & Manges, which will be getting more than $23 million in approved fees, leads the pack by a wide margin. Other heavy billers include New York’s Milbank, Tweed, Hadley & McCloy, lead counsel for the creditor’s committee, with more than $8 million in approved fees; and Houston’s Andrews & Kurth, another of Enron’s law firms, with more than $6 million in approved fees. Enron filed for bankruptcy in December 2001. Through October, lawyers and other professionals have reportedly racked up $280 million in fees and expenses, sending Enron well on its way to being the most expensive bankruptcy ever. Last week’s hearing dealt with fees and expenses incurred through March 31. CLOSE SCRUTINY The task of the five-member fee committee is to scrutinize the bills submitted by the law firms, accounting firms and other professional advisers now gainfully employed by the world’s most notorious corporate debtor. In November, Patchan filed his first advisory reports covering fees and expenses incurred through the bankruptcy’s first four-month period. The reports delve into the bills submitted by Weil Gotshal and Andrews & Kurth; two other New York firms, Cadwalader, Wickersham & Taft and Togut, Segal & Segal; San Francisco’s Goodin, MacBride, Squeri, Ritchie & Day; PricewaterhouseCoopers and Ernst & Young; and the Blackstone Group, a financial restructuring firm. Some of these firms’ bills emerged relatively unscathed, but some did not. Patchan recommended that the court slash expense reimbursements, cut high billing rates and refuse to approve fees for timekeepers who bill just a few hours and, as he puts it, “add little or no value.” Patchan’s reports also highlighted some unsavory billing practices, such as marking up the costs of photocopies and faxes, and charging for clerical work at lawyers’ steep hourly rates. The reports also revealed embarrassing expense-account charges at some firms. Andrews & Kurth, which represents Enron, sought to pass along to the client $70 in tabs from an establishment described as “Sir Harry’s.” These “appear to be charges for alcoholic beverages,” Patchan concludes, which “should not be reimbursed by Enron.” Patchan also suggested knocking another $468 off the firm’s $284,000 in expenses “as an allowance for the many bar charges” included in reimbursement requests for out-of-town meals. The Houston firm was not the only adviser to suffer embarrassment. Patchan suggested docking PricewaterhouseCoopers for “non-reimbursable personal charges” incurred for in-room movies and mini-bar refreshments. Patchan also picked out $183 in hotel “bar charges” among Weil Gotshal’s $2.25 million in expenses. Patchan has retained Legal Cost Control, a Haddonfield, N.J., consulting firm that specializes in whittling away at bloated or erroneous bills. He is also relying on a small professional staff that includes John Hopkins III, the New Hampshire-based author of the “Bankruptcy Litigator’s Handbook.” WEIL GOTSHAL’S $26 MILLION Weil Gotshal’s bills dwarf all others. The New York-based firm has requested a total of $26 million for fees and expenses through March 31. But in the eyes of the fee committee, Weil Gotshal’s billing practices compare favorably with those of its peers. Patchan comes close to patting Weil on the back at times, describing its Enron work as “properly managed and staffed,” and the firm’s bills as “informative” and even “helpful.” Still, Patchan’s team finds fault. His report caustically describes, for example, how Weil Gotshal hired contract paralegals for some Enron work, but billed them out at multiples of their actual cost. In one case, Patchan details how the firm paid Special Counsel, a legal temp agency, $28 per hour for a paralegal identified on Weil’s bills as “Hou Paralegal, Hou.” But the firm charged this person’s time to Enron at $105 an hour — for a total of $46,851. Another temp cost Weil Gotshal $18.50 an hour, but was billed to Enron at $50 an hour. Overall, Patchan suggests reducing Weil’s bills by $834,000 — a small fraction of its $26 million request. TOUGH REVIEWS Others, however, did not fare as well. PricewaterhouseCoopers requested $6.4 million in fees and $568,694 in expenses. Patchan suggested granting virtually the entire expense request. But he also suggests cutting the firm’s total fees by close to 10 percent — including a reduction of $140,000 to fees charged by auditors. “Audit fees are rarely collected at the standard hourly billing rate,” Patchan wrote. Patchan recommended cutting Andrews & Kurth’s expenses by about 35 percent. Citing poor expense reporting, Patchan’s committee suggested in its report “that Andrews & Kurth instruct its accounting department in the future to include adequate information in the descriptions of expenses.” Patchan noted that the firm included $17,000 in expenses “incurred before the commencement of this case.” These should be rejected, Patchan wrote, as “unsecured prepetition claims that cannot be collected” through a bankruptcy fee application. Patchan also faulted Andrews & Kurth for failing to provide documentation for some expenses at the fee committee’s request. His report indicated, for example, that invoices “were not provided” for $33,000 in expenses attributed to Lexis and Westlaw research. Andrews & Kurth’s fees also received attention, although Patchan ultimately recommended reducing them only modestly. He observed, for instance, that the firm raised the billing rates of 26 attorneys in January 2002, the month after the firm was retained in Enron’s bankruptcy. Many law firms seek to raise their fees each year, but some of the Andrews & Kurth rate increases highlighted by the committee appear unusually steep. Three partners’ rates climbed by about 20 percent. Rates for five associates and one of counsel all jumped by more than 30 percent, reaching a high of $400 an hour. One associate’s hourly rate spiked 60 percent. Patchan raised a flag over the rate hikes, but shied away from any conclusions about them in his report. “The committee makes no recommendation with respect to the billing rate increases of Andrews & Kurth,” he wrote. According to his report, “Andrews & Kurth explained to the committee that it was in the process of transforming from a regional law firm to a national law firm; that its consultant had advised that its hourly billing rates were considerably lower than those of national law firms; and that it has been increasing its hourly billing rates by percentages similar to these for the past three years.” Andrews & Kurth did not reply to a request for comment. EXHAUSTIVE DESCRIPTION Not surprisingly, Patchan’s own bills are models of clarity and detail. In the only fee application he has filed so far — covering his work during September — he seeks payment of $20,220 for 67.4 hours of work at $300 an hour. Each time entry is accompanied by an exhaustive description. “We anticipate that every lawyer in New York is going to be looking” at the fee committee’s filings, Patchan said in an interview before the hearing. He also anticipated that one or more of the firms he has scrutinized would challenge his recommendations before bankruptcy judge Gonzalez. “We’re talking about matters very close to their hearts and their bank accounts,” Patchan said. “I would say they’re very focused.”

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