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The hourly tab for a tax lawyer: $825. A corporate litigator: $810. A pack of law clerks and summer associates: $240 an hour, each. And that’s just at Willkie Farr & Gallagher. In one of the largest bankruptcies in Maryland history — a multibillion-dollar series of cases filed by companies affiliated with California’s Pacific Gas & Electric Co. — more than a dozen firms have billed $60 million in legal fees over the last year and a half. The series of Chapter 11 cases, filed in U.S. Bankruptcy Court for the District of Maryland, has been a cash machine for lawyers — attracting high-priced New York firms and feeding local counsel as well. Objections about some of the fees have been raised by a few players, but have had little impact on the amount of money being paid to lawyers in the case. In fact, because of its size and complexity and the relatively easy time firms have had with their fee requests, some lawyers believe the PG&E claims will set a standard for how future bankruptcies are managed in Maryland. Whatever the case, the bankruptcy is providing a window on how much top firms are charging to handle such claims — and how much creditors and debtors are willing to pay to make them go away. BATTALION OF LAWYERS San Francisco-based Pacific Gas & Electric Co. says it was $13 billion in the red when it filed for Chapter 11 bankruptcy in California in 2001. It wasn’t long before PG&E companies followed the utility to bankruptcy court. In July 2003, several Bethesda, Md.-based companies filed for bankruptcy protection with the Maryland court. PG&E National Energy Group Inc., which was responsible for buying and building power plants and pipelines across the country, claimed to be $3.5 billion in debt. And USGen New England Inc. stated it had more than $1 billion in unpaid bills. Several National Energy affiliates, known as the ET debtors, also filed for bankruptcy. And as with any large bankruptcy, a battalion of lawyers was enlisted to represent the companies and their creditors. New York’s Willkie Farr and Whiteford, Taylor & Preston were hired to represent the National Energy Group, while Philadelphia’s Blank Rome was tapped by USGen. On the other side, Kaye Scholer was brought in to represent the creditors committee in the National Energy case. Reed Smith did the same in the USGen case. Additional firms were hired to handle specific litigation and regulatory matters. For example, Foley Hoag was picked as special counsel to USGen for environmental, labor, real property, state regulatory, commercial litigation, tax, and patent matters. Winston & Strawn was hired by USGen and National Energy for regulatory work in both cases. All told, more than 16 firms entered the fray. The lawyers have helped their clients cut jobs, sell off power plants and wriggle out of contracts. In the meantime, they have logged thousands of billable hours and millions of dollars in legal fees. For instance, during an eight-month period in 2004, 37 partners at Blank Rome worked on the case, billing 8,707 hours at rates ranging from $295 to $675 an hour. The top biller was Marc Richards, a partner in Blank Rome’s New York office who clocked 1,182.7 hours at $560 an hour and another 149.5 hours at $595 an hour. (The firm raised its rates during the billing period.) Richards did not return calls seeking comment. In court papers, Blank Rome explains that the bulk of its time was spent selling assets for USGen. In 2004, it arranged the sale of the company’s fossil fuel stations to Dominion Energy New England, and its hydroelectric power stations to TransCanada Hydro Northeast Inc. Those deals closed earlier this year. Blank Rome also spent more than 5,000 hours on litigation, with much of that time spent fighting a contract claim filed by Verizon Capital Corp., according to records filed in the bankruptcy. Last month, U.S. Bankruptcy Judge Paul Mannes — who is presiding over all of the Maryland PG&E-related cases — approved a payment of $5.7 million to Blank Rome for its work from May to December 2004. (Since entering the case in July 2003, Blank Rome has been paid more than $10 million for its work.) Other firms that scored multimillion-dollar paydays include: Kaye Scholer, $6.7 million; Whiteford, Taylor & Preston, $4.8 million; Foley Hoag, $4.7 million. Another six firms — Winston & Strawn; Patton Boggs; Sutherland Asbill & Brennan; Reed Smith; Chadbourne & Parke; and Klee, Tuchin, Bogdanoff & Stern — broke the $1 million mark. BIGGEST BILL The largest legal bill by far, however, was filed by Willkie Farr, which claimed it was owed $19 million for its services. It received nearly all of the money — though it did face one roadblock on the way to the bank. In February, U.S. Trustee John Daugherty objected to Willkie Farr’s bills, particularly the number of hours logged by attorneys. At least eight lawyers logged more than 16 billable hours a day, working nights and weekends, over a six-month period. Daugherty said lawyers should not be billing more than 10 hours a day in a bankruptcy. In fact, Daugherty noted in his written objection that an earlier case “indicated that it is not realistic for attorneys to bill in excess of six to seven hours per day.” Daugherty also took issue with the $240 an hour charged by the firm for law clerks and summer associates. He noted that nearly $1 million in fees were generated from those employees. “The hourly rates of the law clerks exceeded the rates charged by the junior associates of co-counsel Whiteford, Taylor & Preston,” Daugherty wrote, adding that “heavy use of summer associates reflects inefficiencies.” He asked Judge Mannes to slash Willkie Farr’s bill by almost $500,000. Daugherty referred calls to U.S. Trustee spokeswoman Jane Limprecht, who says she cannot comment on pending litigation. Willkie Farr fought hard against the proposed cuts. Partner Matthew Feldman claimed in court papers that the complexity of the case and the firm’s efforts to quickly resolve it required lawyers to bill more than eight hours a day on the matter. “[I]n a case as large and complex as this one, billing 10 or more hours a day is not only realistic but often essential in order to achieve an effective reorganization,” Feldman wrote. Willkie Farr also claimed that Daugherty misunderstood the firm’s classification of law clerks. The firm contended that its law clerks are actually junior associates, many of whom had passed state bar exams and were awaiting bar admission. Willkie Farr stated that it billed just $7,860 for work performed by summer associates. Feldman did not return calls seeking comment, nor did the firm’s spokesperson. Willkie Farr did see its bill cut — by just $100,000. Daugherty had also raised objections to some of the fees requested by other firms, including Chadbourne & Parke; Patton Boggs; Whiteford, Taylor & Preston; Sutherland Asbill & Brennan; and Winston & Strawn. But at a Feb. 22 hearing before Mannes, the trustee said most of those objections had been resolved, with some firms agreeing to minimal reductions in their bills. Also at that hearing, Kaye Scholer’s Harold Israel said the creditors had reviewed the fee requests and had no objections of their own. With that, Mannes approved the fees. “In these cases, it is my rule to pay the most attention to the people who are paying the bill and in this case these are your clients who are paying the bill,” Mannes said, according to a transcript, “and if they’re satisfied, I’m satisfied.” Lawyers on the case point out that final fee applications have yet to be filed in the USGen and ET cases, meaning objections to those fees could still be raised. It’s not difficult to understand why creditors may be satisfied in the cases. According to lawyers involved in the bankruptcies, creditors — most of them unsecured — are expected to receive a phenomenal 50 to 60 cents on the dollar, with those in the USGen case expected to get their entire claim plus interest, according to lawyers in the case. Typically, creditors are lucky if they recover 10 cents on the dollar. PATTON’S PORTION Daugherty wasn’t the only one who had issues with legal fees. Just last month, Lynne Bernabei of D.C.’s Bernabei & Katz sent a letter to Daugherty objecting to the fees requested by Patton Boggs. Bernabei represents three former Energy Trading Holdings employees suing the company in a Maryland court for more than $1 million for allegedly unpaid bonuses. Patton Boggs is defending the trading company in that case, and the firm’s legal bills are being approved as part of the bankruptcy. Bernabei says she decided to look into the firm’s fees earlier this year after four Patton Boggs lawyers showed up for a deposition and two of them were the co-chairs of the firm’s employment practice. “It just seems like they are taking money out of the bankruptcy estate for no reason,” says Bernabei, whose clients are seeking about $4 million in damages. In her April 13 letter to Daugherty, Bernabei accuses Patton Boggs of padding its bills, including double and triple billing by associates. She also takes issue with the firm charging $263,579 in legal fees for the month of February — when there were no court hearings and just three depositions, according to Bernabei. According to its fee request, Patton Boggs billed 928.2 hours on Bernabei’s case in February. The firm’s request states that a bulk of that time was spent preparing and taking the three depositions and preparing for upcoming depositions. In her letter to the trustee, Bernabei points out that the firm billed 302.5 hours in January preparing for these same depositions. Of course, the move could also benefit Bernabei in the litigation. If Daugherty finds that Patton Boggs has been overstaffing the case, the firm could wind up having to pull lawyers and staff from the matter. In a statement to Legal Times, Patton Boggs said it “acted responsibly to protect the assets of the estate and that the fees were appropriate for the scope of work performed.” As of April 29, Daugherty had not responded to Bernabei’s accusations. Patton Boggs has received nearly $1.5 million in the bankruptcy case, and claims it is owed an additional $600,000. But that’s just a fraction of the total legal bill in the bankruptcy. Aside from those filed by Bernabei and Daugherty, no other objections have been raised about fees. And there’s little time left to do so, as the cases are expected to wrap up in the next few months. Once the bankruptcy is closed, lawyers say it is likely these companies will cease to exist. One reason the fees are sailing through: Nearly all of the creditors in the case are receiving a large share of the money they are owed. In the USGen case, for example, Frank DiCello, a Reed Smith partner who represents the USGen creditors, says his clients will be paid in full and may receive up to 4 percent in interest. With such potential results, hourly rates like the ones charged by Willkie Farr raise few eyebrows. Richard Reinhold, chair of Willkie Farr’s tax practice, billed at $825 an hour, while corporate litigator Robert Kheel charged $810 an hour. “The creditors committee was made up of very sophisticated financial institution representatives who understand what these things should or should not cost,” says Michael Solow, the Kaye Scholer partner who headed the creditors committee in the National Energy matter. “Is Richard Reinhold worth $825 an hour?” Solow asks. “The answer is obviously yes.”
PG&E Payday
Over the past two years, more than $60 million in legal fees have been paid to firms that worked on bankruptcy cases in Maryland stemming from the collapse of Pacific Gas & Electric Co. The largest payouts went t
Willkie Farr & Gallagher $18.9 million
Blank Rome $10.5 million
Kaye Scholer $6.7 million
Whiteford, Taylor & Preston $4.8 million
Foley Hoag $4.7 million
Source: Court documents

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