In the past few weeks, we’ve all marvelled at the huge amounts Jones Day, Schulte Roth & Zabel, and Weil Gotshal & Manges have billed in the country’s two most-watched Chapter 11 cases (Chrysler for Jones Day and Schulte Roth, Lehman Brothers for Weil Gotshal). But we have to admit we haven’t stopped to ponder – are those fees illegal?
According to a new study co-authored by UCLA bankruptcy law professor Lynn LoPucki, the answer might be yes. LoPucki and his co-author, fellow UCLA prof Joseph Doherty, essentially argue that bankruptcy judges allow lawyers to bill their debtor clients for months at a time before submitting those billing statements to the judge for approval. That goes against the federal bankruptcy code, the study argues, and it has allowed legal fees to increase faster than inflation rates. Judges in theory have the option of objecting to those bills and demanding law firms pay back some of the money, but “payments are harder to reverse than to prevent,” the study says.
