Weil Really Gotthem & Mangled Them

Recently a colleague of mine, Susan Hauser, who writes extensively in the area of bankruptcy, sent me a copy of Weil, Gotshal & Manges, LLP’s “Second Interim Fee Application” detailing their fees from the handling of Lehman Brothers’ liquidation. The fee schedule ONLY included fees from February 1, 2009 through May 31, 2009, yet the “total fees allowed” almost totaled $50,000,000.00. Several partners at the firm posted billable hour rates in excess of a $1000.00 per hour. Moreover, there were 2009 grads, without licenses, billing at $355 per hour and paralegals billing at $250 per hour. Even more interesting was the fact that this was the second fee application. The first fee application was approved by Judge James Peck in the amount of almost $55,000,000 from work completed from September of 2008 through the end of January 2009. According to Professor Lynn LoPucki at the University of California, Weil may generate more than $200,000,000.00 in fees from this case.

After thinking about this situation in greater detail, I have come to question whether these types of fees should be awarded in bankruptcy cases. Surprisingly, while some bankruptcy experts have commented on the high amount of the fees, few of these experts have considered the fees excessive. As such, there should be a complete reconsideration of how bankruptcy legal fees are approved as the current approval of such fees highlights a critical flaw in the way in which bankruptcy lawyers are paid. As Professor LoPucki notes, firms representing other interested parties in a bankruptcy case are reluctant to challenge another firms fees, considering the fact that the roles may be reversed in another case. In addition, while a judge must approve of the fees, it is very difficult for her to closely scrutinize the entire bill given the limited resources of the judge’s staff.

Given these issues, the question is whether the law should impose caps on the fees awarded in bankruptcy cases. One argument against the imposition of such caps is that there are only a few firms that are able to do this type work. Thus, if caps are placed on the allowable fees that law firms charge, these firms will be unwilling to do the work which may impair the quality of legal services. Even if there are few firms that can do this type of work, the imposition of caps will not stifle the overall quality of legal service because new law firms will enter the market that are willing to do the same work at the capped fee amount. Over time, these lawyers will develop the same level of experience and expertise as the firms that currently handle the overwhelming majority of the large bankruptcy cases.