Posted: Jan. 6, 2004


By Celia Cohen

Grapevine Political Writer

A lawyers' bill for $25 million -- that is not a misprint -- has a Delaware bankruptcy court judge chastising two major law firms for "contentious, disorganized and wasteful" conduct and ordering the legal charges be reduced, although it remains to be seen by how much.

This unusual expression of judicial displeasure came from Mary F. Walrath, the chief judge of Delaware's respected U.S. Bankruptcy Court, one of the nation's busiest for the corporate mega-cases that can involve billions of dollars in claims and millions of dollars in legal fees.

Walrath's biting, 33-page opinion about the billing was directed at two firms -- Pachulski Stang Ziehl Young Jones & Weintraub and Kirkland & Ellis.

Pachulski, which is headquartered in Los Angeles, is a national player in bankruptcy law. Its Wilmington office is anchored by Laura Davis Jones, a star bankruptcy practitioner who was named "Deal Maker of the Year" by The American Lawyer magazine in 2002. Jones was mentioned by name in Walrath's opinion.

Kirkland & Ellis, a Chicago-based firm also recognized for its bankruptcy work, is home to Kenneth W. Starr, the independent counsel who pursued President Clinton. Locally it is recognized as the law practice retained by New Castle County because of its experience with libel law. The firm represented Chiquita in winning a front-page apology and $10 million for reporting by the Cincinnati Enquirer, a newspaper owned by the Gannett Co. Inc., also the parent of  The News Journal.

The two firms represent Fleming Companies Inc., a Texas-based supplier that counted the troubled Kmart chain as a customer. Fleming filed for Chapter 11 bankruptcy protection on April 1, listing assets of $4.2 billion and debts of $3.5 billion, according to Food & Drink Weekly.

The firms filed what should have been a routine quarterly application for fees and expenses, covering the charges from April 1 through June 30, but the filing was challenged by the U.S. Trustee, an arm of the Justice Department that monitors billing as the designated "watchdog" of the bankruptcy system.

Walrath took a look at the bills totaling $25 million herself, citing case law that says the court "must protect the estate, lest overreaching attorneys or other professionals drain it of wealth." She clearly did not like what she saw and wrote in the tone of someone who has seen enough.

The judge issued her opinion on Dec. 23, the eve of Christmastime vacations, admonishing the lawyers. She scheduled a hearing for Feb. 10 to deal with her concerns.

"The overall conduct of this case has been contentious, disorganized and wasteful of the time and efforts of both this court and other counsel involved in the case. The warnings of the court have gone unheeded by counsel for the debtors as the same 'mistakes' continue to be made time and again. The court has no other alternative but to reduce the fees requested," Walrath wrote.

"The problem the court has with the fee requests is that many of the actions taken by debtors' counsel in this case were improper or appeared to be designed to frustrate the legitimate rights of the other parties in this case. The court has advised counsel for the debtors, on numerous occasions, that it considered their actions inappropriate," she added.

Walrath questioned whether the number of attorneys was excessive and top-heavy with senior personnel and whether some travel expenses, which totaled more than $100,000, were unnecessary. She even challenged copying costs, noting that document binders were stuffed with irrelevancies that increased charges and wasted the time of the court and staff reviewing the material.

"We continually reprimanded counsel for the debtors for this. In several instances, we handed counsel from Pachulski the excess binders at the beginning of the hearing. The practice ceased only recently after we advised Pachulski that we would not reimburse them for this," Walrath wrote.

This is not the sort of treatment that top lawyers are accustomed to receiving. In fact, just as the Fleming bankruptcy case was commencing, Pachulski -- in large measure because of Jones -- was being awarded an extra $1 million by U.S. District Judge Joseph J. Farnan Jr. for what he called the firm's "skill and expertise" in handling a corporate bankruptcy case involving $3 billion in claims.

Jones did not have much to say about the Fleming case, beyond noting that the lawyers were preparing for the upcoming hearing. "The judge has given us an opportunity to file a response," she said. "I'm looking forward to the opportunity."

Not surprisingly, Walrath's opinion has caught the attention of the state's bankruptcy lawyers. "Everybody needs to read this. It's a primer on how not to manage a case before Judge Walrath, or any other judge, for that matter," said James L. Patton Jr., a leading bankruptcy attorney with Young Conaway Stargatt & Taylor in Wilmington.

Despite the high profile of the bankruptcy bench and bar here, Walrath's opinion appears unlikely to spill into the political arena, where Delaware's congressional delegation has been working for years to have the court expanded to deal with an overloaded docket. Currently there are two judges, the delegation would like four more, and in the meantime the court is making do with visiting judges.

The delegation's efforts are being led by U.S. Sen. Joseph R. Biden Jr., a senior Democrat on the Senate Judiciary Committee. He does not believe Walrath's opinion has bearing on the central reasoning, which remains unchanged, according to Margaret Aitken, the senator's press secretary.

"It's always a battle, but Sen. Biden has said many times that he feels the caseload more than justifies the need for additional bankruptcy court judges," Aitken said. "It's tough getting it through, but he's going to continue trying and doesn't think this will have much of an impact."