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
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."
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