Bankruptcy Bar Fighting Off 'Unfair' Fee Proposal

Under the plan announced by the U.S. Department of Justice last winter, law firms and attorneys applying for Chapter 11 cases would be required to divulge previously undisclosed details about their billing practices. The guidelines would pertain to any case with combined assets and liabilities of at least $50 million. Among the information lawyers would have to provide: the lowest and highest hourly rates they charged to clients over the last 12 months in bankruptcy and non-bankruptcy matters. Law firms are notoriously reluctant to publicly disclose such details. They would also have to submit budget and staffing plans outlining the amount they expect to bill in cases in which they represent debtors or creditors’ committees. Under the terms of the proposal, which was the subject of a June 4 public hearing in Washington, D.C., any “substantial upward variation” would require a law firm to offer the U.S. Trustees Program, which oversees bankruptcy cases for the federal government, an explanation for the disparity.

"There is a reason the measure has drawn unanimous opposition from all segments of the bankruptcy bar." said Chair of the Bankruptcy, Restructuring and Creditors' Rights Team John Monaghan. “At the beginning of a Chapter 11 case, it is exceedingly difficult to figure out what sort of resources have to be thrown at a case or to predict the turns in the road that might cause you to have to throw more resources at it,” he said. “Unfortunately, the tenor of the guidelines is such that any fee application that deviates from the budget is going to draw a near automatic objection.”