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No Jury Trial for New York Firm
in Texas Malpractice Suit
By Anthony Lin
New York Law Journal
New York Lawyer
January 5, 2006
A Texas bankruptcy judge has stricken a church group's jury trial
demand in a legal malpractice suit against New York's Weil, Gotshal
& Manges. The National Benevolent Association, the social services
arm of the Christian Church (Disciples of Christ), filed suit
against Weil Gotshal Sept. 14 in U.S. Bankruptcy Court for the
Western District of Texas in San Antonio, charging the firm produced
"disastrous results" by advising the St. Louis-based charity to file
for Chapter 11 bankruptcy protection last year instead of seeking a
negotiated deal with creditors.
The group claims Weil Gotshal urged a bankruptcy filing to
generate legal fees but the restructuring resulted in its loss of
most of its facilities and employees, destroying its ability to
carry out its mission of providing shelter to at-risk children and
the elderly.
The law firm had argued against moving the matter out of
bankruptcy court to a jury trial in federal district court on the
grounds that the claims were related to the core bankruptcy
proceedings, including the firm's request for legal fees.
Judge Ronald King agreed and also said the association had waived
its right to a jury trial when it filed its Chapter 11 petition.
The group has sought leave to appeal the judge's order. Law firms
have frequently sought to avoid having malpractice claims heard by
jurors, who they fear will be unsympathetic. That fear may be all
the greater when the plaintiff is a church group.
Delta Bankruptcy Could Mean Millions for NY
Firm
By Meredith Hobbs
New York Lawyer
September 23, 2004
Fulton County Daily Report - With a potential Chapter 11 filing
looming, Delta Air Lines' business woes could mean millions of
dollars in legal fees. But despite the airline's longstanding and
extensive relationships with Atlanta firms, local lawyers may not
get huge billings from the company's reorganization.
Delta's bankruptcy counsel is a New York firm, Davis Polk &
Wardwell. Whether the Atlanta bankruptcy bar sees additional work
depends on if the airline files in Atlanta, which likely would mean
business from Delta's creditors. It also depends on how Delta
chooses to allocate its own legal work.
The airline's deputy general counsel, Walter A. Brill, said Delta
does work with "just about every major Atlanta firm on one thing or
another." But because the company spreads its work among many firms,
he added, it's likely that no single Atlanta firm would benefit
dramatically from a filing. As Brill put it, "If we have a
relationship with a firm, we would feel free to use them regardless
of where the proceeding was."
Even though a Delta bankruptcy won't be the next Enron for any
Atlantaarea firm -- which generated $70 million for Alston & Bird,
the court-appointed examiner -- it still would generate a lot of
fees. Billings in other recent airline filings indicate that a Delta
bankruptcy could generate well over $100 million in professional
fees. More than half of those fees would go to the lawyers, said
Lynn M. LoPucki, a law professor at UCLA who studies bankruptcies.
US Airways Group's initial nine-month stint in Chapter 11, for
example, cost $112 million in professional fees (which included work
by accountants and other nonlawyers), according to filings with the
Securities and Exchange Commission. United Air Lines, which has been
in Chapter 11 since December 2002, had racked up $235 million in
professional fees by the end of June, SEC documents show.
Delta, with $24 billion in assets, is about twice the size of US
Airways, based in Arlington, Va., and three-quarters the size of
United, based in Chicago.
Client Arrested in Beating Death of Bankruptcy Lawyer
The Associated
Press
Seattle Post-intelligencer
April 15, 2004
AUBURN, Wash.
-- A man who argued with a bankruptcy lawyer shortly
before the attorney was beaten to death in his office
has been arrested for investigation of murder, police
said.
William W.
Messer, 57, was found dead in his office Monday night
after an apparent struggle. Police said the law office
had been broken into repeatedly in recent months.
A 42-year-old
Auburn man visited Messer's office on a legal matter
Monday evening, left after an argument, then returned
with a blunt instrument, police Cmdr. Robert J.
Karnofski said.
The client was
arrested Wednesday, and police said they had obtained
search warrants for the man's house and vehicle. Among
the evidence they were seeking was the instrument used
in the beating.
"We know what
the murder weapon is, but we haven't found it yet,"
Karnofski said.
In a series of
break-ins at Messer's office, cashier's checks were
stolen in March, assorted papers in February and cash in
December, police spokeswoman Cheryl Price said. None of
the burglaries has been solved, she added.
Messer was
admonished in December, the mildest discipline given by
the Washington State Bar Association, for failing to
appear at a bankruptcy hearing, resulting in
repossession of a car from two of his clients, records
showed.
Other
bankruptcy lawyers said they had taken over cases from
Messer because clients were upset about the way he was
representing them.
Pleas Made to Take
Judge Off Bankruptcy Case
By Jonathan D. Glater
The
New York Times
December 13, 2003
PHILADELPHIA,
Dec. 12 - A federal appeals court heard arguments on
Friday over whether it should order the district court
judge overseeing the asbestos-related bankruptcy cases
of five large companies to step aside.
Lawyers for one
company and the creditors of two others argued before a
three-judge panel of the Court of Appeals for the Third
Circuit that Judge Alfred M. Wolin of Federal District
Court in Newark should be ordered off their cases.
It would be
unusual for the appellate court to issue such an order,
which could both complicate and prolong the already
difficult Chapter 11 proceedings of Owens Corning,
USG, W. R. Grace & Company, Armstrong World Industries
and Federal Mogul Global.
From their
questions, the three appellate judges were clearly
concerned about the possible consequences of such a
step. Lester Brickman, a professor at Benjamin N.
Cardozo School of Law at Yeshiva University who has
studied asbestos litigation, said in an interview: "This
is a big deal. We're talking about a major, major set of
cases, we're talking about multiple billions of dollars
in assets."
Advocates of
Judge Wolin's removal focused on two issues. First, some
creditors contended that two advisers to the judge faced
conflicts of interest because in another bankruptcy
case, G-I Holdings, they represented people who will
have asbestos claims, but had not filed any yet.
The creditors
said that the advisers, David R. Gross and C. Judson
Hamlin, used their status to influence Judge Wolin, then
used his decisions to influence proceedings in another
case.
Second, lawyers
for USG asserted that Judge Wolin had held numerous
meetings individually with various parties in the
company's bankruptcy, keeping other parties in the dark
about developments in the case and depriving them of
opportunities to advocate their position. In two years,
USG contended in a court filing, Judge Wolin held a
single two-hour hearing in open court with transcribed
proceedings; in contrast, he "spent more than 300 hours
conferring, in private, with his team of advisers, and,
in many cases, with individuals whose names were
'redacted' or 'withheld.' ''
Judge Wolin
filed responses to the petition by creditors to have him
taken off the Owens Corning case, but declined to appear
at the argument in Philadelphia on Friday, citing "a
concern for the solemnity and dignity of each court."
But in one of
two court filings, the judge questioned the timing of
the effort to force him to step down, noting that "the
involvement of all of the court-appointed advisers has
been a matter of record for nearly two years."
Lawyers for
Kensington International and Springfield Associates, two
investment funds controlled by the investment firm
Elliott Associates and its affiliate, Elliott
International, which brought the first motion seeking to
have Judge Wolin step down - known as a motion for the
judge's recusal - have said in court filings that they
did not learn of the conflicts for the advisers until
recently.
Only by
reviewing the fee statements, which professionals in
bankruptcy cases must file to obtain court approval of
payment of their fees, did the potential conflict facing
the advisers become apparent, said John J. Gibbons, a
former judge and a lawyer now representing the creditors
in the Owens Corning case.
"There's no
reason for Kensington to have looked at the fee
application filings in any case," Mr. Gibbons said.
"They were led to believe that these people were
neutral."
Judge Wolin
also defended his practice of meeting with different
parties individually in the course of Chapter 11
proceedings, writing: "The district court does not
apologize for its case-management means and methods."
Meeting
individually with parties involved in the case was
important to keep information confidential that might
otherwise hurt the stock price of a company in
bankruptcy, the judge wrote.
"With the
current turbulence and volatility that exists in
financial markets, information associated with asbestos
claims has the tendency to severely punish a corporate
offender," Judge Wolin wrote.
Finally, he
added, "no adverse consequence has occurred" as a result
of the individual meetings.
The three
judges hearing the argument on Friday focused at first
on the role of Judge Wolin's advisers, asking exactly
what their jobs were. Roy T. Engler, a lawyer for the
creditors that filed the first recusal motion, responded
that the authority they had to mediate disputes and even
adjudicate was "extraordinarily broad."
One appellate
judge, Leonard I. Garth, asked later in the argument
whether Judge Wolin's use of "hybrid functionaries" like
the advisers was common. Charles Monk, a lawyer
representing Owens Corning in opposing recusal,
responded that he had not heard of such positions used
by other judges.
"Neither have
I," Judge Garth said.
Howard M.
Erichson, a law professor at Seton Hall, said in a
telephone interview that using outside advisers was not
that unusual. But, he said, "Whether they are called
special masters or court-appointed consultants or
anything else, when a judge appoints someone to act in a
quasi-judicial capacity, it's critical that nothing
interfere with the perceived legitimacy of that judge
surrogate."
The problem
could exist, if the advisers tried to influence Judge
Wolin so that they could use his decisions in cases
where they were advocates, the judges observed. "Our
standard is, could a reasonable person knowing all of
the circumstances, detect a smell," Judge Garth said.
The judges
questioned several lawyers about the impact on the
bankruptcy cases of ordering Judge Wolin to allow the
parties time for additional discovery, as well as the
effect of removing him from one or all of the cases.
"We are going
to be put back at least a year" if Judge Wolin is
recused, Mr. Monk said. That would delay designing the
structure that could start paying out funds to people
claiming injury as a result of exposure to asbestos,
another lawyer said.
In a telephone
interview, Andrew L. Kaufman, a law professor at Harvard
who has studied judicial ethics, said removing Judge
Wolin could create a dangerous precedent. If the effort
is successful, lawyers in other cases may more often try
to remove judges they view as unfriendly, he said.
The motion "may
be a strategy," Mr. Kaufman said. "On the other hand, it
may well be real." Trustees Looking for Value in Bankruptcies
by Peter Zalewski
Miami Herald
Cover Story
Business Monday
March 25, 2002
Not everyone dreads the multimillion-dollar commercial bankruptcies
that have been making news lately. For U.S. Bankruptcy Trustees,
failed companies with large assets can produce a sizable payoff for
their services.
Under the U.S. Bankruptcy code, court-appointed trustees in Chapter
7 liquidation cases and in special Chapter 11 reorganization cases
are entitled to collect 3 percent of all assets recovered over $1
million as compensation for their services.
The trustees earn 25 percent of the first $5,000 recovered, 10
percent of the next $45,000 and 5 percent of the additional
$950,000. So, trustees can earn $53,250 on the first $1 million they
liquidate, and another $30,000 for every million after that. And in
cases involving billion-dollar corporations, trustees theoretically
stand to make millions.
Take Enron, for example. There's no telling if the Houston-based
energy company will be forced by creditors to switch its Chapter 11
reorganization bankruptcy plan to a Chapter 7 liquidation. But if it
does, the company's reported assets of some $13 billion could
produce a trustee fee of about $390 million.
Enron is one among dozens of large, asset-rich companies to file
bankruptcy in recent months. To be sure, the overwhelming majority
of filings don't involve such large corporations - nor such
bountiful assets. And many of the filings are Chapter 11
reorganizations, instead of Chapter 7 liquidations.
But, if history is any indication, about half of the Chapter 11
filings will be converted to liquidations. Among the local,
significant bankruptcy filings recently: cruise lines
Commodore and Renaissance, air-cargo carrier Amerijet and car-rental
company ANC Rental.
In fact, South Florida last year experienced a 28 percent spike in
business bankruptcies, which numbered 737, compared to 574 in 2000.
Last year's total represents the most annual filings since 1994.
Locally, the most bankruptcies filed in a single year occurred in
1992 at the end of the last
U.S. recession, when 1,123 companies filed.
The 2001 surge was led by a 27 percent increase in Miami-Dade, with
349 filings. Broward experienced a 23 percent surge to 209. Palm
Beach jumped 39 percent, with a total of 179.
The spike in activity means that South Florida's 16 bankruptcy
trustees are busier than they've been in a while, overseeing a total
of 1,300 cases. And their trustee work is on top of their main
businesses: For most, being a trustee is essentially a second job
done in addition to running accounting,
law and real estate firms.
But they're not complaining. Sonya Salkin of Plantation, who was
appointed in 1996 as a trustee, says the workload is doable so long
as you've set up an efficient administrative system. In her case,
she has a five-person staff at her law firm, Malnik & Salkin.
Sometimes the number of workers increases with temporary help as the
number of cases rises.
``Once you get a system in place, it is not that menacing,'' says
Salkin. ``I don't think you need additional [trustees]. As it sits
right now, I have a full, busy day .... [but] it is not to the level
where I would think it is overwhelming.''
That's the balance the U.S. Trustee Office is trying to maintain.
While trustee case loads increase, few want to see more trustees
named. The reason, says Robert Angueira, assistant U.S. Trustee
responsible for the Southern District of Florida, is that trustees
make an investment in setting
up offices and operations. If more trustees are named, there may not
be enough work to sustain them once bankruptcy filings fall again.
``You set up your operation. You hire paralegals and assistants to
help you. You want to make sure you are giving the trustees enough
cases to make sure they are good trustees,'' says Angueira. ``If you
add too many trustee to the panel, you dilute the number of cases
each of them is getting.''
Trustees are appointed to their positions by the regional director -
in this case C. David Butler, U.S. Trustee for Region 21 - as
positions open up among the 16 slots. Butler's region has
jurisdiction over Florida, Georgia, Puerto Rico and the U.S. Virgin
Islands. Being named a trustee involves a lengthy application
process, says Angueira.
Trustees in the South Florida region, with a jurisdiction stretching
from Vero Beach south to Key West, are nearly evenly split up: five
trustees each in Miami-Dade and Palm Beach and seven trustees in
Broward.
To prevent any one trustee from getting most of the coveted,
asset-rich cases, trustees are assigned to cases on a rotation
basis. ``When Chapter 7 is filed, we appoint one of those 16
trustees to the case on a blind rotation system,'' said Angueira,
the assistant U.S. Trustee.
``It is a mechanical process.''
After a company files a Chapter 7 liquidation, the bankruptcy judge
assigned to the case appoints a trustee to oversee the selling of
individual or company assets to repay creditors. Under certain
circumstances, trustees are appointed in Chapter 11 cases when
creditors fear the existing management
may jeopardize any chance of being repaid.
Such was the case last year, when Aerofloral, a flower shipping
business, filed Chapter 11. Angry creditors, owed $29 million,
claimed the company was siphoning off assets to a new firm. The
judge assigned a trustee to the case. That's not to say that
trustees and lawyers just make their money on the asset liquidation.
Whether Chapter 11 or 7, bankruptcies can generate large
volumes of work for lawyers.
It's estimated Enron is spending more than $1 million a day in
bankruptcy related fees, said Thomas Messana, the immediate past
president of the Bankruptcy Bar Association for the Southern
District of Florida and a partner with the law firm of Markowitz,
Davis, Ringel & Trusty.
``One of the major complaints is how expensive bankruptcy is,'' he
said. The high costs don't just have to do with trustee and attorney
fees but also the length of time it can take to settle some of the
cases. Some can continue for years, as has been the case with
defunct Eastern Airlines and
Southeast Bank.
According to a June 2001 report on the U.S. Trustee Program released
by the Justice Department, it takes an average of one year
nationwide to settle a liquidation case that has assets of only
$8,899, and five years for a case with assets valued at $89,901.
Cases with $418,465 in assets require an average of 10 years to
settle.
And few of the cases are as high profile as some of the bankruptcy
cases recently making headlines. That's not to say that small
business failures can't be lucrative. Consider Cori Lopez-Castro, a
local trustee and a partner in the Miami law firm of Kozyak Tropin &
Throckmorton. Castro earned $80,000 for her firm in 2000 for
overseeing the liquidation of a failed condominium conversion
project at 7133 Bay Dr. in Normandy Isle.
It wasn't easy money, though, she says. Lopez-Castro, whose hourly
fee as an attorney is $275, said she made too little in return for
the time she spent during the year-long process. After all, she
said, she had to oversee every step of the rehabilitation of the
project's 21 remaining units that were in ``severe disrepair'' just
so they could be auctioned off to pay creditors. Ultimately,
Lopez-Castro said, she returned 100 cents on the $1 to unsecured
creditors.
``People may view it as, `She received 3 percent of the sale
proceeds,' '' said Lopez-Castro, who was appointed as a trustee in
the Southern district of Florida in 1998. ``They don't think about
the calls on a Saturday when the water heater broke and I had to
find someone to go to the apartment building and fix it on an
emergency basis.''
In fact, only about 2 percent of the cases have assets of more than
$500,000, according to a justice department report. Typically, about
half of the Chapter 11 bankruptcies with assets of at least $500,000
are eventually converted to Chapter 7 liquidations, according to the
report. Often, inventories are sold off, leases canceled and
agreements broken to allow the bankrupt company to quickly recover
well before liquidation is necessary.
The great majority of liquidation bankruptcies - 95 percent - do not
involve assets, so the trustees overseeing the cases receive a flat
$60 fee for processing each one, according to the report. Still, the
occasional big case makes it all worthwhile, says Miami trustee Joel
Tabas. ``I view the no-asset cases as a loss leader in a way,'' says
Tabas, a partner in the law firm of Tabas, Freedman & Soloff, which
specializes in bankruptcy, commercial litigation and the rights of
creditors and debtors.
"You get the good with the bad, and hopefully on those [asset]
cases you make some money to cover the overhead.''
High Priced Help
The Bankruptcy of Fine Air
October 12, 2001
As the economy continues
its downward spiral, companies seeking shelter through bankruptcy
protection face another daunting challenge:
The high cost of going broke.
Consider the case of Miami cargo carrier Fine Air Services. Since
seeking protection from creditors September 2000, it has been billed
$3.3 million in fees from lawyers, special counsel, consultants and
accountants, according to court filings.
So far, lead counsel Greenberg Traurig has charged Fine Air about
$1.2 million in fees and expenses. Financial adviser James S.
Feltman of the consulting group Andersen in Miami wants close to
$400,000 from the estate.
Fine Air, which listed $265.3 million in assets when it initially
filed for bankruptcy, has twice postponed filing a reorganization
plan and disclosure statement. It says it will file an amended
reorganization plan and disclosure statement later this year. At the
same time, it’’s racking up fees of $200,000 to $300,000 per month
to continue to operate under the bankruptcy court’’s protection.
Local bankruptcy experts say Fine Air may not be the most expensive
bankruptcy of late, but the case illustrates how quickly fees add up
when reorganizations go on longer than expected.
""It goes without saying that it’’s expensive to go bankrupt,"" said
Michael I. Goldberg, chairman of the bankruptcy practice in the Fort
Lauderdale office of Akerman Senterfitt.
""You have a number of professionals eating out of the same trough,
severely impacting cash flow. It some cases it can derail the
reorganization.
To be sure, South Florida has not yet seen bankruptcy costs spiral
out of control as they have in Delaware and New York. But experts
say that as loan defaults and the trading of assets play a bigger
role in the wake of the terror attacks, fees for turnaround artists
will add substantially to the cost of bankruptcies.
Those turnaround helpers are often blue chip investment firms that
put together complex post-bankruptcy mergers and acquisitions.
The cost of such advice for guiding companies through
reorganizations has spiraled so high that the U.S. trustee’s office,
the federal agency that reviews bankruptcy fees, is filing a rising
number of objections to the fees some advisers are charging.
Bankruptcy costs are not
likely to recede. The rising number of distressed companies seeking
help is driving up fees, experts say.
"I think there is an upward trend in investment banker fees,
primarily because of supply and demand,"" said Paul Singerman,
shareholder with South Florida bankruptcy law firm Berger Singerman.
"Right now, it is a busy time for those [investment bankers] which
have strong reputations. Some have increased rates to respond to
such demands."
But for companies whose best option is a merger with another
company, the large fees investment bankers take for striking deals
with merger partners are not hard to swallow, Singerman says.
"Those firms generally regarded as delivering strong value are able
to charge more money," he said.
On average, according to a study by Business Week, a bankrupt
company with $1 billion in assets can expect to pay advisers as much
as $60 million these days to strike a deal with creditors. One of
the highest fees to a single adviser ever is the $125 million earned
by investment bank Dresdner Kleinwort Wasserstein for saving
bankrupt satellite company ICO Global Communications from
liquidation.
Bankruptcy experts in South Florida say most of the fees the U.S.
trustee is examining are fees charged by investment bankers. (The
office doesn’’t comment on cases.)
Experts say the current economic climate —— plenty of mergers and
acquisitions spurred by faltering companies —— is putting a premium
on such services.
It looks to be a busy time for bankruptcy specialists. According to
the U.S. Bankruptcy Court for the Southern District of Florida.,
some 49 businesses in the district, which ranges from Monroe to Palm
Beach County, have gone into reorganization in the past two months
alone. That’s about an 18 percent increase compared with the first
10 months of last year.
Of the 49, about half are from Miami-Dade, followed by Broward, then
Palm Beach County.
Locally, bankruptcy experts say, there has been little objection to
fee filings in the Southern District of Florida’s bankruptcy court.
Both the U.S. trustee and the court must approve the hiring of
additional counsel and advisers.
Goldberg says one reason for the relatively small number of
objections to fee filings in South Florida is that companies see
Florida bankruptcy lawyers as a bargain, compared with those in New
York or Delaware.
Partners in prominent New York bankruptcy firms charge as much as
$700 an hour. The average in Florida for the same services,
according to Goldberg, is around $400 an hour.
At any price, experts say,
good advice can be worth the money.
Francis R. Hill, professor of law at the University of Miami, says
the complexity of bankruptcy law often requires top-of-the line
professionals.
"To get the kind of guidance that reorganization calls for, one has
to pay lawyers," Hill said. "Certainly, I won’t say that there
haven’t been abuses. Yet one has to understand the bankruptcy
process needs lawyers sophisticated enough to handle complex cases,
or it puts the judge in the position of being trustees."
Akerman Senterfitt’s Goldberg says it’s difficult to make a blanket
statement that fees are or are not warranted.
"Analysis needs to be done on a case-by-case basis," Goldberg said.
"There are certainly many cases where professionals put in
significant time and are paid significant fees, and the fees are
well-earned."
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