For Certain Attorneys, Bankruptcy Has Rewards

By Scott Barancik
Tampa Times
Published October 11, 2005

If you didn't know better, you might think Tampa bankruptcy lawyer Rob Soriano was a bit naive.

Anchor Glass Container Corp., a Tampa bottle manufacturer that filed for Chapter 11 protection in August, asked Soriano to represent it in bankruptcy court. He accepted, even though the company has left a trail of unpaid bills.

Anchor estimates its trade debts at $50-million and says it is on the hook to bondholders, retirees and others for $490-million more. Among the unlucky folks owed money are Schulte Roth & Zabel, a New York law firm that helped take the company public in 2003 and is due $543,300, according to documents filed with the U.S. Bankruptcy Court in Tampa.

It's not the first time Anchor has pulled the rug out from under its creditors. In bankruptcy circles the company is known as a Chapter 33 - a business that has filed for Chapter 11 protection three times. Prior filings were in 1997 and 2002.

All of which leads to the question: If Anchor doesn't have the scratch to pay some of its prior legal bills, aren't Soriano and his law firm, Carlton Fields, likely to get stiffed, too?

Soriano knows exactly what he's doing.

During the first four months of Anchor's 2002 bankruptcy - Soriano represented the company in that case, too - his law firm earned more than $400,000 in legal fees, or about $260 an hour. Carlton Fields billed hundreds of thousands of dollars more as the case dragged on three more years.

Add to this the $300,000 advance payment, or retainer, that Carlton Fields received for Anchor's August filing, and the law firm's total take so far rises to well over $1-million, with more to come.

"Bankruptcy representation can be very profitable when you have a large case," said Soriano, 53.

For bankruptcy lawyers, Chapter 11 is the gift that keeps giving. So long as a client doesn't go belly up or slip into Chapter 7 - a section of the bankruptcy code reserved for companies that can't afford stay in business - a single case can generate legal fees for years, until the very last claim is addressed.

The reason, lawyers say, is simple: The system can't function without debtors' counsel. And so it takes care of them.

Under Chapter 11, a debtor must pay its post-petition legal fees and other administrative expenses before it repays any prebankruptcy debts that are not secured by collateral.

The fees can be enviably high. Another law firm doing bankruptcy work for Anchor Glass, Cahill Gordon & Reindel LLP of New York, is charging as much as $668 per hour for its top attorneys' help.

Moreover, bankruptcy work can beget other lucrative legal business.

After helping Anchor Glass navigate its 2002 bankruptcy case, Cahill served as counsel to the three investment banks that took Anchor public in 2003, represented several brokerages that bought Anchor's new bonds that same year and, beginning in 2004, was retained by a special committee of Anchor directors to assist with various legal matters.

Bankruptcy lawyers say they earn every dollar of their pay. In the two months since Anchor rehired him, for example, Soriano has persuaded a critical supplier not to curtail shipments despite being owed millions of dollars; forced beverage company Cadbury Schweppes to renegotiate its five-year contract or find another source of bottles for its Snapple and Yoo-hoo drinks; and plugged numerous other holes in Anchor's financial dike.

Would Soriano and his colleagues practice this type of law if payment were doubtful? Heck no, they say.

In fact, most demand a hefty retainer before agreeing to help a troubled company file.

"Lawyers would not take debtor cases if they didn't get a priority (repayment) position," said Tampa lawyer Mark Wolfson, a partner at Foley & Lardner and current chairman of the Florida Bar's business law section.

Still, getting paid can be a hassle, debtors' counsels complain.

There's the administrative burden of keeping detailed timesheets of their work, in increments as short as six minutes. In May, bankruptcy lawyers representing Oldsmar comic book maker CrossGen Entertainment submitted a $203,000 bill that was 124 pages long.

There's also the matter of court approval. In very large bankruptcy cases, such as that of Jacksonville grocery chain Winn-Dixie, the committee of top unsecured creditors hired a fee examiner to inspect the debtor's legal bills line by line. Items considered suspicious or excessive are referred to the bankruptcy judge.

Judges, in turn, have the last say on legal fees. If it appears the debtor's counsel is overcharging, the judge can unilaterally trim attorney fees.

A 1990s bankruptcy case Soriano defended is a good illustration. "We were owed probably $1-

million, and (the judge) just didn't get around to (the bill) for about a year," Soriano said. "And then he cut it, which just added insult to injury."

Even in routine cases, a law firm must be in strong financial condition to survive. That's because bankruptcy attorneys bill their clients retroactively, and just once every 120 days.

The worst-case scenario is the client that goes under or lapses into Chapter 7, either of which can wipe out fees for a Chapter 11 lawyer.

Before he became a judge on the U.S. Bankruptcy Court in Tampa, Michael J. Williamson was a bankruptcy lawyer in Orlando. Williamson recalled one client, a large trucking company, that didn't have enough cash to pay his fees up front.

Williamson agreed to forgo payment until the client got its Chapter 11 restructuring plan approved. Later, the client failed, and Williamson got nothing.

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