Justice Department Cracks Down on Legal Fees

There is no doubt that large Chapter 11 bankruptcy cases are highly complex and require an expert attorney’s leadership. But the Department of Justice believes attorney billing rates are getting out of hand. In recent cases filed by Eastman Kodak Co., AMR Corp., and A&P, attorneys billed at rates over $1,000 per hour. Large attorney fees are paid by the financially distressed company and reduce the money available to pay creditors and investors.

Beginning November 1, 2013, attorney fees in large Chapter 11 cases will be scrutinized under new DOJ guidelines. The DOJ defines large Chapter 11 cases as those with $50 million or more in assets and $50 million or more in liabilities. Under these new guidelines, a United States Trustee will review an attorney fee application for:

  • A showing that the rate charged is in line with the market rate outside of bankruptcy.
  • The use of budgets and staffing plans.
  • Disclosure of rate increases that occur during the representation.
  • Use of rates that are based on the attorney’s home office location.
  • The submission of billing records in an open, searchable electronic format.
  • The use of independent fee committees and fee examiners.
  • The use of model forms and templates for applications for compensation and expenses.

A statement recently released by the DOJ explained the guidelines: “The cornerstone of the Guidelines is a requirement that attorneys demonstrate they are not charging bankruptcy estates a premium above fees charged to clients outside of bankruptcy and that they develop budgets that will help impose cost discipline in the conduct of the case.”

Interestingly, the cure may be just as bad as the disease. In Detroit’s Chapter 9 bankruptcy, an independent billing auditor was appointed by the bankruptcy court to keep attorney billing in check. Chicago lawyer Robert Fishman of Shaw Fishman Glantz and Towbin LLC was chosen to monitor the millions of expected attorney fees that will be billed to the case. What is Fishman’s billing rate? It’s a modest $600 per hour for fee examiner work during Detroit’s bankruptcy!

Fortunately, your bankruptcy attorney’s fees are fair and reasonable. Your attorney will disclose your fees up front and before your case is filed. A fee disclosure is filed with the bankruptcy court and any charge will be fully discussed with you.