Kirkland and Weil’s fees in Chapter 11 work highlight the great law’s attraction to bankruptcy
Even though the number of Chapter 11 business bankruptcies has declined in recent months, large bankruptcies have continued to generate high fees for some law firms, one of the reasons companies continue to invest and hire. in their bankruptcy practices.
For example, a look at law firm fees in two cases – Sears’ Chapter 11 bankruptcy, filed in October 2018 and JC Penney’s bankruptcy in May 2020 – reveals that cases totaled over $ 150 million for law firms since their inception.. Most of the money went to Am Law 200 firms, with some partners charging over $ 1,500 an hour.
Representing Sears Holdings Corp., Weil, Gotshal & Manges has emerged as the biggest fee winner in the Southern District of New York bankruptcy case, with more than $ 80 million in fees and expenses paid so far. ‘at the end of February 2021. Its partners billed between $ 1,695 and $ 1,200 an hour, while associates billed $ 1,100 to $ 595.
Akin Gump Strauss Hauer & Feld has also made much of the bankruptcy of Sears. Representing unsecured bankruptcy creditors, the law firm received total compensation of $ 48 million through the end of February 2021 with a blended rate of $ 853 per hour.
Paul, Weiss, Rifkind, Wharton & Garrison, representing Sears, received nearly $ 20 million, although most of it was completed before last year. His lawyers were making an average of $ 790 an hour, with partners capping at $ 1,650. And Wachtell, Lipton, Rosen & Katz did $ 873,000 worth of work to represent Sears, with a blended rate of $ 1,287 and partners charging up to $ 1,500.
Meanwhile, JC Penney’s bankruptcy has generated over $ 28 million in fee income for law firms.
Representing JC Penney, Kirkland & Ellis won the bulk of the loot with two huge claims for fees totaling $ 20.9 million, with a mixed attorney rate of around $ 1,000.
Cooley and Cole Schotz represented the creditors committee, with the former company taking home $ 4.2 million in fee income with a blended $ 970 average billing rate. Cole Schotz earned $ 2.1 million for work he did in the second half, maintaining an average hourly rate of $ 643 per lawyer.
Katten Muchin Rosenman devoted 1,318 professional hours to earn $ 1.1 million in fee income while representing JC Penney, averaging $ 960 per lawyer per hour, while Quinn Emanuel Urquhart & Sullivan, representing subsidiaries of the store, made $ 827,000 for his work in the second half of 2020, averaging just over $ 1,000 for his hourly rate.
JC Penney’s restructuring has also benefited smaller firms such as New York law firm Herrick Feinstein, whose attorneys billed around $ 500 an hour for $ 1.5 million in fees. .
The possibility of awarding large fees in Chapter 11 work continues to generate a wave of hiring of bankruptcy partners. Last week Willkie Farr & Gallagher added a three-partner bankruptcy group of Morrison & Foerster that represents creditors committees in high-profile cases and Sidley Austin hired Tom Califano, previously global co-chairman and US chairman of the restructuring group. by DLA Piper. Last month Kirkland brought in Christine Okike from Skadden, Arps, Slate, Meagher & Flom.
It is uncertain how long major bankruptcies will remain a significant part of Big Law’s revenue mix. The number of Chapter 11 commercial filings in March, at 384, was down 9% from February, according to the American Bankruptcy Institute, citing Epiq data. This is also down from 749 in September 2020. In the first quarter, total Chapter 11 commercial filings fell 25% to 1,283 from the same period in 2020.
And although billing rates have risen in recent years, the length of bankruptcies such as JC Penney’s has decreased, said Kristin Going, financial restructuring partner at McDermott Will & Emery.
“[J.C. Penney] was pretty trivial in terms of the fees paid by the estate, ”Going said in an interview. She represented UMB Bank as a creditor in the context of the restructuring. “In fact, if you compare the size of JC Penney to other recent cases of comparable size, JC Penney’s costs might be lower because the case lasted so short.”
She attributes the narrowing of the schedule to the popularity of “prepackaged bankruptcy,” in which debtors negotiate with creditors before Chapter 11 proceedings.
While JC Penney is based in Plano, North Texas, the case was filed in the Southern District of the state. According to data from Lynn LoPucki, a bankruptcy researcher at UCLA School of Law, the district experienced more than twice as many “forum shopping” cases in 2020 as Delaware, the historic national leader in bankruptcy lawyers. looking for favorable conditions. The district experienced 27 bankruptcies of companies not headquartered in South Texas last year.
Lawyers “take their cases where they get what they want,” he said, citing Kirkland as the most common example. This firm’s $ 20.9 million bill represented three-quarters of disbursements to law firms as part of this restructuring. Kirkland did not return a message requesting comment.
But some bankruptcy attorneys say the South Texas District Court, particularly U.S. bankruptcy judges David Jones and Marvin Isgur, streamlined the restructuring process in a way that has benefited debtors.
“I think Judge Jones and Judge Isgur spent a lot of time and effort in making Houston a preferred bankruptcy location for debtors who wish to file cases and they did so by implementing specific procedures. for important cases. They’ve certainly streamlined the process, ”Going said. “They are reaching out to debtors ‘lawyers by creating a process where debtors’ lawyers can tell their clients that the process will be consistent and streamlined.”
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