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Bankruptcy lawyers reject increased DOJ oversight of fees

Proposed regulations would require disclosure of billing practices, budgeting

Bankrupt companies may have to fear their lawyers more than their creditors, at least according to Department of Justice (DOJ) officials.

Members of the agency’s U.S. Trustee Program convened a public meeting Monday to discuss proposed guidelines that would increase government oversight of Chapter 11 filings by companies with more than $50 million in assets. Under the new rules, law firms working these cases would have to disclose their Chapter 11 billing rates and fee applications, stop rounding up billable hours and work within preset budgets.

Government officials contend that bankruptcy lawyers charge higher fees than other attorneys—sometimes in excess of $1,000 an hour—because their clients are less apt to negotiate discounts. Those hourly rates can add up to some serious cash: Weil, Gotshal & Manges pocketed $383 million during Lehman Brothers’ restructuring, for instance, and Hughes Hubbard & Reed has netted $17 million in the first four months of MF Global’s bankruptcy.

The DOJ also examined whether law firms justify exorbitant rates by devoting unnecessary hours and personnel to bankruptcy cases.

For their part, law firms have come up with multiple arguments against the proposed regulations. Some worry that increased disclosure of billing practices could violate attorney-client privilege. Others argue that the new rules would lead to excessive administrative costs. Cravath, Swaine & Moore partner Richard Levin predicts that law firms may ultimately provide the government with inaccurate data, telling officials that "lawyers are notoriously bad at administrative tasks, including putting data in properly.”

Read more about the meeting at Reuters.

Alanna Byrne

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