Some Wall Street banks and hedge funds asking Lehman Brothers
Holdings Inc. to chip in for their legal fees aren't entitled to
add to the ever-growing fee tab in the biggest Chapter 11 case of
all time, a government bankruptcy watchdog is arguing.
U.S. trustee Tracy Hope Davis, who helps enforce federal
bankruptcy laws, is asking a judge to knock out, reduce, or closely
scrutinize more than $33 million in attorneys' and advisers' fees
that Lehman creditors such as Goldman Sachs Group Inc. (GS), Bank
of America Corp. (BAC) and D.E. Shaw & Co. want to put on
Lehman's tab.
The banks and hedge funds say they're entitled to be reimbursed
for the fees on the grounds that their work made a "substantial
contribution" to the biggest Chapter 11 bankruptcy case of all
time, during which Lehman has already racked up more than $1
billion in professional fees. A substantial contribution can mean
boosting the recovery of all creditors or saving the company
money.
But Ms. Davis disputes that some of the work for which the
creditors want reimbursement was exceptional enough, or benefited
enough stakeholders, to warrant the "substantial contribution"
tag.
"Active participation alone is insufficient to give rise to a
substantial contribution claim," Ms. Davis wrote in court papers
filed Wednesday.
The trustee also says some firms failed to back up their
requests with enough evidence and detail, while others aren't
legally eligible for payment.
The biggest payment request comes from a group of banks and
hedge funds, including Bank of America, D.E. Shaw, Goldman Sachs
and Credit Suisse Group AG (CS). They want $13.7 million to cover
the fees and expenses of their financial adviser, Blackstone
Advisory Partners.
According to the creditors, Blackstone's work enabled Lehman to
settle disputes with creditors last year, preventing it from
becoming bogged down in bankruptcy. This saved Lehman at least $400
million, the creditors said.
Ms. Davis, however, asked the bankruptcy court to deny the
entire request on the grounds that bankruptcy laws only allow for
the reimbursement of the fees charged by creditors' attorneys and
accountants, not those charged by their financial advisers.
It's the same argument she used to ask a judge to knock out $2.7
million in fees requested for AlixPartners and Molinaro Advisors,
which advised a creditor group led by hedge fund Paulson &
Co.
The Paulson group also sought $10.1 million for its attorneys at
White & Case, which it said helped increase senior noteholders'
recoveries by $3.1 billion, among other contributions.
Ms. Davis asked the creditors to provide more details so a judge
can determine whether the request, which she called "vague," is
reasonable or not. She said some of the legal fees don't appear to
be eligible for reimbursement, such as those tied to faxing,
copying and other "overhead" costs.
Goldman filed a separate request for its own attorneys' fees,
which total $3.3 million. Cleary Gottlieb Steen & Hamilton
lawyers' 5,200-some hours of work on the case allowed Lehman to
move closer toward exiting bankruptcy, avoid litigation and save
millions of dollars, Goldman said.
However, the U.S. trustee urged Goldman to cut down its request
to $2.7 million, which would cover 4,300 hours of work and would
exclude charges for such "routine services" as attending hearings
and reviewing motions.
Finally, Ms. Davis objected to the $3.7 million in attorneys'
fees and expenses sought for Brown Rudnick, which represented such
creditors of Lehman's Dutch subsidiary as Citigroup Global Markets
Inc., Royal Bank of Scotland Group Plc (RBS), Monarch Alternative
Capital and Aurelius Capital Management.
The Dutch creditors said their role in the settlement talks
ended up boosting what the Dutch subsidiary recovered from Lehman,
which in turn will improve the Dutch creditors' recoveries in the
subsidiary's insolvency proceeding.
However, Ms. Davis said the creditor group and Brown Rudnick
were "one of many participants" in settlement talks but said the
role they played didn't appear to benefit anyone beyond that
creditor group, leading her to question whether they in fact made a
substantial contribution to the case.
The U.S. Bankruptcy Court in Manhattan will consider the
creditors' fee requests and the U.S. trustee's objection at an Aug.
15 hearing.
Meanwhile, Lehman's own attorneys and other professionals have
been submitting their final fee requests to the bankruptcy court,
whose approval is required before they can be paid. The firm's
advisers at Alvarez & Marsal could earn more than $620 million
if its final fee request is approved, making it the top earner in
the case. Close behind are Lehman's lead lawyers at Weil, Gotshal
& Manges, who stand to earn more than $430 million.
Lehman, which sought Chapter 11 protection in September 2008,
emerged in March. But significant work remains, like sorting
through claims, selling off assets and paying the army of
professionals who worked on the case over the past three and a half
years.
-Write to Jacqueline Palank at
jacqueline.palank@dowjones.com
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