MF Global Fee Dispute Snares Both Dewey and Proskauer

, The Am Law Daily

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For the second time in two months, lawyers affiliated with now-defunct Dewey & LeBoeuf are being accused of overbilling for work on a bankruptcy assignment taken on mere months before the firm itself filed for Chaper 11 protection.

In the latest instance, the plan administrator overseeing MF Global Holdings Ltd.'s Chapter 11 case asked in a Tuesday filing that the court cut $750,000 from a $3.75 million fee request Dewey submitted for six months of work as counsel to the commodities broker's unsecured creditors committee. The administrator is also seeking to slash $1.75 million from $5.03 million requested by Proskauer Rose, which took over the assignment from Dewey when a bankruptcy team led by Martin Bienenstock switched firms in the weeks before Dewey's May 2012 collapse. Alternatively, the plan administrator's objection asks that the court appoint a fee examiner to investigate Dewey and Proskauer's work on the assignment.

Last month, attorneys advising American Airlines parent company AMR Corp. in its Chapter 11 bankruptcy proposed trimming $644,000 from a $4.6 million bill Dewey's bankruptcy estate is trying to collect for work the firm's lawyers did as special litigation counsel on the case. The AMR attorneys argue that Dewey's fees should be reduced because of unnecessary diligence completed by a partner as he prepared to leave then-floundering Dewey, as well as overpriced Federal Express bills and charges for first-year associates prohibited by the contract covering the assignment.

MF Global, which was run by former New Jersey governor Jon Corzine, collapsed in fall 2011 as a result of its exposure to European sovereign debt, and filed for bankruptcy protection on October 31, 2011. U.S. Bankruptcy Judge Martin Glenn is presiding over both the MF Global and Dewey bankruptcies.

As outlined in Tuesday's filing, while the entire MF Global enterprise once had assets of $41 billion and liabilities of $39.7 billion, the six subsidiaries involved in the Chapter 11 case in which Dewey and Proskauer have advised are much smaller in scope, with a combined $130.9 million in assets and $3.5 billion in liabilities.

In a curious twist, the counsel filing the objection on behalf of MF Global Holdings is Jones Day partner Bruce Bennett, a former Dewey partner himself. In his filing, Bennett claims Dewey and Proskauer spent an inordinate amount of time monitoring affiliate insolvency proceedings taking place around the world, including in the United Kingdom, that did not play a direct role in the U.S. case. Bennett also argues that the firms' role as advisers to the creditors committee should have been limited in this instance by the presence of a Chapter 11 trustee, a role filled by former FBI director and Pepper Hamilton chair Louis Freeh.

"The committee lawyers spent over $3.5 million monitoring foreign proceedings and duplicating the efforts of the Chapter 11 trustee, all with little possibility of providing significantly increased recoveries to its creditor constituency," Bennett writes, adding that the amount stemmed from 5,589 hours logged between the two firms. "It also appears that professionals in these Chapter 11 cases were not adequately controlled, which allowed fees of this size to accumulate unchecked."

The U.S. Trustee's Office, a branch of the U.S. Department of Justice responsible for monitoring the bankruptcy process, has suggested its own cuts to the fees submitted by Dewey, Proskauer and several other law firms that landed roles in the massive case. Since last December, U.S. Trustee Tracy Hope Davis has filed three objections asking that a total of $312,500 be shaved off Dewey's fee requests and that a combined $1.25 million be cut from Proskauer's. Professional fees in the case have topped $60 million.

Jones Day entered the case in summer 2012 to represent an ad hoc group of creditors that ultimately filed a proposed reorganization plan before Freeh and the official creditors committee had a chance to propose a plan of their own. A revised version of that group's plan was ultimately adopted by Freeh and the court, but not by the creditors committee. Since the plan went into effect in June, Jones Day has served as one of a handful of legal advisers to the plan administrator (Morrison & Foerster, which served as lead counsel to Freeh, is also advising).

The Tuesday filing hints at some animosity brewing between Bennett and his former Dewey colleagues. In a footnote, Bennett writes that "rather than engaging in constructive dialogue" to resolve the plan administrator's concerns about the fees, "certain of these professionals have taken it upon themselves to place rather aggressive and confrontational calls to members of the board, senior management, as well as the actual holders of significant claims in these Chapter 11 cases in what appears to be an attempt to convince the plan administrator to not file this objection." The footnote continues: "Given the unwillingness to negotiate and personal tone that these communications have taken, the plan administrator believes that an independent third party fee examiner is best suited to handle this in an objective manner."

Contacted by The Am Law Daily Wednesday, Bienenstock said that while the U.S. Trustee's Office's latest objection suggesting cuts to Proskauer's fees, which was also filed Tuesday, "is informed and well taken… I don't spend any time thinking about" Jones Day's objection. He added that Proskauer plans to file a response to the Jones Day objection by Friday afternoon.

Other Proskauer lawyers on the team representing MF Global's unsecured creditors committee include New York partners Irena Goldstein, Timothy Karcher and Michael Kessler, London partners Hazel Miller and Mark Fennessy and London senior counsel Mark Griffiths.

Bennett—who joined Dewey in February 2011 from the bankruptcy firm he cofounded, Hennigan Bennett & Dorman—was in bankruptcy court in Detroit on Wednesday arguing that the city's historic Chapter 9 filing be approved and did not respond to a request for comment.

Both Bennett and Bienenstock have played notable roles as part of efforts by the Dewey estate to pay off the defunct firm's creditors. Bienenstock agreed to chip in $643,000 toward a $70 million settlement reached with more than 450 of the firm's former partners, according to court filings.

Bennett, meanwhile, struck his own deal outside of the so-called partner contribution plan that hinged on his leading role as debtor's counsel in the Los Angeles Dodgers bankruptcy, which resulted in a $2 billion sale of the Major League Baseball team to an investor group in March 2012. As the Dewey estate sought court approval last year of the partner settlement, Bennett agreed to file and prosecute the final fee application for Dewey's work on the Dodgers case and to contribute a portion of any bonus Bennett received to the estate. His group, while agreeing to contribute to the estate, was also exempted from provisions in the partner contribution plan that prevented former partners from suing Dewey, though no litigation appears to have been initiated.

Debate over how much lawyers and other professionals should, or shouldn't, earn in large Chapter 11 cases has taken place for years. In June, the Justice Department responded by issuing revised guidelines aimed at making sure law firms charge clients they represent in Chapter 11 cases rates comparable to those they bill in other practice areas. The guidelines, which are not legally binding, have been met with resistance by some in the bankruptcy bar, who say the requirements are onerous and that lawyers don't need extra regulations.

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