The bankruptcy court watchdog has sunk its teeth into the hind pockets of a New York law firm representing creditors in the ATA Holdings Corp. bankruptcy, howling that it billed more hours than even the airline's own counsel.
U.S. Trustee Nancy J. Gargula filed the objection July 27 in U.S. District Bankruptcy Court for the Southern District of Indiana, citing the "unnecessary and per se unreasonable" hours billed by Akin Gump Strauss Hower and Feld LLP between ATA's Oct. 26 bankruptcy filing and early 2005.
Already, the challenge has made for a Madison Square Garden dust-up, with the 950-attorney Akin Gump swinging back that the reasoning by the Trustee's Office "borders on the absurd."
Such swagger may be hard to swallow for some in the local bar, who earlier learned how much the Big Apple firm pays its top partners: up to $775 an hour for partner Daniel H. Golden vs. the $425 max for the big guns at local law firm Baker & Daniels, which represents ATA.
But Big Apple legal fees aren't at the core of the federal complaint.
"We're really focusing on the hours spent, not the dollars," said Assistant U.S. Trustee Kevin Dempsey.
Observers say the federal agency is using an unusual approach, one that relies on a statistical comparison of hours billed by various law firms in this case and in others-rather than the more typical dissection of how lawyers spent time on individual tasks.
Gargula's complaint filed with federal bankruptcy judge Basil Lorch states that Akin Gump accounted for 42 percent of professional time spent on the case during the period, while ATA counsel Baker & Daniels accounted for only 39 percent of total hours.
Generally speaking, the debtor's counsel in bankruptcy will spend "far more time" than a creditor's committee counsel, said Charles Greer, a veteran Indianapolis bankruptcy attorney who now heads a corporate turnaround consulting firm.
"Of particular concern is time spent by Akin Gump's professionals during the month of December 2004, in which Akin Gump billed over 2,019 hours, or 45 percent of the total hours billed that month by professionals, compared to Baker and Daniels' 1,343 hours, or only 30 percent of the total," states Gargula's objection.
The U.S. Trustee's Office compared hours expended and fees earned by counsel in the ATA case with four other bankruptcies in the Southern District of Indiana. In the 2001 bankruptcy of Terre Haute-based Heartland Steel, time spent by counsel for the creditors' committee ranged from 30 percent to 49 percent of the hours billed by debtor's counsel, according to the complaint.
In the 2003 bankruptcy of Jeffersonville-based American Commercial Lines, then-creditors' counsel Akin Gump billed 37 percent to 51 percent of hours billed by Baker & Daniels, which was ACL's counsel.
But in the ATA case, Akin Gump hours amounted to 103 percent of Baker & Daniels' last November and 150 percent in December, according to the objection.
"It is readily apparent that the hours expended by Akin Gump have been unreasonable ... Akin Gump's actual hours billed in ATA either almost match or significantly exceed the hours billed by the debtor's own lead counsel," according to the trustees' complaint.
Akin Gump attorney David Botter shot back last week that the Indianapolis Office of U.S. Trustee fails to cite "a single improper entry in the first interim fee application or cite any case law to support its assertions that Akin Gump's fee request is 'per se' unreasonable."
"At all times, Akin Gump has acted in the direction of the committee, which has sought to further the interests of unsecured creditors and to enhance the value of the debtor's estates."
He also said other Chapter 11 cases used by the trustee for comparison weren't as complex as ATA's. Among examples he cited were complex aircraft lease agreements, an objection creditors had to the sale of subsidiary Chicago Express, and a web of issues surrounding a federal bailout loan to ATA.
Botter said the U.S. Trustee's Office also errs in comparing Akin Gump's fees only to ATA's lead counsel, Baker & Daniels, because ATA is represented by three other law firms.
On the other hand, during a hearing on the matter last week, Judge Lorch appeared to be "thinking out loud whether too much time was spent by the [creditors'] committee on matters that don't necessarily involve the typical needs of the committee" such as ATA's labor issues, said Henry Efroymson, an Ice Miller attorney who observed the arguments.
"The U.S. Trustee is making an interesting argument here ... I've never seen the argument made before," Efroymson said.
The usual approach of reviewing and analyzing hours and fees by individual task can be daunting in a complex bankruptcy case so "that may be what's motivating them to take this position," he said.
Efroymson said the trustee's statistical relationship approach alone might not persuade the court. He also noted the possible effectiveness of Akin Gump's argument that the Trustee's Office did not include in its calculation of Baker & Daniels' hours the time the Indianapolis law firm spent on the case in the three months before ATA's Oct. 26 Chapter 11 filing.
So far, bills from attorneys and other professionals have averaged $1 million a month-approaching $10 million. ATA is preparing to file its reorganization plan by year-end.
By comparison, Trans World Airlines' bankruptcy rang up $22 million in legal and professional fees. The bankrupt United Airlines so far has paid attorneys and other professionals $240 million, according to an analysis last month by Crane's Chicago Business.