The union protests may have ended, but the legal bills for the Patriot Coal bankruptcy keep coming.
The latest round of fee petitions brings the legal tab for the St. Louis company’s Chapter 11 to at least $58.3 million. And that doesn’t include expenses, such as a Thompson Coburn trip to London. It also doesn’t include Patriot’s payment of legal fees and expenses for investors aiding in restructuring; details on those fees weren’t included in public documents.
The Patriot Coal case drew national notoriety as United Mine Workers of America pickets took to the downtown St. Louis streets. Peabody Energy Corp. and Arch Coal Inc., both St. Louis companies, spun off Patriot starting in 2007. The protesters decried the bankruptcy as a maneuver to dodge retiree health care obligations. Hundreds of union members and supporters took buses into St. Louis for the protests, which led to dozens of arrests.
A bankruptcy of Patriot’s size is also noteworthy for the peek it provides into legal industry pricing. To apply for court-approved reimbursement, lawyers must disclose their usual and customary hourly rates, competitive information that’s often guarded with secrecy tantamount to attorney-client privilege.
Earlier fee petitions in the case informed Missouri Lawyers Weekly’s annual Billing Rates special issue for 2013, published June 17. The latest round of filings likely will contribute to the 2014 edition, slated for June 16.
$11.5 million of labor pains
The Patriot reorganization drew legal services of at least 16 firms whose fee requests were publicly available, four of them based in the St. Louis area. Patriot filed for bankruptcy protection in July 2012 in New York, citing a drop in coal demand and $1.3 billion or more in lifetime health care obligations for its retirees.
In December 2012, the case transferred to the U.S. Bankruptcy Court in St. Louis. Sorting through all the legal bills now falls to U.S. Bankruptcy Judge Kathy Surratt-States, who has scheduled a March 25 hearing on the fee petitions.
The itemization of lead debtor’s counsel Davis Polk & Wardwell’s bill signals just how pitched the battles over retiree benefits and negotiations with current Patriot workers had become. Of the $39.6 million charged by the New York firm, “employee labor issues” accounted for $11.5 million. Partner Marshall Huebner, co-head of Davis Polk’s insolvency and restructuring practice, charged $985 hourly and worked the most hours of the firm’s attorneys with that top rate. His billings alone accounted for $1.86 million.
The St. Louis firms have laid claim to $2.2 million in fees, or almost 4 percent of the total fee requests on file in the case. Thompson Coburn leads the local pack with just shy of $1 million in billings. The firm handled international contract lawsuits that ran up the third-highest amount of expenses of all the 16 firms but brought Patriot $8.5 million in settlements.
Two other firms, Bryan Cave and Carmody MacDonald, played local counsel roles on opposite sides of the courtroom. The fourth, Desai Eggmann Mason, represented a retiree committee with a legal budget limited to $300,000 and used only $11,000 of it.
Local firm Thompson Coburn traveled farthest in the bankruptcy. Roman Wuller ($495 an hour), a partner with a coal supplier dispute specialty, led a team representing Patriot before the bankruptcy in two lawsuits in U.S. District Court in West Virginia against customers over coal supply contracts. One lawsuit, against Bridgehouse Commodities Trading Ltd. and affiliates, took members of the team to the defendants’ home base of London for depositions. That boosted travel expense to $36,000 and the costs of experts to $56,000. As an example of one consulting expense, the firm was charged $12,000 in August for a consultant versed in the law of the Isle of Man. Thompson Coburn lawyers had said one of the defendants was incorporated in the self-governing territory of the British Crown.
Thompson Coburn lawyers and staff worked nearly 3,000 hours during the bankruptcy, mostly representing Patriot in the litigation and other customer disputes. Partner Mark Mattingly, who specializes in complex litigation, billed 60 percent of the amount. Initially at $330 an hour, and then at $345, he logged 1,800 hours over the course of the bankruptcy.
The fee application, which $510-an-hour partner David Warfield signed for the firm, makes a case for return on investment. As a result of the legal work, Bridgehouse and Andrew Ruhan, who controlled the company and an affiliate, agreed to pay Patriot $6 million, and in a second lawsuit, Florida-based Keystone Industries settled for $2.5 million. Four million dollars from the settlements had been paid by the Jan. 31 filing of the fee application.
Saving more than airfare
Bryan Cave and Carmody MacDonald attorneys stuck closer to home and joined the bankruptcy case a little later than Thompson Coburn lawyers. Bryan Cave was local restructuring counsel, hired shortly before the bankruptcy moved to St. Louis.
The firm had provided corporate and securities law services to Patriot Coal for more than five years before the bankruptcy, according to a Jan. 31 fee application. Bryan Cave attorneys and staff spent 555 of the 1,900 hours they logged administering claims and handling objections.
Except for one attorney, the hourly rates they billed are commensurate with what the firm charges in similar matters, according to the application signed by associate Laura Uberti Hughes ($315 per hour). The exception was Lloyd Palans, a bankruptcy partner who has represented Energizer Holdings in another company’s bankruptcy, among other clients. Palans, whose rate for the case was listed at $675 an hour, charged Patriot “significantly less than his customary hourly rate,” the application said. Palans works out of the firm’s St. Louis and New York offices. He didn’t return a phone call by press time.
Carmody MacDonald attorneys worked the other side of the courtroom, representing the unsecured creditors committee as local counsel and backstopping the lead firm for the committee, New York-based Kramer Levin Naftalis & Frankel. The committee included union representatives.
Carmody MacDonald partner Greg Willard said in a phone interview that Kramer Levin “reached out” to him about being local counsel because they had crossed paths previously.
Willard figures the hiring of Carmody MacDonald attorneys, who handled almost all of the courtroom hearings, saved Patriot a bundle, not just in travel expenses for flying a Kramer Levin team from New York, but in those attorneys’ hourly rates.
“The efficiencies are more than just somebody didn’t have to take a two-hour airplane ride,” Willard said. “They’re a pretty significant and aggressive savings for the committee and the estate.”
At $365, Willard’s hourly rate was the highest for Carmody MacDonald. That compares with the $990 an hour charged by the most expensive Kramer Levin partner, Thomas Moers Mayer. He had cut Patriot a $35-an-hour discount from his usual rate, according to an August 2012 application to hire the firm, a 3.4 percent savings.
Kramer Levin requested $9.6 million in fees, the second-highest amount for a law firm.
Bankruptcy boutique Desai Eggmann arrived in the case a year ago at the behest of a salaried-retiree committee. The firm agreed to cap its fees and expenses at $250,000, an amount increased to $300,000 on April 26, with an extra $10,000 thrown in for creation of a health care trust for retirees. But Desai Eggmann didn’t need nearly that much. The firm’s attorneys worked a total of 40 hours on the case, with associate Thomas Riske clocking 33 hours of that at his $210-an-hour rate.
Desai Eggmann’s co-counsel firm, Chicago corporate boutique Stahl Cowen Crowley Addis, requested $297,600 in fees.
‘$4,490 an hour’
Patriot finished restructuring Dec. 18 by closing $545 million in exit financing and getting $250 million in capital for rights offerings of new equity in the restructured company, according to a news release. Surratt-States in July approved Patriot’s request to pay up to $2 million in legal fees and expenses for investors’ attorneys at Kirkland & Ellis. Patriot also based its reorganization plan on an agreement with workers completed in August after the company made more concessions under the threat of a strike. A five-year contract called for wage changes and health care benefits similar to those of nonunion employees, according to Bloomberg News.
Patriot listed assets of $3.57 billion and debt of $3.07 billion as of May 2012 when the company filed for bankruptcy, according to the news organization.
“That’s $4,490 an hour, 24 hours a day, for every one of those 541 days. Yes, there were many people in several firms working on this, but really, when is enough enough?”
UMWA spokesman Phil Smith did his own math on the $58 million total for the fees — money the union would have preferred spent on benefits and wages, he said in an emailed response to a request for comment.
The numbers are more a commentary about the bankruptcy process “and those who feed on it” than they are about Patriot Coal, Smith wrote. Patriot needed Chapter 11 protection, and it needed legal advice during that process, he said.
But hourly fees on the case averaged $107,763 a day for the 541 days of the bankruptcy, Smith wrote.
“That’s $4,490 an hour, 24 hours a day, for every one of those 541 days,” Smith said in the email. “Yes, there were many people in several firms working on this, but really, when is enough enough?”
Willard said the emergence from bankruptcy was a “remarkable achievement.”
“It was a lot of money [for legal fees],” Willard said. “But it was a multi-billion-dollar case.”