Thursday, May 7, 2009

Jones Day Demands Preferential Fee Treatment From Taxpayers Aka Chrysler

In its retention application to represent the Debtor, aka Chrysler, aka US taxpayers, bankruptcy law firm Jones Day has disclosed not only its fee rates (at or over $900/hour for the top lawyers, compliments of Joe Q. Public), but also a very peculiar phrasing in the request of where in priority its fees should fall in the current bankruptcy. For the first time since once can remember, a law firm has requested a Section 364 superpriority status as a retained entity. Basically what this means is that Jones Days wants to get paid before any other professionals receive their compensation, and potentially before non-critical vendors receive payment owed to them under long existing contracts, that have yet to be broken. As the filing states on page 9:
It is anticipated that the estate professionals retained in these cases, including Jones Day, will incur significant fees in connection with the Debtors' efforts to preserve, protect and maximize the value of their assets under difficult and challenging circumstances. As such, Jones Day and other estate professionals will be extending significant amounts of credit to the Debtors to assist them in their efforts to pursue available opportunities in these chapter 11 cases. Under the circumstances, the fees and expenses of Jones Day and other estate professionals should be granted superpriority status pursuant to section 364(c)(1) of the Bankruptcy Code. Granting superpriority status will ensure that Jones Day and other estate professionals are not placed at unnecessary risk of funding the Debtors' chapter 11 cases. Moreover, any fees and expenses will remain in all cases subject to review and allowance under sections 328, 330 and 331 and the other applicable requirements established by the Bankruptcy Code, the Bankruptcy Rules, the Local Bankruptcy Rules, U.S. Trustee Guidelines and orders of this Court.
Just how is it that Jones Day will be providing cash to Chrylser? If Jones Day is concerned about its accrued retainers becoming a General Unsecured Claim, it has nothing to be worried about: US Taxpayers will have already paid the law firm around $18.9 million in retainer deposits - from page 17 of the application:

November 21, 2008 - $1,000,000.00
December 8, 2008 - $1,000,000.00
December 19, 2008 - $3,000,000.00
January 28, 2009 - $2,000,000.00
February 27, 2009 - $1,000,000.00
April 14, 2009 - $2,000,000.00
April 27, 2009 - $100,050.49
April 27, 2009 -$3,000,000.00
April 29, 2009 - $1,548,245,17
April 29, 2009 - $1,500,000.00
April 29, 2009 - $2,719,125.71

These are fees that Jones Day will have several months before it actually file a fee statement, requesting that Judge Gonzalez approve their propriety. It will be amusing to watch if Jones Day's fee application is actually objected to by other lawyers, who believe they have been wronged by not receiving pari 364 status, and thus is forced to refund a part or the entire amount.

Back to the 364 issue. Law professor Stephen Luben of Seton Hall University had this to say:
“I have never seen a request for superpriority under Section 364 for a professional. I don’t see how every large trade creditor wouldn’t ask for similar protection if it’s granted to Jones Day in this instance."
Fair point - some advice to our readers who happen to also be Chrysler vendors/suppliers and have not received critical vendor status in the case: do exactly the same thing. If legal vulture Jones Day thinks it can get away with, and based on Gonzalez' treatment of the case so far, there is no reason to believe they won't, it only makes sense that those who actually provide the equipment and the tools necessary to build the cars that Obama hopes to sell off the White House front yard, deserve absolutely the same kind of treatment if not better.

The full Jones Day retention application is presented below, with the hourly fee rates charged by the various lawyers brought to the front of the filing for all taxpayers' convenience.

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