Freedom Industries might be bankrupt, but its lawyers expect to get paid.
Within the past week, Freedom Industries’ assemblage of lawyers, consultants and advisers have submitted bills requesting more than $1.8 million from the dying company.
Freedom, the company whose faulty chemical tank contaminated the region’s drinking water in January, is represented by four law firms. It has a bankruptcy counsel, a co-counsel and special-conflicts counsel, a special counsel and a special environmental counsel. It also has a financial adviser and a special environmental consultant, which is developing the plans to clean up its site along the Elk River in Charleston.
Also on the Freedom payroll is another law firm, which represents some of Freedom’s bankruptcy adversaries — unsecured creditors, the people and companies at the bottom of the list when it comes time for Freedom to pay back its debts.
All the plaintiffs in the more than 60 lawsuits filed against Freedom are unsecured creditors. Their lawsuits are mostly on hold while Freedom goes through bankruptcy. More than half of those lawsuits have dropped Freedom as a defendant, predicting that the company will have little money left coming out of bankruptcy, and are now suing only West Virginia American Water.
“Whatever money there is going to be is going to come from the claims process, and that’s what you’re going to recover from Freedom,” Anthony Majestro, a Charleston attorney who dropped Freedom from his lawsuit, previously told the Gazette. “It’s unlikely there’s ever going to be any litigation.”
The city of Charleston, Kanawha County and the Kanawha-Charleston Health Department have announced plans to sue Freedom to recoup costs.
Charleston Mayor Danny Jones said he is not optimistic about the outcome.
“That’s usually what happens in bankruptcies, the lawyers usually wind up with the money,” Jones said, adding that whatever the city could get in a lawsuit would pale in comparison to the damage done by the leak of Crude MCHM, a coal-cleaning chemical.
Kanawha County Commission President Kent Carper recused himself from the county’s decision to sue Freedom because his private law firm is involved in litigation against the company.
Carper quoted his grandmother when asked for his thoughts on the lawsuits against Freedom.
“You can’t get blood out of a turnip,” he said.
Meanwhile, a week ago, Frost Brown Todd, a law firm that represents the court-appointed “committee of unsecured creditors,” asked for $94,458 in payment from Freedom for its last month and a half of work.
That request, like the requests for payment from all of Freedom’s lawyers and advisers, is subject to approval by U.S. Bankruptcy Judge Ronald Pearson.
At the end of March, Frost Brown Todd filed an objection with the court to prevent Gary Southern, the president of Freedom Industries, from receiving salary for the time since Jan. 17, when Freedom filed for bankruptcy.
The law firm’s argument against Southern stands in contrast to its more recent request for payment.
“As this Court is well aware, a limited amount of resources are and will be available to satisfy the legitimate claims of unsecured creditors,” Frost Brown Todd wrote. “Administrative expense claims should be strictly and narrowly construed by this Court and held to a minimum.”
Southern later withdrew his request to get paid.
In total, the seven law firms and consultants employed by Freedom requested $1,836,128.78 from the company for work done between Jan. 17 and March 31.
The biggest bill comes from McGuireWoods, a corporate law firm with more than 900 lawyers in 20 cities around the world, which is Freedom’s lead counsel in bankruptcy court.
McGuireWoods is requesting more than $640,000 in legal fees, plus expenses, for a total of more than $675,000 for the two and a half months from Jan. 17 to March 31.
McGuireWoods first submitted a bill on Monday for about $70,000 more than what it ended up charging, but corrected that number two days later, with no explanation.
“We frankly just looked at wrong numbers internally and we found and amended the statement,” Mark Freedlander, Freedom’s lead bankruptcy lawyer, said Thursday. “It was a clerical error.”
The weighted average pay rate for McGuireWoods employees working for Freedom is more than $618 per hour.
Compared to that, Freedom’s environmental lawyers — Babst, Calland, Clements & Zomnir — are a veritable bargain, charging a weighted average hourly rate of $308.
Babst submitted a bill asking for more than $335,000 for its services since Jan. 17.
Freedom also has a Charleston-based law firm, Barth & Thompson, to assist in the bankruptcy process. Barth & Thompson has done the least work for Freedom, about 87 hours, for a total bill of about $28,000.
Freedom’s lawyers keep detailed track of their time and expenses. On Jan. 28, Stephen Thompson, of Barth & Thompson, spent 0.1 hours (six minutes) reviewing an order that set a date for a court hearing. He charged $35.
Freedom’s Chicago-based financial adviser, MorrisAnderson, charges a higher rate. MorrisAnderson’s two main consultants to Freedom, managing directors Alpesh Amin and Mark Welch, charge $375 and $425 per hour, respectively.
In March, Amin and Welch got two tours of Freedom’s facilities, lasting about seven and a half hours, for which they charged about $2,900.
Amin billed Freedom for more than $14,000 in airfare, spent over eight weeks after the company filed for bankruptcy. He also charged more than $1,100 in car rentals and more than $1,100 in cab fares.
Amin and Welch did not respond to requests for comment.
Freedom also has a “special counsel,” Pittsburgh-based Pietragallo Gordon Alfano Bosick and Raspanti, to represent it in pending litigation.
On an hourly rate, Pietragallo is the least expensive of Freedom’s lawyers, charging a weighted average of about $273.
Pietragallo charged Freedom about $200,000 — $177,000 in fees and $23,000 in expenses.
Those expenses range from less than $7, for FedEx deliveries and conference-call services, up to more than $18,000 spent on “copy, fax and reproduction costs.”
As it winds up its life as a business, Freedom still employs 24 people, down from 51 when it filed for bankruptcy, according to its most recent court filing. In March, Freedom paid its employees about $370,000, including payroll taxes, health insurance and 401(k) contributions. That’s about half of what it paid its lawyers and consultants over the comparable time.
Freedom lost about $690,000 in March, not including any of the payments requested by its lawyers and advisers.
The company estimates that it will make a profit of $1.8 million in April, as it continues to sell its remaining inventory and equipment.
Reach David Gutman at email@example.com or 304-348-5119.