Citing unclear records, redundant and uncoordinated work, overstaffed meetings and exorbitant travel expenses, a federal bankruptcy judge has disallowed or delayed hundreds of thousands of dollars in fees and expenses requested by Freedom Industries’ coterie of lawyers and advisers.
Since so many of the lawsuits against the bankrupt company are on hold and the company will cease to exist once it winds up its operations, U.S. Bankruptcy Judge Ronald Pearson ordered Tuesday that much of Freedom’s legal work needs to stop.
Freedom, the company whose faulty chemical tank contaminated the Elk River and the water supply of 300,000 West Virginians with its leak of the coal-cleaning chemical Crude MCHM on Jan. 9, is paying five law firms, as well as a financial adviser and a special environmental consultant.
Those firms requested more than $1.8 million in fees and expenses for work performed from Jan. 17, the day Freedom declared bankruptcy, through the end of March.
Pearson’s order, filed Tuesday afternoon, either outright denies or puts on hold more than $1 million of those fee and expense requests.
Among Pearson’s complaints in denying, at least temporarily, most of those claims were:
| “Substantial professional time is being charged at non-discounted rates for travel . . . there will be no professional fees approved for travel.”
| “The practice of over-staffing the case by having 2 and 3 attorneys appear at hearings or attend meetings for which the estate is being billed must cease.”
| “Some professionals have identified expenses they have incurred and are seeking reimbursement at a rate greater than their costs. All such mark-ups are hereby DISALLOWED.”
Pietragallo Gordon Alfano Bosick and Raspanti, a Pittsburgh firm that is Freedom’s “special counsel,” was, at least temporarily, denied all of the more than $200,000 it requested for the period.
“It is impossible for the Court to understand what services the firm has performed that is of value to the Debtor,” Pearson wrote, in asking for more information from the law firm.
The judge also wrote that the firm had to make clear how it was providing value to Freedom, rather than to Freedom’s former owners or executives.
“If work that the firm did was primarily for the benefit of former officers or owners, that compensation should be sought by the firm from those individuals and not the estate,” Pearson wrote.
Paul Vey, a lawyer working on the Freedom case for Pietragallo, would not comment for this report.
Vincent Cardi, a professor of bankruptcy and contract law at West Virginia University College of Law, said it depends on the judge, but it’s not unusual for legal fees to be denied or delayed in a bankruptcy case.
Some judges, Cardi said, will approve any fees as long as they’re in line with what the attorneys normally charge. “But many other judges will look at them closely and say, ‘There’s a bunch of money here and some of it has to go to the creditors, so we will look closely at what we think is reasonable for the debtor to pay in attorney fees.’”
Bob Simons, a bankruptcy lawyer with the Pittsburgh firm Reed Smith, stressed that he wasn’t familiar with the specific case but didn’t think the denial was too unusual.
“I don’t blame the judge at all to say, ‘Hey, look, we have to be careful of the fees,’” Simons said. “I’m not saying the fees are not justified, but I think he would be right to proceed carefully on a case that could be administratively insolvent.”
Every one of the seven firms on Freedom’s payroll had at least part of its payment request denied or delayed.
McGuireWoods, Freedom’s lead bankruptcy counsel, had requested the biggest bill — more than $675,000 in fees and expenses.
Pearson outright denied nearly $45,000 in fees that the firm had billed for time spent traveling. He, at least temporarily, withheld approval on more than $300,000 of fees and expenses, citing concerns about multiple attorneys attending meetings, improper expenses and “what appear to be excessive hourly rates for everybody from paralegals to lead counsel.”
Mark Freedlander, Freedom’s lead bankruptcy lawyer at McGuireWoods, did not return a request for comment.
MorrisAnderson, Freedom’s financial adviser, had requested more than $185,000. Of that, Pearson approved $108,000.
The firm had billed more than $1,100 in cab fare and more than $1,100 in rental car fees. Pearson denied reimbursement for the cab fare and part of what he called “excessive air travel.”
He also chastised the firm for not overseeing the work of the other firms.
Babst, Calland, Clements, & Zomnir, Freedom’s special environmental counsel, asked for more than $335,000, a sum that Pearson said, “grossly exceeds the sum budgeted by the Debtor for the period through June, 2014.
“The application lumps daily time entries, making it impossible to determine what effort was devoted to certain tasks,” Pearson wrote. “The application includes nebulous things such as attending daily meetings with multiple counsel doing so. It includes time billed at full billing rates for travel, which the Court will not ALLOW.”
Pearson approved about $106,000 in fees and expenses, less than a third of Babst’s request, and asked the firm to resubmit its application.
Civil & Environmental Consultants Inc. is overseeing the cleanup of Freedom’s tainted Elk River tank farm. The firm asked for more than $315,000 in fees and expenses, of which Pearson approved $110,000.
Pearson said that the firm exceeded budgets and charged a 12 percent markup on its expenses which he would not allow.
“They have not provided a breakdown for the services provided to permit an understanding of the value and necessity of the services,” he wrote.
Pearson noted no objection to the nearly $28,000 requested by Barth & Thompson, Freedom’s local bankruptcy counsel, but still approved only about $16,000 for the firm.
Frost Brown Todd represents Freedom’s unsecured creditors, but is paid by the Freedom estate.
Pearson noted that the firm had made little progress in identifying “what could be thousands of Elk River Spill claimants” and approved about $60,000 of the $94,000 the firm had requested.
Reach David Gutman at email@example.com or 304-348-5119.