© 2013 The Texas Lawbook.
By Natalie Posgate
Staff Writer for The Texas Lawbook
As AMR Corp. moves forward with its planned $11 billion merger with US Airways – a merger that also serves as the airline’s exit plan from Chapter 11 bankruptcy, legal fees and expenses continue to mount, topping more than $170 million so far.
Weil, Gotshal & Manges serves as the primary legal advisor to AMR for both its merger agreement and its bankruptcy. Lead attorneys for both matters from Texas include partners Thomas Roberts and Glenn West.
As of Thursday, the parent company for American Airlines has accumulated about $172 million in legal fees and expenses since it filed for bankruptcy protection in November 2011 in the Southern District of New York. This doesn’t even include every firm’s monthly statements for 2012, since some have yet to submit their fees for December.
Though the fees are soaring upward, the restructuring aspect of the bankruptcy may be over soon in light of the announced merger with U.S. Airways. Legal experts agree that the judge is likely to approve a reorganization plan for American in the next six months.
As the latest major airline to file for bankruptcy, American’s merger with U.S. Airways follows suit with other merges its peers have entered to survive in the business, such as United Airlines and Continental Airlines’ 2011 combination and the marriage between Delta Air Lines and Northwest Airlines, which was completed in 2010.
AMR’s bankruptcy also follows the path of other big Texas companies that have filed for Chapter 11 reorganization in either New York or Delaware: Dynegy Inc., the Dallas Stars, Texaco Inc. and Enron Corp. – the largest bankruptcy in the state’s history.
AMR’s case, which lawyers say will definitely be in the top five of the biggest Texas company bankruptcies, continues to keep Texas bankruptcy lawyers jealous of the substantial hourly rates being earned – a big chunk of which are going to New York firms.
Fulbright & Jaworski bankruptcy partner Lou Strubeck said that on a scale of one to 10, the jealousy that Texas bankruptcy lawyers have for the big roles New York firms are playing in the case is “at least an eight.”
“There’s a lot of envy when it comes to the work that’s up in New York,” said Strubeck, who leads Fulbright’s financial restructuring, bankruptcy and insolvency practice and splits his time between the firm’s Dallas and New York offices. “I wish we had a more prominent role in the case. There have been nice fees that have been generated.”
Part of American’s reasoning for filing its bankruptcy in New York stems from the well-established reputation the judges and counsel in the state have for handling large bankruptcy cases.
But while legal advisors play a crucial role in any big bankruptcy case, Strubeck says often the financial advisors involved may have a bigger influence on where cases get filed.
“I don’t know that lawyers are necessarily better in New York than Texas, but I think the investment bankers who a lot of the time have a say in where large cases get filed will tell you it’s a more sophisticated business [for] bankruptcy particularly in New York or Delaware,” Strubeck said.
However, he said, “the judges in Dallas are just as sophisticated as anybody else in the country and just as equipped to handle a large company as New York or Delaware.”
Josiah Daniel, a bankruptcy partner at Vinson & Elkins, agrees.
“I think the best Chapter 11 practitioners in Texas are fully equal to their counterparts in the east coast bar,” said Daniel. “It’s not that hard for a financial advisor [from New York] to get on an airplane for the DFW airport, so I don’t think that’s a justification.”
Weil continues to be the highest-earning firm that’s working on the case. As of December, Weil has generated $57.4 million in fees since the inception of the bankruptcy litigation.
Earning big bucks for Chapter 11 reorganization is not new to Weil. Notorious for its bankruptcy practice, the firm is also the lead legal advisor for Lehman Brothers Holdings Inc.’s case.
For December 2012 alone, Lehman accumulated $150 million in total professional fees — $11 million of which went to Weil. The firm has collected $454 million in fees over the last four-and-a-half years. So far, the overall bill for professional fees in Lehman’s bankruptcy has exceeded $2 billion.
Debevoise & Plimpton, another New York firm, comes in second place for the highest bill in AMR’s bankruptcy. Debevoise has earned $32.9 million so far in the case.
Weil and Debevoise both have lawyers charging over a grand an hour, but the highest earning lawyers on the case continue to be from New York firm Skadden, Arps, Slate Meagher & Flom, which has three attorneys charging $1,150 an hour.
There’s a chance that even the highest paid lawyers have raised their hourly rates for the New Year, even if not by much.
“It is the tradition of most of the major law firms in the country to adjust their rates as of the first of the calendar year… so I’d expect to see upward adjustments in rates as of the first of January for those involved in the case,” Daniel said.
While the rates continue to keep many Texas lawyers flabbergasted, most agree that the complexity of the case makes them justifiable.
“There are a lot of events happening behind the scenes or very hard-fought negotiations that you don’t really see in court,” said Frances Smith, a bankruptcy partner at Shackleford Melton & McKinley. “You see the fruition of that in court with the motions, objections and hearings but that’s the tip of the iceberg with what’s going on.”
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