What's reasonable to charge?

Lawyers and other professionals are expected to take home about $100 million from the United bankruptcy.
CHICAGO TRIBUNE
United Airline's bankruptcy is creating lucrative work for the lawyers, consultants and public relations professionals working on the case.
No one can say how much the airline's Chapter 11 will cost, although $100 million is considered a reasonable estimate, legal observers say. By comparison, Enron's year-old bankruptcy has cost $280 million so far -- and it is expected to rise.
It won't take long for United's bankruptcy to also become a truly expensive event. Among those working on the United case:
Partners at the law firm of Wilmer, Cutler & amp; Pickering, hired to help United with regulators, antitrust issues and other legal matters, said in court documents that its top partners charge $675 an hour, although United qualifies for a 20 percent discount through the end of the month.
Babcock & amp; Brown, a financial adviser to the airline, said it will charge a flat fee of $500,000 a month for its advice, although that could rise to $750,000 if United expands the services it uses.
How are fees determined?
Gavin Anderson & amp; Co., a public relations firm, says in its court filing that its top officers charge between $350 and $450 an hour. The PR firm declined to say how it determines its fees.
United, too, declined to comment on the fees it will pay in bankruptcy.
How does a law firm determine that someone is worth $650 an hour, rather than $625 or $675?
Duane Morse, a partner with Wilmer, Cutler, said market forces set the price of legal fees. "We try to set our fees so they are consistent with the fees charged by comparable firms who are our competitors," he said.
Babcock & amp; Brown did not return calls for comment.
Dozens of other attorneys, administrative assistants, consultants, even Internet Web site managers -- collectively referred to as "the professionals" in court parlance -- will be paid by United for the life of the bankruptcy, which United expects to take 18 months.
The first claims for fees and expenses won't be filed for weeks. But the fees proposed by professionals so far total about $13,000 an hour plus flat fees totaling more than $2 million a month, according to filings in bankruptcy court. United filed for bankruptcy only two weeks ago, so more professionals likely will be hired in the weeks ahead.
Not unusual
Legal observers say the fees aren't surprising.
"That is not a shocking number at all," said Randal Picker, a professor who teaches bankruptcy law at the University of Chicago Law School. He said a complex bankruptcy such as United's requires top legal talent, and they charge top fees.
That wasn't always the case, Picker said. Until the late 1970s, lawyers customarily discounted their fees in bankruptcy cases, he said, because it was considered unseemly to charge a wounded client full price.
Still, there are limits on what the accountants, consultants and lawyers are permitted to charge. Their fees and expenses must be reasonable in the eyes of the U.S. Bankruptcy Trustee and the court.
Professionals employed by United or others in the case must file a detailed account of when and what they did to earn the fees, which must be approved both by the trustee and the court.
Will be reviewed
United, of course, will review the fees. But so will the creditors' committee, which is charged with helping United develop a business plan to exit bankruptcy. Every dollar spent on professionals is a dollar not given to creditors, so there is an incentive to ensure that fees are reasonable.
People who work in bankruptcy law say a dinner in a decent restaurant for an out-of-town expert can be considered a legitimate expense. But a $100 dinner accompanied by a nice bottle of wine wouldn't fly for two reasons. The meal is too expensive, and the court doesn't want United paying for other people's drinks.
Fees also vary by location.
In Chicago, a $200 or even a $300 hotel room for a professional from out of town is reasonable. A $500 suite is not.
Professionals are welcome to fly first class, but they will be reimbursed only for the cost of a coach fare. Professionals who bill by the hour are permitted to charge for time spent traveling, but only at half their regular rate.
Court observers say it is uncommon in bankruptcy cases for anyone to try for inflated fees or excessive expenses.