By on December 6, 2008

General Motors and Chrysler have both retained “hot shot” law firms to advise them on bankruptcy matters. Want to know what their legal bills will look like?

GM has retained a firm named Weil, Gotshal & Manges, a huge organization that specializes in pretty much everything big business, including bankruptcy law. They represented Enron, WorldCom, and Lehman Brothers in all of their bankruptcy proceedings. The Lehman proceeding was just this past October, so the rates are current. As far as I know, Weil’s rates are standard for the market – expect Chrysler’s firm Jones Day to be very similar. For the Lehman matter, Weil billed at:

$650-$950/hour for partners and counsel
$355-$595/hour for associates (keep in mind that $355 gets you a fresh out of law school kid)
$155-$295/hour for paralegals

Bloomberg estimated that Weil’s total bill for the Lehman Bankruptcy could be as high as $906 million. While Lehman was worth a lot more than GM, there was also much less work to do. I’d guess that a GM bankruptcy could cost $1 billion just in legal fees. And that’s not counting the collateral damage – suppliers, contractors, dealers.

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21 Comments on “GM’s Bankruptcy Could Cost $1 Billion in Legal Fees...”


  • avatar
    jpcavanaugh

    Hmmm. $1 billion paid by the various GM stakeholders (shareholders, bondholders, creditors, unemployed Rick Wagoner, etc) or 20 times that to be paid by you and me. No wonder bankruptcy is “not an option.”

  • avatar
    Justin Berkowitz

    Ah but you’re forgetting – that’s just $1 billion for legal fees.

    Then there’s all the money to creditors that they’d have to pay out in bankruptcy.

    Bloomberg just estimated GM’s bankruptcy at costing $50 billion today.
    http://www.bloomberg.com/apps/news?pid=20601087&sid=aX3PTMWCvBMw&refer=home

  • avatar
    Bubba Gump

    Justin that does not include the fallout on the other end to the taxpayers. Which will be 5 to 10 times that.

  • avatar
    Justin Berkowitz

    @Bubba Gump:

    My opinion is that no matter what, us taxpayers are going to take a brutal beating on GM. Whether it’s a bailout, bankruptcy, loans, cash injection, or just the company slowly deteriorating – we’re screwed.

  • avatar
    06M3S54B32

    Taking money from tax payers for a private, non-Government company should be a criminal offense. Government was never supposed to be about this. I’d be embarrassed if I owned an American car, as many people will be looking like you are the enemy.

  • avatar
    jpcavanaugh

    Justin –
    Yes, but all the money owed to creditors is money they owe now as it is. The legal fees are the bulk of the “transactional costs’ that are over and above what they would owe if they don’t file. These transactional costs will be offset by savings wrung out from the stakeholders during the bankruptcy process.

    I really am sympathetic towards the folks who work for the Detroit 3 and their suppliers and dealers. I saw firsthand what happened to my hometown of Fort Wayne Indiana in 1979-80 when International Harvester shut down a big plant that may have been the largest single employer in the city. I had a lot of friends and relatives who got hurt in that process. Also, 45 years ago this month Studebaker shut its doors in South Bend Indiana. There are many who would say that South Bend has never fully recovered. These were good UAW jobs, and nothing really came in to replace jobs at that level. However, people have moved on.

    That said, 2 of the 3 companies involved (call me an optimist) are destroying wealth every day they are operating. They are at the point where they cannot pay their creditors. This is what the bankruptcy process is about. In a C-11 bankruptcy, people who do this all day every day do their best to see if the company’s problems can be fixed so that the company can come out of the process able to function and pay its bills going forward. Creditors will receive at least some of their money back, necessary operational changes will be made, and the company will have a fighting chance.
    If the problems cannot be fixed, the process oversees a liquidation, where assets are sold and creditors get whatever is left. This happens every day in this country. People will lose their jobs, and this will be very, very bad for a lot of people. But it has to happen if the company is in hopeless shape. Hopeless means there is no hope. if there is no hope, the government has no business taking money by force from you and me and pouring it down the rathole of a failed enterprise. We must remember that GM does not have a right to stay in business. It certainly does not have a right to get the government to knock on your door and my door and demand money that the car buying public was not willing to give to it. If we start down the bailout road, there is no telling where it leads. If GM, why not Chrysler. If Chrysler, why not Cummins. If Cummins, why not all of the car dealers in Columbus, Indiana. If the car dealers, why not the restaraunt operators, the movie theaters and the stores in the mall. There is simply not enough money to rescue us all. Somebody is going to get shafted in this process. Lots of people. There are no easy answers to this problem, just lots of hard ones that will cause lots of other problems.

  • avatar
    seoultrain

    fresh-out-of-law-school kid gets a bad rap. I bet you get more for his $355/hr than $950/hr for the 70-year-old partner. Christ, a thousand dollars per hour is venturing into pro athlete territory.

  • avatar
    Justin Berkowitz

    @Seoultrain:

    You really think so? With all respect to my friends working as first year associates, they’re clueless. Someone is paying $355/hr to the firm for document review.

    At least with the partner you are getting supposedly some actual experience and know-how.

    All that said, ALL these firms charge too much for ALL their services. That’s why many of them are going out of business.

  • avatar
    autonut

    The legal eagles engaged by GM and Chrysler are top notch houses. Yes they charge a lot, but to become an associate you have to graduate in top 10-15% out of top 10 law schools in the country.
    To get into those law schools you must graduate from top 50 universities or colleges with grades of 3.7 to 4.0 (depending on ranking of undergraduate school to level of law school) and LSAT of no less then 165. That limits law school pool of applicants to top 5-7% of all desired to become a scheister. Statistically speaking those law firms have top 1% of lawyer in a country.
    The source of this information my kid who attends NYU law (ranked 5th). I know what it took to get in and what it cost me in tuition bills.

  • avatar
    seoultrain

    eh, that was semi-talking out of my ass. As an engineer, I work with old-timers who don’t do crap, and younger guys like me are expected to pick up the slack. I assumed it was similar in the legal world, but I guess not. You’d certainly know more about that than me.

  • avatar
    50merc

    Justin Berkowitz: “ALL these [lawyer] firms charge too much for ALL their services. That’s why many of them are going out of business.”

    It is to be fervently hoped. No one except landlords of swank office buildings will miss them.

    Here’s an insight into the mores of the legal profession: When my father in law died, to handle the probate we engaged a local attorney I’d known since college days. He was willing to bill for services at his hourly rate instead of the percentage-of-gross-estate schedule promulgated by the state bar. I kept the fee even lower by doing the tax work (I was a practicing CPA then) and assembling the other data needed. The process went smoothly and in due course we appeared in court (in an adjacent county) to finalize matters. The judge, a very respected figure, was obviously annoyed we had not used an attorney from his own county. And when he saw the fee to be paid to our lawyer, the judge called the attorney to explain it. “Is this fee adequate?” he asked, suggesting it should be increased. Our lawyer explained the fee arrangement with his client, and that he was perfectly satisfied with the amount. The judge frowned and moved on to other matters.

    When my mother-in-law died, that process was repeated: again the judge’s only expressed concern was that the lawyer was being paid too little.

    We’ve all come to expect attorneys to charge dearly for their services. However, I would think judges should not see themselves as advocates for the attorneys who appear before them. But of course, judges are lawyers too.

  • avatar
    obbop

    Majority of the Congress critters list lawyer as their occupation (going by memory from a past essay).

    The legal system is a monopoly wherein those that work within the law generally make the laws.

    The legal system is not a justice system.

    Those within the legal system are the ones that created the legal system and ensured when doing so that those working within that system maximized their incomes.

    Plenty of negative publicity about working-class unions to be found but the elites of the USA have ensured that much less negative publicity about the legal system union, the “Bar,” is bandied about.

    There are some interesting books written over the decades by those working within the legal system who bucked the trend and wrote a “reveal all” type of book informing the reader of the many travesties involved in a system NOT designed for the good of the people.

    Unable to recall any specific titles but those books are out there and for those truly wanting enlightenment about the issue (such a minute portion of the USA citizenry) Amazon is one place to seek source material, along with a general Google search.

  • avatar
    Adub

    The legal profession is unionized just like the UAW. That’s why it is so expensive. The legal profession is a scam: and you have to pay to play, otherwise you get hosed.

  • avatar
    Justin Berkowitz

    Adub :

    The legal profession is unionized just like the UAW. That’s why it is so expensive. The legal profession is a scam: and you have to pay to play, otherwise you get hosed.

    They used to go after people for writing books about how to do your taxes or how to represent yourself in court.

    Keep in mind that lawyers are among the only self-regulated groups of professionals in the country. If you do something really bad as a lawyer, the bar comes after you. The courts will defer to what the bar association deems is the penalty.

  • avatar
    cthill

    While I understand that the media needs to be devils advocate and argue many points of view it seems a bit rich for a site that has argued that the only way to save GM was a bankruptcy to complain about the legal costs of the bankruptcy.

    Yes legal fees in general are too high however this has been the case all the while TTAC has argued for a bankruptcy.

  • avatar
    Alcibiades

    There is no monopoly in the legal profession. Anyone who thinks that has not bothered to look at the facts. A thousand firms would compete to represent GM as debtor’s counsel in a Chapter 11, but only a few firms have the size and ability to handle the case. Weil, Gotshal is among the few. They are very expensive, but considering the savings involved in a successful chapter 11, and the risk of an unsuccessful chapter 11, spending $1 billion, versus $500,000,000 on a cheaper firm doesn’t make any sense. It’s the right result that is all-important, not the size of the attorney’s fees. That is why firms like Weil, Gotshal get hired in all the big cases.

  • avatar
    toxicroach

    On the other hand the bar often imposes caps on how much you can get compensated. I think the lower limits they used to impose were unconstitutional. And many lawyers run their own businesses and have to worry about other lawyers getting their business, so there is competition. It’s really more of a Guild than a union. It even has the old craft ranks (apprentice/associate, journeymen/senior associates, master/partner).

    But yeah, its a bit like a union. Cynically funny tidbit: the standard for lawyer malpractice is that you have to prove that if the lawyer hadn’t f’d up, you would have won. The standard for a doctor is that he f’d up and it probably caused harm.

    I doubt its a coincidence its harder to sue a lawyer for malpractice than it is anyone else, do you?

  • avatar
    toxicroach

    The associates probably aren’t cooking up grand legal strategy, they are doing the grunt work (gathering evidence, paperwork, and otherwise reducing the # of hours the partners have to spend on the easy stuff).

  • avatar
    KnightRT

    In the top law firms, associates are expected to bill between 2100 and 2300 hours in addition to mandatory pro-bono work. The latter number is over 6 billed hours per day, 365 days per year. In practical terms, that translates to workweeks of upwards of 80 hrs with rare layoffs for weekends or holidays. That’s only after being pummeled through three years of law school to graduate in the top 10%, and paying $110,000 for the privilege. Of what the partners bill, perhaps $130K gets back the associate. Relative to the time commitment, the money hardly seems worth it.

    Bankruptcy law on GM’s scale requires tremendous expertise and the stakes are enormous. It’s highly specialized work, and $355/hr to have some of the brightest minds in the United States wade through it is a bargain. I’m sure Joe Attorney would be more than willing to handle your no-fault divorce for a couple bucks; corporate bankruptcy is an entirely different ballgame.

  • avatar
    97escort

    So now we learn that bankruptcy for GM is not as wonderful as often portrayed at TTAC.

    There are huge hidden costs to bankruptcy. It looks easy, quick and the solution to a difficult problem, but as it happens control of the situation is lost.

    Perhaps Rick Wagoner has it figured out better than some posters here.

    The American people will pay dearly bailout or no bailout. Stupidity is expensive.

  • avatar

    From a lawyer:

    the sort of law firm which gets this work is a huge operation…your storefront guy can’t do this. You are in a top 10% of the top 10% of the profession. The associate may bill that high, but he does not get that much. A big firm is a pyramid scheme. If you can survive it, you can be a partner (about 7% of those from my class, 1983, who get into the “big firm” get that brass ring. The rest become “senior associates” or “nonequity partners”). The guy on the bottom is putting in insane hours (on salary), and while well compensated for someone who has to get directions to the Courthouse, will probably burn out in a few years if not “partnership track”.

    Most attorneys don’t work for this kind of Operation, and we are entertained when they try to do their own Municipal Court case or their own house closing.

    These high billables are very rare, which is why they are newsworthy.

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