Liberty House
legal fees
mounting

Agents are seeking $3.3 million
in what could become the costliest
bankruptcy in Hawaii

By Peter Wagner
Star-Bulletin

The $10 cab ride wasn't much. Not compared with the $1,022,689.75 billed to Liberty House by New York consulting firm Zolfo Cooper LLC in the first seven months of the retailer's bankruptcy.

But John Candon, a court-appointed accountant whose job it is to scrutinize professional fees in the Chapter 11 case, wondered what other frills might be in Zolfo's hefty bill.

Sorting through a mountain of receipts, he found $9,496.58 in first class airline upgrades, luxury hotels and other expenses the firm later agreed to trim from its invoice -- including cab fare.

Zolfo, a top financial consulting company helping Liberty House with its reorganization plans, is among 12 legal, accounting and consulting firms seeking payment for services between the March 19 bankruptcy filing and Sept. 30.

Some $3,342,972.80 in billings are to be considered tomorrow by U.S. Bankruptcy Judge Lloyd King. With the case generally thought to be at midpoint, the $3.3 million could double before Liberty House emerges from bankruptcy. That would eclipse the $5.4 million cost of Hawaiian Airlines' 1993 bankruptcy, the biggest Chapter 11 in Hawaii to date.

"It's the cost of doing business," said former Hawaiian Airlines president Mitch D'Olier, now CEO at Victoria Ward Ltd. "If you want the best professionals, you've got to give them the best."

Zolfo's adjusted $1,013,193.17 fee request -- $872,652 in professional fees and $140,541.17 in personal expenses -- is the largest of the Liberty House submittals, followed by $949,367.11 asked by Los Angeles law firm Hennigan, Mercer & Bennett and $412,819 billed by New York accounting firm Deloitte & Touche LLP.

Hennigan, Mercer is lead counsel for Liberty House.

Zolfo is alone among the firms in drawing a challenge from Candon, who said he will ask King to withhold 20 percent of the firm's fees until a reorganization plan has been filed and judged on its merits.

"If you're going to be paying top rates, you should be getting top quality," said Candon. "The proof will be in the pudding."

The 20 percent holdback would amount to $174,530.40 -- the balance owed on Zolfo's billing. The firm has objected to the holdback, saying it has worked diligently on the case since January and shouldn't be singled out.

"All of the professionals retained in this matter should receive like treatment as to the manner and timing of payment of fees and expenses," the company said in a recent court filing.

Most of the firms have already been paid 80 percent of their fees and 100 percent of expenses under an arrangement approved by the court. But the payments are tentative, pending the court's final approval at the close of the case.

If Candon has taken aim at Zolfo, other parties in the case are standing carefully away. With a collaborative reorganization plan due at the end of February, few are willing to rock the boat over a few wayward bills.

"We would not ordinarily make an objection on an interim application for compensation unless something was serously out of whack," said attorney James Wagner, representing Liberty House vendors and other unsecured creditors in the case.

Wagner notes that objections are rare at this point in a bankruptcy, with concerns usually raised at the end of a case. He anticipates the reorganization will be over by May or June of next year.

But Wagner, who represented Hawaiian Airlines in its Chapter 11 bankruptcy five years ago, sees little amiss in the fee requests.

"If you compare the fees in this case to fees in the Hawaiian Airlines case, they are consistent," said Wagner, who bills at $290 an hour.

Hawaiian Airlines, which filed for bankruptcy in September of 1993, emerged with an approved reorganization plan in August 1994 at a cost of $5,371,252.38. The top-billing firm was Los Angeles law firm Gibson, Dunn & Crutcher, which received $3,380,805.08 for its services as lead counsel.

If Candon has trimmed around the edges of some Liberty House billings, he's left the big ticket items -- mainland professional fees above $400 an hour -- unchallenged. "It's a very complicated case," he said. "I'm not shocked to see high fees in this case."

But others involved in the case confide that monitoring professional fees is problematic. Unlike travel expenses or other personal costs that leave a trail of receipts, professional billing rates are a moving target. There is no practical way to determine if too much time has been billed for the drafting of a letter or a phone conversation with a colleague, they say.

Among the heavy hitters is Liberty House attorney Bruce Bennett of Hennigan, Mercer & Bennett, who charges $430 an hour. Zolfo Cooper principal Stephen Cooper, whose cab ride drew Candon's attention, commands $395 an hour. Lawrence Gottlieb, whose New York law firm Kronish, Lieb, Weiner & Hellman LLP represents unsecured creditors, gets $415 an hour.

Honolulu law firms in the case generally bill between $200 and $300 an hour. But the higher mainland fees are in keeping with their big league markets, said Wagner.

"The debtor gets to choose his counsel and if he chooses an L.A. counsel, the court is going to approve L.A. rates," said Wagner. "If he chooses New York Counsel, the court will approve New York rates."

Attorney Tom Roesser of the Honolulu firm Carlsmith, Ball, Wichman, Case & Ickiki represents the case's major creditors, headed by Bank of America.

"This case is complicated enough to require the employment of attorneys who are specialized to do this kind of bankruptcy full time," he said.

"I don't think we have a lawyer in Hawaii with the experience to handle a large retail Chapter 11 like this."

Like Wagner, Roesser is leaving the billings to Candon.

"I think you want someone like John Candon taking a look at these bills," said Roesser. "His purpose is to set the parameters of what's acceptable."

One bill yet to be submitted is Candon's, who plans to file at the end of the bankruptcy. Billing at $140 an hour, his fee is currently in the range of several thousand dollars.