March 22, 2012 6:03 PM

Brown Rudnick Defends Beacon Power Bankruptcy Fees, While Kodak Billers Line Up

Posted by Brian Baxter

What a difference a week makes.

After taking a bankruptcy victory lap for helping renewable energy client Beacon Power emerge from Chapter 11 through a $30.5 million sale to private equity firm Rockland Capital earlier this month, Brown Rudnick is coming under fire for fees the Justice Department calls “excessive and disproportionate to the size of the debtors’ estate.”

In a nine-page response filed last Thursday, the Justice Department expressed its objection to the $491,018.50 in attorneys’ fees and expense reimbursements that Brown Rudnick applied for in January as Beacon Power sought a buyer.

Justice Department lawyers claim in the filing that Brown Rudnick “continued to staff the case as if it were a robust Chapter 11 proceeding with substantial estate funds that would benefit all creditors, including priority and unsecured creditors.”

Brown Rudnick disagrees. William Baldiga, the managing director of the firm’s litigation and restructuring group, says the fees are of “no economic consequence” to the debtors’ estate. “We’ve not been paid $1 since the beginning of this case,” Baldiga adds. “There were no retainers paid here, everything is on contingency.”

As Baldiga sees it, under a court-approved contingency fee arrangement, Beacon Power’s restructuring advisers—including Delaware firm Potter Anderson Corroon and CRG Partners—stood to make about $2.8 million in total in the form of a success fee, with Brown Rudnick getting about $2 million of that sum.

But there is no money left in the Beacon Power estate to pay that success fee, as most of the $30 million being put up by Rockland Capital is not in the form of cash, Baldiga says. With the Justice Department only objecting to lodestar fees, or those incurred by Brown Rudnick and other professionals in the ordinary course of Beacon Power’s bankruptcy, any reduction in those fees would be offset by the monies from the outstanding success fee that would fill their place.

In sum, Brown Rudnick stood to make roughly $5 million from its work on behalf of Beacon, but will only get a little less than $3 million for its efforts in the case due to the lack of available funds. Baldiga says he understands the Justice Department’s need to take a hard line in a case involving a debtor that received government backing.

The Department of Energy stands to recoup roughly 70 percent of its investment in Tyngsboro, Massachusetts–based Beacon Power, which owed $40 million under a federal loan program when it filed for bankruptcy last Halloween in the aftermath of the collapse of government-backed solar panel manufacturer Solyndra.

“The [Energy Department] has to take certain positions with an eye towards other court cases,” says Baldiga, acknowledging the political sensitivities in the Beacon Power bankruptcy. “We respect the fact that they’re operating in the public spectrum and we’re proud of our work in this case.”

One firm that that may be having a more positive experience in its first role as lead debtors’ counsel is Sullivan Cromwell. The Am Law Daily reported in January that longtime client Eastman Kodak is relying on the firm to advise it in its Chapter 11 case.

On Tuesday, SC and several other firms representing Kodak submitted their first applications for compensation in the case. The Wall Street Journal‘s Bankruptcy Beat first had news of the fee requests, which under the bankruptcy code seek payment on 80 percent of their fees and expenses.

Leading billers through the first three months include SC ($5.4 million), Delaware counsel Young Conaway Stargatt Taylor ($692,042), international counsel Linklaters ($374,219), and special labor and employment counsel the Groom Law Group ($31,647).

Make a comment

Comments (0)
Save Share: Facebook
| Email

Reprints Permissions



Report offensive comments to The Am Law Daily.