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Dan Levine

The Recorder

01-11-2008

Faced with subpoenas from both the Justice Department and the SEC, O'Melveny's government investigations team billed more than 4,000 hours that month, with former Los Angeles U.S. Attorney Alejandro Mayorkas working 145 hours, according to documents filed in the company's bankruptcy proceeding.

At $705 an hour (half for travel time), that translated into nearly $100,000 in fees for Mayorkas, O'Melveny's fee applications say. The entire white-collar group billed roughly $800,000 in September. Over the course of six months, O'Melveny's white-collar group has billed nearly $3.1 million for its New Century work, according to court documents.

With the subprime detonation still mushrooming over the country -- and white-collar practitioners expecting more government investigations -- these kinds of fees could be rolling into many firms soon.

Given the highly complex issues and intensive labor involved with a company in New Century's situation, O'Melveny's rates seem reasonable, said Randall Burrows, a former McKenna & Cuneo partner who is now a managing director at Navigant Consulting Inc.

"When you hear tales of New York partners charging over a thousand bucks an hour, they look like normal billing rates to me," said Burrows, an expert on litigation management.

"It kind of makes me want to go back to practicing law," he added with a laugh.

The New Century implosion has generated even bigger fees for O'Melveny on the restructuring side of the case. Overall, the firm has billed more than $12.5 million in the six months for which it has submitted fee applications.

While O'Melveny's billings may be normal, its restructuring team in the case has come under fire by a bankruptcy examiner and a judge. On Wednesday, Delaware bankruptcy judge Kevin Carey blasted O'Melveny's attempts to keep the examiner's findings under seal, calling the firm's attorney-client privilege arguments a "smokescreen."

"There are various disagreements between the company and the examiner, and the company respectfully declines to comment on them in the media," said Ronald Low, a New Century spokesman who works at Sard Verbinnen & Co.

But, he added, the examiner has never challenged the "substance of the legal advice given to the company."

To put O'Melveny's fees in the New Century case in perspective, in 2006 the firm posted revenues of $869 million. A full year at the pace it is currently billing would amount to nearly 3 percent of the firm's gross. All fees in the case will be subject to court approval, though O'Melveny gets to bank 80 percent of them in the meantime.

O'Melveny was well-placed to catch New Century's restructuring work: It has served as the Irvine, Calif., company's outside corporate counsel since it went public in 2004. New Century's former general counsel, Stergios Theologides, once was an O'Melveny associate. He left the lender in August after nine years there, and did not respond to messages.

New Century announced last February that it would have to restate its earnings due to a problem with the amount of money it had set aside for repurchase of bad loans. That led to an internal investigation by Heller Ehrman, government subpoenas, and the continuing white-collar fees. The company sought Chapter 11 protection in April.

"The investigation by the examiner and the SEC certainly are substantial, but only one part of what the O'Melveny fees are for," said restructuring partner Ben Logan III, who points out that the firm has helped the company auction off a range of assets.

O'Melveny is not the only law firm to earn big white-collar dollars in the New Century bankruptcy.

Upon request of the U.S. trustee, bankruptcy judge Carey appointed K&L Gates white-collar partner Michael Missal, a former SEC staff lawyer, as bankruptcy examiner. Missal's task is to investigate the issues surrounding New Century's restatement and how New Century is managing its assets. He is billing $725 an hour, minus a "voluntary" 10 percent fee reduction.

The examiner retained more than 40 of his colleagues at K&L Gates for the job. That firm billed more than $1.6 million in August, not including Missal's fees. It has claimed a total of more than $8.5 million over five fee applications, which includes the 10 percent reduction.

Missal's investigation of New Century -- which had fought the appointment of an examiner -- soon grew contentious. A key issue appears to be the lender's legal advice, according to court documents.

At the end of August, Missal met with New Century's lawyers to discuss the strategy they used in negotiations with other banks. O'Melveny was the firm providing the legal advice in question, says a lawyer familiar with the case.

In response to "incorrect" perceptions on the part of Missal about New Century's legal strategy, the lender turned over what it calls in the court filing privileged information to the examiner, part of its attempt to change Missal's views.

But that attempt appears to have failed: Missal ultimately filed a report, under seal, which New Century "strongly disagrees with," according to the company's court filing. New Century's legal strategy is "inexorably intertwined" in all of the report's substantive portions, the company says in its filing.

New Century also filed a response to Missal's report under seal, which Missal then claimed in a follow-up filing contained "misleading and inaccurate statements."

Logan declined to comment on the issues with the examiner, but spokesman Low said it would be "absolutely incorrect" to say that Missal had concluded New Century got bad advice.

"To New Century's knowledge, the examiner has never challenged the propriety of the legal advice that the company received," Low said.

Missal's report could be gold for any plaintiffs lawyers attacking the company, and it appears they will soon get access to it. O'Melveny and its local counsel fought to keep the document under seal, arguing that the material given to Missal should not be disclosed.

But the U.S. trustee opposed O'Melveny's attempts, and on Wednesday, Carey indicated he would soon release the report. The judge said he was "singularly unimpressed" with O'Melveny's reply to Missal, and he derided the company for adopting a "bunker mentality."

Logan declined to respond to the judge's comments.

O'Melveny restructuring partners Logan and Suzzanne Uhland litigated the issue for New Century. Logan bills $790 an hour, while Uhland comes in at $725.

The Associated Press contributed reporting from Delaware.