Small Legal Charge Raises Big Questions in Armstro

Lancaster, PA, May 30, 2006--Something tiny but puzzling caught the eye of Bankruptcy Judge Judith K. Fitzgerald, according to the Lancaster New Era. It was a small charge on an immense bill from the main bankruptcy law firm used by Armstrong World Industries. By law, Fitzgerald has to approve the charges submitted by the law firms in the bankruptcy case before Armstrong can pay them. In big-time bankruptcies such as Armstrong’s, six-figure legal fees flow like water. And on the law firm’s $849,000 bill for services during summer 2005, this $29,000 charge was the proverbial drop in the bucket. But when the bill came before Fitzgerald at a May 15 hearing for her approval, the description of the little charge made her curious. So she asked about it. And when Fitzgerald learned it was for sending an attorney to observe a different case--in which the law firm already had staff assigned--her mood went from curious to critical. She cut the charge by $25,000 and in the process, shed light on the kind of costs that those large legal fees can and can’t cover. “Not everything that people do outside bankruptcy including breathing is billable,” said the judge, according to a transcript of the Wilmington, Del., hearing. Armstrong’s lead bankruptcy law firm is New York-based Weil, Gotshal & Manges, considered one of the leading firms in that speciality. Its top partner working on the Armstrong case bills at more than $800 per hour. The bill for June, July and August 2005, which included a $16,000 charge just to prepare the bill itself, brought Weil Gotshal’s total fees since the December 2000 start of the bankruptcy to $17.4 million, court filings show. The exchange began when Fitzgerald noticed Weil Gotshal had billed Armstrong to send an attorney to observe a hearing to confirm the Federal-Mogul bankruptcy plan. Fitzgerald asked Weil Gotshal attorney Joshua Sussberg whether the firm was involved in the Federal-Mogul case. Sussberg said yes, the firm represents a committee in the case. If Weil Gotshal already had lawyers at the Federal-Mogul hearing, the judge wondered, why is Armstrong being billed so the firm could send another? Sussberg replied that Weil Gotshal’s attorneys working on the Armstrong case “don’t communicate” with the ones working on the Federal-Mogul case. But since several key issues in the Federal-Mogul confirmation hearing were “identical” to ones that would confront Armstrong at its confirmation hearing, it was “very important” for a Weil Gotshal attorney working on the Armstrong case to attend, said Sussberg. (That Armstrong plan-confirmation hearing began Tuesday and is continuing.) Fitzgerald asked if the same judge was handling both the Federal-Mogul and Armstrong confirmation hearings. When Sussberg said no, Fitzgerald responded, “So then what good did observing it in Federal-Mogul do you?” Sussberg reiterated that “many similar issues” were involved. “Yes, and you can read the transcript and find out without spending four days in a trial,” answered Fitzgerald. The attorney then raised a new defense--that “many of the similar experts” were testifying in both cases, and their effectiveness could best be gauged in person. Fitzgerald was unmoved. “I absolutely cannot see how a law firm that’s involved in the case directly that’s at trial gets paid for being involved in that case and then gets paid for observing the case by different professionals in the second case,” she said. “If there was ever a double dip, that seems to me to be the double dip.” After Sussberg again said Weil Gotshal needed to see the witnesses in person, the judge remained unpersuaded. She responded that those observations should be a “nonbillable function...I really just cannot see this one. I just can’t see it.”