Investors worry as Met faces millions in legal fees
Sat., Aug. 14, 2004
Costs in the Metropolitan Mortgage & Securities Co. Inc. bankruptcy are piling up, even as creditors worry about recovering at least some of their investments.
In the first part of the year, lawyers, accountants and advisers who are working to unravel the financial mess have charged the company about $4 million, according to records filed in U.S. Bankruptcy Court in Spokane. And they will get paid before anyone else.
The fees charged by these professionals – often hired from outside Spokane – can top $400 an hour.
P.J. Grabicki, an attorney representing creditors in the case, knows the expenses are upsetting to his clients ensnared in Spokane’s largest-ever bankruptcy case.
“They’re just unavoidable,” he said.
Grabicki’s firm has billed Metropolitan $234,552 for 1,100 hours of work from Dec. 15, 2003, through May 31 of this year. His fee is $225 an hour.
While such numbers may concern creditors who want the case quickly settled, the size, scope and complexity of Metropolitan ensured that the bankruptcy would be expensive and take time.
Atop all that, Grabicki said, accounting irregularities and fraud investigations have added to the cost.
Court records show Metropolitan has paid close to $1 million to lawyers and their staffs for reviewing documents and reconstructing e-mails to comply with various federal investigations.
Those probes include a securities fraud investigation by the U.S. Securities and Exchange Commission and subpoenas from a federal grand jury in Portland, which is looking into deceptive sales practices by Metropolitan and its brokers.
Metropolitan’s main law firm, Seattle-based Lane Powell Spears Lubersky LLP, has led much of the compliance effort.
Sixty-four employees of that firm, including lawyers, paralegals, information technicians and librarians, worked a total of 7,583 hours on the Metropolitan case, according to billing records.
Lane Powell is seeking $1.78 million in fees and $60,821 in expenses for its effort spanning from Jan. 2 through May 31. Metropolitan filed for Bankruptcy Court protection on Feb. 4.
“I think we’re over the worst of it,” Grabicki said of the charges. “The SEC and grand jury actions just blow these fees out of proportion.”
During the eight months leading up to May 31, Metropolitan and its affiliated companies lost more than $27 million.
The professionals bill in six-minute increments, so even a 12-minute phone call between two lawyers can cost Metropolitan more than $100.
Turn that phone call into a conference call with multiple listeners and the costs multiply.
The lawyers and accountants also incur expenses. Airline tickets, hotel rooms, meals and rental cars can cost thousands.
Lawyers often stay at the Davenport Hotel, where they enjoy a special rate of about $100 a night. Expense reimbursements show $13 lunches at Niko’s restaurant and dinners costing more than $30 at the Davenport’s Palm Court.
Among the costliest expenses in the Metropolitan bankruptcy have been retrieving documents, making paper copies and reproducing depositions. One firm spent $17,000, for example, on copies and depositions – more than the $10,000 the Los Angeles firm spent on air fare.
The mounting costs irk James Glass, the husband of creditor Gail Glass.
“When something like Metropolitan happens, the buzzards come out,” said Glass, a retired physics professor at Eastern Washington University.
The Glasses had $15,000 invested with Metropolitan and worry that the ongoing legal work will drain too much money from Metropolitan at the expense of creditors – many of whom had their life’s savings invested.
“The first people paid from any money out of Metropolitan should be these investors,” Glass said. “Instead, the first paid are the lawyers and the accountants.”
He wants the judge in the bankruptcy case to consider paying back investors directly with real property – essentially, deeding property over to creditor groups – rather than paying fees to professionals who will market and sell the company’s land and other holdings at deep discounts.
Liquidating assets like that, Glass said, could make Metropolitan a victim of its own business practices.
The company purchased discounted properties, turning the practice into a steady business.
Judy House, a creditor who claims she was duped into investing in Metropolitan, said the experience has left her distrustful of any investment.
“I know there’s a lot of us out here who just hope there’s something left,” she said.
“It seems like that’s an awful lot of money to be paying these folks.”
Metropolitan chief restructuring officer Bill Romney, who was hired last spring after the resignation of CEO and Chairman C. Paul Sandifur Jr., could not be reached for comment on the professional fees.
Yet Romney is on pace to bring the first phase of Metropolitan’s bankruptcy to an end.
By the end of August, Romney and the dozen or so firms working on the case are expected to release a reorganization plan that will outline how Metropolitan will liquidate its assets and establish special trusts to pursue legal action against parties such as Metropolitan’s former auditors PriceWaterhouseCoopers LLC and Ernst & Young LLC.
If the plan is approved, Romney’s tenure with Metropolitan likely will end.
Had the bankruptcy been filed in Delaware, where many corporate bankruptcies occur, the professional fees could have been double or triple the cost in Spokane, because professional fees in that region tend to run higher.
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