The Electrifying Cost of Going Bankrupt: A Look At PG&E’s Fees

This is no joke.

How many lawyers were involved with PG&E’s recent bankruptcy case?

Enough to fill at least two dozen large commuter buses.

More than 800 lawyers representing PG&E Corp. its Pacific Gas & Electric Co. subsidiary, local and state governments, federal agencies, creditors, investors, wildfire victims and other interested parties received official court approval to participate in the 18 months of haggling over the future of California’s largest utility.

When scores of other partners, associates, and in some cases law school graduates not yet admitted to the bar are included, the total exceeds 1,200 – with at least 550 of them working for the 17 law firms whose fees and expenses PG&E itself must pay.

PG&E filed bankruptcy in January 2019 in the wake of lawsuits seeking billions of dollars in damages from a series of 24 wildfires between 2015 and 2018 including the Camp Fire in Butte County that incinerated the town of Paradise and claimed 86 lives. The federal bankruptcy proceeding allowed the utility to restructure its finances, settle wildfire claims and remain in business.

Nothing brings lawyers out of the woodwork faster than a corporate bankruptcy guaranteed to generate millions in legal fees. Where the fifth largest bankruptcy in US history was involved lawyers quickly discovered California really is the Golden State and PG&E’s bankruptcy was the Mother Lode.

So far the utility’s tab for its share of legal costs has reached $600 million, and could go higher, possibly reaching $700 million.

That estimate was made last month in a report submitted by Bruce Markell, the court-appointed Fee Examiner responsible for scrutinizing thousands of pages of invoices submitted by the law firms and 13 other consultants appointed to advise PG&E on matters related to financial restructuring, unsecured creditors and wildfire victims. It dwarfs the $400 million in fees the utility is believed to have paid for its previous bankruptcy in 2001 when it faced insolvency resulting from California’s disastrous experiment in energy deregulation.

Scores of other attorneys representing local and state governments, federal agencies, banks, and others who claim PG&E owed them money, will be paid by their respective clients. Those legal fees aren’t subject to the examiner’s review.

A spokesperson for the California Public Utilities Commission, which regulates PG&E and approves its rate requests, told Patch the current bankruptcy expenses must be paid by stockholders and can’t be passed along to customers.

At the time Markell submitted his report on August 28 he’d received bills totaling $597.5 million with about $406 million of those awaiting review. Of the $169.7 million in bills examined up to that point, Markell had negotiated $5.1 million in reductions and more are expected before final amounts receive approval from bankruptcy judge Dennis Montali.

Watching the Checkbook

In all bankruptcy cases, especially those involving large corporations utilizing the services of multiple top-tier law firms, somebody has to watch the checkbook. That task falls to the Office of the U.S. Trustee, a division of the Justice Department responsible for monitoring the conduct of parties involved in the case and ensuring laws and procedures are followed.

At the trustee’s request in May 2019 Judge Montali appointed Markell, a law professor at Northwestern University in Chicago and former Nevada bankruptcy judge, to examine fee invoices and expense reports submitted by PG&E’s attorneys and consultants.

By October 2019, some $150 million in invoices covering just the first four months of the proceedings had been submitted with requests for interim payments.

Reviewing those bills Markell soon discovered some law firms were playing fast and loose with their billing practices and frequently ignored local court rules dictating limits on travel and other expenses. This prompted the examiner to request, and obtain, a court order establishing consistent billing procedures and imposing limits on what could and could not be charged.

In seeking the order, Markell addressed the mounting cost of payments requested for lawyers’ hourly fees – often exceeding $1,500 an hour – for traveling to and from court proceedings. In a few cases lawyers traveling from New York, Florida, Illinois, Michigan and Ohio to attend hearings were flying first class.

“The Fee Examiner does not object to billing while traveling if the professional is engaged in activity that benefits [PG&E],” Markell told the court. What he did object to, Markell said, was “sitting on a plane watching a movie while flying to San Francisco” while the hourly meter was running.

Andrew Vara, the acting Trustee agreed. In supporting Markell’s request, Vara said a court order was critical because the fees billed up to that point would likely eventually rank the PG&E proceedings “among the most expensive bankruptcy cases ever filed.”

Going further, Vara said his own review of the invoices “reflect numerous instances of questionable billing judgment and overstaffing, and in many cases the professionals appear to have simply disregarded” several of the local court rules on travel, meals and other activities. This review, said the Trustee, revealed “at least $4 million in improper, excessive or otherwise objectionable fees and expenses” – about 6% of the total billings submitted up to that point.

Packing the Courtroom

One of Vara’s primary complaints was the practice of overstaffing – law firms assigning multiple attorneys to attend the same internal law firm meetings and teleconferences — citing at least 155 occasions multiple participants billed for attending – “including 26 instances in which a meeting was attended by more than 12 [lawyers] from the same firm.”

This overstaffing, according to the Trustee, extended to Montali’s courtroom where he found repeated instances of law firms billing for several of their attorneys to attend the same court hearing.

“Although many of these hearings involved multiple firms representing the same clients – which if nothing else should have reduced the number of attorneys per firm attending the hearing – there were 20 instances [during the first four months of the proceedings] where a single firm billed for five or more attorneys to attend the same hearing,” Vara said.

One example cited by Vara involved a hearing in May 2019 when two attorneys appeared in court to present oral arguments, yet their firm billed for 11 lawyers, including four whose fees were more than $1,100 per hour. The Trustee complained that invoices submitted did not “offer any explanation for why nine other professionals were required to be in the courtroom or on the phone to observe the argument.”

Billable hours – the holy grail of every law firm – also drew Vara’s scrutiny, which found many instances of individual lawyers recording “extremely high, and in some cases implausible numbers” of hours billed for a single day. While the Trustee found frequent billings for attorneys, who did not travel, claiming 12-hour work days there were 44 occasions where 16-hour days were billed and four invoices from lawyers billing 20 or more hours a day – including one attorney who billed 24 hours in one day.

Even the Utility Reform Network (TURN), a nonprofit organization advocating for PG&E customers, was alarmed at the amount of the initial bills, noting fees and costs were exceeding $1 million a day and asking the court to “disallow fees for the egregious billing practices highlighted by the Trustee.”

Further, Vara found 221 instances where law firms billed for expenses related to the bankruptcy before the case was even filed or the firm had been formally retained.

Also drawing the Trustee’s attention were those from one New York firm for 15 associates who had not yet been admitted to the bar when they first began working on the case. Although all were subsequently admitted, the firm billed $2.4 million for work performed before their admission at rates charged for first and second year associates who were members of the bar.

Other items, too, raised eyebrows.

One lawyer billed more than $6,000 to review, edit and re-edit the same legal document prior to its filing with the court, according to entries contained in hundreds of pages of itemized invoices submitted to the fee examiner.

A few invoices reflected charges by lawyers flying from New York to San Francisco and staying overnight at an upscale hotel just to attend a court hearing lasting a few hours before flying back home the same day.

In several instances firms charged thousands of dollars to prepare the monthly bills submitted for payment. One lawyer billed $15,000 to review, revise and discuss their firm’s payment request while a colleague billed $1,800 to review the court’s fee guidelines.

Some firms even billed for keeping an eye on the news media, one charging $3,000 to “review media reports” and another submitting invoices for analyzing media issues that included $944 to review a single news story.

Still another firm billed $173,000 for work on a public relations strategy that included designing a media game plan and retaining public relations advisors.

Winners and Losers

“There were winners and losers in the PG&E bankruptcy, and lawyers were clearly among the winners,” TURN communications director Mindy Spatt told Patch. “PG&E has cried broke to avoid penalties at the CPUC, shortchange fire victims and refuse to pay customers’ damages after shutoffs. But it never seems to run out of money for slick, expensive lawyers.”

“PG&E retained expert advisors to help guide us through the complex Chapter 11 process and help shape the business for the future,” a utility spokesman told Patch. This expense would permit the company to remain focused on serving customers, enhancing our wildfire safety efforts and creating a more sustainable corporate foundation for the delivery of services, he said.

Although PG&E Corp., the California utility’s holding company, suspended stock dividends in late 2017 after paying stockholders $1 billion during the first nine months of the year, those distributions won’t be coming again soon. As a subsidiary, Pacific Gas & Electric Co. profits – generated from some 5.4 million customers — flow to the parent corporation which in turn distributes dividends to its stockholders.

Before PG&E can resume paying dividends it must meet certain financial benchmarks. In a July filing with the Securities & Exchange Commission the company said it didn’t expect to begin dividend payments once it emerged from bankruptcy and wouldn’t predict when they’d resume again.

However, a March disclosure statement filed with the court contained financial projections where the holding company suggested common stock dividends could resume by 2022 with aggregate shareholder distributions totaling $900 million by 2024.