Some of the top law firms have surpassed inflation with their latest increases in bankruptcy rates, as leading restructuring lawyers are now charging around $2,500 per hour for their work in complex bankruptcies.
Bankruptcy fee disclosures of 2024 rates offer a rare look into the amount that top lawyers charge, information that firms are not eager to share. However, the bankruptcy process requires more transparency about fees in cases like those of WeWork Inc. and FTX, which are likely to closely track how much firms charge for other practices, according to discussions.
“I have no doubt that top lawyers in other specialties are charging the same or higher rates,” said Robert Keach, a prominent fee examiner who co-chairs Bernstein, Shur, Sawyer & Nelson PA’s restructuring group.
The higher rates are occurring as law firms are increasing associate pay and as complex bankruptcy cases are requiring lawyers to address novel questions about handling cryptocurrency and resolving mass tort liability.
The latest increases for 2024 continue a noticeable trend, Keach said.
“It wasn’t that long ago when the threshold was $1,000 an hour for top partners,” he said.
In 2024, leading bankruptcy firms—including Kirkland & Ellis LLP, Latham & Watkins, and Weil Gotshal & Manges LLP—are planning to charge about $1,500 an hour just for their top associates, according to bankruptcy disclosures. Rates at the partner level are at least 50% higher.
High-end Market
Bloomberg Law selected the firms for analysis because of their leading role in large bankruptcies. It looked at required disclosures of fees in bankruptcy cases that were filed in any given year, and focused on rates for top partners or counsels to make the analysis comparable.
Kirkland, Latham, Weil and Skadden, Arps, Slate, Meagher & Flom LLP all increased their top rate between 8% and 12% from 2023 to 2024. In contrast, annual inflation was 3.4% in December, according to the latest figures available.
Brown Rudnick LLP, which typically represents creditors in large bankruptcies, appeared not to have increased its highest rate for this year. Still, at $2,575 an hour, Brown Rudnick disclosed the highest hourly rate among the firms analyzed by Bloomberg Law.
“The Firm’s top rate of $2,575 was charged by a retired senior lawyer in the White Collar Defense, Investigations & Compliance group,” a Brown Rudnick spokesperson said in an email. “That lawyer did not work on any bankruptcy matters. Our top fee for bankruptcy and corporate restructuring work is $2,250.”
Kirkland declined to comment. Representatives for the other firms didn’t respond to requests for comment.
Top firms can charge a high rate because large bankruptcies are a high-stakes, high-dollar game, said James Conlan, who spent 32 years at Sidley Austin LLP, including time as head of global restructuring. Expertise and efficiency in mega cases comes at a price, said Conlan, now CEO of Legacy Liability Solutions LLC, a tort liability management company.
‘Market Check’
But that doesn’t mean the top firms can charge whatever they want. They’re still competing against other large firms, he said.
“The fees are based on what the market will bear,” he said. “If the market won’t allow a firm to charge that much for lawyers in that specialty, they can’t.”
But the bankruptcy market doesn’t work like other legal markets, said Nancy Rapoport, a fee examiner and bankruptcy law professor at the University of Nevada, Las Vegas. Fees are paid out of estate funds and are given priority for repayment in bankruptcy. That means there are fewer forces pushing rates down, she said.
The top firms are typically employed by the debtor, and generally they charge the highest fees, said Conlan.
The highest hourly rate charged by the debtor’s counsel is a “significant predictor” of how much a bankruptcy will cost, according to a 2007 study commissioned by the American Bankruptcy Institute.
“Even though the highest hourly rate is rarely the prevailing rate for most attorneys in the case, it is an indicator of a higher overall rate structure,” the study found.
Rising Associate Pay
Big Law firms bumped salaries for senior associates up to $435,000 this year. But lawyers were split over whether the pay hike corresponded to the latest increase in hourly fees.
The market for associate pay functions separately than the market for fees, Conlan said. Firms increase associate pay to keep pace in the race for talent. When they set hourly fees, they’re competing against each other for business.
“I don’t see any connection,” he said.
But Keach disagreed, suggesting higher rates were at least somewhat tied to higher pay.
“There certainly have been large increases in cost for the retention of associates, which tends to mean you’re increasing costs all the way up through the levels of staffing,” Keach said. “That would have to have some influence on the increase of rates.”
Anthony Casey, a bankruptcy law professor at the University of Chicago, said the continuing increase in hourly rates “would be consistent with inflation and labor markets in other industries.”
Rising associate pay “suggests that good lawyers have just become more expensive because of supply vs. demand,” Casey, a former Kirkland partner, said in an email.
The Bloomberg Law analysis showed that most law firm increases outpaced the overall rate of inflation in the economy over the past five years.
Greater Complexity
Higher rates aren’t the only force increasing the cost of a complex bankruptcy.
In cryptocurrency bankruptcies such as FTX’s, for example, lawyers—and judges—are addressing an emerging area of the law, sometimes shaping it as they go. That can mean lawyers spend more time working on the case, wracking up higher fees in the process.
In many large bankruptcies, the US Trustee, the Justice Department’s bankruptcy watchdog, also raises objections, and lawyers charge for the time it takes for them to respond, Casey said.
In FTX’s bankruptcy, the decision to appoint an examiner will have a similar effect, Casey said—and that’s after lawyers billed for time arguing over whether the examiner should be appointed.
“As various stakeholders become more sophisticated, or the U.S. Trustee plays a more active role, there will be more for all the lawyers to do,” he said.