Mounting legal bills raise questions about what will be left for Tom Petters' creditors.
Recent court documents show that it's costing $142,000 a month to pay the bills for jailed businessman Tom Petters and his estate, but that looks cheap compared with the bills submitted by the pack of attorneys working on related court cases.
Lawyers representing Petters, his companies and co-defendants are seeking more than $1 million in fees, mostly for work performed in October, after the Petters investigation exploded into public view, according to documents filed Wednesday in U.S. District Court in Minneapolis.
Those bills are for some criminal work involving Petters and three co-defendants, as well as civil and bankruptcy cases involving a number of Petters' companies.
The total doesn't include legal bills related to a separate bankruptcy of Sun Country Airlines, where Petters is the majority shareholder. Nor does it include costs for a receivership overseeing the businesses and assets of Frank Vennes Jr., a Petters' associate who has not been charged.
Attorneys and their staff are charging rates ranging from $165 to $750 an hour for the Petters cases. That seems about right to Herbert Kritzer, a professor at William Mitchell College of Law in St. Paul who studies the profession.
"As hourly rates go these days, nothing in this case strikes me as out of line. It's not surprising once you think about the amount of time going into this," Kritzer said.
Complicated cases such as the Petters saga generate mountains of legal fees, he said. "In big-time bankruptcies, it's amazing the amount of money that is spent."
Doug Kelley, the court-appointed receiver handling Petters' personal and business assets since his Oct. 3 arrest, wants U.S. District Judge Ann Montgomery to approve the payments. He says in court papers that the work was necessary and the fees justified. A hearing on his motion is scheduled or Tuesday.
October is sure to be the costliest month for the Petters case, given the amount of time spent gathering and analyzing documents from the spaghetti bowl of business entities involved in the case.
"For the first six weeks people were essentially working 24/7 on this case," Kelley said in an interview. He and those working with him had to set up the receivership, learn about the multiple Petters businesses, review more than 9,000 promissory notes to investors, reduce Petters' staff and determine which companies needed to go immediately into bankruptcy.
Taxpayers aren't on the hook; a $10 million insurance policy will cover most of the legal bills for now. Still, the ongoing cost of running the cases working their way through civil, criminal and bankruptcy courts simultaneously means more big bills ahead. That raises questions about what will be left of Petters' business and personal assets to pay investors and other creditors.
If there's waste, they'll scream
Ronald Peterson, acting chair of the committee for unsecured creditors in Petters' combined corporate bankruptcies, said creditors are never happy to see high administrative costs. "On the other hand, you have to give to get," he said.
"We are going to look at these fees and make sure the money is well spent," Peterson said. "If we think there is waste, we're going to scream like stuck pigs."
Peterson is a trustee in the liquidation of bankrupt hedge fund Lancelot Investors Fund, based in Northbrook, Ill., which invested about $1.5 billion with Petters.
The fattest legal bill -- $607,000 -- comes from Lindquist & Vennum, the Minneapolis firm representing Petters and Kelley, the attorney appointed to manage Petters' estate, in bankruptcy court. Attorney Jim Lodoen said his firm's November bill will likely be less than half of October's, when the firm had 40 attorneys and 10 paralegals working on the case at an average of about $300 an hour.
"It was just a huge information upload and triage period," Lodoen said.
The legal bills must be paid from the business entities under receivership, he said. If cash flow becomes a problem, Lodoen said, the lawyers and paralegals either work for free or don't work.