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Justice Dept. Questions Blockbuster Legal Fees

20 Jun, 2011 By: Erik Gruenwedel

Trustee representative asks that the balance on nearly $9 million in fees and expenses be deferred or denied

A representative from the United States Department of Justice is questioning interim payments on nearly $9 million in legal fees and related expenses billed to Blockbuster Inc. from Sept. 23 (after filing for bankruptcy) to Dec. 31, 2010.

The United States Trustee Program is an agency of the DOJ that is responsible for overseeing the administration of bankruptcy cases and private trustees.

In a June 17 filing with U.S. Bankruptcy Court in New York, Tracy Hope Davis, the U.S. Trustee for Region 2, filed a motion objecting to the scope of the fees charged by nine firms, including Weil, Gotshal & Manges LLP, Cooley LLP and PricewaterhouseCoopers LLP, among others.

Specifically, Davis said the billable hours submitted by the firms warranted scrutiny “given that every dollar expended on legal fees results in a dollar less that is available for distribution to the creditors.”

According to bankruptcy law, any interim fees awarded or paid are payable on account and are subject to the court’s review at the time of final fee applications.

Blockbuster Inc. through May 1 reported a cumulative pre-tax net loss from continuing operations of $224 million. The rental icon generated a net loss after reorganization items, income taxes and the loss from the sale of assets to Dish Network Corp. ($581.9 million) exceeding $774 million.

Davis said vague or undefined “lumped time” expenses, word processing, library research and clerical fees should be considered overhead expenses and not specific legal fees.

Indeed, the Trustee wondered why Gotshal & Manges should be compensated another $68,000 for a Blockbuster plan of reorganization that never happened.

The rep left no stone unturned, asking that the court deny expenses for dinners in excess of $20 per meal billed by Pricewatershouse over an eight-day period.

The bankruptcy court is slated to hear the matter June 23.

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