Dozens of law firms around the country have billed the Penn Central Transportation Co. for close to $50 million in legal fees for helping to get the bankrupt corporation back on its feet, U.S. court records here show.
The largest payment to date was made to Covington & Burling, Washington's largest law firm. It already has collected $7.4 million in legal fees for its eight years of work as the lead special counsel for the trustees who are running the company, which declared bankruptcy in June 1970.
It was the largest corporate bankruptcy in the nation's history, and experts believe it has produced the highest claims for legal fees of any bankruptcy case in the country.
Because the fee requests are on the public record, the Penn Central case gives an unparalleled chance to see how the nation's major law firms bill their corporate clients and the wide range in hourly rates charged by lawyers across the country.
"It sounds like the most remunerative case ever," said Mark Green, director of Public Citizen's Congress Watch and editor with Ralph Nader of the book "Verdict on Lawyers."
"Whatever you see as lawyers' fees requested is probably 25 percent or 30 percent less than they ususually bill because the law firms know the requests would be publicly disclosed," Green continued.
Nonetheless, said John B. Rossi Jr., an attorney who has been keeping tabs on the legal fee requests for the Penn Central Trustees, "I guess there is nothing comparable."
On Behalf of the trustees, Rossi has suggested to U.S. District Court Judge John P. Fullam, who has been supervising the reorganization of the company, that some of the fee requests should be pared down. Under the formula he suggested on request for $6 million would be cut to $600,000.
A reorganized Penn Central, stripped of its railroad business, is scheduled to come out of bankruptcy next month under a complex plan - partially drawn up by the lawyers who now are asking for fees - for paying off the hundreds of thousands of people and financial institutions to whom the former railroad company owes money.
Five law firms - including Covington & Burling - already have been paid $11.4 million for working as special counsels to the trustees.
Others, including one firm that asked for $10 million, have filed applications for legal fees with the U.S. DIstrict Court here.
Althouth the firms largely represent banks and insurance companies that were stuck at the time of bankruptcy with loans to the company or its bonds, they are asking the Penn Central for their fees under a federal law that allows them to collect money from the bankrupt corporation for services that benefitted it by helping it become solvent.
Supposedly, the Penn Central should not pay them for work that only benefited people who were owed money by the bankrupt company.
Washington attorney Newell Blair, who runs a newsletter on the Penn Central case, said most of the legal fees are covered in the claims against the company.
The largest single fee application - $10 million - comes from Sullivan & Worcester, a Boston law firm that represents the trustees of another bankrupt railroad, the New York, New Haven & Hartford.
"The predominent factor in determining awards . . . is the benefit the services have conferred on the estate of the debtor (Penn Central)" said Joseph Auerbach, the Sullivan & Worcester partner who handles the New Haven's affairs.
Auerbach, who told the court he generally charges $135 an hour, was credited by the Wall Street Journal with bringing the largest groups of creditors together to work out the basics of a recoganization plan.
"On a percentage basis," he told the court here, "ther fee requested by Sullivan & Worcester is substantially less than amounts generally approved as compensation for major cases for major benefits."
Rossi, the Penn Central Trustees' attorney, said "moderation is a paramount consideration in bankruptcy reorganization cases."
He urged the court to approve legal fees based on an hourly rate not to exceed that charged by Covington & Burling, and to ignore any claims based on great benefits to the company.
Covington's fees are based on a rate of $110 an hour for partners and $70 an hour for associates - up $10 from last year.
"These hourly rates are somewhat lower than those which Covington & Burling charged to other clients during these periods. This reflects the principle that moderation is required in a reorganization proceeding," Rossi said.
On the other hand, Philadelphia attorney David Berger, on behalf of four other firms, requested a $6 million fee for attacking the validity of a 1961 agreement between the Penn Central and 53 banks for the repayment of $300 million in loans. Berger said his "complex, novel and important" court attack preserved assets of the Penn Central Transportation Co., and thus is worth the $6 million fee.
In another claim, he asks for $1.2 million for representing the Penn Central Co. He said he charged $250 an hour for his time - the highest hourly rate listed in the court papers.
The fee requests showed a wide variation in the hourly rates charged by lawyers. Berger's was by far the highest F.T.P. Plimpton, a senior partner of the New York firm of Debevoise, Plimpton, Lyons & Gales, said he charges $165 an hour. Partners in firms outside of New York and Washington listed hourly rates in the $70-to-$80 range.
Plimpton's firm requested $540,000 in fees for representing Provident National Bank of Philadelphia.
One Philadelphia firm, Ballard, Spahn, Andrews & Ingersoll, was "liaison counsel" for 19 banks and a group of life insurance companies. It requested $112,000 in fees for coordinating the work of their main attorneys in addition to about $400,000 it requested for representing one of the banks.
Among the other big fee requests were:
About $3.8 million by the Wall Street firm of Shearman & Sterling, New York's biggest, which represented Citibank, the agent for 53 banks that lent the Penn Central $300 million just before the company went broke.
About $2.5 million by the New York firm of Wilkie, Farr and Gallagher, which represented the life insurance companies that held more than $500 million in Penn Central bonds.
About $860,000 by the New York firm of Proskauer, Rose, Goetz & Mendelsohn, which represented the Bank of New York, Manufacturers Hanover Trust and Bankers Trust in various aspects of the case.
$391,1551.37 by Max Rothenberg, a retired New York attorney now living in Hallandale, Fla., who held substantial amounts of New York Central bonds. Since he was retired, he told the court, he decided to keep a close watch on how well Morgan Guaranty a Trust Co., the bond holder's trustee, protected the bondholders' interests. He did not like what he saw, and in 1971 filed a class action suit on behalf of Harriet R. Singner, another bondholder.
Besides the $7.4 million already approved for Covington & Burling, Judge Fullam has awarded substantial fees to four other special councels for the trustees: $2.6 million to Blank, Rome, Flause & Comisky of Philadelphia whose partner Marvin Comisky said he usually charges $175 an hour but only billed the Penn Central $100 an hour; $693,042 to Paul, Weiss, Rifkind, Wharton & Garrison of New York; $450,180 to Morgan, Lewis & Bockius of Philadelphia, and $209,423 to Adler, Pollack & Sheehan of Providence, R. I.
In addition, three firms representing creditors - Sullivan & Worcester, Shearman & Sterling and Wilkie, Farr & Gallagher - were hired because of their special expertise by the trustees to help draft the reorganization agreement. They charged a total of $52,100.
These requests for legal fees were contained in statements filed by the creditors asking that the court approve the payment by the Penn Central of their expenses. The total of the requests came to $36.5 million-the great bulk of which was legal fees.
Previously, attorneys had requested more than $3.7 million in fees as a result of a group of suits arising from the Penn Central bankruptcy that were settled out of court three years ago. Chief Judge Joseph S. Lord III of the U.S. District Court here cut the requests by the 15 firms to $2 million.