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Professional Overcharging in Large Bankruptcy Reorganization Cases


Lynn M. LoPucki


University of California, Los Angeles (UCLA) - School of Law

Joseph W. Doherty


University of California, Los Angeles - School of Law


Journal of Empirical Legal Studies, Vol. 5, pp. 983-1017, 2008
UCLA School of Law, Law-Econ Research Paper No. 06-16
2nd Annual Conference on Empirical Legal Studies Paper

Abstract:     
In an empirical study of professional fees and expenses in 74 large public company bankruptcies concluded 1998-2003, we found that (1) controlling for the trend over time and the geographical location of the cases, company size (measured by assets), case duration (measured in days), and the number parties (measured by the numbers of professional firms working) explain nearly 87% of the case-to-case variation in professional fees, (2) fees and expenses increased about 9% per year over the six year period covered by our study, (3) five of six predictors of fees and expenses exhibited a strong scale effect, (4) the scale effect for company size is so severe that reporting fees as a simple percentage of assets is misleading, (5) using the same model we used with court file data our variables explain 86% of the case-to-case variance in the amounts of professional fees and expenses reported in SEC filing data, and (6) fees and expenses reported in SEC filing data are highly correlated with those reported in court file data, but are 59% higher.

The principal determinants of fees and expenses assets, days in bankruptcy, and the number of professional firms working appear to us to measure not only the need for professional services, but also the opportunity for professionals to bill. In an attempt to statistically isolate this billing opportunity component of fees and expenses, we compiled a second set of variables employees, docket length, and reorganization plan classes that we believe measures case complexity without measuring billing opportunity. When those variables are substituted for the principal determinants, the regression explains substantially the same percentage of variance in fees and expenses. This second, complexity-only model predicts fees that, controlling for scale, are significantly lower for companies with assets greater than about $1 billion. We theorize that this systematic difference in the two models' predictions measures the billing opportunity component of fees and expenses in large public company bankruptcies.

Number of Pages in PDF File: 36

Keywords: professional fees, attorneys fees, bankruptcy, fees

JEL Classification: G33, K22, K29, K39, K40

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Date posted: June 5, 2006 ; Last revised: March 5, 2009

Suggested Citation

LoPucki, Lynn M. and Doherty, Joseph W., Professional Overcharging in Large Bankruptcy Reorganization Cases. Journal of Empirical Legal Studies, Vol. 5, pp. 983-1017, 2008; UCLA School of Law, Law-Econ Research Paper No. 06-16; 2nd Annual Conference on Empirical Legal Studies Paper. Available at SSRN: http://ssrn.com/abstract=906184

Contact Information

Lynn M. LoPucki (Contact Author)
University of California, Los Angeles (UCLA) - School of Law ( email )
385 Charles E. Young Dr. East
Room 1242
Los Angeles, CA 90095-1476
United States
(310) 794-5722 (Phone)
Joseph W. Doherty
University of California, Los Angeles - School of Law ( email )
385 Charles E. Young Dr. East
Room 1242
Los Angeles, CA 90095-1476
United States
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