Judge OKs lawyer payday

To get $71 million for winning case against Ernst & Young

Merry-Go-Round

January 28, 2000|By Sean Somerville | Sean Somerville,SUN STAFF

A federal bankruptcy judge yesterday approved $71 million in legal fees for the attorneys who represented the Merry-Go-Round trustee in a lawsuit alleging that Ernst & Young's mistakes helped to bring down the now bankrupt clothing chain.

That lawsuit resulted in a $185 million settlement that the giant accounting firm agreed to pay on the eve of the trial in April. Under a previous agreement with the trustee, Stephen L. Snyder and two lawyers from his Pikesville firm were entitled to 40 percent of that amount.

But after the settlement, Bear Stearns & Co. Inc. and Fidelity Management & Research Co., creditors of Merry-Go-Round, objected to the fee, arguing that it was too large. Bear Stearns withdrew its objection when Snyder, Weiner, Weltchek, Vogelstein & Brown cut its claim to $71.2 million, about 39 percent. Fidelity persisted, saying the fee would "constitute an unacceptable and unprincipled windfall" from the Chapter 7 liquidation case.

Yesterday U.S. Bankruptcy Judge E. Stephen Derby ruled in favor of the law firm. "Is a deal a deal when the deal is an attorney's contingent fee agreement with a Chapter 7 bankruptcy trustee that hit a home run?" Derby wrote. "The court concludes on the facts of this case that the answer is yes."

In his opinion, Derby said that Deborah H. Devan, the trustee, searched for a law firm willing to take the case on contingency. "Other firms proposed hourly fee or modified hourly/contingent fee arrangements, and none was willing to advance at least $250,000 in costs payable only from a recovery."

Devan had supported the fee, saying the litigation would be "complex and unprecedented," with "novel and substantial legal obstacles to overcome," according to Derby's opinion. She had also said the case "could take years, or even a decade or more, to reach a final resolution."

"The court found that the 40 percent contingent fee agreement was reasonable under the circumstances," Derby wrote.

Saying the lawyers faced "long odds," Derby praised them for a case against Ernst & Young that was "imaginatively conceived, skillfully staged, thoroughly prepared, aggressively pursued and timely and successfully resolved for the great benefit of" the bankruptcy estate.

Snyder said he was pleased with Derby's ruling.

"One of the important messages that comes out of this case is that bankruptcy courts around the country will be made aware that there are in fact competent, qualified litigation counsel willing to accept appointments" on contingency, said Snyder, who was represented in the fee case by Paul Nusbaum and Ward Coe, of Whiteford, Taylor & Preston LLP.

Arnold M. Weiner, Snyder's partner, defended the size of the award, saying the firm invested about $2 million in the case with no guarantee of a return.

"When we took the case, experienced legal observers were of the view that this was at best a long shot and most probably impossible to win," he said. "In the end, we produced a recovery against one of the largest accounting firms in the world that netted the estate, after our fee, $110 million. If we had not taken this case, this case would never have been brought."

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