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EFI judge slashes lawyer fees

April 23, 2009

By KAREN VELIE

A federal bankruptcy judge slashed fee requests and ordered professionals working on the Estate Financial Inc. (EFI) bankruptcy to practice frugality in an attempt to protect assets for EFI investors at a hearing on Wednesday in Santa Barbara Federal Bankruptcy Court.

“I don’t want to see money frittered away on fees,” Judge Robin Riblet said. “No one should be surprised; I took a cleaver to the fees.”

Riblet capped hourly professional fees for accountants and attorneys at $500 an hour, and paralegal fees at $150 per hour.

In addition, associates charging the estate to chat to one another may only charge fees for one. Riblet also than canceled reimbursement for meals related to working late hours, ordered trustees representative Samuel Maizel to cut three associates from the case, and asked for a reduction in professionals paid for court appearances.

Accountants and attorneys working for the bankruptcy court were seeking a total of almost $4 million representing seven months of poring over EFI records, analyzing investments, and selling assets. They were awarded approximately $3.3 million.

“I will allow these fees let out in drips and drabs as it comes in,” Riblet added.

In June, creditors forced EFI into Chapter 11 bankruptcy and asked the court to appoint a receiver in an attempt to protect their investments. About a week later, EFI owners Karen Guth and Joshua Yaguda voluntarily placed EFI Mortgage Fund into Chapter 11.

On October 16, Guth and Yaguda were arrested and accused of 26 felonies. They remain in county jail with bail set at $5 million each.

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By: Nameless on 5/7/09

Bankruptcy Lawyers Bill Illegally, Says New Study


In the past few weeks, we've all marveled at the huge amounts Jones Day, Schulte Roth & Zabel and Weil, Gotshal & Manges have billed in the country's two most-watched Chapter 11 cases (Chrysler for Jones and Schulte, Lehman Brothers for Weil). But we have to admit we haven't stopped to ponder: Are those fees illegal?


According to a new study co-authored by UCLA bankruptcy law professor Lynn LoPucki (hat tip: the Wall Street Journal's Law Blog), the answer might be yes. LoPucki and his co-author, fellow UCLA prof Joseph Doherty, essentially argue that bankruptcy judges allow lawyers to bill their debtor clients for months at a time before submitting those billing statements to the judge for approval, according to Bloomberg. That goes against the federal bankruptcy code, the study argues, and it has allowed legal fees to increase faster than inflation rates. Judges in theory have the option of objecting to those bills and demanding law firms pay back some of the money, but "payments are harder to reverse than to prevent," the study says.


Nancy Rapoport, a law professor at UNLV, told Bloomberg that judges approve the fees without thorough scrutiny "because they are overwhelmed, especially in the big cases." She told Bloomberg she agrees with LoPucki "that the foxes are guarding the henhouse, because lawyers don't want to challenge other lawyers' fees."


One of the titans of the bankruptcy bar did not let the study stand unchallenged. Martin Bienenstock of Dewey & LeBoeuf told Bloomberg that LoPucki "is wrong conceptually and legally," and that "the legislative intent of the Bankruptcy Code's fee provisions is that bankruptcy lawyers should be compensated" promptly. He explained that in many bankruptcy courts, lawyers submit monthly invoices to the debtor, which then pays the invoice amount as long as the U.S. trustee does not object to it, according to Bloomberg. The judges review the payments every three or four months, Bienenstock says. The system is set up to "avoid judges spending time on fee hearings every month."

By: Nameless on 4/29/09

paperboy


Some of the charges are much lower for non-attorney and other professionals. $500.00 is the max Judge Ribblet allowed. She also restricted who can be present at hearings to limit expenses. Under the circumstances, she had done a good job. Some expenses would have incurred by Karen and Josh at least until there was some money left in the pot.

By: paperboy on 4/28/09

$3.3 million at $500 a hour would be 6,600 hours, or 275 days working 24-hours a day.

Lawyers are the biggest rip offs of any profession. Legalized graft, that's all this is.

We need a law that limits the compensation for these leeches, oh that's right, it'll never happen because the congress and the state legislature are infected with lawyers. What was I thinking!

By: ThomasPaine on 4/24/09

Best Booty comment I have ever read. Bankruptcy judges and these lawyers are embarrassing.

By: steelman on 4/24/09

$500 per hour…..wow..he really stuck it to those lawyers…what a joke


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By: JorgeEstrada on 4/24/09

Beep is a four letter work too.


By: starvingmexican on 4/24/09

Where is your Soul folks?

Guth and Yaguda are being tortured in a holding cell at this very moment.Can't someone please show a little mercy and set them free until PROVEN guilty?

By: Nameless on 4/23/09

Oh BTW, PONZI Scheme here? Karen and Josh were doing a great job all along until some raggedy jacks came along and put them into Bankruptcy. Poor Karen and Josh!! They were given no chance of taking the left over to be collected money and fly to better places. Fredrickson, would have the receiver in place under their own direction. Did I miss something here? Yeh, Now Fredrickson switched sides and now working for EFI looking for FRAUD. There never was fraud before the BC Filings according to him. He so cleverly convinced the Trustees that he has knowledge of the dirt he already uncovered. First, he protects Lacey from Exposure, now he protects Lacey from conflict. Where will all this end? Almost $400,000 in his pocket. Hehehehe!!! That's all folks!!!!

By: Nameless on 4/23/09

For all to know. The Mortgage Fund was used to launder money from investors to borrowers than back to investors in the form of interest. EFMF never recorded any interest in any projects. However, when a loan payoff came, Karen or Josh so persuasively convinced investors to roll over their proceeds into the Mortgage Fund. It was safer as we were all told. No one could or would question how the Fund was operated. They sent the interest checks every months for years and that was a good proof she was doing a great job. No tracks to leave behind and if the market went up 20% each year everything would have been OK. Oh wait!!! At 10% interest on loans never funded and no expectation to be paid off, how would it happen? Simple my friends. We were getting payments from our own money every month while the Diva charged us a fee to do it. Sounds like the big banks in New York. Have our money and pay a fee to get it back. Where was I? I am lost with so many details. Why would I expect anything back when I know in my mind that there is nothing left. Lucky if the BC Trustee won't come after me for money I already pent on bread and water. No, I must be still wrong!! The Trustee and all the do gooder Attorney just want to help us poor folks. They have our best interest in their heart. Their heart is so big that you and I just have to grab a rope to hang in there.


Well, at least Judge Riblet saw our rear end exposed and reduced the fees to a level we can all relate to. $500.00 an hour sounds good, At least they don't have to wash dishes (not at the restaurants for chump change) but at the river as we emerge from the tents we go to sleep from on at nights. I am still amazed by idiots who believe that all these (good) attorney are there to help us. Who the hell needs an enemy when we have protector like them?

By: hotdog on 4/23/09

I forgot to mention some things missing from the comments in the article. Has anyone (like the judge) checked to see if the hours charged result in anything-are they padding hours OR accomplishing little for this huge pile of cash?


And of course the defense mouthpieces are wanting to grab a pile of dough from the meager proceeds actually due to the investors. All the stalling and fiddling around is childishly wasteful. Almost all the cases with the four corrupt companies are very simple-were the projects fraudulently over encumbered with loans and where is the construction? Where is the money? These crooks could not have spent the over half a billion dollars, so where is it? In most cases the money is gone and nothing was done, very simple. A child could figure this out. So bust 'em, don't let them use any tainted money for their defense and throw the key away once the inevitable verdict is reached. Better yet, pay the crooks $500/hr as indentured servants to pay off the losses. Let's see, for Guth and Yaguda that yields $350,000,000/$500/hr=70,000 hours of time they owe the investors at a high wage. So they will be all even in only 33.65 years if they only work 40 hrs/week. Sounds OK to me. I could use some help around the house.


The over 500 victims comprise an amazing array of talented people-THEY should have been hired to sort this out if the expertise exists within their ranks. There are lawyers, realtors, builders, business people (some retired, some not). Many are plenty smart and could have and should have been kept more in the loop during this whole saga.


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By: InTheKnow on 4/23/09

This site wrote that it was a Ponzi scheeme months ago. Employees admited money was transfered amongst accounts. I quess skunked missed thar story.

By: hotdog on 4/23/09

Right on Booty, looks like the 'slashing' was a minor trimming. I wish my income could be slashed to 500 drachmas per hour while fiddling with some papers. And para legals, $150/hr? I imagine they are paid 10-20 bucks.


I would guess that the damage these crooks (and our darlings at Hurst, RPL and 21st Cent) have done around here would warrant some frontier justice. Those who did not invest are not immune-the lessened tax base, the fewer shopping trips, the foreclosures and on and on will affect all. Less money for schools, less all around while these scum lived large on our dime. And then the scavengers move in to skim the rest. Loads of fun.


In an alternate universe the gummint would have done its job years ago when they KNEW about issues with these companies and closed them down and done an audit before so much damage was created.


And skunked-you may have some data there but the thrust of the article seems to be on the rapacious fees, not the fact (that we all know) that these bums are crooked.

By: skunked on 4/23/09

I am surprised that this article is so thin on what really happened at the hearing.


Point in fact – Thomas Jerimmison, trustee for EFI ADMITTED, under oath, that EFI was transferring funds from one borrowers account to another, to another. A ponzi scheme.


Not only didn't the borrowers have a chance to succeed, but the investors' money was used as Karen's and Joshua's piggy bank, to fund whatever they wanted to fund, and more often than not, what was funded was not what the investors thought they invested in.


That's what was disclosed at that hearing.

By: Booty_Juice on 4/23/09

"Slashes" fees? Para's "slashed" to $24,000/mo and lawyers to $80,000/mo.


Jesus wept.


So another 6 months or so at the trough ought to "sort things out" while also completely draining the coffers of any potential return for investors? Quite right. But hey at least the daughter in law will get a screamin', below market deal on the olive bidness, so that's all good.

By: Jim on 4/23/09

I may be wrong… but it looks to me like the judge only cut $700,000.00 from what they asked for…

Meanwhile… "investors" (of which I am one) are left in limbo as far as where our $$$ went…

I no longer expect to receive anything back… but as I sit here typing out this note… I continue to question… as to why Guth and Yaguda thought that they were entitled to take my $$$… and treat it as if it was their own…


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