Conflicts Counsel – When One Firm Can’t Do All The Work
Togut, Segal & Segal LLP was formed when the current Bankruptcy Code came into existence. Prior to the current law, the bankruptcy practice was dominated by boutiques, none of which exist anymore. Most of them were acquired by major law firms. A bankruptcy boutique is almost always free to accept cases because it does not have a client roster that would present conflicts of interest. When that same firm is acquired by a major Wall Street, Park Avenue, or Hudson Yards law firm, the former boutique inherits conflicts galore.
The Togut Firm was formed to address this reality. Our business model was to have the highest quality boutique – with the same level of sophisticated work as the large firms and often with personnel who started their careers at the large firms and were trained by them – to be able to “partner” with the large firms in representing companies in bankruptcy cases. Whereas the large firm has conflicts because these clients are involved in the bankruptcy case, the Togut Firm is conflict-free. Whereas the large firm has conflicts that prevent it from satisfying the gating “disinterestedness test” that is required to be retained as counsel for the company by order of the bankruptcy court, the combination of the major firm and the Togut Firm easily satisfies the law’s requirement. It is the combination of the firms that satisfies the disinterestedness test. The Togut Firm handles all the matters that the major firm is conflicted from handling.
It is easy to see how conflicts of interest can arise in the largest bankruptcy cases. The debtor corporation has a long-standing relationship with a major law firm in New York or elsewhere, and it turns to the firm’s bankruptcy department when financial pressures make Chapter 11 protection unavoidable. But if that law firm also represents, for example, creditors of the corporate debtor, or if the interests of the debtor and one of its subsidiaries or parent companies conflict, the company must find other counsel to handle discrete aspects of the bankruptcy case and thereby avoid the conflict of interest. We are hired to take on the discrete tasks of handling the conflict matters at a significantly lower cost to the client. Importantly, in cases where the Togut Firm serves as conflicts counsel in jurisdictions outside of New York (such as Delaware, for example), we are able to utilize main counsel’s local counsel and therefore do not need to retain our own local counsel – further creating efficiencies and cost savings that flow to the client.
The Togut Firm has built a sterling reputation as conflicts counsel and has received regular conflicts referrals from the top law firms in the United States. Work is referred to the firm by the top law firms in the world such as Skadden Arps; Weil, Gotshal & Manges; Kirkland & Ellis; Milbank; Cleary Gottlieb; Wachtell; Cravath; Jones Day; Kramer Levin; Shearman & Sterling; and Davis Polk, among others.
Our firm’s exclusive focus on bankruptcy means that we are available to provide high-quality advice and representation. Our lack of retainer clients and institutional relationships means that we can be adverse to any party without the complications of prior or continuing relationships.
Moreover, effective service as conflicts counsel requires more than experience with the demands of complex Chapter 11 cases. The Togut Firm understands that the role of conflicts counsel is to augment the lead law firm by serving the client with the same excellence that the conflicted firm would offer – the competence we bring to all our cases.
Courts have described our work taking over from lead counsel as “seamless.” In other words, one cannot discern the difference between our work and the work done by lead counsel, and there is virtually no duplication of effort. We do our own work, and main counsel does its own work. We do not “shadow” main counsel, and that keeps costs way down.
The court-appointed fee committee in the Enron case reviewed all the case professionals’ work. In its report about the Togut Firm, it found:
“Weil Gotshal handled all of the main work in the case; the Togut Firm, as co-counsel, was assigned discrete subsets of work either because Weil Gotshal had conflicts or because the Togut Firm, being smaller, could handle the work more efficiently. The Togut Firm coordinated its efforts with Weil Gotshal to avoid duplication of effort. Over the course of the case, Togut Firm timekeepers billed for only 10 meetings with Weil Gotshal, most of which were general status meetings. There was virtually no overlap and no duplication of effort.”
From the Enron Fee Committee report:
“The Togut Firm managed its work well and staffed it tightly with timekeepers with appropriate experience and billing rates. It handled every type of bankruptcy matter very efficiently as attested by the timely filing of the schedules with a single extension of time and by the Togut Firm’s favorable dollars-recovered-to-fees-billed ratio.
When a Weil Gotshal conflict arose in the middle of a matter, the Togut Firm as conflicts counsel took the matter over instantly and seamlessly. The two firms handled transitions so effectively that the committee found no indication in the time records of how a transition had occurred. Weil Gotshal timekeepers were working on the matter one minute; Togut Firm timekeepers the next.”
Our firm has served effectively as conflicts counsel in many complex Chapter 11 cases, including those of:
- LATAM Airlines Group
- Frontier Airlines
- Trident Holding Company, LLC
- Pacific Drilling
- SunEdison, Inc.
- Synergy Pharmaceuticals Inc.
- Avaya, Inc.
- American Airlines
- General Motors
- Chrysler Corporation
- Enron Corporation
- Eastman Kodak Company
- Delphi Automotive PLC
- Tronox Inc.
- Ambac Financial Group, Inc.
- Loews Cineplex Entertainment Corporation