Judge cuts law firm's 'excessive' fees in Wextrust case

A federal judge, citing what he said were excessive hours and unreasonably high rates, ordered a 20 percent reduction in the compensation for a law firm helping to protect the assets of investment company WexTrust Capital.

Given a long-established principle that lawyers working in receivership situations should be awarded moderate fees, "the request for fees of $2,147,666 for 20 days of work is excessive," said U.S. District Judge Denny Chin in an order approving compensation for WexTrust's receiver, his law firm and an accounting firm.

Lawyers, paralegals and support personnel at the New York firm Dewey & LeBoeuf logged more than 5,500 hours on the WexTrust case during that period, or more than 275 hours a day, he said in the order, which was issued Tuesday in the Manhattan federal court.

Chin determined that the law firm should receive $1.7 million for the work performed between Aug. 11 and Aug. 31. Dewey & LeBoeuf may apply for the difference between what it sought and what he awarded when the final distribution of WexTrust assets is made, he said.

"While Dewey has worked hard, it is simply too early to tell the extent to which its efforts will benefit the receivership estate," Chin wrote. "This is all the more reason to apply a rule of moderation now."

The law firm's request had been part of a joint application for compensation filed in November by Timothy Coleman, the court-appointed receiver for WexTrust and a partner at Dewey & LeBoeuf.

Chin approved the full amount of Coleman's request for $57,300 in receiver's fees. Coleman's hourly rate had been cut to $250 specifically for the WexTrust case from his standard rate of $850 to $950. The judge also approved a request of $66,640 in fees for the accounting and advisory firm De loitte Financial Advisory Services.

Chicago-based WexTrust and two of its owners, Joseph Shereshevsky of Norfolk and Steven Byers of Oak Brook, Ill., were charged by the Securities and Exchange Commission in August with defrauding investors by diverting $100 million of funds to unauthorized uses. Afterward, the court froze the defendants' assets and appointed Coleman as WexTrust's receiver.

Several investors in WexTrust projects, including some from Hampton Roads, expressed concern that the fees charged by a major New York law firm would consume assets that might reduce the amounts that could be distributed to investors. A handful of investors asked the court to slash the fees that Dewey & LeBoeuf was seeking.

When Chin raised questions about the compensation that the firm sought, Coleman responded that Dewey & LeBoeuf's fees were reasonable in light of the pressure to quickly take control of WexTrust's scattered assets. The firm, he said, imposed cost-cutting measures that would save $8.5 million of cash for the receivership estate through year-end 2008. The compensation requests that he and Dewey & LeBoeuf compiled had been approved by the SEC.

Coleman was one of three candidates for receiver that the SEC nominated to the court in August. In his order for compensation payments, Chin said that he didn't quarrel with the choice, which was made by another judge.

"But with the benefit of hindsight, I wonder whether the SEC should have made more of an effort to present the court with more options," Chin said. "In this economy, with law firms going out of existence or laying off lawyers for lack of work... surely there would have been qualified law firms willing to perform these services at rates substantially lower than $850 or $950 per hour for partners and $605 per hour for associates six years out of law school."

Tom Shean, (757) 446-2379, tom.shean@pilotonline.com