Attorneys, consultants seek $13.4M in fees from Mercy Iowa City bankruptcy

IOWA CITY — In the days since Mercy Iowa City’s bondholders raised concerns about dwindling assets available for distribution through a liquidation trust, attorneys, consultants and advisers for the bankrupt hospital, its creditors and its pensioners have inundated the court with “final” fee requests totaling nearly $13.4 million.

That “professional fees” total is nearly as much as Mercy’s secured bondholders Preston Hollow Community Capital and Computershare Trust Company — seeking payback of at least some of the $62.8 million they lent Mercy years ago — had received as of Aug. 5

After alerting a U.S. bankruptcy judge July 26 that they had “yet to receive a single ‘effective date’ distribution” of the cash they’re owed — nearly two months after the judge confirmed a liquidation plan promising them some payback — the bondholders did receive an initial payment of $17.25 million.

Since that time, the attorney and consultant fee requests have poured in — including from the two main law firms representing Mercy Iowa City and from the hospital’s New York-based interim management firm ToneyKorf Partners LLC. Combined, their requests account for $10.7 million of the final-fee total, or about 80 percent.

Only $677,441 of that requested total is staying in Iowa — should the judge approve final payment to Mercy’s Cedar Rapids-based representative Nyemaster Good P.C. The rest — $4.9 million to ToneyKorf and $5.1 million to McDermott Will & Emery LLP, of Chicago — is headed out of state.

“Describing itself as having extensive bankruptcy and restructuring experience, as well as experience in virtually all other aspects of law that may arise in these cases, McDermott continues to seek payment of fees multiple times greater than any other party in this case,” according to a U.S. trustee’s latest objection to McDermott’s fee requests. None of the 10 objections have been heard or decided yet in court.

The trustee note that “every dollar expended on legal fees results in a dollar less that is available for distribution to creditors or use by debtor.”

The trustee’s main concerns involve duplication of efforts by McDermott attorneys making more than $1,000 an hour and vague descriptions of what they’re spending their time doing — making it impossible for her to understand or evaluate the need for each meeting and charge the law firm is asking the court to approve.

Of the 38 McDermott attorneys, consultants and other staffers who worked on the Mercy case, 18 made more than $1,000 an hour — including one who billed $1,975 an hour, two at more than $1,850 an hour, and three at $1,600 an hour.

McDermott partner Daniel Simon, billing $1,450 an hour, stands to make $1.2 million alone for his nearly 11 months on the Mercy case. Partner Felicia Perlman, at $1,850 an hour, would earn $1 million for her 522 billed hours.

The firm, for its 3,841 total hours charged Mercy an average of $1,325 an hour.

That is more than four times the average $294 that Cedar Rapids-based Nyemaster Goode charged Mercy for its 2,166 hours on the case — more than half which involved attorney Roy Leaf, billing $345 an hour.

Looking across the professional fee applications for Mercy’s bankruptcy case, only three of the applicants seeking a total of $960,021 are based in Iowa — meaning the vast majority of that money, if approved, will head out of state.

Justifying its fee requests, McDermott noted it could have increased its rates on Jan. 1 but didn’t; and it voluntarily wrote off $108,255 in fees for which it could have billed.

It also noted the “significant consternation” and ongoing “dissension and acrimony” at the start of Mercy’s bankruptcy case “as stakeholders remained focused on advocating for their own self-interests and frequently took a litigious approach to initially resolving outstanding issues.”

That Mercy ever managed to consummate a sale to the University of Iowa is “nothing short of miraculous,” according to McDermott’s final fee application.

“This outcome would not have been possible without the efforts of McDermott,” according to the attorneys — who reported billing Mercy $245,042 for the 203 hours it spent applying for its own payment or responding to objections to its payment, averaging $1,207 an hour.

“Without McDermott’s efforts as mediator among these parties during the Chapter 11 cases, projected unsecured creditor recoveries under the plan would be significantly less and, critically, Mercy’s pension plan may not have been preserved to the detriment of all of its beneficiaries,” according to its fee application.

In the bondholders’ recent appeal for court intervention — given its lack of payment at that point — they and other parties raised concerns about delays and miscommunication with the liquidation trustee, William H. Henrich of New York-based Getzler Henrich & Associates.

One week later, a trust oversight committee removed Henrich, making $795 an hour, and replaced him with Dan R. Childers, of Coralville-based Shuttleworth & Ingersoll PLC. He’s fees haven’t been made public.

Beyond its bankruptcy case, Mercy Iowa City’s former managing partner MercyOne of Des Moines has appealed the liquidation plan to the U.S. District Court — continuing the bankrupt hospital’s need for attorneys, including four McDermott Will & Emery attorneys and four from the local Nyemaster Goode.

Although New Jersey-based Sills Cummis & Gross — which represented the unsecured creditors in the Mercy bankruptcy case, requesting a final $1.3 million in fees — also had been assigned to the appeal, the firm and its representative Andrew Sherman was removed when Henrich was swapped out as trustee.

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