St. Vincent’s Pays Lawyers Millions

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The New York Sun

The amount of cash that St. Vincent’s Catholic Medical Centers has doled out to lawyers to dig itself out of bankruptcy has some employees and activists roiling.

The $14.7 million legal bill that the institution has racked up to date with the high-profile firm Weil, Gotshal & Manges has some scratching their heads wondering how the hospital was able to afford those kinds of fees when it could barely make payroll a few years ago.

“That’s way too high,” Mark Switzer, who was outside St. Vincent’s flagship hospital in Greenwich Village the other day, said. “You say you don’t have any money, how do you have $15 million to pay a lawyer?” He said he worked in the housekeeping department at the hospital.

A community activist on Staten Island, Deborah Rose, who helped spearhead a failed attempt to block St. Vincent’s from closing Bayley Seton Hospital in her borough, said the costs were “an outrage.”

“Everybody understands that they have to spend money to get out, but it is an outrage that they have the money to pay those kinds of bills when they didn’t have the money for the hospitals in our communities,” she said.

According to court documents, Weil Gotshal has asked for $13.3 million through the end of last year and received about $11.5 million. A report in Crain’s said the firm has been paid a total of $14.7 million, a figure the hospital confirmed.

That hefty bill is based on the complicated nature of the case and to the prices that lawyers at the firm charge. In the last period, two lawyers at Weil Gotshal — Deryck Palmer and Robert Messineo — billed a combined 563 hours to the tune of $850 an hour. Between August 1 and December 31, more than 47 lawyers and a number of other staff billed 9,482 hours on the case. Mr. Palmer and several of the other lead attorneys have since move to Cadwalader, Wickersham & Taft and taken much of the St. Vincent’s business with them.

Hospital officials and bankruptcy experts say that while the cost of restructuring might sound high, the reorganization was extremely complicated and St. Vincent’s seems to have paid the going rate for a top firm. They also note that the costs were a necessary investment to save the entire institution from collapse.

A spokesman for St. Vincent’s, Michael Fagan, said the hospital system is set to emerge from bankruptcy this summer and is already on much stronger financial footing.

“We are a $1.6 billion corporation that has gone through a large reorganization,” Mr. Fagan said. “These are large sums of money, but this was not a simple bankruptcy. Nobody wants to have spent the resources, but it was necessary.”

Mr. Fagan noted that the institution — which went from owning eight hospitals several years ago to owning two plus an array of nursing homes and other medical entities — will record a operating surplus in 2007 of $14 million. That is a major turnaround from the $153 million operating loss it logged in 2004.

The co-chairman of the business finance and restructuring division at Weil Gotshal, Martin Bienenstock, said that in addition to the bankruptcy issues, the firm also was responsible for dealing with a complicated thicket of legal and regulatory matters for the hospital.

“It was value-added,” he said of the fees. “Without it, St. Vincent’s would still be losing $8 to $10 million a month, it wouldn’t be paying creditors 100 cents on the dollar.”

A professor who specializes in bankruptcy at the University of Chicago, Douglas Baird, said “tens of millions of dollars in fees” for an organization worth $1.6 billion is not surprising. He said large corporations such as St. Vincent’s pay 3% to 5% of their asset value in fees for a bankruptcy.

“The reality is this is expensive,” he said. “Weil Gotshal is a top-flight firm. It’s a shocking large number, but the lawyers at Weil Gotshal who are not in bankruptcy … can hang up their shingle and get people to pay them at these rates. St. Vincent’s would not be able to get them unless it paid the market wage.”

Judge Adlai Hardin Jr., who is hearing the case, approved the fees St. Vincent’s paid to its lawyers and to the other firms that have worked on the bankruptcy proceedings.


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