Big Law’s Baby Lawyers Rack Up Fees on FTX Bankruptcy Case

Welcome back to the Big Law Business column. I’m Roy Strom, and today we look at one practice where Big Law is finding work for its newest hires. Sign up to receive this column in your Inbox on Thursday mornings.

This is an anxious time for law graduates headed to work at the country’s biggest law firms. Some firms are laying off attorneys and pushing back associate start dates, looking to cut costs as they ride out a plunge in corporate deal work.

But there’s one area where some Big Law firms are having little problem putting new hires to work: Bankruptcy cases.

First-year associates at firms including Sullivan & Cromwell, Quinn Emanuel Urquhart & Sullivan, Paul Hastings and Kirkland & Ellis are racking up billable hours on major bankruptcies.

Some of these associates just became licensed lawyers in May or June, according to New York bar registry records. Many of these law graduates from the 2022 class were piling up fees even before they received their law license.

At Sullivan & Cromwell, at least 33 graduates from 2022 billed hours on the closely-watched bankruptcy filing by Sam Bankman-Fried’s failed crypto exchange FTX.

The associates usually billed at $775 an hour, and they worked just over 9,500 hours—good for fees totaling more than $7.4 million, according to an analysis of the firm’s compensation requests filed in court.

The graduates’ fees are just a fraction of the more than $80 million Sullivan & Cromwell has so far billed FTX.

But at a time when Big Law firms struggle to find work for their most junior lawyers, the FTX case is a reminder of how profitable a busy associate can be. First-year associates earn $215,000 in salary and a bonus likely around $20,000.

The 33 Sullivan & Cromwell first-year associates, in just six months’ time, have brought in revenue of about $225,000 on average. The case isn’t expected to wrap up any time soon. Shortly, they’ll be adding to the firm’s bottom line—helping to support Sullivan & Cromwell’s nearly $6 million in profits per equity partner.

Many corporate clients refuse to pay for first years’ time, arguing they shouldn’t have to pay while “baby lawyers” learn the ropes of Big Law practice.

Unlicensed graduates have done their work for firms while studying for the bar exam in New York, or awaiting results from tests they took in February or July last year.

Law graduates able to do research, document review, proofreading and pleadings organization—they just can’t give legal advice to clients, said Jan Jacobowitz, a legal ethics attorney. Unlicensed graduates must work under the supervision of a lawyer, she said.

“Law graduates are considered to be ‘nonlawyers’ in accordance with the rules of professional conduct,” Jacobowitz said. “The rules provide that a law firm’s management should have policies and procedures in place so that all lawyers and nonlawyers adhere to the legal ethics rules.”

For Sullivan & Cromwell, the most productive first-year associate on the FTX case is not yet registered as a licensed attorney in New York. She has been burning the midnight oil since passing the bar exam in July 2022.

In February alone, this associate billed more than seven hours on average every day of the month, court records show. She billed more than 950 hours in six months, racking up more than $740,000 in fees for her new firm.

Another first-year Sullivan & Cromwell associate, who passed the February 2022 New York bar exam but doesn’t appear in a search of licensed New York lawyers, was charging $1,310 an hour—significantly higher than the $775 her first-year peers charged, according to court documents. That rate was the same as another associate who graduated law school in 2019 and was licensed in 2020. Lawyers who graduated in 2021 were often charging $960 an hour.

Sullivan & Cromwell didn’t respond to a request for comment.

Sullivan & Cromwell isn’t alone in staffing major Chapter 11 cases with first-year associates.

Quinn Emanuel, hired as special counsel in litigation in the FTX case, has had seven lawyers who were licensed in 2023 work on it. They’re billing $747 an hour and have generated nearly $665,000 in fees, according to court documents. The firm’s unlicensed law graduates, which it calls law clerks, are billed out at $508.50.

Paul Hastings has two first-year associates on the case, where it’s working as counsel to the creditor’s committee. One Paul Hastings first-year billed 243 hours in March, an average of nearly 8 hours every day including weekends.

The Paul Hastings lawyers’ rates are $855 an hour, up from $755 in February, and the associates so far charged nearly $950,000.

Kirkland & Ellis had three first-year associates work on a case for a subsidiary of 3M Co. that is facing hundreds of thousands of tort claims for allegedly faulty military earplugs. The associates worked on the case from November through April and spent 1,200 hours on it, billing around $860,000, court documents show.

Quinn Emanuel, Paul Hastings and Kirkland all declined to comment.

Cooley this month asked first-year corporate lawyers to push back their start dates by a year in exchange for a $100,000 stipend. The firm also gave them the option to start work on time in some other practice group that has enough work to go around.

The go-getters among this new crop of associates might ask the following question of their new firm: Does the bankruptcy practice have any openings?

Worth Your Time

On Layoffs: Orrick and Reed Smith announced they are laying off lawyers and staff, Meghan Tribe reports. Both firms said the cuts were in response to reduced client demand.

On Crypto: Big Law firms are poised to cash in on the “ultimate fight” brought by the US Securities and Exchange Commission against crypto exchanges Coinbase and Binance, I reported with Olivia Cohen.

On Law Firm Leaders: Five Baker Botts partners are competing to become the Texas-founded law firm’s new leader as its partners explore a possible merger, Bloomberg Law reports. The lawyers recently pitched the firm’s partners, with most pledging to seek a merger with another firm to obtain scale and ward off poachers

That’s it for this week! Thanks for reading and please send me your thoughts, critiques, and tips.