DOJ Slams Beacon Power Legal Tab, Bonuses

A federal watchdog is fuming after a top law firm kept the clock running in the bankruptcy case of Beacon Power Corp., whose finances drained even further when it paid out $23,000 in bonuses to its employees.

The U.S. Department of Justice is protesting Brown Rudnick’s legal tab of nearly $498,000 for work it did in January, when Beacon Power was looking for buyers for its flagship electricity storage plant outside Albany, N.Y. That plant, which takes excess electrical energy from the grid and stores it until power companies want to use it later on, was built using a $43 million Department of Energy-backed loan from a program funded by President Barack Obama’s stimulus package.

The agency said that Brown Rudnick attorneys continued to work furiously that month—as measured by 786.8 hours of work spread among 26 lawyers—even though it was clear that there wouldn’t be enough money left over from the plant’s sale money to pay even the fees accrued in the Chapter 11 case. At a December court hearing, Delaware Bankruptcy Judge Kevin J. Carey encouraged parties to quickly resolve their differences, pointing out that the estate was running “thin.”

“Disregarding the court’s admonition and all signs to the contrary…Brown Rudnick continued to staff the case as if it were a robust Chapter 11 proceeding with substantial estate funds that would benefit all creditors, including priority and unsecured creditors,” said Justice Department attorneys in recent court documents.

A representative for Brown Rudnick couldn’t be reached for comment Wednesday.

The Justice Department also protested the $23,000 that Beacon Power paid out to 65 workers whom the company argued were “uniquely equipped to continue operating” the business during the sale process.

The Wall Street Journal has found that a federal law meant to curb those bonuses for executives and workers at bankrupt companies has done little to stop the practice. Companies have found legal ways—such as tying the bonuses to incentives—to route the money to its leaders.

Congress also didn’t require the Justice Department or any other agency to track bonus payouts in bankruptcy cases, leaving a void of information on the matter.

The Justice Department itself stands to lose money when companies are administratively insolvent—that is, when the bankruptcy case doesn’t even have enough money to pay off lawyer’s fees and other administrative expenses—because the agency charges its own fees in the bankruptcy cases it monitors.

Administrative expenses and legal fees are the first to be paid out in a company’s bankruptcy case, taking precedence in front of lenders and trade creditors.

Brown Rudnick’s bill would be paid from the more than $30 million in sale money that Texas renewable-energy investor Rockland Capital spent on Beacon Power and its plant.

Most of that money went to pay off the Energy Department’s loan guarantee. What’s left amounts to about $5.5 million plus a “couple of very modest receivables and a couple of cash reserves,” reported William Baldiga of Brown Rudnick during a court hearing.