The Law Firm That Cashed in on Fossil Fuel Failures

of the virus have affected the energy industry. Loyal listeners of Parts Rebilion might remember last spring when we talked about how the price of a barrel of oil briefly went negative when demand went through the floor. Today, we're looking at the same story through a slightly different angle, and that angle is bankruptcy law. As a result of these super low prices, a lot of oil and gas companies and even some really big ones went bankrupt in

twenty twenty. And according to Bloomberg Law reporter Rory Strom, there was one law firm that benefited hugely from all of this economic devastation. That firm is Kirkland and Ellis. And they've made themselves the go to law firm for

a fossil fuel industry declaring Chapter eleven. Roy analyzed a database of bankruptcy filings who try to quantify just how much money Kirkland and Ellis made off of the wave of filings in twenty twenty, and I started off by asking him exactly what kind of information is in this database. So the database has been around since nineteen eighty and it was started by a professor at UCLA named Lynn Low Puckey who had sort of taken a more empirical

approach to studying corporate bankruptcies. And so he made this database that tracks only publicly traded companies that filed bankruptcy with one hundred million dollars in assets in nineteen eighty and so to account for changes in the dollar since that time, it's still pegged to nineteen eighty currency. So I think today it's something like companies that have about three hundred and thirty million in assets. So these are we're talking about big companies that go bankrupt, not you know,

sort of small startups. So let's get into the numbers here. You found that there was one firm, one law firm Kirkland analys that handled a huge amount of these very large bankruptcies. You know how huge are we talking and you know, what are the numbers here? So it depends a little bit on the timeline you look at. But if you look at us last year, Kirkland had a record year. They represented twenty three companies and there were fifty seven total to make it into the database last year.

So twenty three companies, just to put into context, is close to the amount that Kirkland itself advised on over the last four years combined, and it's fairly close to the number of total companies that have made their way into the database on average over the past nine years. So they kind of outdid themselves, but they outdid everybody else.

The statistic we focused on in the piece was that they represented more than forty percent of the companies added to the Big Database last year, and that was the highest market share of any single firm in any given

year in the history of the database. Well, you went even further or even deeper into the data and you didn't just look at you know how you know how big Kirkland's bankruptcy practice is, but you looked at you know why it got that big, and there was one industry that you keyed in upon that really helped them get to where they were, and it was the fossil fuel industry, oil and gas companies, you know, coal mining companies.

What was going on there? Why was that the case? Yeah, So Kirkland Analyis is a little bit of history on the firm they're from. They're based out of Chicago. They've grown a lot in New York. They have one of the biggest private equity practices representing private equity companies in the world, and they opened an office in Houston around twenty fourteen, and that office has done a lot of work for oil and gas companies in Texas, part of

the sort of shale oil boom. When you look at bankruptcies that are happening sort of by industry, really one of the newest trends that a lot of people talk about retail bankruptcies, you know, going through the roof as people shop online more. But another phenomenon happening in the market is that the price of oil has dipped over

the past few years. So there was a big there was a big surge in oil and gas bankruptcies in twenty sixteen and Kirkland did a lot of work for those companies then, and of course last year there was another huge surge in oil and gas bankruptcies as demand for oil and fuel basically plummeted when the world shut down. Yeah, I mean, I think during the spring this is you know,

very widely reported. But there was one time where you know, the price of a barrel of crude way negative, you know, and that must have led to a lot of the bankruptcies that that Kirkland advised on. Yeah, I mean, obviously that didn't last forever, but it was a huge shock to the industry and certainly led to just the general depressed price of oil. Right, And you know, how are

they making all this money? Because that was one of the things you looked at was not just how many bankruptcies did they they advised on, but also how much in fees they received. And you know, some of these bankruptcies are in the tens of millions of dollars. Where's this money coming from? I thought that bankrupt companies couldn't pay their creditors. How are they paying law firms tens of millions of dollars? What's going on here? Yeah? The dollar figures that we looked at are what you could

call pre filing fees. So law firms have to be accepted by a judge to represent these companies in bankruptcy, and they have to put forth a sort of some paperwork that shows here's who we are and this is what we've done for the company so far. And in that filing they will tell you how much money they've gotten from that company in the lead up to these cases. And Kirkland had earned more than two hundred million dollars

combined just in the lead up to these cases. Of course, there'll be a lot more money spent while the court portion of the bankruptcy goes on. So I could see, you know, some people here saying that, you know, Kirkland is almost vulture like, that they're sort of capitalizing on other people's misery. What's the counter argument to that? You know what, how would Kirkland argue its case here? Sure? Well, first of all, bankruptcy, corporate bankruptcy is a tool that

the law allows for good reasons. Right, we want companies to be able to sort of shed their burdens and in a court ordered way and sort of try to get themselves back on track and get going if they can, and to use that tool you need really experienced people who've done it before, and that's lawyers. So if it wasn't Kirkland advising these companies, somebody else would. And then the other point is that the fees in bankruptcy cases, they have been criticized, you know, by people who've looked

into it. But at the same time, judges do approve every penny that a bankrupt company ends up paying out while they're in this process. And so every time Kirkland wants to collect a fee, they have to tell the judge what they did and who did it and for how long. And I mean it's worth noting that one that there are experts, like fee experts, people who are sort of they are consulted on by courts and asked

to say, what do you think of these fees? And an argument they make a lot of times for big firms is that they have handled so many of these cases and they have big enough teams and enough experience that really they're more efficient than almost anybody else. Finally, you know, let's say I've seen Kirkland and Ellis and they're just you know, raking in the cash here and maybe I want to try to do that myself. First off, how would I do that? And second of all should

I do that? Is this something that can be replicated or is it something that even should be tried to be replicated. Yeah, so on the rep on this, whether this can be replicated, point, I think it's worth I love sports, and as I kept thinking about batting averages, baseball batting averages, and so Kirkland was the first firm since nineteen eighty one to have represented forty percent of these companies, which would be like batting four hundred in baseball,

which is a course of historic. So you're saying kirk Beer basically saying Kirkland is the Ted Williams of bankruptcy lock. That's yeah, exactly right. He was the last one to hit four hundred, and he did it, you know, decades ago. And so there was there was only one other law firm to have ever advised on forty percent of these cases in a single year. Happened in nineteen eighty one when there was only five cases in this firm represented

two of them. So Kirkland got the edge just by like point one point one percent or something to set that record. But my point about that is that there's not that many Ted Williams out there, so whether this will be replicated even by Kirkland is probably unlikely. I think twenty twenty was just kind of a crazy year.

That was Roy Strom, a reporter with Bloomberg Law. Check out our website to find the awesome interactive story Roy and his colleagues put together where you can visualize exactly how much money Kirkland made and where it all came from. And if you want more environmental news, check us out on Twitter. We use the handle at environment, just bad at environment, nothing else at environment. I'm at David B. Schultz. If you want to yell at me about anything or

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