Present value, p.21
Present Value, page 21
The pews were full, the aisles were full; the lawyers were crammed in like a football team flying coach. Here and there was an occasional, confused creditor, someone actually owed money by Playtime, wearing a dirty baseball cap that might say marino & sons trucking, someone so naive as to think that he should come to bankruptcy court to get the money owed to Marino & Sons Trucking. A few of these interlopers had shuffled into the room and now were crammed in among the rows of lawyers. Marino & Sons Trucking and the other creditors would be crushed in due course. But these were just the first days—Mr. Marino and his ilk did not yet understand how pervasively incomprehensible the whole business would be.
All around these stray unfortunates was the BlackBerry Patch. The lawyers had their briefcases on their knees and their papers on their briefcases, and perched atop their papers, held lovingly in two hands, their BlackBerries. At the security gate next to the elevators, the court officers had vacuumed up all the cell phones, but BlackBerries were permitted, so the ranks, shoehorned in, were all working furiously over the eensy buttons, sending to distant places e-mails that might happen to let slip that at the same moment the sender was In the Loop, he was right there, in the beating heart of Bankruptcy, Inc., for the first days in Playtime itself!
The BlackBerries were also an extremely useful tool with which the lawyers could communicate with one another. BlackBerry messages were bouncing all around courtroom 6 with dizzying acceleration. It was as though a trapdoor in the ceiling had opened, and a thousand electronic Ping-Pong balls had been let loose and were now bouncing and bounding and ricocheting in every direction—messages and replies and forwards and replies to forwards—witticisms, profanity, jokes, insults. All of this activity was generating substantial usage charges, which would later be included in the fee applications of the lawyers for “telecommunications costs.”
The lawyers in courtroom 6 observed the usual canine seating conventions. In the back pews were the mutts and curs: lawyers who represented smaller creditors. The pew immediately behind the enclosure held the border collies. These were the young working dogs seconding really important dogs, ready to run laps, herd sheep, and fetch papers from the boxes at their feet. Next came the row of seats just inside the pews, show-dog seats, where lawyers for big and powerful creditors sat, and from which they would range to herd in committee business. Among the show dogs this morning were Larry Glubb, Lucinda Roth, and Jerry Nathan: very showy dogs indeed.
But the biggest dogs, the alpha dogs, the mighty lead dogs, commanded seats at the tables. These were the lawyers for the debtor and the banks. (Once the creditors’ committee was formed, its lawyers would claim a seat at a table, too, but today was the first-day hearing, and no committee had been formed yet.) Occupying the seats at the tables were the great Micah Fensterwald, from Pladd and Tweed, because he had the debtors; Irv Klein, from Wiley and Mangel, because he had the banks; and Saul Herzog, because, well, because he was Saul Herzog.
Herzog! Glowering at the end seat at a table, in the red silks (wearing, in fact, a royal blue Egyptian cotton shirt with striped collar and French cuffs, a red silk tie and matching kerchief, and a gray suit with brazen chalk stripes, the trousers held up by red silk suspenders), was the undisputed heavyweight champion of the insolvency world, Saul Herzog, of the great New York firm Speel, Snapshank LLP. He was the bankruptcy lawyer you simply had to have when your bonds were in trouble. He chaired the annual New York Insolvency Institute (judge or no judge, you would not be invited onto a panel if Herzog thought your decisions inept); he edited the learned journal Annals of Bankruptcy (you wouldn’t get an article published there unless Herzog approved it); he chaired the Speel, Snapshank bankruptcy department; he appeared in only the most mega of megacases; he wrote leading articles; he was the luminary of luminaries.
Herzog’s taxonomy was complex. The lions of the bankruptcy bar came historically from two types. There were the High German Jews—men and, latterly, women who were not simply scholars of the bankruptcy code but connoisseurs of literature and art, lawyers who had personal tailors and season tickets to the Met, and had long since moved out to Westchester. Then there were the Brooklyn Jews—brawlers whose uncles were in retail. In the last part of the twentieth century, gentiles had been admitted, grudgingly, to the bankruptcy bar, but to a large extent, the lions remained Jews. This was an artifact of anti-Semitism. Jews had taken to bankruptcy two generations earlier, when it was deemed beneath the dignity of the Wall Street law firms, dominated by WASPs. But as Bankruptcy, Inc., had prospered, all the white-shoes had thoughtfully reconsidered this prejudice.
In Herzog both of the distinguished Jewish traditions were uneasily married. He did have season tickets to the Met, although Uncle Max had done pretty well in the diamond business. Herzog could read the Talmud and a put option. He could argue the merits of Matisse or Phil Rizzuto.
When Herzog was eighteen and still wearing the curls of the yeshiva student, his grandfather had summoned him.
When Zaideh summoned, you came. So Herzog rode the J train to Marcy Avenue and walked the five blocks to Zaideh’s small second-floor apartment. His grandfather was in the easy chair by the bookshelf, polishing his glasses with a white handkerchief. Saul took a seat on the couch.
“What will you do with your life, my boy?”
Herzog had had a feeling something like this was coming. “Zaideh, I will be a rabbi.”
Zaideh didn’t react to this. He continued to polish the glasses. He worked slowly and methodically, holding them up to the lamp, then down again in his lap. Herzog shifted. The couch was formal, with an antimacassar draped over its stiff back and springs gone haywire, about as comfortable as a pile of lumber. Had Zaideh heard him? Was he ever going to finish with those glasses?
“I said I—”
“I heard what you said.” Zaideh held up the glasses again, frowned a little. He went back to polishing them, the hankie describing unhurried circles on the glass. After what seemed to Saul like an hour and a half, Zaideh said, “I don’t think so.”
“I was first in my class!”
Zaideh held the glasses to the light. He was still unsatisfied. “Yes, you are a fine student, I think. And you have a big heart. These are two things a rabbi should have.” He went back to his polishing.
“So if I have two—”
“Saul.”
“Yes, Zaideh.”
“Saul, you have no patience. A rabbi must be patient.”
The boy stared at his hands. “I . . . I’m working on that, Zaideh.”
Zaideh finished polishing the glasses and placed them carefully on his nose. With deliberation, he turned to examine his grandson on the couch. The glasses magnified Zaideh’s eyes. It was brutal when he focused in on a person with his glasses on, like being under God’s microscope.
“Believe me, Saul, when I tell you it’s not something you can work on. I’ve watched you from a boy. You don’t have the patience. A man should know his limitations.”
Herzog, crestfallen, looked into the magnified eyes of the old man, or God, or whoever Zaideh was. “But what should I do, Zaideh?”
“Go be a lawyer, my boy.”
Herzog was short and broad. His hair was on the longish side and tended toward wildness. He had the angry brow of a Beethoven, and the stocky arms of a clean-and-jerk champion, but he also owned a suit closet you could offer as collateral for a six-figure loan. What he didn’t know about the bankruptcy code wasn’t worth knowing. What he hadn’t read in the journals wasn’t worth reading. The deals he hadn’t done weren’t worth doing.
And he had stones. Famous in the bankruptcy bar was the story of the time in the seventies when Herzog, as a pup, a newly minted partner with Speel, represented the Knickerbocker Bank in a workout of the old Scoharie Malt Liquor Company. One night at a drafting session in Speel’s offices, the head bank officer, a Brahmin swine named Brudermeier, was chatting with the borrower and hoped aloud that his “beanie boys” would finish this up, as he was late to a function. Herzog had been at the other end of the conference room, but he heard the remark. The room fell silent as he stalked over to Brudermeier. He got right in the banker’s face and, in front of the entire crowd of thirty people or so, demanded, “What did you say?”
Brudermeier tried to brush off this provocation. “Those things you people wear on your head, Saul, I can never remember the name. Harmonicas?”
“We people wear on our head?” Herzog answered. “It’s called a yarmulke, you Nazi. Now get out of my office. You’re fired.”
His office? Fired? Firing the client on the Scoharie deal, the refinancing of the fifth largest brewery in America? This Herzog wasn’t even the engagement partner. No one fired the Knickerbocker Bank!
“You’ll never work for the bank again,” said Brudermeier icily.
“You’ve got that right. Out!”
That bit of grandstanding had probably cost Speel, Snapshank $10 million, but what it had gained them was immeasurably more valuable.
When Playtime hit the screen, it was to this man that the vultures turned. In the priority of claims against Playtime, the vultures stood behind the banks but ahead of the shareholders. The vultures were always in danger of getting shut out completely. On the other hand, they might make a score, as they’d bought their positions at a steep discount. They needed a presence to shout and threaten and insult and finally browbeat the banks into a deal. And Saul Herzog was their champion. At some time or other, he had screamed at almost every other lawyer in courtroom 6. One of them (Jerry Nathan) he had actually assaulted with a ham sandwich. Although battery was unusual, it wasn’t startling: within the bankruptcy community, you weren’t worth bothering about unless Herzog had, at some point, threatened to file a complaint against you with the Board of Bar Examiners. Dominic D’Oria, for example, was one of the kindest and gentlest-mannered of men, and in one meeting, Herzog declared that if Dominic stuck his nose into any more of his client’s business, he, Herzog, would rip off the offending organ and eat it.
And yet Herzog’s kindnesses were as flamboyant as his assaults. He was a regular visitor to the pediatric oncology ward at Mount Sinai Hospital. Not just a patron, not just a guy who’d pop $10,000 at a fund-raiser and go to a dinner dance, he was an actual visitor to the ward. There were dying kids in that hospital who had felt the surprisingly soft touch of Herzog’s big hands, and remembered the voice of the lawyer in the fancy suit reading to them. Once, a Speel, Snapshank associate who’d been sent on some emergency or other to find Herzog was shocked to discover the great warrior sitting alone in the waiting room in tears, because the kid he hadn’t had time to visit in the last three weeks hadn’t made it. There he sat, mighty Saul Herzog, bawling like a baby. And the day after Jerry Nathan got pegged with the sandwich, Mr. Ling Xi Fan, Herzog’s personal tailor, showed up at Nathan’s office at ten A.M. to measure Nathan for a new suit. It was measured, cut, tailored, and delivered, all courtesy of Herzog.
Mostly, Herzog turned away business. He employed two secretaries to do nothing but screen calls from potential clients. Fifty million bonds in Lastwave on line one? How’d you get this number? A hundred million bonds in American Power on line two? Please. A billion bonds in Acme Motors? Well, maybe we can talk. Send me a $1 million retainer.
They all wanted Herzog. In Playtime, the biggest filing of the year, they wanted Herzog very much indeed.
Playtime would be a feeding frenzy for hourly rates. The company needed bankruptcy lawyers. Its banks needed lawyers. A committee of creditors would be organized, and it would need lawyers. Because the case was in Delaware, each constituency would need so-called local counsel—Delaware lawyers. So each group would need two sets of lawyers.
Lawyers were only the beginning. These groups would need accountants, financial advisers, investment bankers, appraisers. The debtors would need a set; the banks a set; the committee a set. The law firms, the investment bankers, the accounting firms, the restructuring advisers would bill by the hour and travel in packs. They would have partners north of $600 per hour, and managers at $450 per hour, and associates at $300 an hour, and assorted scriveners, proofreaders, drones, drudges, box carriers, and coat holders at $200 an hour. With all of these meters running, it was conservatively estimated that a typical one-hour hearing on Playtime would run the debtor about $18,000 in fees.
TWO HOURS into the Playtime first days, visiting judge Herb Shoughler, who had been dispatched from his home in Louisville, Kentucky, to help Delaware with its groaning docket but had never in his life seen anything like this case, had reached the fourteenth item. It was a request to approve the employee-retention plan. Buried among the two dozen motions filed on the first day (which, it was hoped, the judge would rubber-stamp before much opposition could form) was a request from the company’s lawyers that the court approve a plan to retain key employees (who turned out to be the boss and six of his cronies). The plan for retaining them was basically to pay them a whole shitload of money.
Craggy Micah Fensterwald, a tall, lean bankruptcy guru from New York, was at the podium, delivering his argument in the reasoned manner usually employed by debtor’s counsel during first days. The spindly lawyer was making threats. If you don’t approve this today, Judge, the management will resign en masse, and the ship will founder and sink before we can even lower the lifeboats, and lots of women and children will drown in three thousand fathoms of the icy North Atlantic. But hey, it’s up to you.
Said in the most genteel possible way, of course.
“What’s more,” Micah added, “the banks have agreed to this.” Irv Klein looked up from the other table and nodded. Micah was making an important point: Judge, you don’t need to stick your neck out here. The banks, who have $2.4 billion at risk, they’ve looked this over, and it’s okay with them. (The banks happened to have cut a deal with management to get Playtime to pay interest like clockwork on the first day of the month, but surely that had no influence on their judgment.)
Sticking his neck out was the last thing Judge Shoughler wanted to do in this crowd. “Any opposition to this motion?” he asked.
There was a rustle of anticipation throughout the room as Saul Herzog rose. Heads inclined, one to the other. Fingers flashed across eensy buttons. Herzog at the podium always presented the chance of a show. “Your Honor, Saul Herzog, Speel, Snapshank, on behalf of Pillar Partners, Atlas Ventures Two, Steadfast Limited Venture Funds . . .”
As Herzog went through the list of his clients, a lawyer in the back of the room typed a message on his BlackBerry and sent it to a pal across the room. It read, “Carrion Fund, Grave Robber Partners, Roadkill Investors . . .” The pal smiled and punched back this response: “Undead, LLP, Stiffs-R-Us, Morgue Venture Partners . . .” (These were more accurate descriptions of Herzog’s vultures.) Pretty soon this message was being forwarded all over the courtroom, and the lawyers were gleefully adding names.
Herzog finished reading out the thirteen institutional bondholders who were his clients. The e-mails rocketed around the room behind him. He paused, dramatically. There was a moment of anxious anticipation, of fingers poised over the buttons. Would Herzog thunder? Would he rip the employee-retention plan to shreds? Would he burst with brimstone? Would he rant?
Oh, sure, he would rant. Fish gotta swim, and birds gotta fly—Saul Herzog would blast like a geyser. But not here. Here at the podium in courtroom 6, at the Playtime first days, Saul Herzog would not give voice to such harsh and combative thoughts. Here all was kindness. Here he was the caring and thoughtful rabbi Zaideh had dissuaded him from becoming. “Your Honor,” he purred, leaning on the podium in an informal, almost avuncular way, “let’s be practical. The committees—and I really think that in a case like this, there will be more than one, there will have to be—the committees haven’t been formed yet. We ought to table this motion for a week or so.” He smiled sweetly at the judge and took his seat. A sense of calm settled upon the masses. How practical this advice! How sound and sensible!
“I think that’s a good idea,” Judge Shoughler rumbled, himself relieved that Herzog had not ranted. (Also relieved that he would not have to read in the next day’s papers that he had approved $1 million bonuses for the gang who drove the company into bankruptcy.)
Herzog would rant, but later. The geothermal eruption would come next week, in the privacy of a New York law office. He would assemble a vulture or two for the performance, as well as the bank lawyers. Knowing exactly what was coming, Micah would have ordered his clients to stay away. Larry Jellicoe was no match for Herzog and probably would start fibrillating right on the conference room table if exposed to the full performance. (Micah would, however, bring in five associates and a paralegal at a total hourly cost of about $2,100 to ensure that the debtors were fully protected and also, just a little bit, to enjoy the show.)
In the New York office, Herzog would be in full swing. The employee-retention plan was bullshit, it was an outrage, it was unethical and confiscatory; it stank, it reeked, it smelled; it was a foul, putrid pile of dung, it was turds floating in latrine muck, it was an embarrassment, it was criminal; an aging stripper in a Seventh Avenue peep show had more shame than to ask for this; a looter in the Rodney King riots had more shame than to ask for this; Bill Clinton had more shame than to ask for this.
This was a warm-up, to limber the vocal cords before Herzog really got going. “Micah, either this vile excrescence of a retention plan is dropped immediately, or my clients will have no choice but to crush Playtime and afterward drag Peter Greene’s lifeless body out onto the mudflats of Bayonne, New Jersey, and gnaw on his genitals.”
