August 23, 2013

Maine railway's legal fees to hinder pay for victims?

A judge fears a 'run-up' of costs in MM&A's bankruptcy, leaving little funds left to compensate victims of the Quebec disaster.

By J. Craig Anderson
Staff Writer

PORTLAND – In a courtroom packed with dozens of lawyers Thursday, the judge presiding over the Montreal, Maine & Atlantic Railway's bankruptcy proceedings expressed concern that attorneys' fees will suck the company dry of funds before victims of last month's deadly train derailment in Quebec can be compensated.

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Ed Burkhardt, chairman of Montreal, Maine & Atlantic Railway, has said essential rail services will continue while the company goes through bankruptcy.


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"What's concerning me is a run-up of administrative expenses that would make operation of the railroad impossible," said U.S. Bankruptcy Judge Louis Kornreich. "There's not a lot of extra revenue."

If legal fees drain the company of its cash, there will be nothing left to compensate victims of the July 6 accident in which an unmanned train loaded with crude oil rolled downhill into the town of Lac-Megantic, Quebec, derailed and exploded, killing 47 people and destroying 40 buildings in the heart of town.

Several groups of lawyers, representing various interests in the bankruptcy, attended Thursday's hearing on motions to keep the railroad running while its newly appointed trustee assesses its financial situation.

Interested parties include creditors such as Wheeling & Lake Erie Railway Co. and New Brunswick Southern Railway Company Ltd., state and federal transportation agencies, unions, banks, the Montreal, Maine & Atlantic, its affiliated company Rail World Inc., and its court-appointed trustee, Robert Keach.

Lawyers filled all the seats at the tables before the judge, including a back bench. Lawyers also filled about half the courtroom's gallery. Still more were dialed into a conference call from their offices during the hearing.

Two groups of attorneys said they represented the victims of the Lac-Megantic disaster, and each seemed unaware of the other's participation in the case.

By court order, Keach has assumed all responsibility for managing the company's finances. His Portland law firm, Bernstein Shur Sawyer & Nelson, will represent the railroad in court.

Lawyers at Bernstein Shur charge as much as $375 an hour for their services, according to an affidavit filed in U.S. Bankruptcy Court for the District of Maine.

Keach acknowledged to the judge that legal and administrative costs could run the railroad into the ground.

"It's certainly conceivable that this case is administratively insolvent as we stand here," he said.

Operation of the railway, which runs from Quebec toward New Brunswick through central Maine, has been in jeopardy since the derailment. The company filed for Chapter 11 bankruptcy reorganization about a month after the accident.

The bankruptcy case is complex, Keach said. It spans two countries and is connected to a human tragedy with numerous victims. In addition, it involves a railroad, which by federal law cannot be shut down.

Keach said he has spoken with the company's creditors about letting it borrow money to pay for its bankruptcy case.

Cutting corners on the case to save money would do a disservice to participants in the bankruptcy, he said. "I don't think there's any substitute for administering this case properly."

According to documents filed in bankruptcy court, the railway company is worth $50 million to $100 million and owes about $39 million to its largest creditors. In all, the company estimates that it has more than 200 unsecured creditors, which are businesses or individuals who are owed money but do not have collateral or legal means to force repayment.

Several lawsuits also have been filed since the accident, including a potential class action by victims and by family members of victims from Lac-Megantic.

The railroad's chairman, Ed Burkhardt, said in a written statement that the company's obligations exceed the value of its assets, including its expected insurance payouts from the accident.

Keach said the primary objectives of the bankruptcy should be to keep the railroad operating and compensate the victims.

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