Judge OKs 70% Payment for Most Pioneer Attorneys : Finance: Lawyers contend in Bankruptcy Court that they deferred $5.4 million in fees while working on mortgage firm’s Chapter 11 case.

A U.S. bankruptcy judge Friday approved paying 70% of legal fees for most of the firms petitioning the court for $5.4 million in fees for work on the Pioneer Mortgage case.

After hearing the firms plead that the fees were warranted by the risk and complexity of the case, Judge James Meyers approved payment of most of the bills, including the $3.7 million billed by the largest applicant, Jones, Day, Reaves & Pogue of Los Angeles, which represented Pioneer in the reorganization.

Meyers approved a Chapter 11 reorganization plan for Pioneer on Thursday, 17 months after the La Mesa-based mortgage investment firm collapsed because of shrinking real estate values, and purportedly by mismanagement by Gary Naiman, then its chief executive.

The failure left 2,400 investors dangling, many of them elderly retirees who had sunk $220 million into Naiman investments. Under terms of the reorganization plan, investors will receive about 35% of their investments over a five-year period.

Meyers said he would decide as early as next week whether to approve the rest of the legal bills but indicated that he is happy with the work done by the attorneys and by Dennis Schmucker, the caretaker president who took over the reins of the failed firm from Naiman.

Cynthia Stein, chairwoman of the investors committee, said the lawyers shouldn’t be paid in full when Pioneer Mortgage investors stand to receive only 35% of their investments over a five-year period.

Lawyers said they have worked largely without payment since the failed investment firm entered Chapter 11 of the bankruptcy code in early 1991. The bill presented by the firm Jones, Day included $165,000 in interest on the unpaid fees, a charge that drew criticism from the U.S. trustee’s office and Stein.

Schmucker told Meyers that the law firms’ agreement to defer collection of fees until now was unusual, and that, if Jones, Day had not agreed to such an arrangement, Pioneer would have had to file bankruptcy under Chapter 7, which would have resulted in Pioneer investors getting less than 5% of their investment back instead of the 35% under the reorganization plan.