When auto parts supplier Visteon Corp. filed for Chapter 11 reorganization, the company knew it wouldn't be able to continue to pay the hourly rates charged by its pre-petition patent enforcement counsel, Alston & Bird.

Alston & Bird, for its part, knew that the nearly $300,000 in legal fees and expenses it had received in the 90 days prior to the bankruptcy filing could be deemed an “avoidable transfer” under the Bankruptcy Code, according to court documents—meaning that a court could find that the firm received preferential payment and order recovery of that payment for equitable distribution among other creditors.

So the lawyers and their client struck a rather creative deal.

Alston & Bird agreed to credit Visteon with the $294,355 in legal fees the company already had paid in exchange for Visteon's releasing any claims against all pre-petition fees and expenses. Also, Alston & Bird and Visteon agreed to contingent-fee instead of hourly rate billing for future work enforcing 14 patents related to the company's GPS navigation system, according to court documents.

Neither Alston & Bird's lead partner on the case, Charlotte, N.C.-based William M. Atkinson, nor Visteon's Van Buren Township, Mich.-based senior vice president and general counsel, John Donofrio, returned calls seeking comment.

The Chapter 11 documents, filed in U.S. Bankruptcy Court for the District of Delaware, do not list Alston & Bird lawyers' pre-petition hourly rates. They do say that the firm spent “more than 1,000 hours” assessing Visteon's patent portfolio, discussing enforcement strategies and notifying some companies that they needed to obtain a license under one or more of the patents.

The firm's engagement letter, in the court file, lays out a variety of scenarios in which Alston & Bird's contingent fees would range from 20 percent to 40 percent depending on when in the litigation process the patent enforcement actions were resolved. It also notes that the firm will bear half of its litigation expenses, which will be reimbursed from any recovery. If expenses exceed recovery, the letter says, Alston & Bird will pay them.

Bankruptcy Judge Christopher S. Sontchi approved the “settlement and compromise” and authorized Visteon to employ Alston & Bird as special litigation counsel on Sept. 8, finding that the resolution was in the best interest of the Visteon estates, creditors and all other parties in interest.

Troutman Sanders' bankruptcy group practice leader Jeffrey W. Kelley, who is not involved in the case, said that while contingent fee arrangements are not unusual for special litigation counsel in the bankruptcy context, this deal is creative. “Someone,” he said, “had their thinking cap on.”

The case is In re Visteon Corp., No. 09-11786.