Part 3 of 4
At the November 17, 2011 Attorney Fees Conference hosted by NALFA at Loyola Law School, the third panel examined “Attorneys’ Fees in Chapter 11.” That panel was composed of U.S. Bankruptcy Judge Deborah J. Saltzman (C.D.Cal.), Craig H. Averch (of White & Case LLP), Eric Winston (of Quinn Emanuel Urquhart & Sullivan, LLP), and David Paige (of Sterling Analytics).
Mr. Winston indicated that attorney’s fee submissions are an expensive process in bankruptcy proceedings because they are examined by the U.S. Trustee’s Office and must ultimately be approved by the presiding bankruptcy judge in the case.
Judge Saltzman indicated that she routinely approves “ordinary course counsel” that has been handling matters before bankruptcy during the course of the case. As long as counsel has no adverse interest, such counsel does not have to be paid subject to bankruptcy court supervision. She also stated that she is likely to approve a contingency fee arrangement if it looks like there will be a recovery for the estate, treating lawyers and investment bankers differently when it comes to awarding “success fees.”
Judge Saltzman observed that the biggest nightmare in a Chapter 11 case is that professionals are paid fees but there is no recovery for the bankruptcy estate. She looks at interim billings differently from the final ones, looking at the results to make adjustments to final fee requests. Even at the interim fee request stages, she will hold back fees if she believes that there will be no or little recovery.
Judge Saltzman stated that she tries to use market rates for attorneys representing companies of similar size when setting hourly rates for bankruptcy-retained attorneys. She does believe that a bankrupt company is entitled to choose the lawyer that it wants, subject to conflict and adverse interest rules.
Mr. Paige did indicate that there are big differences in acceptable bankruptcy billing--such as no block billing allowed and the requirement that time is reflected in one-tenth of an hour time intervals. He finds that most bankruptcy judges take their jobs seriously when in comes to examining bankruptcy charges.
Mr. Winston lamented that the U.S. Trustee Office’s guidelines vary widely from venue to venue, being inconsistent with treatment of travel time and use of summer clerks. He did indicate that more detailed time entries are easier to defend, but that bankruptcy attorneys need to be careful to not give away strategy in their billings.
Mr. Paige indicated that bankruptcy judges scrutinize overhead charges very carefully, so care needs to be taken on what is being claimed. He notes that ABA Opinion 93-379 makes it impermissible to pass through overhead charges that should be included in an attorney’s hourly rate.
Mr. Averch expressed concerns about appointment of independent fee examiners not having bankruptcy professional experience, a concern echoed by Judge Saltzman--who said she believes that such examiners need bankruptcy experience.
Judge Saltzman and Mr. Paige actually like the “squishy” reasonableness standard for use in approving bankruptcy professional fees, while other panelists expressed the need for more bright-line constructs.
Mr. Averch reminded attendees that a contract with a fees clause does not necessary garner full fees for a claimant in bankruptcy. If a creditor loses a proof of claim battle (the claim is disallowed), then the creditor is liable for full fees to the debtor. However, the inverse is not true: if the creditor wins, creditor gets fees -- but in “bankruptcy dollars” (meaning the much lower dividend rate paid to unsecured creditors).
BLOG UNDERVIEW--In the written materials for this panel, an interesting bankruptcy case was summarized. Time spent preparing a fee application is compensable in bankruptcy cases if the time is reasonable. In re Mesa Air Group, Inc., No. 10-10018. Mem. Op. (Bankr. S.D.N.Y. May 25, 2011) held that “reasonable” in this bankruptcy context is generally between 3-5% of the total application value.
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