UNITED STATES BANKRUPTCY COURT

EASTERN DISTRICT OF KENTUCKY

PIKEVILLE DIVISION

IN RE:

BLACK DIAMOND MINING COMPANY, LLC, et al.

DEBTORS                                                                CASE Nos. 08-70066, 08-70067, and 08-70069 through 08-70073

                                                                                  Jointly Administered

OPINION AND ORDER ALLOWING INTERIM FEE APPLICATION

           This matter is before the court on the First Interim Application of Jones Day, Counsel to Debtors and Debtors in Possession (“the Applicant”), for Allowance of Compensation for Professional Services Rendered and for Reimbursement of Actual and Necessary Expenses Incurred for the Period April 21, 2008 through September 30, 2008 (“the Application”)(Doc. #931), filed herein on November 7, 2008. The Application seeks $2,036,374.25 in fees and $59,077.69 in expenses.

           The Official Committee of Unsecured Creditors (“the Committee”) filed its Objection to the Application (“the Committee Objection”)(Doc. #964) on November 26, 2008. On the same date, Bull Creek Coal Corporation, Floyd County Resources, Inc., and Prater Creek Coal Corporation filed a Limited Objection to Interim Fee Applications and Preservation of Rights Regarding Final Allowance and Payment (“the Limited Objection”)(Doc. #966). Jones Day filed a Reply to the Committee Objection (“the Reply”)(Doc. #972) on December 2, 2008. The matter was heard on December 3, 2008. On December 5, 2008, the Debtors and Debtors in Possession filed a Supplemental Filing Regarding Interim Fee Applications and Status of Budgeted Professional Fee Payments (“the Supplemental Filing”)(Doc. #1000) which addressed the subject Application, as well as others then before the court. This matter is now ripe for decision.

           The Committee objects to the Application on several grounds, but its primary concerns appear to be that hourly rates for certain work done by senior attorneys, and hours expended for certain matters, are not reasonable. Specifically, the Committee points to time spent on data management, meetings, and the preparation and production of certain relatively simple filings such as bridge motions, a motion to establish a bar date and claims procedures, and motions for extension of exclusivity. The Committee also objects to work performed in relation to “disposition of assets,” work that the Committee characterizes as running the Debtors’ business. As concerns the claim for expenses, the Committee objects to the amount of PACER charges and travel expenses. The Limited Objection addresses only the budget-established carve out amounts, and does not object to anything specific in the Application.

           The compensation of professionals is governed by 11 U.S.C. §330, which provides for "reasonable compensation for actual, necessary services." The burden is on the fee applicant to prove entitlement to fees. In re Worldcom, Inc., 386 B.R. 496, 516 (Bankr. S.D. N.Y. 2008). The starting point for determining an award of attorney fees is the application of the "Lodestar" method, whereby "the attorney's reasonable hourly rate [is multiplied] by the number of hours reasonably expended." In re Boddy, 950 F.2d 334, at 337 (6th Cir. 1991). It is the Court's task to determine what is "reasonable".

           In addition, as the court points out in In re Wire Cloth Products, Inc., 130 B.R. 798 (Bankr. N.D. Ill. 1991):

The Court not only scrutinizes the form and content of the fee application, but also considers the billing judgment of professional (sic) seeking compensation. The United States Supreme Court in Hensley v. Eckerhart, 461 U.S. 424, 103 S.Ct. 1933 (1983), a nonbankruptcy matter, stated that attorneys applying for statutory attorney's fees

'should make a good faith effort to exclude from a fee request hours that are excessive, redundant or otherwise unnecessary; just as a lawyer in private practice ethically is obligated to exclude such hours from his fee submission. ....' Hensley, 461 U.S. at 434, 103 S.Ct. at 1939-40; ....The requirement of Section 330 that compensation be for 'actual' and 'necessary' services makes the exercise of 'billing judgment' a mandatory requirement in bankruptcy fee matters.

At page 806. See also In re Virissimo, 354 B.R. 284 (Bankr. D. Nev. 2006).

           The Committee has pointed out that the amount of time spent by senior level attorneys on certain matters was more than required to produce the desired result. The Committee specifically refers to the preparation of a three-page motion requesting a bridge order. According to an excerpt from the chart provided in Exhibit B of the Committee Objection, it took five attorneys a total of 27.9 hours and $7,045.00 in fees to produce this motion. Another more extreme example of overstaffing is found in an excerpt from Exhibit H of the Committee Objection concerning the preparation of a motion to establish a bar date and establish claim procedures. This chart reveals that 48.7 hours were spent at a total cost of $19,485.00 to draft, revise and finalize the same document. The chart contains many examples of partners (at a rate of $625 to $700 per hour) reviewing, revising, and commenting on the draft being prepared by counsel (attorneys designated as “counsel” apparently fall somewhere between partners and associates and bill at a rate of $450 to $500 per hour).

           The court agrees with the Committee that there was excessive involvement of senior level attorneys in certain relatively simple matters, including others not specifically addressed above. Review of the Application reveals over-supervision of experienced bankruptcy counsel by senior level attorneys that is pervasive throughout. Consequently, the court believes that an overall reduction of 5% of the fee request, $101,818.71, is warranted.

           The court will also reduce the amount claimed for time spent by summer associates. Two summer associates are billed at $210.00 per hour. The court assumes that these summer associates are law students, unlicensed and unable to practice law. The billing rate for their work is unacceptably high. The court will reduce the hourly rate billed for these individuals to $40.00, making the amount attributable to them $1,676.00 and resulting in a reduction of $7,123.00. The court further notes that paralegal time is billed at rates ranging from $175.00 to $275.00 per hour. Rates higher than $175.00 per hour for paralegal time are also unacceptable, and will be reduced by $242.50 for a total attributable to paralegals of $3,412.50.

           The Committee has objected to several expense items, but the court does not consider any of the expenses claimed so out of line as to warrant a reduction. The court would, however, encourage the Applicant to make more efficient use of the P.A.C.E.R. system than it apparently has to this point.

           IT IS THEREFORE ORDERED that the Interim Application for Fees filed by counsel for the Debtors and Debtors in Possession in this proceeding be, and it hereby is, ALLOWED in the amount of $1,927,190.04 plus expenses of $59,077.69.

Copies to:

Charles M Oellermann, Esq.

Kara Read Marino, Esq.

Ellen Arvin Kennedy, Esq.

U.S. Trustee