UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF KENTUCKY
WILLIAM R. GOAN
DEBTOR CASE NO. 94-20818
This matter is before the Court on the Objection to Final Fee Applications of Debtors' Counsel filed herein on February 17, 1995, by the U.S. Trustee. The U.S. Trustee has filed the same objection in a companion case, Stabil, Incorporated, Case No. 94-20819. Debtors' counsel filed their applications for compensation in each case on January 10, 1995. After a hearing on the matter on March 7, 1995, the parties were given time to furnish documentation and to file further objections, after which the matter was submitted for decision.
Both the debtor herein and Stabil, Incorporated, have previously been before this Court in 1992 in Chapter 11 proceedings. Both cases were dismissed in 1993. On or about April 13, 1994, Chapter 11 petitions were filed on behalf of both debtors in the Bankruptcy Court for the District of Connecticut. On July 14, 1994, the Bankruptcy Court for the District of Connecticut, pursuant to a Motion filed by the U.S. Trustee in that District, entered an Order transferring the venue of these proceedings to this Court. On or about October 28, 1994, both proceedings were converted to Chapter 7 following the filing of Motions to Convert or Dismiss by the U.S. Trustee.
Debtors' counsel, the law firm of Zeisler & Zeisler ("Z & Z") has filed final applications for fees in each of the proceedings pursuant to 11 U.S.C.'330. In the within matter, Z & Z received a retainer in the amount of $15,000.00. It requests $12,813.00 in fees, plus reimbursement for expenses in the amount of $2,515.00, for a total final allowance of $15,328.00, less the credit retainer of $15,000.00, or a net final allowance of $328.00 through November 29, 1994.
The U.S. Trustee objects to Z & Z's billing in regard to certain issues or areas of case management in both proceedings as follows:
1. The billing of a minimum of $4,478.50 in resisting the transfer of venue;
2. The billing of a minimum of $3,067.00 in attempting to withdraw as counsel;
3. The billing of a minimum of $3,125.00 for the drafting of schedules and statements;
4. The billing of over $5,313.00 for strategy discussions, meetings and conferences concerning plan development and the sale of lots;
5. The billing of over $2,956.50 for responding to a motion concerning the appeal of debtor Stabil's initial Chapter 11 proceeding in Kentucky;
6. Billing for the following specific items: a) $3,010.50 for travel time by attorney Matthew K. Beatman at his regular hourly rate of $135.00; b) $280.00 for secretarial overtime; c) $348.00 for a law clerk to attend the venue hearing in Connecticut with attorney Beatman; d) $105.00 for a conference in November 1994 between attorney Beatman and attorney Richard D. Zeisler concerning the status of the case, even though attorney Zeisler had not previously billed any time in the case. (This item actually appears only on the Stabil, Incorporated, application.) Except for item 6(d), these amounts represent the totals billed in both cases.
The U.S. Trustee contends that the amount of fees sought by Z & Z is excessive in relation to the benefit derived by the bankruptcy estate from the legal services provided. The U.S. Trustee further contends that the itemization submitted with the fee request calls into question the firm's billing judgment. In this regard the U.S. Trustee is especially concerned with Nos. 1-5 above.
In addition to the concerns raised by the U.S. Trustee, the Court, pursuant to its own review of the fee applications and itemizations in each case questions the fact that in more than one hundred instances there were billings on the same date for identical services with identical amounts of time expended in both cases. The billing for these items amounts to more than $9,000.00 in each case. While the Court does not necessarily conclude that all of these items represent duplicative billing, the sheer number of them raises the issue.
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 Wildman, 72 B.R. 700, 708 (Bkrtcy.N.D.Ill. 1987). 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".
Courts often apply a 12-factor formula set out in Johnson v. Georgia Highway Express, Inc., 488 F.2d 714 (5th Cir. 1974), in making determinations about "reasonableness". These factors are: 1) the time and labor required; 2) the novelty and difficulty of the question involved; 3) the skill requisite to perform the legal service properly; 4) the preclusion of other employment by the attorney due to acceptance of the case; 5) the customary fee; 6) whether the fee is fixed or contingent; 7) time limitations imposed by the client or the circumstances; 8) the amount involved and the results obtained; 9) the experience, reputation and ability of the attorney; 10) the undesirability of the case; 11) the nature and length of the professional relationship with the client; and 12) awards in similar cases. Id., at pages 717-719.
In addition, as Judge Schmetterer points out in In re Wire Cloth Products, Inc., 130 B.R. 798 (Bkrtcy.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, 76 L.Ed.2d 40 (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.
The Court will first address the specific issues of excessive fees and billing judgment raised by the U.S. Trustee. The U.S. Trustee has argued that the amounts billed for resisting the transfer of venue, attempting to withdraw as counsel, drafting schedules and statements, and for strategy discussions, meetings and conferences concerning plan development and the sale of lots are excessive considering the results obtained in this case. No plan was ever been filed in the Chapter 11 case; indeed the case was only in Chapter 11 for a little more than six months before it converted. Considering the debtor's history, the prospects for reorganization in this second Chapter 11 proceeding were questionable and this must have been apparent to counsel for the debtor.
Counsel for the debtor in any case is expected to perform adequate and reasonable due diligence before expending significant amounts of time and effort. The due diligence issue was discussed in depth by the court in In re Narragansett Clothing Co., 160 B.R. 477 (Bkrtcy.D.R.I. 1993), in regard to a fee request by the attorney for the trustee. An offer to purchase the debtor had been negotiated and accepted. Shortly thereafter, the purchaser filed for bankruptcy and the purchase price could not be collected. The court stated:
It is now clear, in hindsight, that the Applicant failed to perform adequate or reasonable due diligence during at least two critical periods in its representation of this estate, to the extent that a downward adjustment is required in the lodestar. It has become quite apparent that the pre-confirmation service devoted to investigating the substance of the J.L. Sanford offer was not time well spent, and that the demise of J.L. Sanford within five months of its celebrated sale indicated major shortcomings in the due diligence area, for which the creditors are now faced with some very heavy legal/Trustee charges.
At page 480. In a related footnote, the court referred to counsel's "duty to investigate, ...". (fn. 3). If counsel for this debtor did not sufficiently analyze its viability as a candidate for reorganization, it should have.
As concerns the other specific instances of billing questioned by the U.S. Trustee (item 6 above), this Court has previously ruled in In re East Kentucky Lumber Company, Inc., supra, that an attorney may not bill for travel at his full hourly rate. In that case, the attorney's billings for travel were reduced by half. Secretarial overtime is considered overhead for which the bankruptcy estate should not be charged. See In re Leonard Jed Co., 118 B.R. 339 (Bkrtcy.D.Md. 1990), at page 342.
Attendance at a hearing by a law clerk, without explanation of the need for his/her attendance, is not compensable. See In re Wire Cloth Products, Inc., 130 B.R. 798, supra, at page 810, wherein Judge Schmetterer disallowed fees where "...entries fail to explain why more than one professional was needed to attend a certain meeting or court hearing, and fail to describe the participation of each individual professional."
In conclusion, it is the opinion of this Court that the total fee request in this case is not reasonable in view of the results obtained, and that counsel for the debtor failed to exercise proper billing judgment in certain instances. The Court will therefore reduce the total fee request by 25%. The expense reimbursement requested will be allowed in its full amount. An order in conformity with this opinion will be entered separately.
By the Court -
Matthew K. Beatman, Esq.