This matter is before the court upon the application of Arthur Andersen LLP ("Andersen") for compensation filed with the court on January 18, 2002 pursuant to 11 U.S.C. 330. The application seeks compensation in the amount of $288,689 and expenses in the amount of $31,961. Objections were filed by the United States Trustee and Charles Lisle ("Lisle"), the liquidating trustee under the confirmed plan in this Chapter 11 case.

Initially, objection was made to the timeliness of the application. In accordance with the confirmed plan, applications for payment of administrative expenses were due to be filed with the court not later than January 14, 2002. The within application was filed four days after that date. However, the court ruled at that time that the trustee and creditor body were aware that Andersen was rendering services to the debtor/debtor in possession in this matter and it further appears that Andersen was not served with the order confirming the plan entered by this court. Further, there is no prejudice to any party in allowing the application to be filed late. The court therefore has overruled the objection to the extent that it dealt with the timeliness of the application.

A short review of the facts in this case is necessary. An involuntary petition was filed on February 5, 2001 against the debtor in this case. The debtor chose to timely convert that proceeding to a Chapter 11 proceeding and the case has proceeded under that chapter. No trustee or examiner was appointed in the Chapter 11 case prior to confirmation of the plan proposed by the unsecured creditor's committee. Ultimately the debtor did not propose a plan of reorganization in this Chapter 11 case and a plan was confirmed which had been proposed by the Unsecured Creditors Committee.

On May 25, 2001 counsel for the debtor filed an application to retain Andersen under the terms of a proposed engagement letter dated April 30, 2001. On June 7, 2001 this court entered its order, pursuant to a request for entry of an order nunc pro tunc, allowing the debtor to retain Andersen

for purposes of performing current accounting services, preparing or assisting the Debtor-in-Possession in preparing Monthly Operating Reports or other financial disclosures required by the Court, the Office of the United States Trustee, the Bankruptcy Code, the Bankruptcy Rules or the Local Rules of this Court, and for the purposes of assisting the Debtor and Debtor-in-Possession with the formulation and approval of a Disclosure Statement and Plan of Reorganization, including but not limited to the preparation of any schedules, summaries or financial analysis in connection therewith, and the providing of testimony in connection therewith.

The order further provided that a retainer of $50,000 could be paid to Andersen. The retention order was much narrower in scope of services to be rendered than the terms of the proposed retention agreement.

After the application for payment herein was filed, the applicant chose not to bring the matter on for hearing immediately, and pursuant to permission from the court, the applicant renoticed the hearing on the application for allowance and payment of administrative expenses for May 16, 2002. At that time, the above recited objections had been filed by the United States Trustee and by Lisle. At the hearing on May 16, 2002 the court heard argument of counsel and Andersen indicated to the court that it would prefer to submit the matter to the court upon the record without the necessity of conducting an evidentiary hearing. There was no objection to this procedure.

Since an objection had been filed to the application based upon the lack of detail for the services rendered, the court gave the applicant an additional thirty (30) days to supplement the application to add such additional detail as the applicant chose. The objecting parties were then given an additional thirty (30) days to review and supplement their objections. The application seeks compensation for services rendered between April 10, 2001 and June 1, 2001.

The original application and engagement letter contemplated a broad range of authority to render services to the debtor and a retainer of $150,000. As recited above, the court, in its June 7, 2001 order, restricted the range of services pursuant to objections filed by creditors and lowered the retainer which the debtor was authorized to pay to Andersen to $50,000. The retainer was, of course, subject to an appropriate application and allowance by the court before any of the retainer amount could be used by Andersen for fees in the case. While Andersen's application insists that the court should observe the terms of the engagement letter, this court will, of course, proceed to decide the matter based upon the terms of the Bankruptcy Code and the retention order entered on June 7, 2001.

It should be noted that the April 30, 2001 retention letter contains an express provision in the first paragraph providing that it is "...all subject to the approval of the Bankruptcy Court." Clearly, Andersen was aware of the necessity of the bankruptcy court's approval for the services it was undertaking on behalf of the debtor for purposes of compensation from the estate. To the extent that Andersen contends that there was confusion between Andersen and debtor's counsel concerning whether Andersen would render services to debtor's counsel or to debtor, these differences will be left for those parties to address since the retention order is plain in its terms that Andersen would be retained by the debtor, not by debtor's counsel, and that the scope of the work would be limited as set out therein and the retainer reduced to $50,000.

The objections raise five issues with respect to the fee application. On January 28, 2002, the United States Trustee filed her objection to the fee application identifying, substantially, three issues: 1) that the fee application reveals that Andersen spent 845.7 hours on loan analysis contrary to the terms of the retention order; 2) that Andersen spent 253.5 hours on business analysis and accounting work; and 3) that the work was duplicative of that provided by Jay Alix and Associates who was retained by the Creditors' Committee who was ultimately successful in promulgating a plan of liquidation. The United States Trustee supplemented her objection on July 29, 2002 to state that the supplemental affidavit gave no further information indicating benefit to the estate from the work objected to in issues 1) and 2) above. On February 8, 2002, Lisle filed an objection to the fee application raising the issue discussed above of the timeliness of the application and two additional issues: 4) that the services rendered by Andersen provided no benefit to the estate and 5) that the services exceeded the scope of the retention order. Lisle supplemented this objection on May 15, 2002 supporting the above arguments and attaching the response by Andersen to his interrogatories and requests for production of documents. Lisle again supplemented his objections to the Andersen fee application on July 26, 2002 pursuant to the court's allowance of additional time to respond after Andersen supplemented its application with additional detail.

In an application for compensation by a professional in a bankruptcy case, the applicant bears the burden of establishing the reasonableness and necessity of the fees and expenses for which reimbursement is sought. In re: Wildman, 72 B.R. 700, 708 (Bankr. N.D. Ill. 1987). The measure of those services which are reasonable and necessary is normally those which provide benefit to the estate as distinguished from solely providing benefit to the debtor. C.L.E.-Ware Indus., Inc. v. Sokolsky, 493 F.2d 863 (6th Cir. 1974), cert. denied, 419 U.S. 829 (1974); In re: Reed, 890 F.2d 104 (8th Cir. 1989); Rubner & Kutner P.C. v. United States Trustee, (In re: Lederman Enters., Inc.), 997 F.2d 1321 (10th Cir. 1993).

The mere fact that a debtor did not succeed in having a plan confirmed in a proceeding does not necessarily mean that no compensation should be paid to professionals retained by the debtor where those professionals rendered valuable services which benefitted the estate. In re James Contracting Group, Inc., 120 B.R. 868, 872 (Bankr. N.D. Ohio 1990); In re Garrison Liquors, Inc., 108 B.R. 561, 564 (Bankr. D. Md. 1989). In the present case, the court has allowed attorney's fees to debtor's counsel despite the fact that a plan was not filed and other professionals should not be denied compensation where they were properly retained by the debtor and rendered services which benefitted the estate.

Analysis of professional fees, where the professional is retained based upon the time expended by the professional for the services, is on the basis of a Lodestar analysis. In re Boddy, 950 F.2d 334 (6th Cir. 1991). Where professional fees are not set out with sufficient detail to allow the court to properly evaluate the necessity of the work done, the court may reduce or eliminate the fees since the burden is on the applicant to establish the necessity and reasonableness of the fees requested in the application. In re Drexel Burnham Lambert Group, Inc., 133 B.R.13 (Bankr. S.D.N.Y. 1991); In re Hillsborough Holdings Corp., 125 B.R.837 (Bankr. M.D. Fla. 1991);

Clearly, the court must look at its order retaining the professional from a prospective basis and services rendered pursuant to the order which then appeared necessary and were rendered in good faith should normally be compensated despite the fact that later, at the time of the fee application, some of the services have proven unnecessary or the services have proven to serve a legitimate, but unavailing, cause. In re Burke, 147 B.R.787 (Bankr. N.D. Okla. 1992). In re: Drexel Burnham Lambert Group, Inc., et al., supra. Indeed, 11 U.S.C. 330(a)(3)(C) provides as follows:

(a)(3)(A) In determining the amount of reasonable compensation to be awarded, the court shall consider the nature, the extent, and the value of such services, taking into account all relevant factors, including...

(C) whether the services were necessary to the administration of, or beneficial at the time at which the service was rendered toward the completion of, a case under this title; [Emphasis added]

The fact that there was considerable adversity between the debtor and his creditors may, in fact, support the debtor's argument that the debtor needed professionals to prepare his own version of financial matters to support a balanced view of financial affairs so that the court would not be required to rely only on views presented by creditors and committees who were adverse to him.

With respect to the objection posed by the United States Trustee and Lisle with regard to the fees requested for "loan analysis" for 845.7 hours of services and in the amount of $147,829, a review of the record, the arguments of counsel, the affidavits contained in the record and the briefs in this matter, leads the court to find that the loan analysis services are not compensable since they do not appear to be services which were authorized under the terms set forth in the June 7, 2001 retention order. The court can understand how some minor loan analysis would be necessary to understand debtor's background, the debtor's cash flow, and the nature of the debtor's previous accounting system. However, this huge number of hours related to loan analysis likely relates to questions involving the debtor with respect to discharge, dischargeability, and the Ponzi scheme allegations which subsequently appeared in objections to discharge. For these reasons, the court will deny this requested compensation in the amount of $147,829.

With respect to the objection as it concerns the business plan and operations analysis for which compensation for 253.5 hours is sought in the amount of $68,850 and expenses of $271.60, it is again clear to the court that some analysis in these areas is necessary to give the accountants the background on which to perform current accounting services, and in the formulation of a disclosure statement and plan since it requires a projection of future business and some historical data that is necessary in order to accomplish this task. However, again, when these services were rendered, it appears that Andersen was operating under the terms of the letter agreement executed by Andersen, the debtor and debtor's counsel, which is, in scope, much broader than the retention order entered by this court.

Since the burden is on the applicant to demonstrate to the court the necessity for and benefit to the estate of the services for which compensation is sought, the burden also includes separating out for the court and providing sufficient detail for those services so that the court may, from the record (since the parties chose to submit the matter on the record in this case), determine what those services were and how they benefitted the estate. While analysis of a few recent years of the debtor's business enterprises might well be justified, it does not appear that the applicant can justify an analysis, under the terms of the retention order, that goes back to 1992 as is reflected by Exhibit E to the application beginning on page 19 of that Exhibit. In the absence of this information, the applicant does not carry the burden of demonstrating to the court the value of the services rendered and the court will deny any compensation under this category. The remaining categories of work rendered by Andersen in this matter are A) meetings and teleconferences with debtors and debtor's counsel; B) liquidation analysis; C) plan of reorganization, and category F) which is case administration. Generally speaking, these sub-categories come within the court's order of June 7, 2001 in that that order certainly contemplated the need for the accounting firm to familiarize themselves with the debtor's business and communicate with debtor and debtor's counsel and assist in the ongoing administration of the case. Additionally, a liquidation analysis is a fundamental part of any plan which might have been proposed by the debtor in this case and work on a liquidation analysis in the spring and early summer of 2001 appears to be reasonable. Additionally, work toward a plan of reorganization, Category C, also appears to be reasonable.

In reviewing the work in these four categories, the court notices that there are several instances wherein various of Andersen employees would meet and confer with various other Andersen employees and that both, or all, Anderson employees would charge for their time on such occasions. Certainly, these charges have been disallowed in whole or in part by various courts. In re Bennett Funding Group, Inc., 213 B.R. 234, 245 (Bankr. N.D.N.Y. 1997); In re A.A.D.C., Inc., 193 B.R. 448, 450 (Bankr. N.D. Ohio 1996). Many courts simply allow the highest charging individual to bill for such meetings. However, the complex nature of the business of the debtor in this case leads the court to believe that it was essential for the Andersen accountants to confer among themselves to take advantage of facts learned by others working on the project, and, for that reason, the court believes that those consultations among Andersen employees were a necessary part of the work being done and should be allowed.

As previously recited, the objections which have been interposed here that all of the work came to naught because the debtor did not propose a plan of reorganization have the advantage of hindsight. Professionals who are hired pursuant to an order from the court and who render services which prospectively appear to be necessary and to benefit the estate should not be denied compensation merely because later events did not occur as would have been expected at the time those professionals were retained pursuant to court order. In re James, supra; In re Garrison Liquors, Inc., supra. The court believes that the services in these four sub-categories were rendered in good faith, and there being no specific objection to individual time charges in these categories, and it appearing to the court that the services were in fact rendered, and were reasonable and necessary at the time they were rendered, it appears that they should be allowed.

With respect to expenses requested for reimbursement by Andersen in the amount of $31,961, the application does not relate the expense item to the particular work being done. Additionally, many of the expense items are for travel to Lexington and it appears that work in more than one category, some allowable and some not allowable, would be accomplished on any particular visit to Lexington. For that reason, it appears to the court that the expenses requested should be reduced commensurate with the fee allowance in this matter. Of the requested fees in the amount of $288,689, the court has determined that $72,010 of those fees are allowable which equates to 24.9%. With respect to expenses requested in the amount of $31,961, 24.9% of that sum is $7,958.29 and that sum should be allowed.

For the reasons set forth above, it is hereby ORDERED that the motion of Arthur Andersen LLP for Allowance and Payment of Pre-confirmation Administrative Expense Claim for Services Rendered from April 10, 2001 through June 1, 2001 be, and it hereby is, ALLOWED in the amount of $72,010 for compensation and $7,958.29 for reimbursement of actual and necessary expenses and it is DISALLOWED for all other sums requested.

Dated this ____________ day of December, 2002.

By the Court:



Robert J. Brown, Esq.

Scott T. Rickman, Esq.

Elizabeth Lee Thompson, Esq.

Gregory D. Pavey, Esq.

Tracey N. Wise, Esq.

W. Thomas Bunch II, Esq.

Kevin G. Henry, Esq.

U.S. Trustee