IN RE: DAVID J. RAGAN CASE NO. 85-50561

UNITED STATES BANKRUPTCY COURT 

EASTERN DISTRICT OF KENTUCKY

LEXINGTON

IN RE:

DAVID J. RAGAN CASE NO. 85-50561

DEBTOR

SYNOPSIS

Pursuant to 11 U.S.C. § 327 and 11 U.S.C. § 330, "prior court approval is required in order for the trustee to employ an accountant to provide services for the bankruptcy estate. The general rule is that court approval must be obtained before the professional begins to render services for which compensation will be sought. . . . Retroactive approval of the employment may be granted in extraordinary circumstances. . . .

The application of [counsel for the debtor] is for reimbursement for accounting expenses incurred by him after his employment as special counsel when he in turn employed Chase McEvoy of McEvoy & Co. as an accountant to assist him in the preparation of defenses against Conti's civil action and the presentation of the debtor's counterclaim against Conti. . . . [T]he suggestion is that court approval of the employment of the accountant pursuant to section 327(a) was not required in this instance because the accountant was not employed to assist the trustee in carrying out his duties under title 11, but rather was employed by special counsel for the trustee as an expert witness in litigation in which the estate is involved.

The application by Rose for expenses incurred for the services of an accounting firm for whom application was not made or approved prior to the rendering of services should be denied. . . .

However, even if prior approval for employment had been obtained, significant portions of the request for payment would have to be denied. Section 328 provides that a professional person employed under sections 327 or 1103 may be employed on any reasonable terms and conditions, including on a retainer, an hourly basis, or a contingent fee basis. 11 U.S.C. § 328(a). There is no way to discern the arrangement under which Mr. McEvoy and his staff were employed.

The application before the court is itself difficult if not impossible to understand, and many of the entries are for non-compensable services which are considered to be overhead. . . . Unexplained abbreviations render time entries non-compensable. . . . The activity described in a fee application should be described with some specificity. An entry for a telephone call, conference, or correspondence should indicate the parties involved as well as the nataure of the activity. . . ."

The opinion cites cases from other jurisdictions on the issue of whether intraoffice conferences are compensable. The opinion also states that expenses for "typing, input, copying, hole punching, looking for, filing, labeling, helping printing, assembling, separating, and binding" "are firm overhead expenses and are non-compensable."

"Charges by accounting firms for computer time have been disallowed as overhead. In re Southern Industrial Banking Corp., 41 B.R. 606, 615 (Bankr. E.D. Tenn. 1984)."

"The next category, office rental, is clearly overhead and should be disallowed."

Dated: April 6, 1994

By the court -

Joe Lee, Chief Judge

Copies to:

W. Thomas Bunch

Bruce Rose

R. Allan Webb

U.S. Trustee