Case 13-11482-KJC Doc 3626 Filed 05/11/15 Page 1 of 24 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - In re: EXIDE Technologies, Debtor. 1 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x : : : : : : : x Chapter 11 Case No. 13-11482 (KJC) FEE EXAMINER S FINAL REPORT AND OBJECTION REGARDING SIXTH INTERIM FEE APPLICATION OF SITRICK AND COMPANY Robert J. Keach (the Fee Examiner ) submits this Final Report and Objection pursuant to the First Amended Order Appointing Fee Examiner and Establishing Related Procedures for the Review of Professional Claims [Docket No. 1877] (the Amended Fee Examiner Order ) in connection with the Sixth Interim Application of Sitrick and Company for Compensation for Services Rendered and Reimbursement of Expenses as Corporate Communications Professionals Retained by the Debtor for the Period from September 1, 2014 Through November 30, 2014 [Docket No. 2996] (the Sixth Fee Application ). The Sixth Fee Application seeks approval of fees in the amount of $26,511.00 and reimbursement of expenses in the amount of $10,289.30 for the period from September 1, 2014 through November 30, 2014 (the Compensation Period ). Sitrick and Company ( Sitrick ) serves as corporate communications and public relations consultants to the above-captioned debtor and debtor in possession (the Debtor ). Attached hereto as Exhibit A is a summary of the fees and expenses questioned by the Fee 1 The last four digits of the Debtor s taxpayer identification number are 2730. The Debtor s corporate headquarters are located at 13000 Deerfield Parkway, Building 200, Milton, Georgia 30004.
Case 13-11482-KJC Doc 3626 Filed 05/11/15 Page 2 of 24 Examiner and which are explained in detail below. 2 The Fee Examiner recommends a reduction of fees sought of $13,468.55 and a reduction of expenses sought of $9,877.16. Background 1. On June 10, 2013 (the Petition Date ), the Debtor filed in this Court a voluntary petition for relief under chapter 11 of the Bankruptcy Code. The Debtor is authorized to operate its business and manage its properties as a debtor in possession pursuant to 11 U.S.C. 1107(a) and 1108. The Court entered the Order Appointing Fee Examiner and Establishing Related Procedures for the Review of Professional Claims [Docket No. 1283] (the Fee Examiner Order ) on January 28, 2014, appointing Robert J. Keach as the Fee Examiner. On June 6, 2014, the Court entered the Amended Fee Examiner Order. 2. On June 19, 2013, the Debtor filed the Application Authorizing the Employment and Retention of Sitrick and Company as Corporate Communications and Public Relations Consultants to the Debtor nunc pro tunc to the Petition Date [Docket No. 149] (the Retention Application ). By Order dated July 9, 2013 [Docket No. 281] (the Retention Order ), this Court approved the retention of Sitrick. Sitrick was retained to provide the following services to the Debtor: (a) Develop and implement communications programs and related strategies and initiatives for communications with the Debtor s key constituencies (including customers, employees, vendors, bondholders, related key constituencies, and the media) regarding the Debtor s operations and progress through the chapter 11 process; 2 Exhibit A is a compilation of the time, fees, and/or expenses questioned or challenged in the various sections of this Final Report, and also includes (when presently computable) the reduction in fees or expenses sought. While the same time, fees or expenses may be questioned or challenged under multiple categories in this Final Report, for purposes of the reduction shown on Exhibit A, the reduction is, of course, done only once, usually under the category that would result in the larger reduction. For example, if certain time is challenged due to vague time entries (resulting in a partial reduction) and as being outside of the scope of the professional s retention (resulting in a 100% reduction), the time would be reduced in full on Exhibit A. 2
Case 13-11482-KJC Doc 3626 Filed 05/11/15 Page 3 of 24 (b) Develop public relations initiatives for the Debtor to maintain public confidence and internal morale during the chapter 11 process; (c) Prepare press releases and other public statements for the Debtor, including statements relating to major chapter 11 events; (d) Prepare other forms of communication to the Debtor s key constituencies and the media; (e) Develop and maintain a website containing communications materials for various constituencies regarding the restructuring; and (f) Perform such other communications consulting services as may be requested by the Debtor. Retention Application, 21. 3. Sitrick submitted the Sixth Fee Application on January 26, 2015 pursuant to, inter alia, the Court s Order Pursuant to Bankruptcy Code Sections 105(a) and 331, Bankruptcy Rule 2016, and Local Bankruptcy Rule 2016-2 Establishing Interim Compensation Procedures [Docket No. 330] (the Interim Compensation Order ). The Retention Order states that Sitrick shall be compensated in accordance with the procedures set forth in Bankruptcy Code sections 330 and 331 and such Bankruptcy Rules as may then be applicable, and such procedures as may be fixed by order of this Court. Retention Order, at 3. 3 Applicable Standards 4. In light of the size and complexity of this chapter 11 case, this Court appointed the Fee Examiner to review all interim and final fee applications... for allowance of compensation and reimbursement of expenses filed by professionals that have been retained under sections 327 or 1103 of the Bankruptcy Code for compliance with various applicable 3 The Retention Application sought the ability to keep time records in summary format. Retention Application, 26. Premised on the language of the Retention Order, the Fee Examiner believes that Sitrick is required to maintain time strictly in conformance with the Bankruptcy Code and the applicable rules and guidelines. 3
Case 13-11482-KJC Doc 3626 Filed 05/11/15 Page 4 of 24 orders, rules and guidelines. Amended Fee Examiner Order, D, 3. 4 After reviewing each Application filed by a Retained Professional, the Fee Examiner shall prepare a periodic confidential report on such Application (each, a Preliminary Report ), as soon as practicable following the service of an Interim Fee Application or Final Fee Application upon the Fee Examiner. Id. at 7. The Preliminary Reports shall set forth any issue or objection relating to the fees or expenses contained in each such Application.... Id. The Fee Examiner shall transmit the Preliminary Report to the Debtor, the Debtor s lead counsel, the official committee of unsecured creditors (the Committee ), counsel to the Committee, the United States Trustee (the UST ), and the Retained Professional that is the subject of the Preliminary Report. Id. at 7.a. The contents of the Preliminary Report shall be confidential until such time as the Fee Examiner incorporates any or all of the content of the Preliminary Report into a Final Report. Id. Retained Professionals shall respond to a Preliminary Report and the Fee Examiner and the Retained Professional shall endeavor to reach a mutually acceptable resolution of any issues identified by the Fee Examiner in the Preliminary Report. Id. at 7.b. On or before the date that is ten (10) days prior to the hearing date set for the adjudication of Fee Applications for a particular fee period..., the Fee Examiner shall file a final report... with the Court and note any unresolved objections to the Application. Id. at 7.c. 5. The Fee Examiner reviewed the Sixth Fee Application for compliance with sections 330 and 331 of the Bankruptcy Code (the Bankruptcy Code ), the Federal Rules of Bankruptcy Procedure (the Bankruptcy Rules ), the Local Rules of Bankruptcy Practice and Procedure of the United States Bankruptcy Court for the District of Delaware (the Local Bankruptcy Rules ), the Interim Compensation Order, and the United States Trustee Guidelines 4 Capitalized terms not otherwise defined herein shall have the meaning ascribed to them in the Fee Examiner Order and the Amended Fee Examiner Order. 4
Case 13-11482-KJC Doc 3626 Filed 05/11/15 Page 5 of 24 for Reviewing Applications for Compensation & Reimbursement of Expenses filed under 11 U.S.C. 330 (28 C.F.R. Part 58, Appendix A) (the UST Guidelines ). In addition, the Fee Examiner reviewed the Sixth Fee Application for general compliance with legal precedent established by the District Courts and Bankruptcy Courts for the District of Delaware, the Third Circuit Court of Appeals, and other applicable precedent. 6. Pursuant to section 330 of the Bankruptcy Code, the Court may award professionals reasonable compensation for actual, necessary services. 11 U.S.C. 330(a)(1)(A). The Court may, on its own motion or an objection filed by a party in interest, award compensation that is less than the amount of compensation that is requested. 11 U.S.C. 330(a)(2). In evaluating the amount of reasonable compensation to be awarded, the Court should consider: the nature, the extent, and the value of such services, taking into account all relevant factors, including: (a) the time spent on such services; (b) the rates charged for such services; (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; (d) whether the services were performed within a reasonable amount of time commensurate with the complexity, importance, and nature of the problem, issue, or task addressed; (e) with respect to a professional person, whether the person is board certified or otherwise has demonstrated skill and experience in the bankruptcy field; and (f) whether the compensation is reasonable based on the customary compensation charged by comparably skilled practitioners in cases other than cases under this title. 11 U.S.C. 330(a)(3)(A F). In certain circumstances, the Court s discretion is limited; pursuant to section 330(a)(4), the court shall not allow compensation for (i) unnecessary 5
Case 13-11482-KJC Doc 3626 Filed 05/11/15 Page 6 of 24 duplication of services; or (ii) services that were not (I) reasonably likely to benefit the debtor s estate; or (II) necessary to the administration of the case. 11 U.S.C. 330(a)(4); see also In re Teraforce Tech. Corp., 347 B.R. 838, 847 (Bankr. N.D. Tex. 2006) (Houser, J.) (noting mandatory nature of 330(a)(4)). 7. A fee applicant bears the burden of proof on all of the elements of a fee application, including proving that the services provided were necessary and reasonable and that the billed expenses were necessary, reasonable, and actually incurred. E.g., Zolfo, Cooper & Co. v. Sunbeam-Oster Co., 50 F.3d 253, 261 (3d Cir. 1995); Howard v. High River L.P., 369 B.R. 111, 115 (S.D.N.Y. 2007); In re Keene Corp., 205 B.R. 690, 695 (Bankr. S.D.N.Y. 1997); In re 580 W. 28th St., L.P., No. 08-13266, 2009 WL 4893287, at *8 (Bankr. S.D.N.Y. Dec. 11, 2009). The failure of an applicant to sustain the burden of proof as to the reasonableness of the compensation may result in the denial of the request for compensation. See Brake v. Tavormina (In re Beverly Mfg. Co.), 841 F.2d 365, 369 (11th Cir. 1988). Generally, fee applications, standing alone, must contain sufficient detail to demonstrate compliance with 330.... Any uncertainties due to poor record keeping are resolved against the applicant. 580 W. 28th St., 2009 WL 4893287, at *8. To meet this burden, the applicant must support its request for fees and expenses with specific, detailed and itemized documentation. In re Bennett Funding Grp., Inc., 213 B.R. 234, 244 (Bankr. N.D.N.Y. 1997). Interim fee applications submitted pursuant to Code 331... are judged under the same standards as final applications under Code 330. Id. Moreover, a fee applicant must make a good faith effort to exclude excessive, redundant or otherwise unnecessary hours from a fee request. Id. 8. Services are considered actual and necessary if they benefited the estate. APW Enclosure Sys., No. 06-11378, 2007 WL 3112414, at *3 (Bankr. D. Del. Oct. 23, 2007). Success is not required, but rather the court must conduct an objective inquiry based upon what services 6
Case 13-11482-KJC Doc 3626 Filed 05/11/15 Page 7 of 24 a reasonable professional would have performed in the same circumstances. In re Channel Master Holdings, Inc., 309 B.R. 855, 861 62 (Bankr. D. Del. 2004) (quoting In re Cenargo Int l, PLC, 294 B.R. 571 (Bankr. S.D.N.Y. 2003)); see also In re Jefsaba, Inc., 172 B.R. 786, 799 (Bankr. E.D. Pa. 1994) ( [S]o long as there was a reasonable chance of success which outweighed the cost in pursuing the action, the fees relating thereto are compensable. ). Stated differently, the test is an objective one and considers what services a reasonable lawyer or legal firm would have performed in the same circumstances. Keene, 205 B.R. at 696 (quoting In re Ames Dep t Stores, Inc., 76 F.3d 66, 72 (2d Cir. 1996)). [T]he test of what is necessary cannot be applied in hindsight. If at the time the work is performed, it reasonably appears that it would benefit the estate, it may be compensated. In re Berg, No. 05-39380DWS, 2008 WL 2857959 at *7 (Bankr. E.D. Pa. July 21, 2008); see also Cenargo, 294 B.R. at 595 (when determining what is necessary, courts do not attempt to invoke perfect hindsight. ). 9. Furthermore, the professional is required to undertake an appropriate cost-benefit analysis before rendering the service. Keene, 205 B.R. at 696. A court will more thoroughly examine the services provided by a professional in cases where there is a low probability of achieving a feasible reorganization or where the reorganization was more than doubtful, because, in such cases, the estate was less likely to benefit from the professional s services from the outset. APW Enclosure Sys., 2007 WL 3112414, at *3 4; see also In re Angelika Films 57th, Inc., 227 B.R. 29, 42 (Bankr. S.D.N.Y. 1998) (stating that [a]n attorney should only proceed with a legal service if the potential benefit of the service, which takes into consideration the chances of success, outweighs the costs. ). 10. Even if the court determines that a service was necessary, the court must still ascertain the reasonable value of the service. APW Enclosure Sys., 2007 WL 3112414, at *4. In order to determine the reasonable value of the service, the court must assess the quality of the 7
Case 13-11482-KJC Doc 3626 Filed 05/11/15 Page 8 of 24 service. Id. In contrast to the necessity analysis of a service, the evaluation of the attorney s performance, i.e., the quality of representation, must be done in hindsight. Id. The cost of comparable services factor section 330(a)(3)(F) is of particular importance in determining the value of services. In re Busy Beaver Bldg. Ctrs., Inc., 19 F.3d 833, 849 (3d Cir. 1994) ( [T]he cost of comparable services factor has an overarching role to act as a guide to the value of the services rendered given their nature and extent. ). 11. In determining comparability, i.e., whether the compensation sought is commensurate with the fees awarded for comparable services in non-bankruptcy matters, the court s inquiry into the value of the services is described as a market-driven approach. That is, if the... professionals charge the same amount as the applicable market for comparable services, the Court would need good and articulated reasons to reduce their fee request as excessive. Cenargo, 294 B.R. at 596. The general market acceptance of a practice, especially given the changing, dynamic nature of markets, must control overly rigid, inflexible, and individualized preconceived notions. In re Drexel Burnham Lambert Grp., Inc., 133 B.R. 13, 21 (Bankr. S.D.N.Y. 1991) (holding that one of the criteria under section 330 must include that attorneys rates and practices are accepted by the market). However, the bankruptcy courts must not become slaves to the prevailing markets, and thus be prevented from making judgments as to the necessity of services performed and the reasonableness of fees charged. Bennett Funding, 213 B.R. at 247. Market theory does not relieve the courts of the duty to review and scrutinize fee requests. Id. As such, normal billing rates are afforded a presumption of reasonableness. Berg, 2008 WL 02857959, at *5; In re 14605, Inc., No. 05-11910, 2007 WL 2745709, at *8 (Bankr. D. Del. Sept. 19, 2007). The starting point of the market rate analysis is the rates charged by the professional in the professional s customary market. Zolfo, Cooper & Co., 50 F.3d at 260 61. A court may not reduce customary rates simply because they are higher 8
Case 13-11482-KJC Doc 3626 Filed 05/11/15 Page 9 of 24 than local rates. Id. at 260; 14605, Inc., 2007 WL 2745709, at *7. The court, however, must examine the requested rates, considering the experience, knowledge, ability and reputation of the applicant to make sure that they are not out of line with comparable rates in the market.... Berg, 2008 WL 02857959, at *5. Furthermore, the hourly rates charged by bankruptcy professionals must be commensurate with the hourly rates charged by their peers in other practice areas. In re Fleming Cos., 304 B.R. 85, 99 (Bankr. D. Del. 2003). 12. Actual, not surprisingly, means that the service must have actually been rendered and the time actually spent; in other words, the bill must not be padded. See Keene, 205 B.R. at 696 n.6. 13. The Fee Examiner completed the evaluation of the Sixth Fee Application, the Retention Application, the Retention Order, the Interim Compensation Order, and all related filings. A Preliminary Report was sent to Sitrick and attempts were made to resolve the Fee Examiner s issues with the Sixth Fee Application. Those attempts were ultimately unsuccessful. Pursuant to Paragraph 7(c) of the Amended Fee Examiner Order, the Fee Examiner issues this final report and objection (the Final Report ) with respect to the Sixth Fee Application. 5 DISCUSSION OF FINDINGS General Requirements 14. Content of Fee Application. The Fee Examiner has reviewed the Sixth Fee Application for compliance with the technical requirements for fee applications of the UST Guidelines, the Local Bankruptcy Rules and Bankruptcy Rule 2016. The following is a list of items where Sitrick failed to meet the requirements set forth in the above documents: 5 The Sixth Fee Application states that Sitrick reserves the right to seek additional fees and expenses for work performed or expenses incurred during the Compensation Period which are not yet reflected in Sitrick s time entries or to correct any bookkeeping errors which are subsequently discovered. Sixth Fee Application, at 9, 10. The Fee Examiner reserves his right to contest any such application to the Court for additional fees or expenses incurred during the Compensation Period. 9
Case 13-11482-KJC Doc 3626 Filed 05/11/15 Page 10 of 24 (a) The UST Guidelines require that fee applications indicate whether the person on whose behalf the applicant is employed has been given the opportunity to review the application and whether that person has approved the requested amount. UST Guidelines, (b)(1)(v). The Sixth Fee Application indicates that the person on whose behalf the applicant is employed, the Debtor, has been given notice of the filing of the Sixth Fee Application but does not indicate whether that person has approved the requested fee amount. 6 The Fee Examiner notes that in its response to the Fee Examiner s previous Preliminary Reports, Sitrick stated that, because the Debtor did not object to its monthly statements, it is not required to provide an affirmative statement in its fee applications that the Debtor approved the requested amount. The Fee Examiner disagrees and believes that the Sixth Fee Application should contain a statement indicating whether or not the Debtor has reviewed and approved Sitrick s requested fees and expenses. (b) The UST Guidelines require that fee applications indicate the total compensation and expenses previously requested and awarded by the Court. UST Guidelines, (b)(3). Although previous Sitrick fee applications did not so indicate, the Sixth Fee Application does contain a statement indicating the amount of compensation and expenses previously requested by Sitrick in the other fee periods and amounts that have been paid to it; however, it appears that the amounts listed do not accurately reflect what was awarded by the Court. 15. Firm Staffing and Overstaffing. The UST Guidelines state that fee applications should identify the [n]ames and hourly rates of all applicant s professionals and paraprofessionals who billed time, [an] explanation of any changes in hourly rates from those previously charged, and [a] statement of whether the compensation is based on the customary 6 [T]he United States Trustee guideline requiring the application to include a statement regarding whether the client has reviewed and approved the applicant s fees... focuses on whether the client has had a meaningful opportunity to review and approve the fees billed.... Richardson & Richardson, P.C. v. Romano (In re Romano), No. 09-23446, 2012 WL 1588687, at *5 n.11 (BAP 9th Cir., May 7, 2012). The requirement is not met by merely giving the client the right to object after the fact. Id. The requirement is also not just boilerplate or merely procedural. The client s review while not intended to be as detailed as that of the UST, a fee examiner or the Court will focus on whether or not the services for which fees are sought were authorized by the client in the first instance and otherwise consistent with the client s understanding of the permitted scope of services, matters uniquely within the client s purview. Id. at *8 10; see also In re Dimas, LLC, 357 B.R. 563, 580 (Bankr. N.D. Cal. 2006) (finding that services not authorized by the client are not compensable; fees incurred by counsel and related to services rendered after client had withdrawn counsel s authority, prior to submission of the application, were disallowed). Accordingly, prior client review and approval is a critical part of the overall fee review process and is not to be forgone at counsel s option. 10
Case 13-11482-KJC Doc 3626 Filed 05/11/15 Page 11 of 24 compensation charged by comparably skilled practitioners in cases other than cases under title 11. 7 UST Guidelines, (b)(1)(iii). Courts will scrutinize overstaffing, i.e., too many professionals working on the same tasks. Teraforce Tech., 347 B.R. at 861 62; see also In re GSC Grp., No. 10-14653, 2012 WL 676409, at *7 (Bankr. S.D.N.Y. Feb. 29, 2012) (disallowing 15% of fees related to sale of the debtors business for staffing inefficiencies ). Additionally, top heavy arrangements whereby senior professionals bill a disproportionate amount of time are impermissible. In re Fleming Cos., 304 B.R. at 93; see also Teraforce Tech., 347 B.R. at 862 (reducing fees because firm was top heavy in partner hours spent on the case; noting that ratio of partner-to-associate hours is not what the Court would expect to see in a reasonably staffed case of this size and complexity. ). Considerations of overstaffing or top heavy billing go to the overall reasonableness and necessity of hours billed. Id. 16. [T]he wasteful use of highly skilled and highly priced talent for matters easily delegable to nonprofessionals or less experienced associates will not be tolerated. In re Burgoyne, Inc., No. 01-35687DWS, 2002 WL 31685730, at *4 (Bankr. E.D. Pa. Nov. 4, 2002) (quoting Ursic v. Bethlehem Mines, 719 F.2d 670, 677 (3d Cir. 1983)). Accordingly, senior professionals performing routine tasks should not bill at their normal rates. Ursic, 719 F.2d at 677 ( A Michelangelo should not charge Sistine Chapel rates for painting a farmer s barn. ). [T]he Court must... scrutinize whether the appropriate professional or paraprofessional has been assigned the work performed based on the nature, extent and complexity of the task at hand. Berg, 2008 WL 2857959, at *6. 7 A retained professional s failure to include a statement of whether its compensation is based on the customary compensation charged by comparably skilled practitioners in cases other than this chapter 11 case is an issue of technical compliance and, if applicable, is addressed in paragraph 14 hereof. 11
Case 13-11482-KJC Doc 3626 Filed 05/11/15 Page 12 of 24 17. The Sixth Fee Application provides the names, positions, and hourly rates of the three (3) Sitrick professionals who billed to this matter during the Compensation Period, consisting of two (2) members and one (1) associate. A summary of hours and fees billed by each timekeeper is displayed on Exhibit B. 18. Sitrick billed a total of 44.2 hours with associated fees of $26,511.00. 8 The following table displays the hours and fees computed by timekeeper position and the percentage of total hours and fees for each position: Position Hours Percentage of Total Hours Fees Percentage of Total Fees Members 43.2 98.0% $26,316.00 99.5% Associate 1.0 2.0% $195.00 0.5% TOTAL 44.2 100.0% $26,511.00 100.0% The blended hourly rate for the Sitrick professionals is $599.80. As reflected in the chart above, the number of hours worked by Sitrick members constitutes 98.0% of the total hours billed and 99.5% of the total fees billed. This appears to the Fee Examiner to be top heavy staffing for the work performed and not the normal staffing arrangement in most of Sitrick s prior fee periods. No explanation has been provided by Sitrick for this staffing pattern. Based on this analysis, the Fee Examiner believes a reduction for time and fees billed for top-heavy staffing is warranted. As displayed on Exhibit A, the Fee Examiner recommends a reduction of $12,689.25 for top-heavy staffing which represents half of the fees billed by members less the amount for preparation of fee applications discussed in paragraphs 24 26 below. 19. Reconciliation of Fees and Expenses. The Fee Examiner compared the total amount of fees and expenses requested in the Sixth Fee Application ( Fees Requested and 8 This amount reflects the Fees Computed as defined below. 12
Case 13-11482-KJC Doc 3626 Filed 05/11/15 Page 13 of 24 Expenses Requested ) to the fees and expenses actually documented in the electronic and/or hard copy data received from Sitrick ( Fees Computed and Expenses Computed ). The Fee Examiner did not identify any discrepancies between the Fees Requested and the Fees Computed or between the Expense Requested and the Expenses Computed. Review of Billing Practices 20. Time Increments/Block Billing. The Local Bankruptcy Rules require that each time entry include a time allotment and activities be billed in tenths of an hour increments. Del. Bankr. L.R. 2016-2(d)(iii) (iv). The UST Guidelines provide that time entries should be kept contemporaneously with the services rendered in time periods of tenths of an hour. UST Guidelines, (b)(4)(v); see also In re GSC Grp. Inc., No. 10-14653, 2013 WL 6639217, at *52 (Bankr. S.D.N.Y. Dec. 12, 2013) (disallowing 20% of fees attributable to a particular timekeeper who did not keep time contemporaneously); W. End Fin. Advisors, No. 11-11152, 2012 WL 2590613, at *4 (Bankr. S.D.N.Y. July 3, 2012) (noting requirement of contemporaneously created time records that specify, for each attorney, the date, the hours expended, and the nature of the work done. ) (internal quotations omitted); 530 W. 28th St., No. 08-13266, 2009 WL 4893287, at *8 (Bankr. S.D.N.Y. Dec. 11, 2009). Billing in greater than 0.10 hour increments is a practice that lends itself to the potential of increased rounding of time, thereby increasing the likelihood that the reported time charged is inflated. See Jefsaba, Inc., 172 B.R. at 811 (billing in quarter hour increments inflates and distorts the time actually expensed, and hence is unacceptable. ). This practice is widely criticized by courts and legal scholars and is typically prohibited by sophisticated consumers of legal services as it can result in the billing of time over and above the amount of time actually expended to perform a particular activity. See W. End Fin. Advisors, 2012 WL 2590613, at *15 (noting that the most entries were billed in half-hour or whole hour increments; this indicates that time was recorded in round numbers without any 13
Case 13-11482-KJC Doc 3626 Filed 05/11/15 Page 14 of 24 significant effort to detail the actual time spent on services. ). Additionally, in both the Retention Application and the Declaration of Brenda Adrian submitted in support of the Retention Application, Sitrick indicated that time is billed by Sitrick in increments of one-tenth of an hour. Retention Application, at 10; Declaration of Brenda Adrian in Support of Application of the Debtor Pursuant to Bankruptcy Code Sections 327(A) And 328(A), Bankruptcy Rule 2014(A), and Local Bankruptcy Rules 2014-1 And 2016 Authorizing The Employment And Retention Of Sitrick And Company As Corporate Communications And Public Relations Consultants To The Debtor Nunc Pro Tunc To The Petition Date, at 5. 21. The Fee Examiner reviewed Sitrick s billing records for block billing and did not identify instances of block billing. Although greater than 25% of the entries attributable to Kara Schmiemann (100%) were in whole or half hour increments, her overall time consisted of only that one hour, so the Fee Examiner will not consider her time as block billed time. 22. Timekeepers Roles (including Transitory Timekeepers). A court may not allow compensation for unnecessary duplication of services. See 11 U.S.C. 330(a)(4)(i). Timekeepers who work on a case for only a few hours or less are referred to as transitory timekeepers. See Objection of the United States Trustee to Third Interim Applications for Compensation and Reimbursement of Expenses at 6 7, In re Hostess Brands, Inc., No. 12-22052 (RDD) (Bankr. S.D.N.Y. Mar. 6, 2013), ECF No. 2398. As one court noted: The primary concern with too many attorneys billing too little time is the learning curve. Every attorney must be brought up to speed to the extent necessary to perform his or her task, and the theory goes that the cost of this education can be saved or minimized if attorneys already familiar with the case perform the service instead. This concern diminishes where the transitory timekeeper provides services on an ad hoc basis within an area of expertise that is not possessed by the attorneys regularly assigned to the case or the task is so focused that it is unnecessary to spend time learning the details of the case. 14
Case 13-11482-KJC Doc 3626 Filed 05/11/15 Page 15 of 24 In re Quigley Co., 500 B.R. 347, 362 (Bankr. S.D.N.Y 2013) (allowing time billed by timekeepers who each billed less than six hours during the duration of the case where those timekeepers dealt with discrete issues ); see also Jefsaba, Inc., 172 B.R. at 800 n.9 ( Requests to compensate for services of professionals whose time is de minimis raises a red flag in our review. Other than professionals with a special expertise, the fleeting involvement of bankruptcy attorneys in a case often results from a staffing inefficiency. Given the itinerant attorney s lack of knowledge of the case the attorney s time may be less productive than attorneys regularly assigned to the case. ); In re Maruko,Inc., 160 B.R. 633, 639 (Bankr. S.D. Cal. 1993) (criticizing the occurrence of transient billing where an individual timekeeper visit[s] the file on a limited basis without accomplishing a discreet task and with no apparent continuing involvement in the matter). 23. With this authority in mind, the Fee Examiner reviewed the billing entries of each timekeeper to evaluate his or her contribution to the representation, including a comparison to others efforts. Generally, in the event a professional commits less than 10 hours during a fee application period, the Fee Examiner questions whether such individual made a material contribution to the representation. The entries for the timekeeper whose time did not exceed 10 hours during the Compensation Period total 1.0 hour with associated fees of $195.00 (Kara Schmiemann). Although this timekeeper billed less than ten hours during the Compensation Period, the Fee Examiner does not view her time as truly transitory in nature as described herein, based on the total amount of time she has worked on the case to date. Review of Substantive Issues in Time Entries 24. Preparation of Fee Application. Section 330(a)(6) expressly provides that [a]ny compensation awarded for the preparation of a fee application shall be based on the level and skill reasonably required to prepare the application. 11 U.S.C. 330(a)(6). Accordingly, 15
Case 13-11482-KJC Doc 3626 Filed 05/11/15 Page 16 of 24 the cost of preparing a fee application is generally compensable. See 14605, Inc., 2007 WL 2745709, at *9 ( Clearly the statute contemplates that fees will be allowed for preparation of fee applications in bankruptcy cases. ). Nonetheless, [i]t is proper for the bankruptcy court to examine the amount and value of the time spent preparing the fee application, and reasonable limits may be placed on compensation for such work. In re Mesa Air Grp., Inc., 449 B.R. 441, 445 (Bankr. S.D.N.Y. 2011) (internal quotations omitted) (applying a 3-5% metric); see also 415 W. 150 LLC, 2013 WL 4603162, at *6 (reducing fees requested for preparation of fee application by applying a 5% metric). 25. Although the Sixth Fee Application states that Sitrick is not requesting compensation for services rendered in preparing the Sixth Fee Application at this time (Sixth Fee Application, at 1), it appears that Sitrick is seeking reimbursement for fees incurred in preparing fee applications and for legal services provided to it by the law firm of Quarles & Brady for the months of September, October and November, 2014, and legal services provided to it by the law firm of Ciardi, Ciardi & Astin, for the months of August, September and October, 2014. The amount of fees sought relating to preparation of fee applications total $7,855.00 and the related time entries are set forth on Exhibits C, D and E. 9 26. The Fee Examiner has reviewed Sitrick s time, Quarles & Brady s time, and Ciardi, Ciardi & Astin s time spent as it relates to preparing fee applications for the Compensation Period. The Fee Examiner has also reviewed the time spent on preparing fee applications for all of the fee periods to date, in order to determine whether the request for reimbursement appears reasonable and, therefore, compensable under the metric described 9 Sitrick s request for reimbursement for outside counsel fees appears in the Sixth Fee Application, as it has in previous fee applications, as a request for an expense reimbursement. For purposes of this Final Report, the Fee Examiner is addressing the outside counsel fee reimbursement request in the fee portion of the Final Report. 16
Case 13-11482-KJC Doc 3626 Filed 05/11/15 Page 17 of 24 above. Over the course of the case, Sitrick s requests for reimbursement relating to preparing monthly and interim fee applications constitute approximately 12.0% of the total amount of fees sought by Sitrick. The Fee Examiner finds this to be excessive and beyond the parameters discussed above and intends to seek a reduction in the fees and expenses sought by Sitrick for fee application preparation in the amount set forth on Exhibit A. 27. Defending Fee Applications; Interaction with the Fee Examiner. The decisional law appears relatively settled with respect to whether fees and costs incurred by a professional in defending his or her fee application are compensable: applying the so-called American Rule, such fees and costs are not compensable unless the applicant substantially prevails in the defense of the fee application. As Judge Bernstein, in reviewing the prevailing case law, reasoned in Brous: While the cost of preparing a fee application is compensable, the cost of defending one may not be. The Bankruptcy Code expressly covers the former. See 11 U.S.C. 330(a)(6) ( Any compensation awarded for the preparation of a fee application shall be based on the level and skill reasonably required to prepare the application. ). Moreover, the professional must prepare and submit an application in order to get paid.... There is no parallel statutory requirement to defend against an objection to a fee application, or to receive compensation for the legal fees incurred in that defense. Furthermore, fee litigants, like other litigants, must generally bear their own legal expenses under the American Rule. Nevertheless, some courts have awarded the litigation fees and expenses incurred by the successful applicant out of fear that the failure to do so would dilute the fee award, and encourage parties to file frivolous objections.... Conversely, other courts have declined to award the fees where the objection was filed in good faith and the objecting party prevailed.... At least one court has expressed the concern that allowing the losing applicant to recover its legal fees would encourage meritless fee requests because the applicant could earn more fees opposing objections to its frivolous request. In the present case, the Trustee failed to justify a departure from the American Rule. He relied on 326 to support his fee, and ignored 330. [The objector] asserted a good faith objection to the Trustee s and the two other requests, and has substantially prevailed. Finally, the Trustee s defense of his and the other fee 17
Case 13-11482-KJC Doc 3626 Filed 05/11/15 Page 18 of 24 applications were neither reasonable nor necessary from the standpoint of the other creditors, and plainly failed to provide them with any benefit. 370 B.R. at 572 (internal citations omitted); see 14605, Inc., 2007 WL 2745709, at *10; see also In re Worldwide Direct Inc., 334 B.R. 108, 109 12 (D. Del. 2005) ( [R]equiring counsel who has successfully defended a fee claim to bear the costs of that defense is no different than cutting counsel s rate or denying compensability on an earlier fee application. ); CCT Commc ns, 2010 WL 3386947, at *8 9 (duplicating the reasoning of Brous, but allowing fees and costs in defending fee application where applicant substantially prevailed, and denial of the defense costs would dilute its award ); 530 West 28th St., 2009 WL 4893287, at *11 (following Brous and not awarding any portion of fees incurred in defending fee application where objections to application were made in good faith, the court sustained many of the objections, and there was no reason to deviate from the American Rule under which litigants must bear their own legal expenses ); In re Ahead Commc ns Sys., Inc., No. 02-30574, 2006 WL 2711752, at *4 (Bankr. D. Conn. Sept. 21, 2006) (collecting cases and holding that: This court concurs with the courts which have allowed the compensation of attorneys fees incurred in successfully defending fee applications against objections. ); see also Bench Decision on Pending Fee Issues, In re Motors Liquidation Co., No. 09-50026 (REG) (Bankr. S.D.N.Y., Nov. 23, 2010), ECF No. 7986 (Bankruptcy Judge Gerber adopts holdings of CCT and Brous). 28. Other courts have taken a harsher approach, finding that the fees and costs incurred in defending a fee application benefit only the professional and provide no benefit to the estate; accordingly, such courts simply deny the allowance of such fees and the reimbursement of such expenses. In re Wireless Telecomm., Inc., 449 B.R. 228, 237 38 (Bankr. M.D. Pa. 2011); In re Parklex Assocs., Inc., 435 B.R. 195, 214 (Bankr. S.D.N.Y. 2010) (although Court reluctant to establish per se rule); In re St. Rita s Assocs. Private Placement, L.P., 260 B.R. 650, 652 18
Case 13-11482-KJC Doc 3626 Filed 05/11/15 Page 19 of 24 (Bankr. W.D.N.Y. 2001); cf. Stations Holding Co., 2004 WL 1857116, at *2 (Time spent negotiating compensation is unreasonable as the purpose of such work is to improve the position of the applicant, not the Debtor or creditor body in general. ); see also 415 W. 150 LLC, 2013 WL 4603162, at *6 n.2 ( an applicant should not be compensated for fixing a defective fee application. ). 29. While not applicable to this case, the new Guidelines for Reviewing Applications for Compensation and Reimbursement of Expenses Filed Under 11 U.S.C. 330 by Attorneys in Larger Chapter 11 Cases (28 CFR Part 58, Appendix B) (the New UST Large Case Guidelines ) take a similar approach to the prevailing case law. The New UST Large Case Guidelines provide, at section B.2.g., that activities that the United States Trustee may object to as noncompensable include but are not limited to: Contesting or litigating fee objections: Whether the fee application seeks compensation for time spent explaining or defending monthly invoices or fee applications that would normally not be compensable outside of bankruptcy. Most are not compensable because professionals typically do not charge clients for time spent explaining or defending a bill. The USTP s position is that awarding compensation for matters related to a fee application after its initial preparation is generally inappropriate, unless those activities fall within an applicable, judicially recognized and binding exception (such as litigating an objection to the application where the applicant substantially prevails). Thus, the United States Trustee may object to time spent explaining fees, negotiating objections, and litigating contested fee matters that are properly characterized as work that is for the benefit of the professional and not the estate. New UST Large Case Guidelines, B.2.g (emphasis supplied). Thus, available case law and the New UST Large Case Guidelines would suggest that time spent responding to the Fee Examiner s inquiries and objections would not, in most cases, be compensable. However, as set forth above, the Amended Fee Examiner Order in this case establishes a procedure under which (a) the Fee Examiner transmits the Preliminary Report to the Retained Professional; (b) the Fee Examiner and the Retained Professional endeavor to reach a mutually acceptable resolution of 19
Case 13-11482-KJC Doc 3626 Filed 05/11/15 Page 20 of 24 any issues identified by the Fee Examiner in the Preliminary Report ; and (c) the Fee Examiner shall provide the Retained Professional with a reasonable opportunity to respond to any issues identified in the Preliminary Report. Given the procedure outlined in the Amended Fee Examiner Order, and, indeed, mandated thereby, the Fee Examiner believes it would be unfair to recommend that all fees incurred in responding to the Fee Examiner s inquiries and attempting to resolve such inquiries be disallowed. Routine involvement in the process should not be penalized. Indeed, the Fee Examiner in the Motors Liquidation case recommended that some of such fees be allowed on (at least in part) a formula basis: The recommendation embodied in the Fee Examiner s individual reports suggests a pragmatic approach. For experienced firms, it proposes a 50 percent payment for time spent on responding to the Fee Examiner or to the U.S. Trustee or, for that matter, to the Court itself. For less experienced firms, the suggested reduction is less. This approach takes into account the case law, to the extent there is bright line authority in those cases, and tries to account both for sustained objections and stipulations as well as for objections that, though not sustained, are made in good faith-generally in concert, though not jointly, by the U.S. Trustee and the Fee Examiner. See Fee Examiner s Summary and Recommendations-Interim Fee Applications Scheduled for Hearing on October 26, 2010 (Including Those Adjourned From September 24, 2010) at 11, In re Motors Liquidation Co., No. 09-50025 (REG) (Bankr. S.D.N.Y., Oct. 19, 2010), ECF No. 7448. 30. While a fixed formula or predetermined percentage reduction (or monetary cap) is tempting, would be easier to apply, and would result in a level of predictability, the Fee Examiner does not adopt such an approach at this time. The Fee Examiner will exercise his judgment in this respect on a case-by-case basis, given his direct involvement in the process. However, consistent with both the case law and the Amended Fee Examiner Order, the Fee Examiner will generally recommend that time be treated as compensable when spent (a) preparing an initial response to the Preliminary Report (which response may be detailed); (b) in an initial meeting or teleconference with the Fee Examiner as to a Preliminary Report; and/or (c) considering a single 20