Bankruptcy Court Strykes $400k from $970k Compensation Request

Posted on April 23rd, 2019 by Legal Fee Advisors

By Zachary Kalmbach.

A Louisiana bankruptcy court slashed a near $1 million application for compensation by 41%, finding a severe lack of billing judgment. After Chris Ridgeway filed for bankruptcy, (the “Bankruptcy Matter”), Stryker Corporation was the sole remaining unpaid creditor, stemming from a judgment against Ridgeway in a trade secrets case in Michigan, (the “Michigan Matter”). Ridgeway used the same firm (the “Firm”) to represent him in both the Bankruptcy Matter and his appeal of the Michigan Matter against Stryker. The Firm sought reimbursement of $967,776.76 for its representation in both matters, with Stryker objecting to the request. Several billing improprieties, such as charging for clerical tasks, unjustifiably redacting many billing entries, and charging for an excessive amount of work, led the Court to reduce the Firm’s application by 41%.

First, the Court noted that the Firm simultaneously represented both Ridgeway and his wholly owned business, Stone Surgical, in the appeal of the Michigan Matter. The Firm, however, did not disclose the joint representation, as required by statute, in the Bankruptcy Matter. The Court determined that the bankruptcy estate should not bear all of the fees for the appeal, and that the Firm’s failure to make required disclosures warranted a $25,000 fee reduction.

The Court also determined that the Firm was not entitled to payment for clerical work performed by paralegals. The Court stated that, while paralegals are indispensable, “the mere fact that a person has a paralegal certificate does not transport that person’s work from clerical to paralegal, any more than it elevates such tasks as copying, organizing files, typing, or filing and delivering pleadings, if performed by [a lawyer], into legal work.” For example, the Firm billed for indexing, filing, making copies, assembling binders, and several other clerical tasks. Accordingly, $31,275 was excluded from the request for non-compensable clerical tasks.

Moreover, the Firm’s billing statements “were replete with redacted entries…that left the court and others unable to evaluate the necessity of the services—and as a result, whether they should be allowed.” The Court reviewed the redacted entries in camera, and found that the Firm unnecessarily redacted many entries, most of which did not reveal any privileged material. Additionally, “in literally scores of time entries involving telephonic or other electronic communications,” the Firm redacted the identity of the participants and subject of the communication. The redactions, along with the wasting of the Court’s time with the in camera meeting, warranted a $192,886.50 reduction.

Additionally, the Court found that the Firm spent excessive amounts of time on the Michigan appeal. For example, an attorney charged 35 hours preparing for oral argument over the course of two days, and used identical descriptions for his work in both entries. Moreover, the billing statements revealed charges for multiple internal conferences and phone calls. The Court found it excessive for two attorneys to charge time for conferring between themselves. Thus, the Court reduced the fees associated with appellate work by $181,774.24. The Court, however, decided that Stone Surgical was responsible for half of the appellate fees, and thus Ridgeway only owed the Firm $150,000 for such work.

In sum, the Court found that Ridgeway owed the Firm $573,308.39—41% less than the Firm requested. The case makes clear that firms should not charge for clerical tasks, should be very scrupulous when redacting entries, and should be wary of charging clients for an excessive amount of work. The Court’s significant reductions should serve as a warning to attorneys structuring applications for compensation that these types of improprieties will not be tolerated in bankruptcy matters.

In re Ridgeway, No. 16-10643, 2018 WL 1116531 (Bankr. E.D. La. Feb. 27, 2018)

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