U.S. Bankruptcy Judge Overseeing Dewey & LeBoeuf Chapter 11 Approves $17 Million in Fees and Expenses

Posted on July 8th, 2013 by Legal Fee Advisors

As reported by Sara Randazzo in the Am Law Daily, U.S. Bankruptcy Judge Martin Glenn has approved  9 pending applications totaling 17 million in fees and expenses in the Dewey & LeBoeuf bankruptcy.   The applications were submitted prior to the enactment/effective date of the Department of Justice’s new billing guidelines for Attorneys in Larger Chapter 11 cases, but were subject to the old guidelines of 28 C.F.R. Part 58, Appendix A.

It appears here that the Judge was particularly pleased with the speed in which the Dewey bankruptcy proceeded compared to bankruptcies of other failed firms.  However, as reporter Randazzo notes “as complimentary as he [Glenn] was of Togut’s work in the case, Glenn took his own modest swipe at the ….  application … reducing the expense portion of the bill by $167.76; $74 for subway fare and the balance for meals … In January, Glenn chided Togut for seeing reimbursement for taxi rides within New York, telling him to “Take the subway. Take the bus.  Better yet, have your firm pick up that cost.”

Reviewing some of the applications in the court record, it appears that, under the new guidelines, the firms might not have fared as well.  Fee factors in the new rules include the current factors, but add (1) comparable services standards –  “Whether the applicant provided sufficient information in the application to establish that the compensation sought is reasonable as compared to the market measured by the billing practices of the applicant and its peers for bankruptcy and non‐bankruptcy engagements,” (2) staffing inefficiencies, (3) rate increases, (4) transitory professionals, (5) routine billing activities, contesting or litigating fee objections, block billing or lumping, vague or repetitive entries, overhead, non-working travel, geographic variations in rates, budgets and staffing plans and verified and other statements.  Factors for expenses include proration, reasonableness, customary, actual, overhead, local rule or order, unusual and receipts.

The applications in the court record show numerous staffing inefficiencies including the questionable use of junior associates, attorneys not yet admitted to practice and what appears to be either summer law clerks or clerks who are generally considered non-billable overhead staff along with firm librarians, secretaries and word processors.   Other apparent staffing inefficiencies include multiple timekeepers working on the same projects and/or multi-teaming conferences, and  court appearances.  There also appears to be significant review/revision of more junior associates work, and more senior associates performing “case administration” work that could have/should have been  done by junior associates or paralegals at a significantly lower billing rate, or, alternatively, by a dedicated project manager (legal project managers are generally considered overhead staff absent a specific agreement that their time will be compensated at an hourly rate.) The applications include questionable rate increases, particularly for paralegals.  On the Togut application covering 11/1/12 – 3/22/13 paralegals billed from $145 to $295, with rate increases during the time period.  Under the new rules, the Court could question this variation in rates, as well as the rate increases.  The Togut and Brown Rudnick invoices and backup supporting the applications list numerous “transitory” professionals who only worked small amounts of time. In addition, not all of the applications include the actual detailed time entries.  Instead, they appear to summarize the hours spent by each timekeeper for various categories of work.  Of particular concern are the categories of “Case Administration” and “Fee Applications” which, based upon the detailed time entries available, appear to include administrative/clerical overhead and routine billing activities (regular preparation of invoices, as opposed to the preparation of the fee application, itself.   The time billed for preparation of the fee application(s) also appears excessive.

With regard to expenses, the  applications include charges for Lexis and Westlaw.  Computerized legal research is generally considered non-billable overhead.  As noted by Judge Glenn, the applications also include questionable charges for travel and for meals.  Charges also appear to  copying and faxing at unspecified rates, scanning, binding, “miscellaneous” and other questionable charges.

Given the stated goals of the new guidelines which include ensuring that bankruptcy professionals are subject to the same client-driven market forces, scrutiny, and accountability as professionals in non-bankruptcy engagements, and to increase public confidence in the integrity and soundness of the bankruptcy compensation process it will be interesting to see how stringently the court applies these new rules.  Clearly there is a great need for review and tremendous opportunity to reduce fees and expenses which benefits not only the creditors but the process, the Bankruptcy Court and the public-at-large.

B. Popik

Legal Fee Advisors © 2013

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