Professional Fees in Large Chapter 11 Bankruptcy Cases November 30, - - PowerPoint PPT Presentation
Professional Fees in Large Chapter 11 Bankruptcy Cases November 30, 2017 1:00pm-3:00 (Eastern) / Noon-2:00pm (Central) / 10:00am-Noon (Pacific) Conference Dial-in Phone No: (312) 667-4792 Access Code: 260397 Panelists Jeffrey L. Cohen,
November 30, 2017 1:00pm-3:00 (Eastern) / Noon-2:00pm (Central) / 10:00am-Noon (Pacific) Conference Dial-in Phone No: (312) 667-4792 Access Code: 260397
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Please use the NALFA dedicated conference call-in phone no. of (312) 667-4792 with access code the 260397. In order to prevent background noise, please mute yourself as you join the call. The host may also mute registered guests as needed. Since the call is 120-minute program, you may want put the call on speaker. If you get dropped from the call, you can call back in We encourage questions for our panel. If you have questions for panelists before
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Jeffrey L. Cohen is a partner at Lowenstein Sandler in New York. A trusted advisor to unsecured creditors,
creditors’ committees, and debtors, Jeff’s tenacious counsel adds steady momentum to our growing client base in retail bankruptcy and is a strong resource to distressed clients in the technology sector. His practice centers on chapter 11 bankruptcy reorganizations and related litigation. Jeff has served as counsel to the creditors' committee in several
(Eastern Mountain Sports, Bob’s Stores, Sports Chalet), City Sports, Skymall, Brookstone, Blockbuster Video, Filene’s Basemen.
Joe has a broad base of bankruptcy, corporate restructuring and commercial litigation experience, having worked at national and international law firms, like Jones Day and Cox Smith, for most of his career. During his 17 years as a lawyer, he has been involved in some of the largest and most complex restructurings and litigation projects in the United States. He has taken lead roles in successfully representing banks, financing companies, distressed companies, committees, trustees, individuals, landlords, asset purchasers, retailers, and commercial creditors in all types of proceedings, including bankruptcy proceedings, federal and state lawsuits, arbitrations, and appeals.
Elise S. Frejka is the founding member of Frejka PLLC in New York. Elise’s practice is concentrated in the area’s of
creditor rights, corporate restructuring, and privacy, and litigation. Her practice focuses on restructuring; crisis management; corporate governance; and financings; plus acquisitions involving distressed situations in a wide array of industries on behalf of debtors, creditors, chapter 11 trustees, creditors committees, ad hoc committees, institutional lenders, investors, hedge funds, private equity firms, and acquirers of distressed assets and securities. Elise has counseled clients in every significant Ponzi scheme over the past decade.
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What are the USTP Fee Guidelines?
Required by Statute (1994 Bankruptcy Reform Act) Uniform and Consistent
u Internal guidance for fee review u Expectations of professionals u Grounds for possible objections
Initial USTP Guidelines (Appendix A) for all chapter 11 cases became effective in 1996.
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What has Changed Since 1978 and 1996?
Outside bankruptcy
u Client revolution in managing and paying counsel u New technology
Inside bankruptcy
u Big cases even bigger u Proliferation in number of professionals u Fee review more challenging u Non-bankruptcy market practices not followed u Third-party payment and approval distort compensation
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u Two years u Pre-drafting consultation u Two drafts for public comment uDOJ Public Meeting
uEffective for “large” (>$50 million in both assets and debts) chapter
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Findings of GAO Report: Corporate Bankruptcy - Stakeholders Have Mixed Views on Attorneys’ Fee Guidelines and Venue Selection for Large Chapter 11 Cases
15 of 18 Assistant U.S. Trustees reported that they thought the guidelines were likely to have a positive effect on transparency, efficiency, or fees. 8 of 14 bankruptcy attorneys said the guidelines were unlikely to have an effect on transparency, efficiency, or fees. 4 of 14 bankruptcy attorneys said the guidelines would increase transparency, but 3 of the 4 noted that the guidelines would not improve the efficiency of cases or reduce the fees awarded. For example, 1 attorney explained that the best way to reduce fees in bankruptcy is to improve efficiency to reduce the overall time a case takes to complete, and he was not sure whether the 2013 guidelines would be able to do so. 11 of 25 judges responded that the guidelines were likely to have an positive effect on transparency, efficiency, or fees. 10 of 25 judges responded that they were not likely to have a positive effect.
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11 U.S.C. § 330(a) sets standards for allowance of fees and expenses to be paid from the estate.
u Fees must be reasonable compensation for actual, necessary services. u Expenses must be actual and necessary.
28 U.S.C. § 586(a)(3)(A) requires U.S. Trustee to review applications in accordance with uniform guidelines and to comment on or object to such applications. Courts have the independent obligation to review fee applications.
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More complex cases led to a greater number of more voluminous applications.
u Multiplicity of professionals for both debtor and committee. u Placed burden on court staff and U.S. Trustee personnel.
Private development of computer programs for fee analysis. Courts began retaining private fee analysts to provide reports on applications.
u Began around early 1990s (e.g., Continental Airlines, D. Del.).
Fee committees developed somewhat later.
u Committees appointed in United Airlines, K-Mart, Bethlehem Steel, Worldcom,
Enron and Adelphia.
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USTP will ordinarily seek appointment of a “fee review entity” in a large chapter 11 case. Possible exceptions:
u True prepackaged case. u Case where number of estate-paid professionals will clearly be small.
USTP will consult early in case with debtor and committee about stipulating to appointment of fee examiner or committee.
u Timing is important. A delayed appointment can hamper the fee process. u The stipulation will be presented to the court as an order. u Such agreements have been very common.
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Fee Examiner (not § 1104 examiner)
u Examples: GM, American Airlines
Fee Committee with Independent Chair
u Examples: Enron, Lehman Bros.
Fee Committee
u Examples: Worldcom, GGP, Adelphia
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An experienced bankruptcy professional will serve as independent member or examiner
u More than fee auditor focused on numbers u Raise important legal issues for adjudication
Rigorous review should deter bad practices. Early correction may avoid larger problems later. Fees reduced vs. cost of review is not a proper measure of success.
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Fiduciary duties of estate-paid professionals tend to lead to certain choices in terms of work done and the staffing of that work. Fee Committee / Fee Examiner as an aid to the Court’s determination of reasonableness.
u Often different dynamic between retained professionals and fee examiner
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It’s important to gather the facts, including asking the professionals why they made certain choices. Asking is better than assuming. Creating a general understanding up front saves misunderstandings later on.
u What is presumptively reasonable in the context of a given case? u How do we communicate about exceptions to rebuttable presumptions? u Communication and planning are key. u Who should be primary contact on behalf of retained professional?
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LEDES format is very useful (https://ledes.org) Not quite as useful: Excel versions of data; searchable PDFs.
u It takes time to “unblock” block-billing and to sort through vague
descriptions.
u Don’t give away this billed time by being imprecise.
Descriptions matter. Don’t make the fee reviewer guess what you’re describing in terms of work done.
u “Attention to file” has never been a useful description.
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Are the professionals doing the work that the Bankruptcy Court authorized them to do? Are they using the appropriate staffing to carry out their work? Are they spending a reasonable amount of time doing the work? What is the quality of the work? (And the .5) Are the expenses reasonable?
u Real-life examples: $140 shirt billed to the estate; in-room movies.
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u Sort by name, rank (partner, associate, paralegal, or some
u Sort by how much time each of them spent. u Sort in order from the person who billed the most time to the
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u Real-life example: 32 hours of work for an 8-page stay relief
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Tens of thousand of dollars to make charts (presumably from Excel data). Cell phones charged to the estate. A $140 shirt charged to the estate. A $200,000 lobster dinner to boost “morale” for employees stuck on-site for several weeks in a row. And a counter-example: eating snacks from a mini-bar when there were no restaurants (or room service options) open by the time the person got back to the hotel room.
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Identify the time (and the value of the time) that you write off. Ask yourself: “If I didn’t already know the case inside and out, would this description make sense to me?” When in doubt, ask in advance. Good fee examiners want professionals to be able to recover their reasonable fees. Spend meaningful time reviewing pre-bills and making necessary revisions and/or write-offs in advance. Have the partner in charge of the engagement involved in resolution discussions with the fee examiner.
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NALFA conducted a survey of partner hourly rates in bankruptcy cases. NALFA examined dozens of court filings in bankruptcy cases over the past couple years. The following results of our survey are the average of partner hourly rate ranges in major legal markets:
Key findings: Not only have partner rates increased every year, but the variance (i.e. the range of rates) has increased as well.
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Since 2010, there have been more that 53,000 Chapter 11 bankruptcy filings.
u 765 by large companies with assets and liabilities each of $50M or
more.
u The majority (61 percent) of large Chapter 11 cases are adjudicated
in two jurisdictions: the Southern District of New York and the District of Delaware.
Source: GAO Report
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The 18 Attorney Fee Award Factors
Reasonable, Prevailing Hourly Rates Reasonableness of the Number of Hours Billed Percentage of the Fund: Fees in Relation to the Economic Value of the Settlement/Judgment Successful Results Obtained for the Number of Client(s) Risk of the Litigation: Non-Payment Risk of the Litigation: Preclusion of Other Cases Quality of the Work and Representation Experience, Reputation, and Ability of the Attorneys Novelty and Difficulty of the Legal Issues in the Underlying Case Efficient Litigation Management Practices: Case Staffing and Task Assignments Economic Exposure: Fees in Relation to the Amount at Stake in the Underlying Case Fees in Relation to Similar Cases Nature of the Working Relationship with Opposing Counsel Customary Timekeeping Billing Practices Billing Judgment Public Policy Considerations Nature and Length of the Attorney-Client Relationship Fees in Relation to Fees of Opposing Counsel
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The Basics: Exercise Good Billing Judgment Insufficient Detail/Vague Time Entries Undisclosed Timekeepers Block-Billing Minimum or Formula Time Charges Rounding Unusual Number of Long Days Multiple Billers/Duplication of Effort Billing Travel Time, Clerical Work & Invoice Preparation Inefficient Staffing/Improper Delegation Excessive Reviews & Revisions Excessive Research Excessive Intra-Office Conferencing Excessive Abstracting, Summarizing and Indexing Non-Reimbursable Activities, Repeat Entries & Typographical Errors Unapproved Expenses or Overhead Unauthorized Rate Increases
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Legal fee analysis is the comprehensive review and analysis of attorney fees and costs by an outside party in a legal matter. Professionals who routinely perform
The following best practices measures were developed over several years with input and consensus from thought leaders from across the legal fee analysis
strengthen the legal fee analysis field by ensuring integrity in the process and reliability in the results. All our members (i.e. fully qualified attorney fee experts, special fee masters, bankruptcy fee examiners, fee dispute mediators, and legal bill auditors) are signatories to Best Practices in Legal Fee Analysis:
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NALFA manages a national news blog that covers attorney fee issues from across the U.S. We cover attorney fee awards, attorney fee requests, attorney fee disputes, fee scholarship and fee jurisprudence,
headlines related to attorney fees in bankruptcy: NALFA Analysis: Partner Bankruptcy Rates (October 27, 2017) Law Firm Resolves Fee Dispute in Sungevity Chapter 11 Bankruptcy (October 9, 2017) $925M in Fees for Madoff-Related Matter (September 10, 2017) $32M More in Fees in Madoff Bankruptcy (September 4, 2017) Creditor Questions Fees in La Paloma Bankruptcy (August 30,2017) Big Monthly Legal Fees in Takata Bankruptcy (August 22, 2017) Attorneys Net $8.75M in Barclay’s Foreign Exchange Misuse Settlement (July 28, 2017) $15M in Legal Fees in Archdiocese Bankruptcy (May 24, 2017) NALFA Podcast with Bankruptcy Fee Examiner Robert M. Fishman (April 17, 2017) Nortel Creditors Challenge $4M in Fees in Chapter 11 Case (March 20, 2017) NALFA Quoted in ALM’s Daily Business Review (March 1, 2017) Caesars Bankruptcy Winds Down with $150M in Legal Fees and Counting (January 13, 2017) Fee Analysis: Energy Bankruptcy Cases (January 9, 2017)
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Attorney fee scholarship refers to empirical papers, reports and studies on attorney fees. These mostly academic works have been heavily sited by members of the bar in their fee applications and members of the bench in their fee rulings. Indeed, attorney fee scholarship drives attorney fee
scholarship on attorney fees and expenses.
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Theodore Eisenberg and Geoffrey P. Miller, “Attorney Fees and Expenses in Class Action Settlements: 1993-2008” (Journal of Empirical Legal Studies)
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Brian T. Fitzpatrick, “An Empirical Study of Class Action Settlements and Their Fee Awards” (Journal of Empirical Studies)
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Brian T. Fitzpatrick, “Do Class Action Lawyers Make Too Little?” (University of Pennsylvania Law Review)
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Lynn A. Baker, Michael A. Perino and Charles M. Silver, “Setting Attorneys’ Fees in Securities Class Actions: An Empirical Assessment” (Vanderbilt Law Review)
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Michael A. Perino, “Markets and Monitors: The Impact of Competition and Experience on Attorneys’ Fees in Securities Class Actions” (St. John’s University School of Law)
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Theodore Eisenberg and Geoffrey P. Miller, “What is a Reasonable Attorney Fee? An Empirical Study of Class Action Settlements” (Cornell Law Faculty Publications)
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Theodore Eisenberg, Geoffrey P. Miller and Michael A. Perino, “A New Look at the Judicial Impact: Attorneys’ Fees in Securities Class Actions After Goldberg v. Integrated Resources, Inc.” (Washington University Journal of Law & Policy)
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NALFA is the nation's leading CLE provider of events and programs on attorney fee and legal billing topics. Since 2008, NALFA has hosted over 20 different events and programs on attorney fee and legal billing matters. Hundreds of attorneys and other professionals from across the U.S. have registered and participated in these
scholars of attorney fee jurisprudence and sitting federal judges. NALFA is now offering a Certificate in Reasonable Attorney Fees for registered guests
in Reasonable Attorney Fees, the nation’s first and only certification of its kind. This certificate is open to paralegals and claim professionals. For more on NALFA CLE and professional development programs, visit http://www.thenalfa.org/CLE-Programs/.
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