Busy Beaver Bldg. Centers, Inc., In re
| Decision Date | 13 May 1993 |
| Docket Number | No. 92-3566,92-3566 |
| Citation | 19 F.3d 833 |
| Parties | , 25 Bankr.Ct.Dec. 603, Bankr. L. Rep. P 75,768 In re BUSY BEAVER BUILDING CENTERS, INC. Kirkpatrick & Lockhart, Appellant. * . Submitted Under Third Circuit L.A.R. 34.1(a) |
| Court | U.S. Court of Appeals — Third Circuit |
Joy F. Conti, Paula A. Schmeck, Scott E. Westwood, Kirkpatrick & Lockhart, Pittsburgh, PA, for appellant, Kirkpatrick & Lockhart.
Robert P. Simons, Klett, Lieber, Rooney & Schorling, Pittsburgh, PA, for amici-curiae, Nat. Federation of Paralegal Associations, Inc., et al.
Before: BECKER, HUTCHINSON, and ROTH, Circuit Judges.
Appellant Kirkpatrick & Lockhart ("K & L") provided legal services for the debtor Busy Beaver Building Centers, Inc. ("Busy Beaver"), in its Chapter 11 Bankruptcy proceedings, see 11 U.S.C.A. Secs. 101-1330 (1993), before the United States Bankruptcy Court for the Western District of Pennsylvania. On February 25, 1991, after K & L had submitted one of its interim fee petitions to the bankruptcy court pursuant to Sec. 331 of the Bankruptcy Code ("Code"), the bankruptcy court sua sponte issued an order disallowing certain requested items of compensation for services rendered by K & L paralegals which the court characterized as constituting "purely clerical functions." Upon K & L's motion for reconsideration, the bankruptcy court held an evidentiary hearing to consider testimony regarding the disallowed fees.
In a December 5, 1991 Order accompanying a published memorandum opinion, the court determined that clerical services are not compensable under Sec. 330(a) of the Code, and directed K & L to file an amended fee petition excluding charges or fees for clerical functions or services. In re Busy Beaver Bldg. Ctrs., Inc., 133 B.R. 753, 758 (Bankr.W.D.Pa.1991). The district court affirmed the bankruptcy court's decision, and this uncontested appeal followed. 1 K & L has been litigating the matters raised in this appeal, from the bankruptcy court up through this Court, without compensation from its client Busy Beaver.
K & L's appeal requires us to address two fee-determination questions of considerable importance in the bankruptcy field which no court of appeals has ever decided. First, does a bankruptcy court have the power and obligation to review fee applications which have not been the subject of an objection by a party in interest or the United States trustee? We conclude that it does. Second, what standard should a court employ to determine whether specific paralegal services are compensable? After a thorough examination of the issue, we opt for an objective standard which incorporates the practices in the non-bankruptcy legal market. Accordingly, we will vacate the district court's order and remand for further proceedings.
Busy Beaver, a regional chain of do-it-yourself home center stores, filed a voluntary Chapter 11 petition for bankruptcy on December 12, 1990. 2 The bankruptcy court authorized K & L to represent Busy Beaver as its legal counsel. Like most law firms in the modern era of competitive legal markets, K & L strives to increase its efficiency and control its clients' legal costs, and to that end employs paralegals to perform paraprofessional services in connection with its rendition of legal services. As is the case with attorneys' services, K & L charges clients fees for paralegals' services based on each paralegal's individual skill and expertise.
From time to time during the pendency of Busy Beaver's bankruptcy petition, K & L filed with the bankruptcy court applications for interim compensation for services rendered by its professionals and paraprofessionals, and for the actual and necessary expenses it incurred in its representation. See 11 U.S.C.A. Sec. 331 (1993). In many bankruptcy proceedings, courts grant such fee applications as a routine matter without the applicant encountering opposition from the court or any party in interest. But this application received considered attention, and on February 25, 1991, the bankruptcy court sua sponte issued an order denying compensation for certain services performed by paraprofessionals because, according to the court, they represented "purely clerical functions which are not compensable and which constitute normal overhead." Order, No. 90-03924 JKF, at 1 (Bankr.W.D.Pa. Feb. 25, 1991). The bankruptcy court declined to recognize as compensable paraprofessional services itemizations for several sorts of activities: filing motions at the bankruptcy court; preparing and organizing motions, pleadings, and documents for hearings; preparing and tabbing binders for hearings; distributing documents and other materials to creditors; and drafting and finalizing transmittal letters. Id. at 1-2; accord 133 B.R. at 755.
On April 16, 1991, in response to K & L's motion for reconsideration, 3 the bankruptcy court held an evidentiary hearing. A representative of the Office of the United States Trustee appeared at the hearing and subsequently filed a brief in opposition to K & L's motion for reconsideration, and a representative of amicus curiae the National Federation of Paralegal Associations, Inc. appeared and subsequently filed a brief in support of K & L's motion for reconsideration. At the hearing K & L proffered an affidavit and adduced testimony from six highly qualified witnesses, some of whom were experts on the subject of paralegals' training and responsibilities and others of whom were senior attorneys responsible for delegating legal assignments.
K & L proffered extensive testimony that paralegals, and not legal secretaries, typically organize and maintain forms, pleadings, and files, maintain calendars and tickler systems, mail and distribute pleadings and other correspondence, and perform the other sorts of activities the bankruptcy court had found non-compensable. The witnesses explained that paralegals are assigned these tasks because they require the exercise of professional judgment. With respect to the calendar and tickler system, for example, a K & L witness testified that a paralegal is expected not only to just know what a date is, but to understand the importance of the date and to follow up to make sure that the attorney gets timely notice of the date's approach and that either the attorney or the paralegal meets the deadline, "so it is a matter of exercising some judgment, not just dropping off a date or a reminder." To take another example, a different expert witness testified that a paralegal is charged with filing a motion because that task "involves making sure that all the proper exhibits and affidavits are there, appropriately [signed, collated, and] marked, that the Court gets the right copies, that all named parties or parties in interest get the appropriate copies, and that filing deadlines are maintained," and that a legal secretary cannot be relied upon to perform the task properly because "you have to have someone who knows what [he or she is] reading and knows the importance of what [he or she is] working on."
The same witness testified that a paralegal would need to exercise professional judgment to organize files because organizing a file "doesn't just mean alphabetize, that means put it together in a format that the attorney can use at the time of trial and so that means that the person has to sit down, read the documents and make a judgment as to where it will be most effectively placed, where it goes logically, where it goes legally." She summarized: "The role of the paralegal is to diminish the involvement of the attorney in these more mundane tasks." A senior partner at K & L specifically explained the tasks for which the bankruptcy court had disallowed compensation and described how each involved some exercise of professional judgment. Other testimony focused not just on the rationales for utilizing paralegals, but also on the expanding role paralegals play in the legal profession today.
Taken as a whole, the evidence K & L proffered at the hearing showed that paralegals ordinarily perform services similar to those the bankruptcy court disallowed; that law firms 4 typically bill such services to their non-bankruptcy clients, who typically pay for them; and that if the court were to disallow paralegal assistance on such matters the paralegal profession would suffer a major setback, and attorneys would instead perform those services but at a greater expense to the debtor's estate.
After the evidentiary hearing, in a memorandum opinion dated December 5, 1991, the bankruptcy court again held clerical services uncompensable under Sec. 330(a) of the Code and instructed K & L to file an amended fee application omitting charges or fees for clerical functions or services. In re Busy Beaver Bldg. Ctrs., 133 B.R. 753, 758 (Bankr.W.D.Pa.1991). From its postulate that the Code allows paralegals to be compensated only for "tasks which require an exercise of professional judgment," the court reasoned that "clerical or routine services" are not compensable as they "do not usually require [the exercise of professional] judgment." Id. at 756.
The evidentiary hearing persuaded the bankruptcy court that many of the disallowed services at issue require the exercise of professional judgment, but it nevertheless refused to grant K & L its requested fees for two reasons. First, the court concluded that K & L had not provided sufficient information in its fee application for the court to reach that conclusion earlier (before the evidentiary hearing). The court explained pointedly that it would require fee applicants to comply with the specificity requirements of Local Bankruptcy Rule of Procedure 9016.1 and that it generally would not hold an evidentiary hearing in the future to permit fee applicants to elucidate the specifics of services rendered. Thus, if the applicant failed...
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