In re Bennett Funding Group, Inc., Bankruptcy No. 96-61376 to 96-61379.

• Decision Date: 05 February 1997
• Docket Number: Bankruptcy No. 96-61376 to 96-61379.
• Citation: 213 BR 234
• Parties: In re The BENNETT FUNDING GROUP, INC., Bennett Receivables Corporation, Bennett Receivables Corporation II, Bennett Management and Development Corporation, Debtors.
• Court: U.S. Bankruptcy Court — Northern District of New York

213 B.R. 234 (1997)

In re The BENNETT FUNDING GROUP, INC., Bennett Receivables Corporation, Bennett Receivables Corporation II, Bennett Management and Development Corporation, Debtors.

Bankruptcy Nos. 96-61376 to 96-61379.

United States Bankruptcy Court, N.D. New York.

February 5, 1997.

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Simpson Thacher & Bartlett, New York, NY (M.O. Sigel, Jr., of counsel), for § 1104 Trustee.

Wasserman, Jurista & Stolz, Millburn, NJ (Daniel Stolz, of counsel), for Unsecured Creditors Committee.

Guy Van Baalen, Utica, NY, Assistant U.S. Trustee.

Hancock & Estabrook, L.L.P., Syracuse, NY (Stephen A. Donato, of counsel), Bond, Schoeneck & King, L.L.P., Syracuse, NY (James Dati, of counsel), Costello, Cooney & Fearon, Syracuse, NY (Michael Balanoff, of counsel), Green & Seifter, P.C., Syracuse, NY (Virginia Hoveman, of counsel), for Various Banks.

Melvin & Melvin, Syracuse, NY (James Hoare, of counsel), for Citrus Bank.

MEMORANDUM-DECISION, FINDINGS OF FACT, CONCLUSIONS OF LAW AND ORDER

STEPHEN D. GERLING, Chief Judge.

The Court has before it the First Interim Fee Application of Simpson Thacher & Bartlett ("STB"), attorneys for Richard C. Breeden ("Trustee"), which seeks payment of $2,118,316 in fees and $295,149 in disbursements.¹ This fee application was filed on August 23, 1996, and scheduled for a hearing on September 12, 1996. The hearing was thereafter adjourned until October 10, 1996, and then subsequently adjourned to November 14, 1996, December 12, 1996, and finally to January 9, 1997.

Anticipating the magnitude of the fee applications to be filed in these cases, the Court sua sponte filed an Order to Show Cause, dated September 5, 1996 ("OSC"), to consider the appointment of a fee auditor. A hearing was held regarding the OSC on September 26, 1996, and the parties were offered the opportunity to object to the proposed appointment. At the conclusion of the hearing, the parties were invited to submit proposed orders regarding the appointment of a fee auditor by October 4, 1996. After due consideration and sufficient cause appearing for the appointment of a fee auditor, the Court appointed the firm of Stuart, Maue, Mitchell & James, Ltd. ("Fee Auditor"), to function in this capacity in these cases by Order dated October 15, 1996.²

STB agreed to delay the hearing on its fee application until the Fee Auditor reviewed the application and issued a report ("Report"). At the hearing on October 10, 1996, however, the Court authorized a temporary award of $1,000,000 in fees and $100,000 in disbursements to STB while the Fee Auditor completed its Report. The Fee Auditor submitted its Report of STB's first fee application on December 23, 1996. STB was then given an opportunity to reply to the findings of the Fee Auditor and objections to STB's fee application filed by the United States Trustee ("UST") and other parties. A hearing was then held at a regular motion term in these proceedings on January 9, 1997, at Utica, New York. The Court reserved decision, opting instead to issue a written Decision due to the importance of the issues involved.³

JURISDICTIONAL STATEMENT

The Court has jurisdiction over the parties and subject matter of this matter pursuant to 28 U.S.C. §§ 1334(b) and 157(a), (b)(1) and (b)(2)(A) and (O).

FACTS AND ARGUMENTS

The Order appointing the Fee Auditor and the Amended Order were made applicable to all professionals in these jointly administered cases employed or to be employed pursuant to section 327 or 1103 of the Bankruptcy Code (11 U.S.C. §§ 101-1330) ("Code"). The aforementioned Orders provided the authority and the guidelines for professionals regarding the process to be employed in submitting fee applications to the Fee Auditor and to the Court. In accordance with its responsibilities, the Fee Auditor performed a review and analysis of STB's First Interim Fee Application pursuant to the Amended Order, and submitted a Report in order to assist the Court in its analysis of the fee application. The Fee Auditor identified various time and expense entries that appeared to violate Court guidelines or that were brought to the Court's attention for further review.

STB provided specific responses to the Report of the Fee Auditor. Initially, STB argues that its application should be reviewed utilizing a market analysis approach, such that services that it is compensated for by other clients in its market should be compensable in this case. STB reiterates this argument in support of its higher hourly rates. STB also asserts that it should be compensated for services rendered prior to the firm's formal retention, since the circumstances surrounding its employment satisfy the prevailing "excusable neglect" standard justifying nunc pro tunc employment in the Second Circuit.

In response to entries which were labeled by the Fee Auditor as vaguely described tasks, STB submitted additional supporting documentation in an effort to clarify for the Court the nature of the services performed. In addition, STB objected to the categorization of a number of entries as administrative or clerical tasks, and further argued that such tasks must nonetheless be examined under the market analysis discussed above.

Other points objected to by STB include, inter alia, questions relating to their firm staffing and hourly rates, conferences between members of the firm and with the Trustee, unreceipted expenses, office overhead, word processing time, and overtime meals and transportation.

Various objections to STB's fee application were filed in response to the findings of the Fee Auditor.⁴ The UST specifically objects to any compensation for pre-retention fees or expenses, the excessive "real" blended hourly rate of the attorneys involved, and the multiple attendance at hearings and "double billing" for intra-office conferences, where more than one professional is billing for time expended in the intra-office conference. In addition, the UST objects to the amount requested for services related to the retention of the Trustee and STB's own retention. In an objection filed September 30, 1996, the UST also requested that a certain percentage of compensation be "held back."

The Official Committee of Unsecured Creditors ("Committee") has objected to STB's billing rates and the percentage of time consumed by partners of the firm on this case, specifically noting that the blended rate of partners and associates is $306. The Committee has also noted its concern with respect to compensation sought for services rendered prior to STB's retention, the amounts classified as administrative or clerical tasks, and for amounts reflecting time spent on the Trustee's retention and for performing conflicts checks related to STB's retention.

In response to the objections filed by the UST, STB reiterates its market rate analysis argument regarding compensation, and also argues that a "holdback" of compensation would effectively penalize the firm. Furthermore, STB objects to the characterization as "double billing" the time spent in intra-office conferences and for multiple attendance at events, as such time spent is necessary and appropriate. Lastly, STB argues that the time spent relating to the election of the Trustee, the meeting of creditors and its own retention was necessary and reasonable. Specifically, STB argues that time spent regarding the election of the Trustee was intertwined with time spent on the initial Code § 341 meeting of creditors, and that such work benefitted the estates. Time spent relating to its own retention allegedly was required because of the size of the conflicts check needed and for addressing opposition to their retention.

In response to the concerns of the Committee, STB responds that the services for which it is requesting compensation are paid for by non-bankruptcy clients, and that therefore STB should not be penalized in light of Congress' intent to reject the "economy of administration" approach to compensation in bankruptcy cases.

DISCUSSION

The standard practice of professionals submitting fee applications should be to "make a good faith effort to exclude from a fee request hours that are excessive, redundant or otherwise unnecessary; just as a lawyer in private practice ethically is obligated to exclude such hours from his fee submission." Hensley v. Eckerhart, 461 U.S. 424, 434, 103 S.Ct. 1933, 1939-40, 76 L.Ed.2d 40 (1983) (discussing billing practice in context of statutory attorney fees). This exercise of "billing judgment" is an essential, and as noted above, ethically mandated, component of every fee application submitted to the court.

It is important to note that the Court appreciates and understands a concern shared by many of the fee applicants in these cases regarding the potential for "double disallowance" of certain fees or expenses because they may fall into more than one category of the Fee Auditor's Reports. For example, since a time entry proposed for disallowance as pre-retention billing may also appear on another exhibit which categorizes that entry in a different way, there is a chance that an entry already proposed for disallowance could be criticized again for a different reason in a different category. This would produce an unjust result, and the professionals have themselves indicated that adding the totals in each Fee Auditor category would result in a sum far greater than that requested by the applicants. The Court has reviewed the applications aware of these potential problems. As a result, the Court has made every effort to ensure that no time entry that was disallowed in one category was disallowed again in another. The Fee Auditor provided information indicating the other exhibits in which a particular time entry appears again, and thus the Court was able to cross-reference any disallowed entries to prevent double disallowance.

Although many professionals...