In re Computer Learning Centers, Inc.
| Citation | 285 B.R. 191 |
| Decision Date | 09 August 2002 |
| Docket Number | No. 01-80096-RGM.,01-80096-RGM. |
| Court | United States Bankruptcy Courts. Fourth Circuit. U.S. Bankruptcy Court — Eastern District of Virginia |
| Parties | In re COMPUTER LEARNING CENTERS, INC., Debtor. |
James M. Lewis, Holland & Knight, LLP, McLean, VA, for Accountant for trustee Frank & Company.
H. Jason Gold, Gold, Morrison & Laughlin, P.C., for trustee.
The issues before the court concern interim applications for compensation of the trustee, his accountant and his counsel.1
This is an unusual chapter 7 case because of the size of the estate and the number of claims. The trustee has received more than $31,000,000 from the liquidation of assets to date. More than 2,800 proofs of claims were filed by the bar date. By way of comparison, the Executive Office of the United States Trustee reports that from January 1, 1994, through December 31, 2000, there were 5,815,152 chapter 7 bankruptcy filings. During this period 205,748 were closed as asset cases. Only 3,179 of these asset cases had assets over $500,000. "United States Trustee Program: Preliminary Report on Chapter 7 Asset Cases 1994 to 2000", June 2001, at Figure A-1 and Appendix D. These 3,179 large asset cases generated more than 50% of assets paid to creditors in all asset cases. In 2000, 466 chapter 7 cases with receipts of more than $500,000 each were closed. The total receipts for these 466 cases was $966,189,000. Id. Appendix D. In Virginia, 436 asset cases of all sizes were closed in 2000. The total receipts in those cases was $20,914,000. Id. Appendix C.
Computer Learning Centers, Inc. ("CLC") was a nationwide computer training school. At the time, it filed bankruptcy it had more than 9,000 students and more than 1,600 employees at 25 schools located throughout the United States. The trustee sold most of the schools as going concerns within 60 days after the filing. This generated about $22,000,000 in receipts and significantly reduced potential claims, particularly potential lease rejection claims and student claims. The trustee was authorized to operate the debtor's collection division to maximize the collection of the approximate $8,000,000 in value of outstanding accounts receivables, principally student loans. Tr. 2/8/01 at 39. The trustee operated the division for almost fifteen months, collecting about $3,400,000 through February 2002, and an additional $2,200,000 when he sold the balance of the receivables. The division is now closed. The trustee was also authorized to establish and operate a records retention center. The purpose was to assemble all student records and business records from across the nation so that the student records could be disposed of according to law — generally to the successful purchaser of the schools or to state agencies — and that the business records could be available to the trustee to evaluate the proofs of claims filed and potential claims against third parties, such as preference claims.
The trustee, his law firm, and his accountant filed multiple interim fee applications. The trustee's accountant, Frank & Company, requests $465,781.25 in fees and $75,072.18 in expenses; the trustee's law firm, Gold, Morrison & Laughlin, P.C., requests $283,795.50 in fees and $52,085.61 in expenses; and the trustee requests $188,042.45 for trustee fees. These applications are considered in this opinion.2 All are interim applications except the sixth fee application of Gold, Morrison & Laughlin which is its final application. As of April 30, 2002, the closing date for the fee applications, the trustee had disbursed $9,199,461.30. Of this amount, $1,868,584.76 was paid to professionals and the trustee.
The issues raised with respect to the accountant's interim fee applications now pending before the court are (i) the accounting firm's hourly rates and time expended; (ii) the scope of its employment, specifically, whether business or management consultation services are included in accounting services; (iii) the extent, if any, to which the accountant performed the trustee's duties; (iv) the accountant's failure to disclose the firm's dual rate structure and its unilateral decision to charge the bankruptcy estate its highest rates; (v) the firm's use of quarter-hour minimum time increments; and (vi) the fees and expenses requested in connection with preparing and prosecuting its fee applications. The issues raised with respect to the pending interim fee applications filed by the trustee and by his law firm are (i) the trustee's and the law firm's hourly rates; (ii) the allocation of time expended between the trustee's application and his law firm's application, that is, whether the law firm performed trustee duties; and (iii) the increase in hourly rates in the sixth fee application of trustee's law firm and the fourth application of the trustee.
The same procedure is used to determine a reasonable fee for accountants as attorneys: the hourly rate is determined; the reasonable number of hours expended is determined; the product of the two, absent adjustment, is the fee. Blum v. Stenson, 465 U.S. 886, 888, 897, 104 S.Ct. 1541, 1544, 1548, 79 L.Ed.2d 891 (1984); In re Narragansett Clothing Co., 210 B.R. 493 (1st Cir. BAP 1997). The applicant has the burden of proving that the claimed rate and number of hours are reasonable. Blum, 465 U.S. at 897, 104 S.Ct. at 1548.
There were several hearings on the accountant's applications for compensation. Robert Frank was the principal witness supporting Frank & Company's application for compensation.3 The only evidence at these hearings as to the reasonableness of the firm's hourly rates was Frank's conclusory statement that his firm's fees were "reasonable."4 There was no testimony as to the basis for his opinion or the prevailing market hourly rate for accountants. Frank's testimony was not sufficient to carry the firm's burden of proof.5 Narragansett Clothing Co., 210 B.R. at 498; In re W.G. Shuckers, Inc., 232 B.R. 524, 528 (Bankr.S.D.Ga.1999) ()
The court appointed W. Thomas Miller, III, a certified public accountant, under Federal Rule of Evidence 706 to testify as an expert as to the reasonableness of Frank & Company's hourly rates and hours expended. Miller submitted his report ("Report") and testified at the final hearing on the fee applications.
Miller's Report was carefully prepared. He met with and interviewed the interested parties, reviewed the application to employ Frank & Company, reviewed all of Frank & Company's fee applications, including the first application that had previously been approved by the court, obtained each accountant's hourly rate, resume and time records, reviewed various professional publications including surveys relating to accountant's fees nationally and throughout Virginia, and interviewed various individuals both within Frank & Company and outside the firm. He concluded, "Based on the guidance provided by the AICPA [American Institute of Certified Public Accountants] and based on the comparison of Frank & Company to other firms nationally and within the State of Virginia, we determined that the fees charged CLC by Frank & Company were reasonable." Report at 8.6
Miller's market survey well supports his conclusion that the hourly rates charged are reasonable, a conclusion also supported by his multiplier analysis. While other factors may also be taken into account in determining the hourly rate or in adjusting the total fee computed, no upward or downward adjustment was requested or is indicated.7
In this case, however, there are additional bankruptcy considerations that Miller was not requested to address. In the course of his preparation, Miller determined that Frank & Company maintained a dual rate system and had charged the bankruptcy estate the higher rate. This was not previously disclosed to the court. Other bankruptcy considerations that Miller did not analyze were (a) whether business or management consultation services were included in accounting services in the employment order, (b) whether the accountant performed trustee duties; and (c) the firm's use of quarter-hour minimum time increments. Even if the fees charged were otherwise reasonable for the work done, if the accountants exceeded the scope of their employment, performed trustee's duties, failed to make adequate disclosure to the court or failed to use the proper minimum time increment, adjustments would need to be made.
The first question presented is whether Frank & Company exceeded the scope of its authorized employment when it performed business consultation services. The application to employ Frank & Company stated that the trustee required the services of:
accounting professionals to, among other things, assist in the collection of the outstanding Accounts, to analyze the Debtor's financial records, to assist with tax and other financial reporting requirements, and to provide other accounting and financial analysis services as may be necessary in the operation, preservation, liquidation and recovery of the Debtor's assets.
Application to Employ Frank & Company, ¶ 3 (Docket Entry 8). The employment application was granted by order entered on February 8, 2001. The fee applications filed by Frank & Company reflect that Frank & Company provided more services than those described in the employment application. In addition to the expected accounting services, the firm also provided significant business management and consultation services. This finding was, in fact, material to Miller's determination of the proper hourly rate. "Frank & Company charges different hourly rates for individual time-keepers...
To continue reading
Request your trial
-
Hutchins v. Shatz
...law firm as counsel may raise some concerns, it is not prohibited and is a common occurrence. See, e.g., In re Computer Learning Centers, Inc., 285 B.R. 191, 227 (Bankr.E.D.Va.2002) (“While employment by the trustee of the trustee's own law firm is frequently appropriate and is expressly au......
-
In re Williams Securities Litigation
...Look at the Attestation Standards, Journal of Accountancy, vol. 192, no. 1 (AICPA July 2001).19 See also, In re Computer Learning Centers, Inc., 285 B.R. 191, 215 (Bkrtcy.E.D.Va.2002). Attest services are the gold standard; expert opinions in litigation are more like base metal: "An expert ......
-
In re Ciccimaro, Bankruptcy No. 03-35430bif.
...bankruptcy litigation. See, e.g., Matter of Pro-Snax Distributors, Inc., 157 F.3d 414, 419 (5th Cir.1998); In re Computer Learning Centers, Inc., 285 B.R. 191, 222 (Bankr.E.D.Va.2002); In re Jessee, 77 B.R. 59, 61-62 (Bankr.W.D.Va. 1987). Thus, each party in a federal court dispute, includi......
-
In re Cmty. Home Fin. Servs., Inc.
...not the ECF page numbers at the top of each page. 41. In re Shades of Beauty, 56 B.R. at 949. 42. In re Computer Learning Centers, Inc., 285 B.R. 191 (Bankr. E.D. Va. 2002). 43. Id. at 206. 44. Id. at 206-07 (citations omitted). 45. Id. at 207. 46. Id. at 237. 47. See supra II. A. 48. The T......