OBJECTION OF UNITED STATES TRUSTEE TO FINAL APPLICATION OF HOWARD, SOLOCHEK & WEBER, S.C. FOR COMPENSATION AND REIMBURSEMENT OF EXPENSES

Transcription

1 UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF WISCONSIN In re: ARCHDIOCESE OF MILWAUKEE Debtor. Case No SVK (Chapter 11) OBJECTION OF UNITED STATES TRUSTEE TO FINAL APPLICATION OF HOWARD, SOLOCHEK & WEBER, S.C. FOR COMPENSATION AND REIMBURSEMENT OF EXPENSES The United States Trustee, Patrick S. Layng, by Attorney Michelle S Y. Cramer, has reviewed the final fee application of Howard, Solochek & Weber ( HSW ) seeking an award of final compensation and reimbursement of out-of-pocket expenses for the period from January 25, 2011, through November 30, 2015 (the Fee Period ). HSW seeks the total sum of $604,040 in fees and $16, for reimbursement of out-of-pocket expenses incurred during the Fee Period. For the reasons set forth below, the United States Trustee identified and objects to the allowance and payment of fees incurred by HSW in the amount of approximately $308,631. Exhibit 1. The United States Trustee puts HSW to its burden to prove the fees and expenses are reasonable and necessary. I. JURISDICTION The Court has jurisdiction over this matter pursuant to 28 U.S.C. 157 and This is a core proceeding pursuant to Section 157(b) of Title 28. Venue is proper pursuant to Section 1408 of Title 28. The statutory predicates for the relief sought are 11 U.S.C. 330 and 331. Attorney Michelle S. Y. Cramer Office of the United States Trustee 517 East Wisconsin Avenue, Room 430 Milwaukee, WI (414) fax (414) Case svk Doc 3435 Filed 03/17/16 Page 1 of 13

2 II. FACTUAL BACKGROUND The Debtor commenced this case by filing a voluntary petition on January 4, The law firm of Pachulski Stang Ziehl & Jones LLP ( PSZJ ) was appointed as counsel to the Official Committee of Unsecured Creditors ( Committee ). In turn, PSZJ petitioned the Court to approve the employment of HSW as local counsel to the Committee. The Court approved HSW s employment on February 24, The Court entered an order establishing procedures for interim compensation and reimbursement of expenses (the Interim Compensation Order ) on March 7, (Docket No. 158). In relevant part, the Interim Compensation Order provided for partial interim payments to all duly authorized professionals in the case. In particular, unless an objection were filed, the Interim Compensation Order authorized the Debtor to pay 80% of the fees and 100% of the expenses identified in a professional s interim fee application. On March 26, 2013, the Court modified the Interim Compensation Order, suspending payments of interim compensation and reimbursement of expenses. (Docket No. 1784). 1 Final fee applications were due on February 1, 2016, and the deadline to object to fee applications is March 17, III. LEGAL STANDARDS A. Bankruptcy Code Bankruptcy Code Section 330(a)(1) provides that: After notice to the parties in interest and the United States trustee and a hearing, and subject to sections 326, 328, and 329, the 1 The Court entered a Supplemental Order on June 10, 2013, clarifying that payments received by the Debtor s counsel from OneBeacon under the reservation of rights are not property of the estate and are not subject to distribution to other administrative claimants. (Docket No. 2126). 2 Case svk Doc 3435 Filed 03/17/16 Page 2 of 13

3 court may award to a trustee,... an examiner,... or a professional person employed under section 327 or 1103 (A) reasonable compensation for actual, necessary services rendered by the trustee, examiner,... professional person, or attorney and by any paraprofessional person employed by any such person; and (B) reimbursement for actual, necessary expenses. 11 U.S.C. 330(a)(1)(A) and (B). that: To determine reasonableness, Section 330(a)(3) of the Bankruptcy Code instructs 11 U.S.C. 330(a)(3).... the court shall consider the nature, the extent, and the value of such services, taking into account all relevant factors, including a. the time spent on such services; b. the rates charged for such services; c. whether the services were necessary to the administration of, or beneficial at the time at which the service was rendered toward the completion of, a case under this title; d. whether the services were performed within a reasonable amount of time commensurate with the complexity, importance, and nature of the problem, issue, or task addressed; e. with respect to a professional person, whether the person is board certified or otherwise has demonstrated skill and experience in the bankruptcy field; and f. whether the compensation is reasonable based on the customary compensation charged by comparably skilled practitioners in cases other than cases under this title. 3 Case svk Doc 3435 Filed 03/17/16 Page 3 of 13

4 B. Bankruptcy Rules and Local Rules In addition to 11 U.S.C. 330, Bankruptcy Rule 2016 is part of a statutory and rule-based framework designed to provide fair compensation to persons working in the bankruptcy arena while protecting bankruptcy estates. Similarly, Local Rule 2016 is designed to require an applicant for compensation to provide the bankruptcy court with sufficient information to allow the court to respond appropriately to the application. Local Rule 2016 provides: (a) Contents of Applications for Compensation. All applications for Compensation shall provide all relevant information, including: (1) A chronological record of time spent on a case, including the individual(s) participating and the subject matter of a meeting, letter, or conference, with each task recorded in tenths of an hour, if the fee is anticipated to exceed $10,000 for a professional or firm, a separate chronological record shall be kept for each major task; (2) A summary of the time expended by each person for whom compensation is sought; (3) A detailed breakdown by item and date of all disbursements and expenses; (4) An explanation of the need for compensation of more than one professional attending a hearing or meeting or the need for more than one level of review of work produced, in each instance for which multiple compensation is sought; C. United States Trustee Guidelines Further, the United States Trustee ( USTP ) is charged with reviewing, commenting on, or objecting to applications under Bankruptcy Code section 330. In 4 Case svk Doc 3435 Filed 03/17/16 Page 4 of 13

5 1996, in accordance with 28 U.S.C. 586, the USTP promulgated Guidelines for Reviewing Applications for Compensation and Reimbursement of Expenses filed under 11 U.S.C. 330 ( 1996 Guidelines ). 28 C.F.R. Part 58, Appendix A. 2 The Guidelines are not intended to supersede local rules of court, but are intended to complement those procedures. D. Burden of Proof The applicant bears the burden of proof for its claim for compensation. In re Geraci, 138 F.3d 314 (7th Cir. 1998); In re Kenneth Leventhal & Co., 19 F.3d 1174, 1177 (7th Cir. 1994). This burden must "not be taken lightly, especially given that every dollar expended on legal fees results in a dollar less that is available for distribution to the creditors." In re Spanjer Bros., Inc., 203 B.R. 85, 90 (Bankr. N.D. Ill 1996) (quoting In re Pettibone Corp., 74 B.R. 293, 299 (Bankr. N.D. Ill 1987). In enacting the Bankruptcy Code, Congress made clear that there is an inherent public interest that must be considered in awarding fees in a bankruptcy case. S. Rep. No , 95th Cong., 2d Sess. 40, (1978), reprinted in 1978 U.S.C.C.A.N Thus, the Bankruptcy Code imposes upon this Court a supervisory obligation not only to approve the employment of professionals, but also to ensure that the fees sought by those professionals in a bankruptcy case are reasonable, and that the services and expenses were actually and necessarily incurred. In re Fibermark, Inc., 349 B.R. 385, The USTP is revising the 1996 guidelines in phases. The new Appendix B Guidelines, which are effective for cases filed on or after November 1, 2013, apply only to attorney compensation in larger chapter 11 cases. Until the USTP adopts other superseding guidelines, the 1996 guidelines will continue in effect for the review of applications filed under section 330 in (1) larger chapter 11 cases by those seeking compensation who are not attorneys, (2) all chapter 11 cases below the larger case threshold, and (3) cases under other chapters of the Bankruptcy Code. 5 Case svk Doc 3435 Filed 03/17/16 Page 5 of 13

6 (Bankr. D. Vt. 2006). Thus, when calculating the appropriate hourly rate to be multiplied by the appropriate number of hours, the Court must take into account the quality and results of services rendered. E. Reasonableness of Hours/Duplication of Services A fee applicant should exercise billing judgment and make a good-faith effort to exclude from a fee request hours that are excessive, redundant, or otherwise unnecessary. Hensley v. Eckerhart, 461 U.S. 424, 434 (1983). Lead attorneys are expected to delegate tasks to attorneys within their firm, or to local counsel, whose rates and skills are appropriate for the particular task. Hence, an expensive partner should not be doing work that a less-expensive associate is quite capable of doing. The Court is charged with an independent review of the reasonableness of an applicant s billing practices. See In re Tak Commc'ns, Inc., 154 B.R. 514, 516 (Bankr. W.D. Wis. 1993) (citing In re Bonneville Pacific Corp., 147 Bankr. 803, 805 (Bankr D. Utah 1992) ( The ultimate determination that all requirements of the statute have been met rests with the Court ). In addition, the Code does not allow compensation for services that duplicate those of another professional or paraprofessional. See 11 U.S.C. 330(a)(4)(A)(i). Reduction in fees is warranted if multiple attorneys from the same firm appear in court on a motion or argument or for a conference, unless counsel adequately demonstrates that each attorney present contributed in some meaningful way. In re Pettibone, 74 B.R. 293, 307 (Bankr. N.D. Ill. 1987) ( A debtor's estate should not bear the burden of duplication of services. If found in the record, such duplication shall be disallowed by 6 Case svk Doc 3435 Filed 03/17/16 Page 6 of 13

7 the court as unnecessary. ). It is also an accepted principle that generally no more than one attorney may bill for time spent in an intra-office conference or meeting absent an adequate explanation. See In re Adventist Living Ctrs., Inc., 137 B.R. 701, 716 (Bankr. N.D. Ill. 1991); In re Pettibone, 74 B.R. at 303. Similarly, Local Rule 2016(a)(4) requires an explanation of the need for compensation of more than one professional attending a hearing or meeting or the need for more than one level of review of work produced. F. Sampling of Time Records Samplings of work from the time records submitted is permitted when determining the nature, quality and reasonableness of the work performed. See In re Tak, 154 B.R. at , (citing Evans v City of Evanston, 941 F.2d 473, (7th Cir 1991) (finding that judge may take a sample of work from the time sheets and extrapolate from the sample to determine whether lawyers had spent an excessive amount of time on the case)); see also In re Continental Illinois Securities Litigation, 985 F.2d 867, 868 (7th Cir 1993). IV. OBJECTION Considering the large number of detailed time entries and the numerous fee applications before the court, the United States Trustee focused its review on nine areas. The nine areas include: 1. Staffing inefficiencies, Billing for clerical/administrative tasks, Duplication of effort/services - Whether skill level is commensurate with the complexity, importance and nature of the task; more than one professional performing the same task. 7 Case svk Doc 3435 Filed 03/17/16 Page 7 of 13

8 2. Overhead Continuous administrative or general costs or expenses incident to the operation of the firm, which cannot be attributed to a particular client or cost. 3. Vague entries (E.g., review file, etc.) - Professionals have the burden of proving the reasonableness of their fee requests; accordingly, they must provide specific and detailed time records. Time entries for telephone calls, letters, and other communications should give sufficient detail to identify the parties to and the nature of the communication. Time entries for court hearings and conferences should identify the subject of the hearing or conference. 4. Block billing/lumping - Recording multiple tasks as one billing entry, typically referred to as block billing or lumping. Billing records must clearly identify each discrete task billed, indicate the date the task was performed, the precise amount of time spent (to be billed in increments of.1 of an hour), who performed the task, the level of experience, and that person s hourly rate. 5. Excessive time on fee applications - The fees related to such task should be limited to the preparation of the actual fee application, and should not encompass the review and correction of bills and response to the Fee Committee or other parties in interest to inquiries or objections raised with respect to the fee applications. 6. Multiple attendees at hearings/meetings Multiple attendees charged for attendance at the same meeting, teleconference, or hearing without justification. Local Rule 2016(a)(4) requires an explanation of the need for compensation of more than one professional attending a hearing or meeting or the need for more than one level of review of work produced, in each instance for which multiple compensation is sought. 7. Expenses (hotel, air, photocopying, legal research, etc.) - Travel should be billed at 50%. Expenses should be reasonable and necessary. For example, first class travel and accommodations are unnecessary. Expenses should be actually incurred and not marked up. Expenses that are considered part of overhead include word processing, proofreading, telephone charges unless actual charges related to the case (e.g. multi-party conference calls). 8. No benefit to the estate - Research, review, drafting or litigation of issues that provided little to no benefit to the creditor class or the estate as a whole. 8 Case svk Doc 3435 Filed 03/17/16 Page 8 of 13

9 9. Duplicative Effort/Billing with Local Counsel - Billing entries show both the firm and local counsel charged for work on the same issues, review of the same s or documents, joint conferences and research. A. REVIEW OF HOWARD, SOLOCHEK & WEBER S.C. FEES AND EXPENSES The United States Trustee manually reviewed HSW s fee applications since the applications were not available in an Excel or LEDES format. Because of the labor-intensive effort, the United States Trustee s review took a sampling of the 20 interim applications. 3 The sampling of the applications provides a reliable picture of the general nature, quality and reasonableness of the work HSW performed. See In re Tak at The objection to HSW s fees falls primarily into a few categories: inefficiencies/duplication of services, vagueness and no benefit to the estate. While there are other areas that are objectionable, the United States Trustee focused on the most prevalent areas. Overall, the majority of work billed by HSW was in the nature of monitoring and of limited value to the estate. 3The United States Trustee reviewed 11 fee applications, dockets 186, 390, 465, 555, 764, 947, 1469, 2134, 2654, 2790, and Fee applications in 2014 and 2015 were also reviewed to confirm that HSW s billing practices were consistent throughout the case. However, those applications were not used in the calculations. The dollar amounts and percentages calculated and referenced in the objection and in the attached spreadsheet are based on the total amount of the fees reviewed, $308,631. In order to quantify what the objectionable amount would be if applied to total fees requested, the United States Trustee multiplied the percent of objectionable fees by $604,040, the total fee amount requested. 9 Case svk Doc 3435 Filed 03/17/16 Page 9 of 13

10 B. Staffing inefficiencies, Duplication of effort/services, No benefit to the estate. a. Inefficiencies/Duplication of Effort. After review of the fee applications, it is apparent that the majority of work performed by HSW was in the form of monitoring the case through review of pleadings, correspondence, docket entries, and telephone conferences. These tasks did not include substantive legal work. Further, HSW spent time on issues that were outside the scope of their employment and were the responsibility of Committee counsel, who also billed for the same work. HSW was not hired as Committee counsel, but rather to assist Committee counsel in a limited fashion. While HSW was delegated certain tasks and responsibilities by Committee counsel that were greater in scope than usually given to local counsel, there is still a substantial amount of work that appears to exceed even the added responsibilities by the Committee. When reviewing its fees, and after discussion with HSW counsel, the United States Trustee gave deference to the expanded role of HSW and did not object to those related time entries. Nevertheless, HSW s billing reflects tasks that appear to be unnecessary and outside of even its expanded role. In many ways, it appears HSW acted as co-counsel versus in an advisory role to Committee counsel. An area of inefficiency is HSW s legal research and analysis on issues that were Committee counsel s or special counsel s responsibility. Moreover, the Committee or special counsel conducted, and billed, for the same legal research for which HSW seeks compensation. Examples of duplication in research include research of the status of 10 Case svk Doc 3435 Filed 03/17/16 Page 10 of 13

11 deposition while in an appeal is pending, research and analysis of the cemetery trust litigation, certification issues, appeal issues, committee standing in shoes of creditor, fraudulent transfer, research of Marci Hamilton pleadings, joinder and unsealing, Religious Freedom Restoration Act, and Seventh Circuit procedures and recusal issues. See examples, docket #465-1, page 2 of 22; docket #555-1, page 6 of 27; docket #947, pages 5, of 27; docket #2134-1, pages 1-2, of 26; docket #2435-1, pages 6, 14 of 16. Further, the type of legal research noted above, and prevalent throughout the fee applications, appears to be outside of the scope of HSW s employment application. The value that HSW s research added to the case appears to be de minimus in light of the copious research performed by PSZJ. In many instances, the time entries of HSW are for preparation for, or attendance at, hearings, committee meetings, mediations, or other similar tasks. In many instances, two attorneys at HSW billed for the same work, review or effort, duplicate billing totaled or.52% and multiple attendees totaled.89% of the total fees reviewed. When extrapolated over the entire amount of fees requested, the total amount of duplicate billing totals $3,157, and multiple attendees totals $5,399. More importantly, the amount of work spent on tasks in which PSZJ was also at attendance or had the primary responsibility for was disproportionate to HSW s role in the matter. Numerous billing entries are for tasks to keep apprised of the status of the case. For instance, HSW billed for review of : pleadings, correspondence, Committee counsel memos, issues, the docket, CM/ECF filings, strategy, the agenda, etc.; or follow up/on on motions, correspondence, and strategy. In many instances, the need to 11 Case svk Doc 3435 Filed 03/17/16 Page 11 of 13

12 perform these tasks is questionable considering the nature of HSW s employment. The percentage of billing spent on tasks that are akin to keeping abreast of the case or duplicating the efforts of Committee counsel versus providing substantive legal work was 39.06% of the fees reviewed. Assuming the same billing practice holds true for the remaining fee applications, the total amount of inefficient or duplicative fees would total approximately $235,909 (39.06% of $604,040). C. Vague time entries. Entries in fee applications that are incomplete, or contain insufficient detail, that prevent a court from determining whether the services are either reasonable or necessary, are vague and subject to deduction. See In re Digerati Techs., Inc., 537 B.R. 317, 332 (Bankr. S.D. Tex. 2015). Time entries that do not provide sufficient detail to determine whether the services described are compensable may be disallowed due to vagueness. La. Power & Light Co. v. Kellstrom, 50 F.3d 319, 324 (5th Cir. 1995). HSW fee applications are replete with vague entries. In many instances, it is impossible to determine what issue was being worked on from the time entry. Examples include: Research various issues, Review of correspondence and motions, and use of the terms follow on/up and note on.... See examples, docket #186, pages 9, 13, 18 of 30; docket #390, pages 15 of 32; docket #2790-1, pages 9, 11 of 25. In the 11 fee applications listed in Exhibit 1, the vague entries totaled $26,828, or 10.62% of the total fees reviewed. Assuming the same billing practice holds true for the remaining fee applications, the total amount of fees related to vague entries would total 12 Case svk Doc 3435 Filed 03/17/16 Page 12 of 13

13 approximately $64,165 (10.62% of $604,040). D. SUMMARY OF OBJECTIONS The United States Trustee identified the following fees and expenses as unreasonable; the list and amounts are not inclusive but illustrative. The United States Trustee puts HSW to its burden to prove that the work performed was reasonable and necessary in light of the scope of its employment and the benefit to the estate. 1. Inefficiencies/Benefit to estate $235, Duplicate $ 3, Mulitple attendees $ 5, Vague entries $ 64,165 TOTAL: $308,631 VII. CONCLUSION WHEREFORE, the United States Trustee respectfully submits that the Court enter an Order (i) reducing the fees that Howard, Solochek & Weber LLC have requested in their final fee application and (ii) granting such other relief as the Court deems just. Dated: March 17, PATRICK S. LAYNG United States Trustee MICHELLE S. Y. CRAMER Attorney for the United States Trustee 13 Case svk Doc 3435 Filed 03/17/16 Page 13 of 13

14 Office of the United States Trustee Eastern District of Wisconsin Case no Exhibit 1, Summary of HSW Fees Reviewed Category Amount Identified % Identified 1 Amount 2 Extrapolated Duplicate $ 1, % $ 3, Local Counsel / Inefficiency $ 98, % $ 235, Multiple Attendees $ 2, % $ 5, Vague $ 26, % $ 64, TOTAL $ 129, % $ 308, TOTAL OF FEE APPS SAMPLED 3 $ 252, TOTAL FINAL FEE APP $ 604, Footnotes: 1 Expressed as a percent of Fee Apps reviewed. 2 % Identified x $604, The UST reviewed January through November 2011 fees (Docket 186, 390-1, 465-1, & 555-1); January through June, and October of 2012 fees (Docket 764, 947, & 1469); January and February 2013 fees (Docket ); and January, February, May, June, November, and December 2014 fees (Docket 2654 and ). Case svk Doc Filed 03/17/16 Page 1 of 1