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In re: Filene's

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(Volume 1, Issue 16)

On May 4, 2009, Filene’s Basement Inc. (Filene’s Basement) filed for Chapter 11 Bankrupcy Protection in preparation for a sale. It marked the second time in 10 years the company had sought bankruptcy protection. The filing came on the heels of a 9.5 percent drop in sales in the 2008 fiscal year. After acquisition in a 363 Chapter 11 sale by Men’s retail giant SYMS, the combined synergies of the companies failed to materialize and the conglomerate filed for Chapter 11 with intent to liquidate in November 2011. The 2009 bankruptcy generated millions of dollars in legal fees, a large portion of which, arguably, were not be compensable due to “improper” billing practices.  Sterling Analytics, a legal cost consulting firm, audited a sample of the attorneys’ fees requested for compliance with bankruptcy court precedents and accepted ethical standards of billings. $687,977.73 in fees and expenses were reviewed. The audit determined that $160,884.76, or 23.38%, of the charges were “improper.” The most objectionable entries were for vague billing, block billing, billing for multiple attorneys, and billing for billing, among others.

Vague Billing:  Vague billing entries are potentially impermissible because they deny the client or court the opportunity to adequately examine the work performed. By failing to adequately describe tasks, the amount of time spent on each task, whether the tasks are compensable, and the level of expertise required for the entry are not apparent. The Filene’s Basement bankruptcy bills contained numerous entries with  “prepare for” meeting descriptions without disclosing what was done to prepare for the meetings. Billings containing vague entries are “routinely disallowed” by bankruptcy courts.  In re Hirsch, 2008 WL 5234057, at *7 (Bankr. E.D.N.Y. 2008).

Block Billing: Block billing is a billing practice disfavored by courts because it fails to separate tasks into separate entries that reveal whether work is compensable or reasonable. In a bankruptcy context, block billing is especially disfavored because it prevents the court from determining whether a reasonable amount of time was spent on each task. In re Leonard Jed Co., 103 B.R. 706, 713 (Bankr. D. Md. 1998). Bankruptcy courts often reduce attorneys’ fees requests due to block billing. See also In re Dimas, LLC, 357 B.R. 563, 580 (Bankr. N.D. Cal. 2006) (“[A]ttorneys should not clump disparate services in a single time entry. Clumping renders it difficult to determine whether each task was completed within a reasonable amount of time. In general, each discrete task should be separately described in its own time entry.”), aff’d in part, rev’d in part, 2009 WL 7809032 (9th Cir. 2009).

Multiple Attorneys at Meetings: 4.5% of the billing sample contained entries where multiple attorneys were at meetings, conference calls, and the like without providing adequate documentation of why more than one attorney was needed. When billing for multiple attorneys, the burden is on the firm to show that each attorney contributed to the meeting, deposition, or such event. In re Leonard Jed Co., 103 B.R. 706, 713 (Bankr. D. Md. 1998) (“Time spent by partners and associates in conferences and meetings is compensable, but not by more than one participant. In re Pettibone Corp., 74 B.R. at 307; In re Metro Transportation Co., 78 B.R. at 417-18; Cf. In re Yankee Seafood Corp., 53 B.R. 285, 286 (Bankr. R.I. 1985)”; “Examples include office conferences of two or more attorneys where all of the participants charged their full hourly rates; meetings with others where more than one attorney from the firm was in attendance and both submitted bills for the same meeting without demonstrating the need for both of them to have been there.”).

Billing for Billing: It is highly inappropriate for lawyers to bill for their time spent billing. While it is understood that working on a request for attorneys’ fees in civil litigation is a billable activity, it is notable that the work assembling the document is primarily legal. Editing hours, maintaining timesheets, and the like are not legal functions that should be passed down to the client (or estate, in the bankruptcy context). In re Meese, 907 F.2d 1192, 1203 (D.C. Cir. 1990) (disallowing fees claimed for the preparation of the fee application) United States v.University Medical Associates, 2002 U.S. Dist. LEXIS 26986, 2002 WL 34236885 at 18 (D.S.C. 2002) (finding that counsel cannot charge clients for time spent creating bills). In re Dimas, LLC, 357 B.R. 563, 591 (Bankr. N.D. Cal. 2006) (“However, the time the applicant expended to review and edit its time records and to manually project bill is not compensable.”), aff’d in part, rev’d in part, 2009 WL 7809032 (9th Cir. 2009).

* In re Filene’s Basement Co., et al.

By Michael Sihksnel

In re Dodgers

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(Volume 1, Issue 15)

On June 27, 2011, the Los Angeles Dodgers (“Dodgers”) filed for chapter 11 bankruptcy. In March 2011, Forbes magazine ranked the Dodgers as the world’s thirty-eighth most valuable sports team, valued at $800 million. The bankruptcy has generated millions of dollars in legal fees, a large portion of which, arguably, should not be compensable due to “improper” billing practices.  Sterling Analytics, a legal cost consulting firm, audited a sample of the attorneys’ fees requested for compliance with precedent and ethical guidelines. $816,771.39 in fees and expenses were reviewed. The audit determined that $515,316.21, or 63.09%, of the charges were “improper.” The most significant objectionable charges related to block billing, multiple attorneys at meetings, false billing, vague billing, and billing at a high rate for attorneys overqualified for the task.

Block Billing: Sterling Analytics’ review of the legal bills found $144,555.00 in “impermissible” block billing charges. This represents over 17% of the reviewed charges. Block billing is the practice of grouping discrete tasks together rather than listing each task performed individually. Block billing is disfavored for two reasons. First, it allows an attorney to claim compensation for rather minor tasks which, if listed separately, would not be compensable. Second, it prevents the court, or the client, from determining whether the individual task was performed in a reasonable amount of time. In re Leonard Jed Co., 103 B.R. 706, 713 (Bankr. D. Md. 1998). Bankruptcy courts often reduce attorneys’ fees requests due to block billing. See In re Baker, 374 B.R. 489 (E.D.N.Y. 2007) (reducing entire bill by 20% due to “improper” block billing); In re Stewart, 2008 WL 8462960, at *6 (9th Cir. 2008) (affirming disallowance of “lump billing” fees).

Multiple Attorneys at Meetings: $124,382.50 of the reviewed billings represented charges related to multiple attorneys at depositions, intraoffice conferences, and hearings. This billing practice is generally unfair to the client because it results in charging multiple times for work that could have been performed by one attorney. See In re New Boston Coke Corp., 299 B.R. 432, 445 (Bankr. E.D. Mich. 2003) (“[I]n situations where more than one attorney attends a hearing or conference, there must be a showing that each attorney contributed to the hearing or conference.”). Bankruptcy courts have held that one only attorney should be used in these situations. See In re Dimas, LLC, 357 B.R. 563, 579 (Bankr. N.D. Cal. 2006) (“Normally, it is appropriate for only one attorney from a firm to attend a meeting, conference, or hearing.”).

False Billing: The review of the bills revealed a total of $121,762.00 in objectionable “false billing” charges. There were numerous billing entries in which two or more attorneys billed for what appeared to be the same conference or telephone call, but the hours billed for such conference or telephone call were inconsistent. “False billing” violates the Model Rules of Professional Conduct and courts have ordered dramatic fee reductions due to such practice. See, e.g. Reed v. Rhodes 179 F.3d 456, 470 (6th Cir. 1999) (ordering a fee reduction, in part, due to the fact that the “applications suffered from . . . serious deficiencies . . . [including] inconsistencies in the amount of time recorded for services that several attorneys had performed together”). 

Vague Billing:  A billing entry that is vague is arguably impermissible because it prevents the client from adequately understanding what work was performed by the attorney and whether the charges fairly reflect the work described.  $70,577.50 of the reviewed charges were found to be “overly vague.” Examples of “vague” entries in the Dodgers bankruptcy billings include “review documents,” “review/analyze agenda” and “review docket filings.” Billings containing vague entries are “routinely disallowed” by bankruptcy courts.  In re Hirsch, 2008 WL 5234057, at *7 (Bankr. E.D.N.Y. 2008).

Billing at a High Rate by Attorney Overqualified for the Task: Hourly rates should be appropriate for the task being performed, not for whom is performing the task. If an attorney bills for time spent performing a task for which he or she is overqualified, reimbursement will be determined by the rate appropriate for the task, not the normal rate charged by the attorney performing the task. Courts have held that is unethical for attorneys to bill at their full rate for non-legal services. See, e.g. In re Weaver, 2011 WL 867136, at *4 (Bankr. D.N.M. 2011). Of the reviewed bills, it was determined that $19,837.00 in charges were billed at a rate at which the attorney seemed overqualified for the task.  Examples of these overqualified charges include charges for organizing documents and updating the case calendar.

* In re Los Angeles Dodgers, LLC, et al.

By Madeline Zuckerman

In re Nortel

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(Volume 1, Issue 14)

Nortel Networks, Inc., a Canadian telecommunications equipment maker, filed for bankruptcy in both Canada and the U.S. in January 2009. Sterling Analytics, a legal cost consulting group, has analyzed a sample of Nortel’s legal billings filed during the bankruptcy. Of the $1,340,606.74 in legal bills reviewed, $575,423.24 was found to represent objectionable charges. This amounts to 42.92% of the total charges reviewed.

Vague Billing Entries: Vague billing is arguably impermissible because it prevents the client from adequately understanding what work was performed by the attorney and whether the charges fairly reflect the work described. Items such as “look into issues and summarize” and “work on document issue” are considered vague and thus “impermissible.” Nortel’s billing sample contained $73,743.00 of vague billing entries. See Anglo-Danish Fibre Indus. v. Columbian Rope Co., 2003 WL 223082 at *6 (D. Tenn. January 28, 2003) (“Entries that provide little guidance in ascertaining the purpose of the work during the time claimed do not merit an award”).

Block Billing: Nortel’s billing sample contained $192,972.50 in block billing charges. Block billing occurs when “more than a single service was provided, the services are combined, and there is no information concerning what part of the total charge is allocated to each service.” Mokover v. Neco Enterprises, Inc. 785 F.Supp. 1083, 1090 (D.R.I. 1992). Block billing is generally impermissible because it prevents both the client and the court from understanding how much time was dedicated to each task and whether each task reflected compensable work or if it was only an accumulation of clerical tasks.

Multiple Attorneys at Meetings: The practice of multiple attorneys at meetings is unfair to the client because it results in the client being charged multiple times for work that can be performed by one attorney. “Normally, it is appropriate for only one attorney from a firm to attend a meeting, conference, or hearing.” In re Dimas, LLC, 357 B.R. 563, 579 (Bankr. N.D. Cal. 2006). Nortel’s billing sample contained $222,279.00 in charges for multiple attorneys attending the same meeting, hearing or conference.

 Attorney Overqualified for Task: “An attorney may be overqualified for particular services which could reasonably be performed by a less skilled or experienced attorney or by a lay person. In such a case, it may be unreasonable to value the attorney’s time at his regular billing rate.” Chrapliwy v. Uniroyal, Inc., 670 F.2d 760, 767 n.16 (7th Cir. 1982). Nortel was billed $55,901.00 for charges where it seemed an attorney was overqualified for the task performed. Examples of such charges include “sort through documents” and “edit calendar,” among others.

Overhead Charges: “Costs that are considered overhead costs, or normal expenses of doing business, are not reimbursable.” Abbot v. Village of Winthrop Harbor, 1999 WL 675292 at 5 (N.D. Ill. 1999). In the absence of express permission from a client, an attorney should not be permitted to pass on the cost of doing business to a client. Typical overhead charges include computerized legal research, travel costs, and meals. Nortel’s billing sample contained $9,567.74 in overhead charges.

Long Billing Days: High double digit billing days, or a long period of such days, are questionable and usually excessive. These charges are subject to extra scrutiny, given the difficulty of billing such long days in a normal work environment. See In re New Boston Coke Corp., 299 B.R. 432, 448 (Bankr. E.D. Mich. 2003) (“While it is certainly possible that an attorney could bill ten-, nineteen-, or twenty-hour days, it is unlikely that all of that billed time is compensable”). The highest of such long days in Nortel’s billings amounted to 13 hours. $14,042.00 in total was charged for long billing days.

Other objectionable charges present in the Nortel billing sample included charges that represented overstaffing, excessive time for task, billing for billing and false billing.  

* In re Nortel Networks, Inc., et al.

By Rachel Troiano

In re Borders

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(Volume 1, Issue 13)

Borders Group, Inc. was a national chain of physical and Internet based book distributors. As a result of its months of missed vendor payments and declining sales, along with $1.29 billion dollars in debts (compared with $1.27 billion in assets), Borders declared chapter 11 bankruptcy in February 2011. Sterling Analytics Group, a legal cost consulting firm, audited some of their legal billings filed in the bankruptcy, totaling $468,517.60 in charges. Of these reviewed bills, Sterling Analytics found $117,957.78 in objectionable charges, representing 25.18% of the total billings.

Block Billing: Block billing is arguably objectionable because it denies clients the opportunity to examine billing entries to determine whether each task took a reasonable amount of time to perform. “[A]ttorneys should not clump disparate services in a single time entry. Clumping renders it difficult to determine whether each task was completed within a reasonable amount of time. In general, each discrete task should be separately described in its own time entry.” In re Dimas, LLC, 357 B.R. 563, 580 (Bankr. N.D. Cal. 2006). $31,411.50 of the Borders’ legal billings represented block-billed entries.

Multiple Attorneys at Meetings: It’s generally impermissible to charge for multiple attorneys’ attendance at meetings or depositions because it results in the client being billed multiple times for work that can be performed by only one attorney. “[I]n situations where more than one attorney attends a hearing or conference, there must be a showing that each attorney contributed to the hearing or conference.” In re New Boston Coke Corp., 299 B.R. 432, 445 (Bankr. E.D. Mich. 2003). $26,992.20 represented billings where multiple attorneys charged for attendance at the same meeting.

Vague Entries: Vague billing entries are generally “impermissible” because they do not provide the client enough information to adequately determine what work was performed. “Individual entries that include only vague and generic descriptions of the work performed do not provide an adequate basis upon which to evaluate the reasonableness of the time spent.” Grievson v. Rochester Psychiatric Center, 2010 WL 3894983 at *8 (W.D.N.Y. 2010).  “[A]n applicant requesting an award of fees has the burden to prove the reasonableness of such fees and that vague and otherwise insufficient descriptions of services often result in a denial or reduction in the amount of fees sought.” In re Acevedo, 2010 WL 411105 at *2 n.1 (Bkrtcy E.D.N.Y. 2010). $21,680.50 in charges were “overly vague.”

Overstaffing: Overstaffing is a common way that law firms can inflate legal bills. By staffing extra attorneys, it is possible for multiple attorneys to bill redundant and excessive hours for performing the same work. “[I]t is not reasonable to consistently bill a party for two attorneys to do the same work/review each other’s work.” Bell v. Prefix 2011 WL 1100090 at *8 (E.D.Mich. 2011); “After careful review of the billing records the court is left with the distinct impression that parts of this case are overlawyered…As a result, the court will…reduce the number of hours claimed by twenty-five (25) percent.” Kansas Penn Gaming, LLC v. HV Properties of Kansas, LLC, 2011 WL 1885853 at *8 (D.Kan. 2011). $10,950.00 of the billing entries reviewed represented overstaffing.

False Billing: False billing is an extremely unethical practice and falsely billed entries should never be compensated. Common indications of “false” billing are when attorneys record different time entries for the same meetings, which was present in the Borders’ billings. Such entries are often found to be recorded in error but, “[t]he Court will not credit billing errors that are plainly erroneous.” Fitts v. Unum Life Ins. Co. of America, 680 F.Supp.2d 38, 44 (D.D.C. 2010).  $8,843 of the reviewed entries were arguably “false.”

* In re Borders Group, Inc., et al.

By Michael Sihksnel

In re General Growth

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(Volume 1, Issue 12)

General Growth Properties is a publicly traded real estate investment trust that owns, develops and operates regional shopping centers across the United States. As a result of its $27.3 billion debt and failed attempts to bargain with creditors, General Growth filed for Chapter 11 bankruptcy in April 2009. Sterling Analytics Group, a legal cost consulting firm, audited some of their legal billings in the bankruptcy, totaling $511,678.07 in charges. Of these reviewed bills, Sterling Analytics found $116,212.16 in objectionable charges, representing 22.71% of the total billings.

Vague Entries: Vague billing is arguably impermissible because it prevents the client from adequately understanding what work was performed by the attorney and whether the charges fairly reflect the work described. “Individual entries that include only vague and generic descriptions of the work performed do not provide an adequate basis upon which to evaluate the reasonableness of the time spent.” Grievson v. Rochester Psychiatric Center, 2010 WL 3894983 at *8 (W.D.N.Y. 2010). General Growth was charged $5,920.50 for “overly vague” tasks which included entries such as “attention to organizational documents.”

Multiple Attorneys at Meetings: $84,188.50 in charges represented billings by more than one attorney for their attendance at the same meetings or conference calls. This practice is generally unfair to the client because it results in the client being charged multiple times for work that can be performed by one attorney. See In re Leonard Jed Co., 103 B.R. 706, 713 (Bankr. D. Md. 1198) (“Time spent by partners and associates in conferences and meetings is compensable, but not by more than one participant.”); In re Pettibone Corp., 74 B.R. at 307; In re Metro Transportation Co., 78 B.R. at 417-18; In re Yankee Seafood Corp., 53 B.R. 285, 286 (Bankr. R.I. 1985)”).

Attorney Overqualified for Task: A client should be billed based on an hourly rate appropriate to the task being performed, not based on who is performing the task. The General Growth billings contained $6,517.50 in charges representing an attorney billing for a task they were overqualified for, including entries such as “compile daily news alerts.” “Attorneys engaged in clerical tasks ‘should be compensated at the rate for clerical employees or, if the task at issue is the type included in overhead, they should not be compensated at all.’” Tatum v. City of New York, 2010 WL 334975 at *9 (S.D.N.Y. 2010), quoting Rozell v. Ross-Hoist, 576 F.Supp.2d 527, 540 (S.D.N.Y. 2008).

Overhead Charges: A lawyer may not separately charge for overhead expenses unless the client has agreed in advance to such charges in the retainer agreement. See ABA Formal Opinion 93-379 (December 6, 1993). General Growth’s billings contained overhead charges amounting to $19,585.66. Such charges included “computerized research”, among others. “Most courts…have ruled that computer-aided research, like any other form of legal research, is a component of attorney fees and cannot be independently taxed as an item of costs.” Heng v. Rotech Medical Corp., 720 N.W.2d 54, 66 (N.D. 2006).

* In re General Growth Properties, Inc., et al.

By Rachel Troiano

In re CIT Group

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(Volume 1, Issue 11)

CIT Group Inc. is a bank holding company, providing lending, advisory, and leasing services to small and middle market businesses. In November 2009, CIT filed for Chapter 11 bankruptcy in the U.S. Bankruptcy Court in the Southern District of New York. Sterling Analytics Group, a legal cost consulting firm, reviewed CIT’s total billings of $122,369.19 for compliance with ethical guidelines and industry standards. The audit showed questionable charges of $95,029.69. This amounts to more than half, or 77.65%, of the total billings.

Vague Billing Entries: Vague billing is arguably impermissible because it prevents the client from adequately understanding what work was performed by the attorney and whether the charges fairly reflect the work described. “If the applicant’s documentation of the hours claimed is vague or incomplete, the district court may reduce or eliminate those hours.” LULAC v. Roscoe Independent School District, 119 F.3d 1128, 1233 (5th Cir. 1997). “Review revised documents” is an example of one such vague charge contained in CIT’s billings. See Anglo-Danish Fibre Indus. v. Columbian Rope Co., 2003 WL 223082 at *6 (D. Tenn. January 28, 2003) (“Billing entries for conferences, memoranda, voicemail, emails, and letters, when the billing entries do not identify the subject matter of the communication, are too vague to show whether the hours expended are reasonable”).

Block Billing: 58.07% of CIT’s total objectionable charges were for block billing. Block billing lumps charges together rather than separately charging for the tasks performed by the attorney and is “impermissible” because it prevents the client from understanding how much time was dedicated to each task and whether each task reflected compensable work. “A reduction is…warranted where counsel engages in block billing, such that multiple tasks are aggregated into one billing entry thereby impeding the court’s efforts to evaluate the reasonableness of any of the listed activities.” Green v. City of New York, 2009 WL 3088419 at 6 (E.D.N.Y. 2009).

Multiple Attorneys at Meetings: 12.57% of CIT’s billings represented charges for multiple attorneys at meetings. This practice is generally unfair to the client because it results in the client being charged multiple times for work that can be performed by one attorney. Therefore, usually only one attorney is needed at depositions, hearings, and outside conferences. “In situations where more than one attorney attends a hearing or conference, there must be a showing that each attorney contributed to the hearing or conference.” In re New Boston Coke Corp., 299 B.R. 432, 445 (Bankr. E.D. Mich. 2003). 

Attorney Overqualified for Task: “An attorney may be overqualified for particular services which could reasonably be performed by a less skilled or experienced attorney or by a lay person.” Chrapliwy v. Uniroyal, Inc., 670 F.2d 760, 767 n.16 (7th Cir. 1982). If an attorney is overqualified for the task being charged, the client should only be responsible for paying the hourly rate appropriate for the task. Of the total objectionable charges, 2.44% represented an attorney overqualified for the task charged.

Overstaffing: Using an excessive amount of attorneys or paralegals typically results in unnecessary duplication of work. The client should not have to pay for the work of multiple attorneys or paralegals where such work could be completed by one or a few. See Schlacher v. Law Offices of Phillip J. Rotche & Associate, P.C., 574 F.3d 852, 858 (7th Cir. 2009) (“Though efficiency can sometimes be increased through collaboration…overstaffing cases inefficiently is common, and district courts are therefore encouraged to scrutinize fee petitions for duplicative billing when multiple lawyers seek fees”).

* In re CIT Group Inc. and CIT Group Funding Company of Delaware, LLC

By Rachel Troiano

In re Lyondell Chemical

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(Volume 1, Issue 10)

In January 2009, one of the largest U.S. chemical companies, Lyondell Chemical Company, filed for chapter 11 bankruptcy.  The company emerged 16 months later as LyondellBasell Industries, now a Swiss based company. During the bankruptcy the attorneys for Lyondell requested over $7.8 million in attorneys’ fees and expenses.  Sterling Analytics, a legal cost consulting firm, audited $291,325 of the legal charges submitted by counsel for compliance with legal precedent and ethic standards.  Upon completion of this legal audit it was determined that $84,740, or 29%, of the charges were objectionable.  These objections included billing for multiple attorneys at meetings, vague billing entries, billing for overhead, and block billing. 

Multiple Attorneys at Meetings: Our review of the submitted legal bills found $51,081 in objectionable charges related to multiple attorneys at depositions, intraoffice conferences, and hearings.  This billing practice is generally unfair to the client because it results in charging multiple times for work that could be performed by one attorney. See In re New Boston Coke Corp., 299 B.R. 432, 445 (Bankr. E.D. Mich. 2003) (“[I]n situations where more than one attorney attends a hearing or conference, there must be a showing that each attorney contributed to the hearing or conference.”).  In the reviewed bills there were 32 instances of unjustified billing for multiple attorneys.  Bankruptcy courts have held that one only attorney should charge for their attendance in these situations. See In re Dimas, LLC, 357 B.R. 563, 579 (Bankr. N.D. Cal. 2006) (“Normally, it is appropriate for only one attorney from a firm to attend a meeting, conference, or hearing.”).

Vague Billing Entries:  Vague entries are arguably impermissible because they prevent the client from adequately understanding what work was performed. $25,017 of the reviewed charges were “overly vague.” Examples of vague entries in Lyondell’s bankruptcy bills were “prepare for meeting” and “attention to excess carrier insurance issue.”  In general, time entries that include the phrase “attention to” or “prepare for” are considered vague because they fail to sufficiently describe the work performed by the timekeeper. SeeIn re Dimas, LLC, 357 B.R. 563, 577 (Bankr. N.D. Cal. 2006). Vague entries such as these are “routinely disallowed” by bankruptcy courts. In re Hirsch, 2008 WL 5234057, at *7 (Bankr. E.D.N.Y. 2008). 

Overhead Charges: In the absence of express permission from a client, overhead is not compensable. A law firm’s overhead is the cost of doing business and should not be passed on to individual clients. See ABA Formal Opinion 93-379 (December 6, 1993). 268 overhead charges were found in the review of Lyondell’s bankruptcy bills, totaling $5,313. Examples include “Lexis research,” “duplicating,” “reproduction of documents,” “scanning” and “color copies”. Many bankruptcy courts have disallowed these charges from attorney fee awards. See In re Bicoastal, 121 B.R. 653, 656 (Bankr., M.D. Fla. 1990) (disallowing charges for computer research); In re Lorenzen, 2010 WL 5524696, at *1 (Bankr. N.D. Ill. 2010) (disallowing charges for copying); In re Beenblossom, 2010 WL 2710417, a *4 (Bankr. D. Neb. 2010) (disallowing scanning charges).

Block Billing: $3,330 of the reviewed charges represented “impermissible” block billing.  Block billing is the practice of lumping charges together rather than separately charging for each task.  Block billing prevents the client from understanding how much time was dedicated to each individual task and determining whether a specific task reflected compensable work.  Bankruptcy courts often reduce attorneys’ fee requests due to block billing. See In re Baker, 374 B.R. 489 (E.D.N.Y. 2007) (reducing entire bill by 20% due to improper block billing); In re New Towne Development Group, LLC, 2010 WL 1451480, at *5 (Bankr. M.D. La. 2010) (reducing fees by one-half for all lumped billing entries).

* In re Lyondell Chemical Company, et al.

By Nicholas Paslow

In re Great Atlantic

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(Volume 1, Issue 9)

Great Atlantic and Pacific Tea Company, Inc. is one of the nation’s first supermarket chains. On December 12, 2010, A&P filed for Chapter 11 bankruptcy in the U.S. Bankruptcy Court in the Southern District of New York. Sterling Analytics Group, a legal cost consulting firm, has reviewed some of the legal bills incurred as a result of A&P’s bankruptcy filing, totaling $863,572.36. From this audit, Sterling Analytics found $411,069.07, or 47.60% of the total billings, represented objectionable charges.

Vague Billing Entries: “Where billing records are vague, a reduction in fees is appropriate.” Green v. City of New York, 2009 WL 3088419 at 6 (E.D.N.Y. 2009). Vague billing is generally impermissible because it prevents both the client and the court from adequately understanding what work was performed by the attorney and whether the charges reasonably reflect the work described. A&P’s billings contained $49,349.00 in “vague” billing charges. For example, one such charge was “review status of items for court tomorrow.”

Multiple Attorneys at Meetings: A&P was charged $181,911.00, or 21.06% of the total objectionable charges, for the presence of multiple attorneys at meetings. This practice is generally unfair to the client because it results in the client being charged multiple times for work that can be performed by one attorney. Usually, only one attorney is needed at depositions, hearings and outside conferences. “In situations where more than one attorney attends a hearing or conference, there must be a showing that each attorney contributed to the hearing or conference.” In re New Boston Coke Corp., 299 B.R. 432, 445 (Bankr. E.D. Mich. 2003).

Attorney Overqualified for Task:  A client should be billed based on an hourly rate appropriate to the task being performed, not based on who is performing the task. “Regardless of whether work is performed by an attorney: Clerical work…should be compensated at a different rate from legal work.” Nationalist Movement v. Town of Jena, 2009 WL 840221 at 4 (W.D.La. 2009). The charges that represented attorneys’ billing who were overqualified for the task totaled $41,428.00. Items such as “retrieve new filings from A&P docket” should not have been billed at attorney rates.

Overhead: A lawyer may not separately charge for general office overhead expenses unless the client has agreed in advance to such charges in the retainer agreement. A&P was charged for overhead items such as “Westlaw” and “meals & entertainment,” among other charges. These charges constituted 4.3% of the total objectionable charges, or $37,160.07. See Ringcentral, Inc v. Quimby, 711 F. Supp.2d 1048, 1066 (N.D. Cal. 2010) (“The Court considers legal research fees, such as Westlaw fees, to be overhead and not properly considered costs that may be awarded”).

Billing for Long Days: Sterling Analytics found objectionable charges representing long billing days totaling $30,833.00. Billing double digit hours in one day, or for a period of days, is questionable and usually excessive. See Allen v. City of Los Angeles, 1995 WL 433720 at *8 (C.D. Cal. 1995) (“The court may reduce as excessive…claims of having worked an inordinate number of hours in a single day”). When an attorney bills such a high amount of hours it is unlikely that the attorney actually spent that entire amount of time performing the task or tasks described.

Billing for Billing: “Most lawyers do not bill their fee-paying clients for hours spent preparing bills.” Shorter v. Valley Bank & Trust Co., 678 F.Supp. 714, 725 (N.D. Ill. 1988). A&P was charged $17,550.50 for billing tasks, including “review December daynotes”. A client should not be billed for time spent maintaining or creating billing records, or for reviewing or discussing such records.

Overstaffing: “Using multiple attorneys in a simple case…poses the serious potential…for duplication of work or overstaffing.” Tucker v. City of New York, 704 F.Supp.2d 347, 355 (S.D.N.Y. 2010). The client should not have to pay for the work of multiple attorneys or paralegals where such work could be completed by one or a few. Charges for overstaffing totaled $42,728.50, or 4.95% of the total objectionable charges. For example, A&P was billed for three separate people to review one motion.

* In re The Great Atlantic & Pacific Tea Company, Inc., et al.

By Rachel Troiano

In re Calpine

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(Volume 1, Issue 8 )

In December 2008, Bally Total Fitness filed for bankruptcy in the Southern District of New York. The law firm of Curtis, Mallet-Prevost, Colt and Mosle, LLP (“Curtis”), served as Conflicts Counsel for the debtors in the case. In total, Curtis submitted two fee applications amounting to $1,332,178.40. After reviewing Curtis’ first fee application, which totals $726,695.43, Sterling Analytics, a legal cost consulting firm, discovered that 58.07% of the billings were objectionable. Although the majority of the billings were arguably in violation of ethical standards, the bankruptcy court awarded all fees and costs requested by Curtis.

Block Billing: The largest percentage of objectionable charges fell into the category of block-billing. Nearly 17% ($122,095.00) of the billings submitted by Curtis represented block-billed time entries. Block-billing can be defined as time entries that lump several distinct tasks together without itemizing the time spent on each separate task. In re Mesa Air Group, Inc., 449 B.R. 441 (S.D.N.Y. 2011). By engaging in the practice of block-billing, the timekeeper makes it difficult, if not impossible, for a reviewer to determine the amount of time spent on each task and whether the time spent was reasonable. In re Green, 422 B.R. 469, 477 (S.D.N.Y. 2010); In re Hirsch, 2008 WL 5234057 at *5 (Dec. 11, 2008 E.D.N.Y.). As a result, the use of this practice typically justifies a reduction in an attorney’s request for legal fees. See In re Kohl, 421 B.R. 115, 128-29 (S.D.N.Y. 2009); In re Browntree, LLC, 2009 WL 2843278 (Aug. 28, 2009 E.D.N.Y.) (reducing block-billed time entries by fifty percent). Individually billed tasks are preferred and generally required in order to discourage counsel from “inflat[ing] the actual time spent and group[ing] multiple tasks together hoping to camouflage the true length of an individual task.” In re Hirsch, 2008 WL 5234057 at *6 (Dec. 11, 2008 E.D.N.Y.). 

Multiple Attorneys at Meetings: More than 15% ($122,568.00) of the billings contained multiple attorneys attending the same hearing, outside conference or intra-office conference. Generally, the attendance of more than one attorney at a court conference, deposition, or outside conference results in an excessive fee. Grievson v. Rochester Psychiatric Center, 2010 WL 3894983 at *11 (Sept. 30, 2010 W.D.N.Y.) (finding that the attendance of three attorneys at a court hearing is excessive); Marisol A. v. Giuliani, 111 F. Supp. 2d. 381, 395 (S.D.N.Y. 2000) (“Having seven attorneys present at one court conference and billing time for each of those present is unreasonable.”). This is because this type of work can typically be performed by one attorney. Curtis’ billing records contain numerous instances where more than one attorney attended, and billed for participating in, the same court conference. For example, two attorneys billed for preparing for and attending a first day hearing in the case. One of the attorneys, who bills at an hourly rate of $785, spent 3.8 hours preparing for and attending the hearing. The other, who bills at an hourly rate of $675, billed 2.8 hours preparing for and attending the first day hearing. Therefore, the client was charged more than $4,800 for a court conference that presumably took less than three hours. 

Additionally, intra-office conferences should generally be billed by only one of the participants. Where each attorney bills for his or her time in an office conference, the fees quickly escalate. For example, instead of being charged for the time of one attorney at a one hour office meeting, the client is being charged for the time of three attorneys at that meeting. This is generally an unreasonable practice and the courts have agreed. See, e.g., Grievson v. Rochester Psychiatric Center, 746 F.Supp.2d 454, 468 (Sept. 30, 2010 W.D.N.Y.) Generally, where more than one attorney bills for his or her time spent in the same meeting, the time must be justified by providing the client with an adequate explanation of each attorney’s role in the meeting. In re Bennett Funding Group, Inc., 213 B.R. 234, 245 (N.D.N.Y. 1997).

False Billing: Alarmingly, nearly $100,000 of the objectionable charges represented “false” billing practices. The “false” billing objections mainly resulted from two attorneys billing for attending the same meeting, each recording inconsistent times spent in the meeting. Although many of the discrepancies were between 6 and 12 minutes, some time entries were actually doubled. For example, one attorney billed 18 minutes for attending an office meeting while the other billed 36 minutes for the same meeting. This practice is highly unethical. See Model Rules of Professional Conduct 1.5. It is possible that the inconsistencies were recorded without intending to be deceitful or dishonest. However, where an attorney cannot recall how long a particular meeting took, he or she should communicate with the other participating attorney to determine the most accurate time.

Overhead Charges: Curtis charged more than $41,000 in costs that are typically considered overhead. Overhead is defined as the costs and expenses typically associated with maintaining and operating a law firm. Overhead costs are not reimbursable by the law firm at the client’s expense. Law firms are compensated for such expenses through the hourly rates charged by the attorneys and paralegals. The following are just a few examples of objectionable charges that were found while conducting a review of the records:  approximately $500 in meal charges (Tatum v. City of New York, 2010 WL 334975 at *13 (Jan. 28, 2010 S.D.N.Y.) (“[M]eals that are not required by out-of-town travel are not compensable.”)); approximately $5,800 in word processing charges; and more than $31,000 in computerized research charges (S.E.C. v. Goren, 272 F.Supp.2d 202, 214 (E.D.N.Y. 2003) (refusing to award $18,000 for Lexis and Westlaw charges)).   

Overqualified for Task: Nearly $30,000 of the objectionable charges resulted from professionals performing tasks which they were overqualified to perform. Typically, professionals who perform clerical tasks should not charge their clients for that time or, at the very least, bill their clients at a reduced hourly rate. Tatum v. City of New York, 2010 WL 334975 at *9 (Jan. 28, 2010 S.D.N.Y.) Curtis billed $323 for organizing a file. Courts have frequently held that organizing is a clerical task that is included in the firm’s overhead and, therefore, is not compensable. In re Hudson, 364 B.R. 875, 881 (N.D.N.Y. 2007) (“The court considers administrative activities, photocopying, organizing documents, etc. clerical tasks included in a firm’s overhead rather than services of a legal nature.”). Moreover, countless hours were spent “compiling” and “assembling” documents. Such time should have never been billed to the client. Id. at 881 (“Assembling and photocopying exhibits is something the court considers clerical in nature.”). 

In addition to clerical tasks, some of the entries were objected to because the billing attorney charged his or her full hourly rate for time spent traveling. Courts will typically allow attorneys to be compensated for travel time, but at half of the attorney’s normal hourly rate. Gonzalez v. Bratton, 147 F.Supp.2d 180, 213 (S.D.N.Y. 2001) (reducing travel time by 50%); But See Tatum v. City of New York, 2010 WL 334975 at *8 (Jan. 28, 2010 S.D.N.Y.) (declining to award fees associated with travel time, finding that clients generally resist paying for such time). Moreover, it is important to note that where the billing attorney is performing legal services during travel, courts will allow such time to be billed at the full rate. 

* In Bally Total Fitness of Greater New York, Inc., et al.

By Laura R. Bugdin

In re Calpine

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(Volume 1, Issue 7)

In December of 2005, Fortune 500 power company, Calpine Corporation, filed for chapter 11 bankruptcy.  After a little over two years Calpine emerged from the restructuring in January 2008. During the bankruptcy, the law firm for the creditor committee requested over $20 million in legal fees and expenses. Of this total, Sterling Analytics, a legal cost consulting firm, reviewed $2.35 million in charges for compliance with legal precedent and ethical standards. Upon completion of this legal audit it was determined that $894,000, or 38%, of the charges were objectionable.  The most significant objections related to false billing, multiple attorneys at meetings, block billing, billing for long days, billing at a high rate for attorneys overqualified for task and vague billing entries.

False Billing: In the reviewed bills there were a total of $379,541 of objectionable “false” billing charges. These potentially “false” entries were evidenced by two attorneys billing for the same line item but recording different time. For example, one attorney would bill a conference at 2.5 hours and another would bill the same conference at 1.0 hour. This happened numerous times throughout the bankruptcy bills. “False” billing is a clearly impermissible billing practice because it violates ethical rules. See Model Rules of Professional Conduct 1.5.

Multiple Attorneys at Meetings: Our review of the legal bills also found $185,412 in objectionable charges related to multiple attorneys at depositions, intraoffice conferences and hearings. This billing practice is generally unfair to the client because it results in charging multiple times for work that could be performed by one attorney. Bankruptcy courts have held that one only attorney should be used in these situations. See In re Dimas, LLC, 357 B.R. 563, 579 (Bankr. N.D. Cal. 2006) (“Normally, it is appropriate for only one attorney from a firm to attend a meeting, conference, or hearing.”).

Block Billing: $106,577 of the reviewed charges represented “impermissible” block billing.  Block billing is the practice of lumping charges together rather than separately charging for each task. Block billing prevents that client from understanding how much time was dedicated to each individual task and whether each task reflected compensable work.  Bankruptcy courts often reduce attorneys’ fee requests due to block billing. See In re Baker, 374 B.R. 489 (E.D.N.Y. 2007) (reducing entire bill by 20% due to improper block billing); In re New Towne Development Group, LLC, 2010 WL 1451480, at *5 (Bankr. M.D. La. 2010) (reducing fees by one-half for all lumped billing entries).

Billing for Long Days: Billing for double digit hours in one day is questionable and usually excessive. In the reviewed bills, $92,286 represented charges exceeding 10 hours a day. These included charges of up to 12.4 hours in one day and 56.9 hours over the course of 5 days. Bankruptcy courts have reduced attorney fee requests due to billing for long days. See In re New Boston Coke Corp., 299 B.R. 432, 448 (Bankr. E.D. Mich. 2003) (“Except in unusual circumstances it is not realistic for an attorney to bill in excess of six to seven hours per day . . . . While it is certainly possible that an attorney could bill ten-, nineteen- or twenty-hour days, it is unlikely that all of that billed time is compensable.”)

Billing for Attorneys Overqualified for Task:  Hourly rates should be appropriate to the task being performed, not who is performing the task. Therefore if an attorney is overqualified for the task being billed, the task should only be compensated at the hourly rate appropriate for that task and not at the attorney’s full hourly rate. Courts have held that is unethical for attorneys to bill at their full rate for non-legal services. See In re Towns, 75 A.D.3d 93 (App. Div. 3rd Dep’t 2010). Of the reviewed bills it was determined that $65,964 in charges were billed at an “improper” rate for the task. A particularly egregious example was a partner billing at a $725 hourly rate for “review and organize project summaries”.

Vague Billing Entries: Vague entries are arguably impermissible because they prevent the client from adequately understanding what work was performed. $65,964 of the reviewed charges were “overly vague.” Examples of such “vague” entries in the Calpine bankruptcy bills include “research”, “emails” and “respond to inquiries”.  Billings containing vague entries are “routinely disallowed” by bankruptcy courts. In re Hirsch, 2008 WL 5234057, at *7 (Bankr. E.D.N.Y. 2008).

* In re Calpine Corporation, et al.

By Nicholas Paslow

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