Opinion
20bk21625
03-17-2023
In re: Marshall Spiegel, Debtor.
FINDINGS OF FACT, CONCLUSIONS OF LAW AND ORDER ALLOWING IN PART INTERIM COMPENSATION AND REIMBURSEMENT OF EXPENSES OF ADELMAN & GETTLEMAN, ATTORNEYS FOR THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS
Timothy A. Barnes, Judge.
| TOTAL FEES | $ 213,680.50 | TOTAL COSTS | $ 1,246.58 |
| REQUESTED: | REQUESTED: | ||
| TOTAL FEES REDUCED: | $ 11,581.50 | TOTAL COSTS REDUCED: | $ 0.00 |
| TOTAL FEES ALLOWED: | $ 202,099.00 | TOTAL COSTS ALLOWED: | $ 1,246.58 |
| TOTAL FEES AND COSTS ALLOWED: $ 203,345.58 |
The matter coming on to be heard on the Third Interim Fee Application of Adelman & Gettleman, Ltd. for Allowance and Payment of Interim Compensation and Reimbursement of Expenses as Counsel to the Official Committee of Unsecured Creditors and For Shortened Notice Thereof [Dkt. No. 686] (the "Application") filed by Howard L. Adelman, Nicholas R. Dwayne, and the law firm of Adelman & Gettleman, Ltd. (the "Applicant"), counsel to the Official Committee of Unsecured Creditors (the "Committee") of Marshall Spiegel (the "Debtor"); the court having conducted hearings on the Application on October 12, 2022, January 4, 2023, and February 22, 2023, (the "Hearings") and at the final Hearing on the Application having tentatively announced its ruling on the issue of standing raised in relation to the Application but not having ruled on the Application's propriety; and the court having considered the arguments raised at the Hearings and the following filings in relation to the Application:
(i) Combined Objection of Marshall Spiegel and Matthew Spiegel to Third Interim Fee Application of Adelman & Gettlement [sic], Ltd., [Dkt. No. 739] (the "Joint Objection") was filed on behalf of the Debtor and the Debtor's son, Matthew Spiegel ("Matthew");
(ii) Objection of 1116-22 Greenleaf Building, LLC to Third Interim Fee Application of Adelman & Gettleman, Ltd. for Allowance and Payment of Interim Compensation and Reimbursement of Expenses as Counsel to the Official Committee of Unsecured Creditors and for Shortened Notice Thereof [Dkt. No. 736] ("Greenleaf Objection") filed by 1116-22 Greenleaf Building, LLC ("Greenleaf");
(iii) Reply in Support of Third Interim Fee Application of Adelman & Gettleman, Ltd. for Allowance and Payment of Interim Compensation and Reimbursement of Expenses as Counsel to the Official Committee of Unsecured Creditors [Dkt. No. 752] (the "Reply");
(iv) Response of 1116-1122 Greenleaf Building, LLC to Standing Issue Presented in Committee Counsel's Reply in Support of its Third Application for Interim Compensation [Dkt. No. 790];
(v) Sur-Reply/Response of Matthew Spiegel to Standing Argument Raised by Committee Counsel [Dkt. No. 792]; and
(vi) Sur-Reply to Third Interim Fee Application of Adelman & Gettleman, Ltd. For Allowance and Payment of Interim Compensation and Reimbursement of Expenses as Counsel to the Committee of Unsecured Creditors and for Shortened Notice Thereof [Dkt. No. 798] (the "Sur-Reply").
NOW, THEREFORE, THE COURT FINDS THAT:
A. At the Hearing on October 12, 2022, the court conducted an initial Hearing on the Application and entered an order setting objection deadlines with respect thereto. Order [Scheduling Application for Compensation] [Dkt. No. 696] (the "First Scheduling Order");
B. On November 30, 2022, in accordance with the timing set forth in the First Scheduling Order, the Joint Objection and the Greenleaf Objection were filed;
C. On December 14, 2022, in accordance with the timing set forth in the First Scheduling Order, the Applicant filed the Reply. In the Reply, the Applicant argued that because the Application only sought relief from the Debtor, Matthew and Greenleaf lacked a pecuniary interest in the outcome of the decision. Further, the Applicant argued neither party had filed a proof of claim, they were not scheduled as creditors and they were not receiving a distribution from the Debtor's Fourth Amended Plan of Reorganization [Dkt. No. 728];
D. At the Hearing on January 4, 2023, the court ordered supplemental briefing on the issue of standing raised in the Reply. Order Scheduling Briefing [Dkt. No. 771] (the "Second Scheduling Order");
E. On January 16, 2023, the Debtor filed Debtor's Fifth Amended Chapter 11 Plan of Reorganization [Dkt. No. 776] (the "Fifth Amended Plan"). In the Fifth Amended Plan, the Debtor listed Matthew as a class 7 creditor holding a claim of $ 475,000;
F. On February 2, 2023, in accordance with the timing set forth in the Second Scheduling Order, Matthew and Greenleaf each filed sur-responses to the Application;
G. On February 9, 2023, in accordance with the timing set forth in the Second Scheduling Order, the Applicant filed the Sur-Reply;
H. On February 16, 2023, the Debtor amended his Schedules E/F [Dkt. No. 805] (the "Amended Schedules") to list Matthew as having an unsecured claim of $ 475,000.00 for "other" though the "other" is not specified. The previously filed Schedules E/F had not listed Matthew as a creditor; and
I. On February 22, 2023, the court conducted the final Hearing on the Application, at which Hearing the court announced its preliminary ruling on the question of standing and took the remainder of the Application under advisement.
NOW, THEREFORE, THE COURT FURTHER FINDS THAT:
J. This court has addressed standing in bankruptcy matters before. In re Sindesmos Hellinikes-Kinotitos of Chicago, 607 B.R. 898, 914-18 (Bankr. N.D.Ill. 2019) (Barnes, J.). There, the court observed that the Seventh Circuit precedent appears to blend Article III standing and its prudential limitations into the so-called "pecuniary interest" rule. Id. at 916 (citing Cult Awareness Network, Inc. v. Martino (In re Cult Awareness Network, Inc.), 151 F.3d 605, 607 (7th Cir. 1998)). "To have standing to object to a bankruptcy order, a person must have a pecuniary interest in the outcome of the bankruptcy proceedings. Only those persons affected pecuniarily by a bankruptcy order have standing to appeal that order." Cult Awareness, 151 F.3d at 607;
K. The Seventh Circuit has more recently addressed the issue of standing in bankruptcy proceedings in In re C.P. Hall Co., 750 F.3d 659 (7th Cir. 2014). There, the Seventh Circuit noted that "to become a party to the bankruptcy proceeding [a movant] had to show not merely standing but that 'a legislatively conferred cause of action encompasses' its claim." Id. at 661 (quoting Lexmark Int'l., Inc. v. Static Control Components, Inc., 572 U.S. 118, 127 (2014). Further, the Seventh Circuit stated that to be heard, a party must be "someone who has a legally recognized interest in the debtor's assets," not just someone who "may suffer collateral damage from a ruling in a bankruptcy proceeding." Id.;
L. In light of these standards, Matthew and Greenleaf lacked standing to file their respective objections to the Application;
M. Prior to the filing of the Amended Schedules, Matthew clearly lacked standing in this matter. He had no direct pecuniary interest in the outcome of the Application and had no legally recognized interest in the Debtor's assets as a result of his status as the Debtor's presumptive heir;
N. Both the Fifth Amended Plan and the Amended Schedules each have the hallmarks of blatant attempts of the Debtor to confer standing on his son. As to the Fifth Amended Plan the inclusion of a noncreditor in a plan as a method of conferring standing is questionable, at best. See, e.g., In re Pajian, 785 F.3d 1161, 1165 (7th Cir. 2015);
O. As to the Amended Schedules, though their filing is also of questionable provenance, the presumptions available to scheduled claims under applicable law operate to dictate a different result. As the Amended Schedules list Matthew as a creditor and amendments to schedules are liberally permitted under Fed.R.Bankr.P. 1009, the Debtor's amendments are presumptively valid unless a statutory basis for disallowing them exists. See, e.g., Law v. Siegel, 571 U.S. 415, 416 (2014) ("[A] court may not refuse to honor a debtor's invocation of an exemption without a valid statutory basis."). The court presumes the Supreme Court means such a principle to apply to all amended schedules;
P. By adding Matthew as a creditor, the Debtor has created a claim for him. See 11 U.SC. § 1111(a) ("A proof of claim or interest is deemed filed under section 501 of this title for any claim or interest that appears in the schedules filed under section 521(a)(1) or 1106(a)(2) of this title, except a claim or interest that is scheduled as disputed, contingent, or unliquidated."); Fed.R.Bankr.P. 3003(b)(1) ("[i]t shall not be necessary for a [chapter 11] creditor . . . to file a proof of claim"). As a result, Matthew has a claim within the meaning of section 501 of title 11 of the United States Code, 11 U.S.C. §§ 101, et seq. (the "Bankruptcy Code") and that claim is presumptively allowed under section 502 unless and until a valid objection to either the schedule or claim has been brought;
Unless otherwise noted, all statutory references are the Bankruptcy Code.
Q. That does not mean, however, that Matthew can assert rights of a creditor prior to February 16, 2023, the filing of the Amended Schedules. The Joint Objection was filed prior to that time. Matthew had ample opportunity to file a claim on his own behalf and chose not to do so. He should not be rewarded by the tactics in play by affording retroactive effect to the Amended Schedules. As a result, while the court still considered the Joint Objection as it comes also from the Debtor (who unquestionably has standing), Matthew's participation in the objection process regarding the Application must be terminated;
R. Greenleaf, however, has no standing to be heard with respect to the Application. Even should Greenleaf have a role in the Debtor's Fifth Amended Plan, it has not been scheduled by the Debtor, has not filed a claim on its own behalf and has not otherwise demonstrated a pecuniary interest in the outcome of the Application and had no legally recognized interest in the Debtor's assets; and
S. Finally, it should be noted that, under section 331, an interim fee award is interlocutory in nature and can be reexamined and adjusted by the awarding court until the court makes a final compensation decision. See Brouwer v. Ancel & Dunlap(In re Firstmark Corp.), 46 F.3d 653, 659 (7th Cir. 1995); In re Taxman Clothing Co., 49 F.3d 310, 312 (7th Cir. 1995) ("[A]ll interim awards of attorney's fees in bankruptcy cases are tentative."). Any ruling by the court today with respect to the allowance of the fees and expenses sought in the Application may be revised upon a final application, on proper objection from a party with standing to object.
IT IS, THEREFORE, HEREBY FOUND AND CONCLUDED THAT, WITH RESPECT TO THE FEES AND EXPENSES SOUGHT IN THE APPLICATION, THAT:
AA. Section 330 sets out the legal standards for the compensation of professional persons employed on behalf of the bankruptcy estate under sections 327 and 1103. Section 330 states in part:
(a)(1) after notice and hearing, the court may award to a professional person employed under section 327 or 1103-
(A) reasonable compensation for actual, necessary services rendered by the trustee, examiner, ombudsman, professional person, or attorney and by any paraprofessional person employed by any such person; and
(B) reimbursement for actual, necessary expenses.
….
(3) In determining the amount of reasonable compensation to be awarded to an examiner, trustee under chapter 11, or professional person, 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;
BB. Further, Fed.R.Bankr.P. 2016(a) sets out the requirements for professionals to apply for compensation;
Bankruptcy Rule 2016(a) requires that any person who seeks an award of compensation from the estate must file an application for compensation with the court, detailing the services rendered, the time spent, and any expenses for which reimbursement is requested. The burden of proving the value of the services for which compensation is sought is always on the applicant. In re Pettibone, 74 B.R. 293, 299 (Bankr. N.D.Ill. 1987). This burden is not to be taken lightly, as "every dollar expended on legal fees results in a dollar less that is available for distribution to the creditors." In re Hotel Associates, Inc., 15 B.R. 487, 488 (Bankr. E.D. Pa. 1981).In re Chicago Lutheran Hosp. Ass'n, 89 B.R. 719, 732 (Bankr. N.D.Ill. 1988) (Ginsberg, J.). "Even if no objections are raised to a fee request, the bankruptcy court is not bound to award the fees sought, and in fact has a duty to independently examine the reasonableness of all fee applications." Id. at 734-35 (citing In re NRG Resources, Inc., 64 B.R. 643, 650 (W.D. La. 1986); Pettibone, 74 B.R. at 299-300);
CC. Section 330(a)(4)(A) sets forth the limitations to awarding compensation. That section states that a court shall not allow compensation for "(i) unnecessary duplication of services; or (ii) services that were not--(I) reasonably likely to benefit the debtor's estate; or (II) necessary to the administration of the case";
DD. Section 1103 sets out the duties and responsibilities of a creditor's committee in a bankruptcy case:
(c) A committee appointed under section 1102 of this title may--
(1) consult with the trustee or debtor in possession concerning the administration of this case;
(2) investigate the acts, conduct, assets, liabilities, and financial condition of the debtor, the operation of the debtor's business and the desirability of the continuance of such business, and any other matter relevant to the case or to the formulation of a plan;
(3) participate in the formulation of a plan, advise those represented by such committee of such committee's determinations as to any plan formulated, and collect and file with the court acceptances or rejections of a plan;
(4) request the appointment of a trustee or examiner under section 1104 of this title; and
(5) perform such other services as are in the interest of those represented;
EE. In addition, it would be difficult to scrutinize and oppose a debtor's plan of reorganization and financial condition without taking discovery pursuant to Fed.R.Civ.P. 2004.
Creditor's committees appointed under § 1102 may "investigate the acts, conduct, assets, liabilities and financial condition of the debtor, the operation of the debtor's business … and any other matter relevant to the case or to the formulation of a plan." 11 U.S.C. § 1103(c)(2). This includes investigating any potential causes of action which might be asserted by the Committees or the Debtor for the benefit of unsecured creditors. The scope of this investigation is primarily governed by Fed.R.Bankr.P. 2004 which provides that the court may order the examination of any entity on motion of any party in interest. Fed.R.Bankr.P. 2004(a).In re Handy Andy Home Improvement Centers, Inc., 199 B.R. 376, 379 (N.D. Ill. Bankr. 1996) (Katz, J.);
FF. Here, the Application is seeking compensation for the period of January 1, 2022, to and including July 31, 2022, on an interim basis in the amount of $ 213,680.50 in fees and reimbursement of expenses in the amount of $ 1,246.58. The Application provides a narrative of the services completed and why the Applicant believes they were necessary, the total hours spent and the associated fees. Appended to the Application were the Applicant's time entries with the date the work was performed, the associated attorney, an explanation of the work performed and the amount of hours spent on the work.
GG. The Joint Objection provided numerous and general explanations of the alleged issues with the Application. The objections fall into the following categories: (1) Unreasonable Time; (2) Duplication of Services; (3) Lumping; (4) No Benefit to the Estate; (5) Computational or Typographical Error; and (6) Improper Allocation of Professional Resources. The Joint Objection provided an exhibit with the time entries they take issue with and the objection raised, however, not all of these objections have an explanation as to the reasoning for the objection. Attached to this Order as Exhibit A are all of the time and expense entries submitted by the Applicant. Any disallowance in whole or in part has been underlined. The basis for each disallowance is reflected by numerical notations that appear on the left of each underlined entry. The numerical notations correspond to the enumerated paragraphs below.
(1) Unreasonable Time - TOTAL of disallowed amounts: $ 819.00
The bulk of the Joint Objection focuses on activities it suggests the Committee and the Applicant spent an unreasonable amount of time completing. These activities relate to time spent on the deposition of Matthew, preparing a motion to convert, monitoring state court litigation, analyzing the Debtor's application to retain Factor Law, preparing the Second Interim Fee Application and analyzing the Debtor's application to retain Freeborn & Peters LLP.
a. The Deposition of Matthew
The Joint Objection asserts that $ 21,507.00 of fees accrued in preparing the proposed deposition protocols for a reconvened deposition of Matthew should be denied in their entirety because the protocols were far outside normal and customary practice. It suggests work related to the deposition of Matthew should be reduced from $ 40,490.00 to $ 10,000.00 because any attorney could get even the most contested deposition done with under $ 10,000.00 in fees. The Applicant responds that the Joint Objection is essentially suggesting the Committee should have been less prepared for the deposition of Matthew and only provides speculative amounts as to how much the Applicant should have accrued in its preparation.
On May 24, 2021, after notice, hearing and the issue being fully briefed, the court granted an examination of the Debtor, Matthew and Greenleaf under Fed.R.Bankr.P. 2004. Order [Authorizing 2004 Exam] [Dkt. No. 182]. On January 6, 2022, the Committee conducted a deposition of Matthew. Matthew Spiegel was represented at the deposition by John Xydakis ("Xydakis"). Also present at the deposition was the Debtor along with his then counsel, David Lloyd. A transcript produced of the deposition [Dkt. No. 466; Exh. A] demonstrates that the deposition fell short of the required standards set forth in Fed.R.Civ.P. 30. Many hours were spent by this court reviewing the deposition transcript attached to the Deposition Motion (defined infra). During the deposition, Xydakis made speaking objections, answered questions for the witness, entered into conversations with the Debtor and coached the witness on how to answer. Rightfully, the Committee sought to reconvene the deposition of Matthew.
The majority of the time entries related to the deposition of Matthew involve the Committee's Motion to Reconvene Deposition of Matthew Spiegel and Establish Deposition Protocols [Dkt. No. 466] (the "Deposition Motion"). The Deposition Motion was set on briefing and the hearing was conducted on April 25, 2022 (the "April 25th Hearing").
It is clear from the time entries that the Applicant spent many hours researching and analyzing the issues that arose from that deposition. That review has led to further action from the Committee. See Motion of the Official Committee of Unsecured Creditors to Convert Case to Chapter 7 [Dkt. No. 705] (the "Motion to Convert"). This court understands that many issues arose as a result of the deposition of Matthew. However, the court noted at the April 25th Hearing that the proposed order to the Deposition Motion was outside the norm of what this court would enter. The proposed order contained what the Committee called deposition protocols which for the most part restated the rules and remedies already found in the Federal Rules of Civil Procedure.
The court therefore granted the motion but instructed the Committee to substantially modify their proposed order, which order was entered by the court. Order Regarding Motion of the Official Committee of Unsecured Creditors to Reconvene Deposition of Matthew Spiegel and Establish Deposition Protocols [Dkt. No. 613]. The court found that Xydakis had substantially impeded and delayed the examination of Matthew through his conduct. In light of Xydakis' conduct, the court found it necessary that the deposition of Matthew be reconvened.
While the court ultimately did not enter the order as originally proposed, the reasonableness of the time spent working on the proposed order should not be judged simply by the outcome. A court must not attempt to determine the reasonableness of time spent by an attorney by looking at the matter solely in hindsight or determining reasonableness by the outcome of the issue or matter. Brandt v. Schal Associates, Inc., 131 F.R.D. 485, 493 on reconsideration in part, 131 F.R.D. 512 (N.D. Ill. 1990) aff'd, 960 F.2d 640 (7th Cir. 1992) ("[I]t would be entirely inappropriate for this court to hold that the expenditure of time by defense counsel in this area was unreasonable based on any such retrospective and result-oriented approach."); In re Drexel Burnham Lambert Grp., Inc., 133 B.R. 13, 23 (Bankr. S.D.N.Y. 1991) (In determining reasonableness, "the Court must not penalize attorneys by viewing the efforts of counsel with the benefit of '20/20 hindsight.'…[H]ours for an activity or project should be disallowed only where a court is convinced it is readily apparent that no reasonable attorney should have undertaken that activity or project or where the time devoted was excessive."). Therefore, the court overrules any objection as to the unreasonableness of the hours spent related to the deposition of Matthew.
b. The Motion to Convert
The Joint Objection asserts that $ 36,397.50 in fees accrued in preparing the Motion to Convert are excessive. It also suggests that Committee is acting in bad faith in pursuing the Motion to Convert as opposed to working to facilitate the confirmation of the Debtor's plan(s). The Applicant responds that none of the proposed plans of reorganization pay 100% to unsecured creditor's claims because payment of each claim is dependent upon final adjudication of said claim.
The Motion to Convert is before the court on May 22, 2023. The court notes that the Motion to Convert is over 60 pages and provides much of the Debtor's case history, which has been extensive. While the case at its inception did not appear to be of a very complex nature, a look at the case docket demonstrates that almost every matter has been contested, which has necessitated hours of research, analysis, contested hearings and appeals. The Committee believes the culmination of its discovery efforts have made filing the Motion to Convert a foregone conclusion. The time entries themselves are detailed enough to provide this court with the ability to review and determine the reasonableness of those time entries. The court finds that the Motion to Convert sets forth many complex issues that would take an unusual amount of time to analyze and research. Therefore, the court overrules any objection as to the unreasonableness of the hours spent related to the Motion to Convert.
c. The Debtor's Application to Employ Factor Law
The Joint Objection asserts that $ 13,702.50 of fees, accrued in reviewing the Debtor's application to retain William J. Factor and Factor Law (together, "Factor") and related research, should be reduced by $ 13,000.00 to $ 702.50. It argues that Factor offered to the Committee to withdraw his application [Dkt. No. 646] if it was an issue and did ultimately withdraw it. The Applicant responds that the potential retention of Factor presented novel factual circumstances because of Factor's past representation of Matthew. On April 18, 2022, an order was entered substituting Factor as counsel for Matthew and terminating Xydakis' representation. Order Granting Motion to Substitute Attorney for Matthew Spiegel [Dkt. No. 578]. For that to happen, however, Factor would have to withdraw his representation of Matthew to then represent the Debtor in this case [Dkt. No. 646]. And it was discussions between the Committee, the United States Trustee and Factor that ultimately led to Factor withdrawing the application. The Applicant conducted several hours of legal research to support its contentions that Factor should not represent the Debtor. Given that this case has had repeated instances of misbehavior of parties and counsel, the Committee's attempts to ensure this process operated correctly cannot be criticized. The court therefore overrules any objection as to the unreasonableness of the hours spent related to the Debtor's application to retain Factor.
d. The Second Fee Application
The Joint Objection asserts that $ 9,000.00 of fees, accrued in drafting the Second Interim Application of Adelman & Gettleman, Ltd. for Allowance and Payment of Interim Compensation and Reimbursement of Expenses as Counsel to The Official Committee of Unsecured Creditors [Dkt. No. 481] (the "Second Fee Application") should be reduced by 50% to $ 4,500.00. The Applicant is seeking $ 9,282.00 in fees related to the preparation of the Second Fee Application, which constitutes 4.34% of the overall fees sought by the Applicant. As to the time devoted to the preparation of the fee application itself, the court denies the allowance of compensation that is disproportionate to the total hours in the main case. In re Wildman, 72 B.R. 700, 711 (Bankr. N.D.Ill. 1987) (Schmetterer, J.) ("In the absence of unusual circumstances, the hours allowed by this court for preparing and litigating the attorney fee application should not exceed three percent of the total hours in the main case."); In re Spanjer Bros., Inc., 203 B.R. 85, 93 (Bankr. N.D.Ill. 1996) (Squires, J.) (compensation limited to 5%); Pettibone, 74 B.R. at 304 (citing Coulter v. State of Tennessee, 805 F.2d 146, 151 (6th Cir. 1986) (in nonbankruptcy cases, compensation for preparation and litigation of fee petitions limited to 3-5% of the hours of the main case)). Here, the Applicant has already written off several hours it spent preparing the Second Fee Application to comply with this court's previous order [Dkt. No. 605] and local case law. Therefore, the court overrules any objection as to the unreasonableness of the hours spent related to the preparation of the Second Fee Application.
e. The Debtor's Application to Employ Freeborn & Peters LLP
The Joint Objection takes issue with the amount of time spent by the Applicant in reviewing the Debtor's employment application of Shelly DeRousse and Freeborn & Peters LLP. The Debtor asserts that $ 535.50 of fees, accrued in reviewing employment application should be reduced by $ 273.00 to $ 262.50. He argues that reviewing a retention application is routine and should only take 0.5 hours as opposed to the 1.1 spent by the Applicant. The court disagrees. For the reasons previously stated, the Committee had ample reason to look carefully at any application to employ counsel by the Debtor. The 1.1 hours spent reviewing the employment application is reasonable and the objection thereto is overruled.
f. Recovered Fees
The Joint Objection further states that three time entries relate to fees that have already been recovered by the Applicant through an order compelling payment [Dkt. No. 522]. The court finds that one time entry, on February 13, 2022, for $ 94.50 [0.3 hours] relates to a previously allowed fee. The other two entries, both on March 1, 2022, billed by Dwayne and Adelman for $ 94.50 [0.3 hours] and $ 630.00 [1.2 hours] respectively, relate to defending the Second Fee Application. The Supreme Court in Baker Botts LLP v. Asarco LLC, 576 U.S. 121 (2015) held that section 330(a)(1) does not permit a court to award attorney's fees for work performed defending a fee application in court. The Application has voluntarily written off all other fees related to defending the Second Fee Application, but these three missed entries are unreimbursable under Asarco. The court therefore sustains the three objections as to the unreasonableness of the three time entries in question and will disallow a total of $ 819.00.
(2) Duplication of Services - TOTAL of disallowed amounts: $ 6,636.00
The Joint Objection argues that the Applicant should not be compensated for interoffice conferences because they were excessive and the Application provided no explanation of the necessity for two attorneys attending. The Applicant did not respond to this particular objection, but the Application does state that the conferences allowed for the more senior attorney to guide the less senior attorney to perform more laborious tasks at the lower billable rate.
The court generally denies the allowance of 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. Pettibone, 74 B.R. at 307 ("A debtor's estate should not bear the burden of duplication of services. If found in the record, such duplication shall be disallowed by the court as unnecessary.").
a. Intra-office Conferences
The Applicant held many intra-office conferences during this application period. It is 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) (Sonderby, J.); Pettibone, 74 B.R. at 303. The Application sets out the topics that were addressed at these conferences and it appears to the court that the Committee was engaged in strategy conferences. See Adventist Living Ctrs., 137 B.R. at 717 ("In a strategy conference one or more attorneys determine the course of a case. Because strategy conferences involve input from all parties, the court will allow all attorneys present to bill for their time."). Therefore, the court overrules any objection as to the duplication of the hours spent related to the participation in intra-office conferences.
b. Committee Meetings
The Applicant also held meetings with the members of the Committee to provide updates on several topics: the Matthew deposition; the results of hearings in the case; and the Debtor's attempt to employ Factor and discovery in the case. There is no explanation why the Committee meetings necessitated both attorneys attending this update meeting. Adventist Living Ctrs., Inc., 137 B.R. 701 at 717 ("In an update conference one attorney merely updates another on a case. No further action is required as in a status conference."). Therefore, the time entries on January 21, 2022, March 17, 2022, and July 6, 2022, for multiple attorneys are duplicative and unnecessary. The court will disallow the $ 1,386.00 requested [1.30 hours; 1.30 hours; and 1.80 hours respectively].
c. Depositions
The deposition of Matthew took place on January 6, 2022, and was attended by both Adelman and Dwayne. A review of the transcript indicates that Dwayne conducted the deposition, but both attorneys billed for their time. However, there is no explanation in the Application why it was necessary for both attorneys to be present at the deposition. Absent special circumstances, one attorney is sufficient to handle any deposition. Wildman, 72 B.R. at 710. Therefore, the court finds that Adelman's time entry on January 6, 2022, is duplicative and unnecessary and will disallow the $ 4,357.50 requested [8.30 hours].
d. Hearing
A hearing was conducted on this case on January 24, 2022, and was attended by both Adelman and Dwayne. The Joint Objection did not take issue with this entry. However, a review of the court hearing audio indicates that Dwayne was the only attorney from the Applicant that actively participated in the hearing. The Applicant itself indicated in the Application that it has independently written off duplicate time entries related to hearings, but it appears that this time entry was missed. The court therefore finds that time entry on January 24, 2022, for Adelman is duplicative and unnecessary and will disallow the $ 892.50 requested [1.70 hours].
(3) Lumping - TOTAL of disallowed amounts (10% of affected entries): $ 619.50
The Joint Objection has flagged several time entries that the Debtor believes should be reduced for lumping. The court routinely imposes a ten percent penalty on entries that appear to be "lumping." The court will reduce each entry marked as such per the penalty. Wildman, 72 B.R. at 709 ("Applicants may not circumvent the minimum time requirement or any of the requirements of detail by "lumping" a bunch of activities into a single entry. [citation omitted]. Each type of service should be listed with the corresponding specific time allotment."). The court has identified nine time entries of Adelman which the court finds to be lumping: (1) January 3, 2022; (2) January 4, 2022; (3) January 5, 2022; (4) January 21, 2022; (5) January 28, 2022; (6) February 11, 2022; (7) February 18, 2022; (8) February 21, 2022; and (9) March 16, 2022. Those entries requested a total amount of $ 6,195.00 and, in light of the lumping, that amount will be reduced by $ 619.50 [10%].
(4) No Benefit to the Estate - TOTAL of disallowed amounts: $ 0.00
The Joint Objection states that entries related to the Applicant monitoring state court litigation involving the Debtor and Committee members should be reduced from $ 2,525.00 to $ 0.00 because it is not part of their duties and provides no benefit to the estate. Courts will deny fees relating to services that do not benefit the estate or that are not necessary to the administration of the case. 11 U.S.C. § 330(a)(4)(A). The Applicant responds by stating that they do not represent any party other than the Committee, however, they have been monitoring the state court litigation to keep this court and the United States Trustee apprised of the status. This explanation by the Applicant is consistent with the Committee's duties under section 1103(c)(2) that states a committee may investigate the acts, conduct, assets, liabilities, and financial condition of a debtor. The state court litigation involves the Debtor's appeals related to unsecured creditors' claims. This undoubtedly reflects the liabilities and financial conditions of the Debtor and therefore affects this case. While the Applicant is cautioned that involvement in this litigation other than monitoring is impermissible, the court overrules any objection in this regard.
The Joint Objection also takes issue with entries related to the Applicant researching the Debtor's objections to Committee members' claims and suggests such entries should be reduced from $ 2,278.50 to $ 0.00 because they do not benefit the estate. Again, the court finds these this activity is squarely within the function of a committee under section 1103(c)(2). Though one of the subject time entries has been reduced for a different reason, the court overrules any objections on this basis.
(5) Improper Allocation of Professional Resources - TOTAL of disallowed amounts $ 3,507.00
The court has independently identified seventeen time entries in which legal research was conducted by Adelman at the partner rate of $ 525.00 per hour. A total of 16.7 hours were spent on legal research for a total amount of $ 8,767.50 of requested fees. The Application states that whenever possible, legal research was performed by staff with lower hourly rates. A firm's staffing limitations cannot become an inappropriate burden on the Debtor's estate and the Applicant has not provided an explanation as to why a senior partner's time or rate was appropriate for legal research.
The court routinely denies the allowance in part of compensation for the indicated task(s) as a professional with a lower level of skill and experience or a paraprofessional could have performed the task(s). Pettibone, 74 B.R. at 303 ("Senior partner rates will be paid only for work that warrants the attention of a senior partner. A senior partner who spends time reviewing documents or doing research a beginning associate could do will be paid at a rate of a beginning associate. [Citation omitted]. Similarly, non-legal work performed by a lawyer which could have been performed by less costly non-legal employees should command a lesser rate."); Wildman, 72 B.R. at 710 (same); In re Alberto, 121 B.R. 531, 535 (Bankr. N.D.Ill. 1990) (Squires, J.) (determining use of partner appropriate where attendant complex legal issues warrant highly experienced practitioner).
Absent explanation, the court concludes that the research performed by Adelman should have been completed by an associate with a lower rate or billed by himself at a lower rate. The court therefore reduces the billing rate from $ 525.00/hour (Adelman's rate) to $ 315.00/hour (the rate billed by the Applicant for associate involvement). The court will therefore reduce the allowed fees by $ 3,507.00 (the net total reduction of the time affected time entries to the lower rate).
IT IS, THEREFORE, HEREBY ORDERED THAT:
1. All objections to the Application not expressly sustained herein are OVERRULED for the reasons stated herein.
2. The Application is GRANTED IN PART and DENIED IN PART, in the manner set forth herein and as summarized at the outset of this Order.
(Exhibit A Omitted)