In Re S.T.N. Enterprises, Inc.
The debtor filed for protection under Chapter 11 of the Bankruptcy Code on May 29, 1984. Steven M. Gates, debtor’s co-counsel, has submitted a final application for legal fees. The attorney for the creditors’ committee objects to this application because, in his view, the documentation is inadequate, the pre-petition services listed were not sufficiently connected to the filing of the petition, and the applicant duplicated the services of debtor’s local counsel.
S.T.N. Enterprises first retained the applicant, a sole practitioner from New York State, on April 19, 1984, some six weeks before filing its petition. One week later Attorney Gates became its general counsel. He served as lead counsel to the debtor-in-possession until the summer of 1984, when he became co-counsel with the firm of Carroll, George & Pratt, debtor’s local attorneys. After September 21, 1984, Carroll, George & Pratt took over as lead counsel in the case. Between February 13th and September 9th 1985, when he formally ceased representing the debtor, Attorney Gates’s work was confined to a few particular matters. The applicant has submitted a final bill for 528 hours at $90.00 an hour for his legal services between April 19, 1984 and March 31, 1985, amounting to $47,520.00 in fees, and for an additional $4,077.92 in expenses.
On April 5, 1985, after a hearing two days earlier on his first interim application for attorney’s fees, the Court issued an Order granting Attorney Gates an advance of $15,000.00. After continued hearings on a second interim application, we awarded him an additional advance of $5,000.00 on December 10, 1985. In the meantime, Attorney Gates has asked us to treat this second interim application, revised and supplemented, as the final application for his legal fees and expenses through March 31, 1985. 1 He has, however, filed another fee application covering the period April 1, 1985 through December 31, 1986, and also adding recently discovered services that should have been included in the interim applications.
In evaluating the requested fees, we have reviewed his applications for interim compensation, including some forty seven pages of narrative and nine attachments, a revised expense statement of ten pages with thirty pages of selected receipts, and an amended statement of eighty six pages of services rendered, including five appendices and a correspondence log of twenty pages. We have also examined the interim applications of Carroll, George & Pratt for
Attorneys’ fees are naturally a matter of immediate concern to those who practice before the Bankruptcy Court. For the Court, their determination is “a difficult and unpleasant task,” In re International Coins & Currency, Inc., 22 B.R. 127, 128, 7 C.B.C.2d 163 (Bkrtcy.D.Vt.1982) (I.C.C. I), that requires juggling countless specific compromises and striking a balance between the competing considerations for each potentially compensable service or expense. The best we can hope for is, in Albert Camus’ phrase, “human justice, with its considerable imperfections.” Expanding on earlier decisions of this Court, we use this occasion to set some guidelines for counsel applying to us for their fees and expenses. Our hope is that the guidelines will reduce the uncertainty surrounding fee applications in this District and that this will reduce the amount of Court time reviewing fee applications.
An attorney is entitled to reasonable compensation for actual, necessary services based on the nature, the extent, and the value of such services, the time spent on such services, and the cost of comparable services outside bankruptcy; and to reimbursement for actual, necessary expenses. 11 U.S.C. § 330(a). An attorney representing a debtor in Chapter 11 must obtain the prior approval of the Court under 11 U.S.C. §§ 327(a) and 1107(a) and Bankruptcy Rule 2014(a). See,
e.g., Hunter Savings Association v. Baggott Law Offices Co., L.P.A.,
In a bankruptcy case fees are not a matter for private agreement. There is inherent a public interest that must be considered in awarding fees. Senate Report No. 95-989, 95th Congress, 2d Session 40 (1978), U.S.Code Cong. & Admin.News 1978, p. 5787. Accordingly, the Code imposes on us a supervisory obligation not only to approve counsel’s employment but also to ensure that counsel’s bills are reasonable, the services and expenses actual and necessary. Under 11 U.S.C. §§ 327-330 and Bankruptcy Rules 2016 and 2017, the Court has an independent judicial responsibility to evaluate the attorneys’ fees.
In re International Coins & Currency, Inc.,
The attorney applying for legal fees in bankruptcy bears the burden of proving the reasonableness of the fees.
In the Matter of Chapman Farms,
Before awarding fees out of the bankruptcy estate, we shall insist that counsel conscientiously set forth the hours expended on each task and the nature of the services rendered at a level of specificity that would allow us to evaluate the application. A fee application should be self-contained. Compare
In the Matter of Borgenicht,
Henceforth, to be considered by this Court, an application for attorneys’ fees must clearly identify each discrete task billed to the estate, indicating the date it was done, the precise amount of time spent, whom it was done by, and the person’s hourly rate. See,
e.g., In re WHET, Inc.,
An application to us for attorneys’ fees must also explain each identified task billed to the estate. The applicant should describe the factual particulars and the subject matter, and delineate the relationship of the activity to the estate, the purpose of the activity, and the results for the estate. Compare
In re Shades of Beauty, Inc.,
An attorney claiming reimbursement from the estate for expenses incurred in the case must likewise furnish enough specificity for the Court to establish whether a given expense was both actual and necessary under 11 U.S.C. § 330(a)(2). Only fully documented, actual, out-of-pocket expenses will be reimbursed.
In re Seneca Oil Company,
Detailed contemporaneous (not “reconstructed”) records of professional services and receipts for expenses must be available to the Court, which may demand their production. See
Lewis v. Coughlin,
We recognize that preparing a fee application that complies with the guidelines set forth in this opinion may be time-consuming and oppressive. A policy of maintaining accurate, contemporaneous records and receipts, and a reliance on computers and a disciplined staff, should alleviate much of the burden. Compare
In re Seneca Oil Company,
The Court does not require a fee application the size of a boring Victorian novel. However, in light of the fact that every dollar expended on legal fees results in a dollar less that is available for distribution to the creditors, the Court believes that a justification of such fees in the application for compensation is not an overly burdensome task.
In re Hotel Associates, Inc.,
. At the most rudimentary level, our initial inquiry in reviewing a fee application is whether the arithmetic is correct. The distance from toe to top should be the same as from top to toe. Compare
In re Cuisine Magazine, Inc.,
This fee application attempts to compensate through sheer bulk for what it lacks in precision. In the first interim application, the total number of hours has not been added correctly. Furthermore, even using this inaccurate total, the amount billed does not correctly reflect the hours multiplied by the hourly rate. Although the applicant has listed expenses amounting to $488.08 in 1985, he has billed $611.58 for expenses during this period. Finally, there is a discrepancy (this time, in the applicant’s favor) between the total amount he has requested through March 31, 1985 and the amount he has documented for this period. Reviewing a slipshod application in which the calculations are not accurate and the bill submitted and the hours and expenses listed in the supporting documentation do not correspond is a dispiriting task.
Assuming the figures have been correctly calculated, as here they have not, the Court will look next to whether the services are sufficiently identified and explained to enable the Court to evaluate them. In this respect also, the application before us is wanting. Numerous entries lump discrete services together within a single block of time, denying the Court information about how much time Attorney Gates spent on each service.
4
Each type of
To pass muster under 11 U.S.C. § 330(a), an application for fees must describe and explain each discrete activity with enough specificity to enable us to determine whether the activity was related to the bankruptcy case, whether it was dupli-cative, whether the time expended and the rate charged were reasonable, and in general, whether the particular activity was justified.. In this respect, by and large, this application adequately presents the factual particulars, the subject matter, and the purpose. See,
e.g., Cohen & Thiros, P.C. v. Keen Enterprises, Inc.,
Having excluded those items of service lumped together or insufficiently described, the Court must then determine which of the remaining services may be allowed. The threshold question then is whether a particular service billed for is compensable. Certain activities by debt- or’s counsel are inherently not compensable because not legal services; others are not compensable under the specific circumstances of the case because not performed for the benefit of the estate. Activities that are not compensable should be deleted from the attorney’s records. In re Lafayette Radio Electronics Corp., 16 B.R. 360, 362 (Bkrtcy.E.D.N.Y.1982).
This applicant, an out-of-state attorney, has billed the debtor’s estate for 108.9 hours of time spent in transit, representing almost one-sixth of his total time, at his full hourly rate of $90.00. In addition, he has claimed the expenses of this traveling, including the expense of flying by private airplane from Albany, New York, to Vermont. Only a small fraction of this time in traveling involved legal work en route. 7
Some Courts have held that travel time is inherently not compensable.
In re Givliano Verna, Inc.,
While we recognize the reality that a lawyer’s time is the lawyer’s stock in trade; we believe that local travel time is an overhead expense built into a lawyer’s hourly rate. Time spent in excess of this parameter must be compensated. To hold otherwise is to penalize unjustly the bankruptcy practitioner. We now hold that time spent traveling to or from a single location exceeding one hour or longer may be compensated at one-half the attorney’s or other professional’s hourly rate. Compare
In re Taylor,
Time expended researching or analyzing abstract legal issues is inherently not compensable.
In re Holthoff,
Time devoted to strictly administrative activities such as mailing or delivering papers, photocopying, word processing, organizing files, and tracking inventory must not be compensated from the debt- or’s estate. See,
e.g., In re Holthoff,
A second-order category of service subject to some uncertainty is the time expended in preparing the application for legal fees, a question not definitively resolved in this jurisdiction. A minority of courts disallow compensation for activities in connection with the application because such activities do not further the interests of the estate but only of its counsel. See
In re Shaffer-Gordon Associates, Inc.,
Certain Courts that have allowed compensation for the time spent on a fee application have required that the time be billed at a lower rate than time for “truly legal services.” See,
e.g., In the Matter of Union Cartage Company,
Although not categorically prohibited, certain services may not be com-pensable under the circumstances of a particular case. Work by counsel for the debt- or must further the interests of creditors.
In re International Coins & Currency, Inc.,
In light of this principle, but without identifying the objectionable entries, counsel for the unsecured creditors’ committee objected to the amount of pre-petition time billed to the estate and to duplication in Attorney Gates’ application. The Court encourages attorneys who challenge fee applications to indicate the specific hours that seem unreasonable rather than expounding conclusory statements that an applicant is seeking too much compensation. See
In re Jensen-Farley Pictures, Inc., 47
B.R. 557, 585 (Bkrtcy.D.Utah 1985). Discovery is available for this purpose. Compare
Stolkin v. Nachman,
Under 11 U.S.C. § 329, the debtor’s attorney may be compensated for the reasonable value of pre-petition legal services “rendered in contemplation of or in connection with the case.” The purpose of this statutory restriction is to safeguard against the “serious potential for overreaching by the debtor’s attorney.” S.Rep. No. 989, 95th Congress, 2nd Session 39, reprinted in 1978 U.S.Code Cong. & Ad.News 5787, 5825. In order for services to be “in contemplation of” bankruptcy, the services must be influenced by and be a direct result of the debtor’s imminent filing of a petition in bankruptcy.
In the Matter of Swartout,
As the applicant himself has observed, our predecessor, Judge Charles Marro, warned both the applicant and co-counsel against duplicating services when the Court originally approved their serving
This Court recognizes that “[tjhere is a point beyond which it is neither possible nor profitable to assess the quality of a counsel’s time.”
Boston and Maine Corporation v. Moore,
The problem lies not in a failure to graduate hourly rates or distinguish categories of service, but in the prodigal allocation of resources within a firm or law office. Professionals should be compensated in accordance with their level of expertise. Critical to complying with the requirement of 11 U.S.C. § 330(a) that the compensation for actual and necessary professional services be reasonable is ensuring that the services billed correspond to the provider’s presumed level of expertise. A Michelangelo charging Sistine Chapel rates should not be painting a farmer’s barn. Compare
In re Lock Shoppe, Inc.,
Once we have excluded the hours in an application that are insufficiently described or are lumped together and the hours for services that are not compensa-ble categorically or in the particular case, we must establish an hourly rate for each professional providing services. We may then proceed to establish the lodestar figure by multiplying the one by the other. The United States Supreme Court instructs us that the most useful approach to determining the amount of a reasonable fee is the number of hours expended on the litigation multiplied by a reasonable hourly rate.
Pennsylvania v. Delaware Valley Citizens’ Council for Clean Air,
- U.S. -, -,
It is for the Court to determine a reasonable hourly rate.
In re Shaffer-Gordon Associates, Inc.,
This case, though protracted and involving a large number of creditors, was not so extremely complex as to exceed the competence of a number of local attorneys. Indeed, local counsel, acting first as co-counsel, then lead counsel, appeared for the debtor throughout. Attorney Gates is a sole practitioner with little experience in bankruptcy, having handled only one case before representing this debtor.
18
Although Attorney Gates was originally retained and continued because of his reputed competence as a trial attorney, we observe that of 671.6 hours he billed for this case in the second interim application, fewer than 5.7 hours were devoted to litigation (the Erdman trial on 8/23/84 and the Purcell trial on 2/27/85). Based on our acquaintance with this legal community and our review of applications for attorneys’ fees since our tenure as United States Bankruptcy Judge for Vermont, we find, and have found in other fee application proceedings, that the prevailing rate for legal services for a sole practitioner of the applicant’s experience and standing during the time period of this application is $60.00 an hour. Compare
In re Shafer,
Finally, the applicant has asked for an upward adjustment of this lodestar
In short, the lodestar figure includes most, if not all, of the relevant factors comprising a “reasonable” attorney’s fee, and it is unnecessary to enhance the fee for superior performance in order to serve the statutory purpose of enabling plaintiffs to secure legal assistance.
Pennsylvania v. Delaware Valley Citizens’ Council for Clean Air,
- U.S. -, -,
Under 11 U.S.C. § 330(a)(2), counsel may claim reimbursement for actual and necessary expenses. The Court will allow the applicant reimbursement for the
actual
cost of photocopying, not to exceed twenty cents a page. Compare
Seneca Oil Company,
An attorney’s overhead will categorically not be reimbursed. Overhead expenses are those incurred day to day by a law office regardless of whom it represents. By contrast, out-of-pocket, variable costs are additional expenses attributable to a particular client.
In re Island Helicopter Corporation,
Lastly, Attorney Gates has asked for interest on his compensation for servic
Attorney Gates has recently submitted a third compensation request. We have reviewed his application and find that it does not conform with the foregoing guidelines. Accordingly,
It is ORDERED that the applicant’s compensation requests are DENIED, and it is FURTHER ORDERED that Attorney Gates be and is permitted to submit a consolidated Final Application with such additional documentation, and supporting materials, as he deems appropriate.
Notes
. He also asks permission to claim reasonable compensation for services and expenses incurred in preparing and defending this application. Statement Supporting Second Application for Interim Compensation at 47.
. As the Court in Tom Carter Enterprises explained, "professional persons who charge their clients fees in excess of $80.00 per hour, based upon time spent, cannot, in all honesty and reasonableness, charge their clients for increments in excess of one-tenth of an hour.” Id. at 549. As to telephone calls, Judge Goetz points out that “the telephone company’s rates are predicated upon the premise that most telephone calls terminate within three minutes.” Sapolin Paints at 815.
. Attorney Gates points out that the Bankruptcy Court charges fifty cents a page for photocopying. This fee, which includes the clerk’s time in making the copy, is promulgated by the Judicial Conference of the United States under the authority of 28 U.S.C. § 1930(b), presumably "to recoup some of the costs of the bankruptcy system,”
In re South,
. Taking the supporting documentation filed November 14, 1985 as our point of reference because it represents the most recent and most complete statement of the applicant’s legal services, we find that at least the following entries have impermissibly grouped disparate services together: various activities for 16.0 hours on 5/5/84; various conferences, meetings, and reviews of records for 13.0 hours on 5/7/84; review and reply to various correspondents for
. With, however, conspicuous exceptions. For example, the entry for a pre-petition meeting for a block of 5.5 hours on 5/4/84 does not allocate the time spent on the different subjects mentioned in applicant's Appendix A; the entry for 2.0 hours on 12/26/84 speaks incomprehensibly of "profiling” decisions; the entry for a meeting and review of records for 2.0 hours on 1/25/85 does not explain the subject matter or purpose of this meeting.
. The application lists a total of 53.3 hours expended on legal research. Entries for the following dates, amounting to 23.0 hours, strike us as insufficiently detailed: 4/27/84, 4/30/84, 5/1/84, 7/10/84, 8/6/84, 2/7/85, 2/8/85, 3/27/85.
. Altogether, some unspecified portion of 3.6 hours of travel on 5/14/84 was devoted to drafting and conferences, and of 2.5 hours on 5/16/84 to conferences.
. In keeping with this rule, Attorney Gates has not requested compensation for travel time shorter than one hour.
. On 4/27/84 Attorney Gates spent 4.8 hours on pre-petition research of voluntary and involuntary corporate reorganizations; on 11/18/84 he spent 4.2 hours examining the liability for fraud of officers and directors; and on 2/8/85 he researched "trustee duties” for 4.1 hours.
. Attorney Gates has billed the estate at $90.00 an hour for .5 hours spent mailing forms on 5/15/84; for 3.6 hours organizing lists, files, and records on 5/22/84, 5/26/84, and 8/3/84; for 17 hours (including 4 hours of travel time) supervising the movement of inventory, taking inventory, dictating a list, and delivering inventory on 5/25/84, 5/26/84, 8/31/84, and 10/3/84; and for 2 hours traveling to file a notice of claim on 11/21/84.
. By our conservative count, this applicant spent 15 hours through 3/29/85 on his legal fees, including 2.2 hours on preparing materials for the application on 7/9/84 and 2/1/85; 6 hours on a conference and review of the records on 2/6/85, 2/7/85, and 2/28/85; 4.4 hours on "work on updating” time and expense records on 3/18/85; and 2.4 hours on legal research. Although not disproportionate in relation to the total of 671.6 hours of legal services submitted, the time is inordinate for the listed tasks in an interim application. Without further justification, we are inclined to cut these hours by half.
Attorney Gates has asked the Court for authorization to submit a request for additional fees for his services and expenses since 3/29/85 in preparing and defending his application for fees. Statement Supporting Second Application for Interim Compensation at 47. Since we are granting him the opportunity to submit a final application consistent with the principles set out in this opinion, we shall address any such request when we review his final application.
. Without combing through the application here, we have in mind such entries as the 15.3 hours traveling and meeting to discuss representation on 6/4/84 and 2/15/85, the 6 hours of meetings with Mr. Wilkerson on 6/7/84 and Mrs. Noyes on 1/11/85, and the .2 hours billed for calling into the office.
. Without subjecting each individual item to scrutiny, and excluding hours that are objectionable on other grounds, we nevertheless note that entries for "cancelling [an] appearance at a litigation conference” (4/24/84), for calls to gather support for a new president of the debtor (5/12/84), for travel and a meeting to elect the president and define responsibilities (5/18/84), and for a meeting to inspect a vault and negotiate insurance coverage (5/23/84) are not com-pensable from the estate under the most indulgent standards. Moreover, the necessity of generally mastering the facts of a complex company and negotiating with creditors threatening involuntary bankruptcy as general counsel cannot justify the expenditure of 220 hours charged to the estate. See Statement Supporting Second Application for Interim Compensation, 16-18.
. The Court in
In re Bible Deliverance Evangelistic Church,
. Unless specifically justified with these strictures in mind, the following hours should be deleted from the attorney Gates’s final application: .6 on 6/4/84, .1 on 7/12/84, .1 on 7/13/84, .4 on 9/17/84, 6.0 on 11/19/84, .2 on 1/17/85, 1.7 on 1/28/85, .16 on 2/21/85, .5 on 2/28/85, .4 on 3/27/85, and .9 on 3/28/85.
. Attorney Gates indicates that until September 1, 1985 he had a law clerk in his office. Statement Supporting Second Application for Interim Compensation, 11-12, 22. Yet, inexplicably, this applicant failed to assign any of the numerous activities appropriate for a law clerk to this person and elected instead to perform the tasks himself. In the future, in such circumstances, if the firm or law office has the personnel, this Court will reduce the rate of an attorney performing tasks appropriate to the paralegal or law clerk to the para-professional’s rate. Similarly, we will reduce a partner’s rate to an associate’s if the work for which the partner is billing falls within the scope of an associate’s presumed expertise. Compare
In re W.T. Grant,
. See
In re Stable Mews Associates,
. See Statement Supporting Second Application for Interim Compensation, 18-19.