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Chapter 11 Costs -- Help?

posted by Stephen Lubben

As part of my sabbatical project this semester, I'm returning to the ABI Chapter 11 Fee Study database in the hopes of further refining my model of professional fees in chapter 11 cases. As one part of this, I'm trying to resolve several pesky "missing data" issues in the dataset of big cases, so that my model can benefit from all the cases we collected in that project. One persistent problem I'm running into is retention applications filed without any indication of what the professional's hourly rates will be -- instead, the professional simply states that they will charge their "customary hourly rates," without any indication of what those might be. It's a problem that exists with regard to all types of law firms, big and small, and I've attached an example application and affidavit from a particularly well-known debtor firm that shows what I'm talking about.

So my question to the loyal readership is:  why are retention applications like this filed, and why are they routinely approved?  Is it simply a matter of "everyone" knowing what that firm's customary rates are?

Somewhat related, I'm also hoping to improve my model of chapter 11 costs as applied to the broad run of chapter 11 cases. The model currently works rather well with regard to big cases, but not quite as well with regard to the more typical chapter 11 case. Given that my practice experience was in the New York-Delaware style case, I suspect I'm missing some key factor in smaller cases that influences professional fees, and I hope our readers might point me in the right direct.

The comments are open. And my sincere thanks in advance.

Comments

It's been a while since I did any Chapter 11 work (pre-2005 amendments), but my experience in Texas was that most judges and attorneys (especially in the big cities) knew the average cost of a small or mid-sized 11, and they knew they'd deal with any issues on rates, total amount charged, etc. when considering the fee app. The retention app was to flush out any objections or conflicts as to who the debtor was retaining, not how much they were charging. If fees became an issue, any customary rate disclosed in the retention application was going to be subject to a lodestar analysis, so why worry about it that early on?

In more rural districts (where I usually practiced), you usually had to disclose your rates up front, and there was more scrutiny in general. I had a very memorable case in which I had my fees cut substantially by the judge even in the absence of an objection by any party, despite it being our normal and customary rate, and despite the representation by creditors' counsel that we gave a very good deal to the debtor and could have charged 50% more in Houston without anyone batting an eye.

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