Undead, Undead, Undead

If you study chapter 11 professional fees long enough, you will see certain arguments that never seem to go away. The one I keep hoping is gone, only to see it rise again, involves "overhead." The latest attempt to reanimate this argument appears in the FGIC Corporation chapter 11 case, where the new UST from New York City has objected to Kirkland's word-processesing charges.

The problems with the overhead argument are two-fold:  proponents typically assume that the concept of "overhead" is self-applying, kind of like an accounting plain-meaning rule, and that the concept is static. But save for an attempt to charge clients for a law firm's utility bills or rent, it seems entirely reasonable that what "counts" as overhead could vary from professional to professional. One firm might build the cost of secretarial overtime into the hourly rates, while another allocates it to clients on a "as used" basis.

And just because a particular category of expense was once overhead does not mean that it must always remain overhead. While I'm sure there once was a time when world-processing was built into the hourly rates of attorneys, I think that time passed along with the use of those multi-colored cards around the function keys at the top of the keyboard.

One suspects that the folks who work in the UST office are constantly surprised when they have to pay for meals on a flight -- unless, of course, they fly first class.

And the whole thing makes no sense. What does the UST think will happen if they object to word-processing charges? My guess is that instead of a word processor taking care of the document, the task will fall to a first-year associate whose entry of "draft disclosure statement" will be allowed without objection. Which is better for the client and the estate?

Comments

[Peter Murphy]

Get out of here, is that a Bauhaus reference on a bankruptcy/article 9/creditor-debtor blog? I'm going to my next 341 conference with black nail polish!

[AMC]

The flip side of "overhead" is the prohibition against charging attorney time for non-attorney work. Word processing cannot - if proper disclosure is made in application - simply be flipped into first year associate billable hours.

Isn't it bad enough that all the Chapter 11s are almost all centered in New York City of Delaware, with some of the highest per hour rates in the country?

You want the rip off to be even bigger, by allowing firms to charge for an amorphous thing like overhead?

I hope the attempt to impose some restraint on the inherent temptation to see each Chapter 11 debtor as a cash cow to be milked by the attorneys running the show - instead of for unsecured creditors - never goes away.

It is a fight worth fighting. And if the restraints that courts try to impose are circumvented, you'll see exactly what you saw on the consumer side in response to perceptions there: a BAPCPA analog for Chapter 11s.

And when Congress goes into "fix" bankruptcy because they don't trust the judges to do it anymore, they do an extraordinarily poor job of it.

[Sidney J. Diamond]

I guess you can get away with the argument is some places but I promise everyone if you try to get away with it in the Western District of Texas or the State of New Mexico you are going get handed your head. What is shocking is the statement concerning if we can not get it one way it will be flipped to a charge by a first year associate as a drafting charge, which is then followed by the statement "which is better for the Debtor". I suppose things like honesty do not have a place in this situation. It seems to me that this matter is a reasonable subject for discussion. What is missing is viewing the matter from the standards we hold ourselves out to the public as having.

[Transor Z]

There's a really simple solution to this problem: establish an overhead cap as a percentage of direct billables for professional services. Personally, I think billing for overhead on top of charging clients an hourly rate is a crap practice that makes firm invoices as inscrutable and suspect as a utility or cable bill, but that's just me. And if I were a client I would expect the hourly rate to be lower and that breaking out overhead would be transparency rather than obfuscation.

Kumbaya, my Lord, Kumbaya...

[AMC]

I've got a solution for ya -

Standing Chapter 11 Trustees. In every case.

[Patches]

So, I am just getting into 11s now as I am about to experience my first IDC....After working consumer bks for so long it's a welcome relief. The system seems to be a whole lot easier. Was part(the grunt part/legal assistant)of a sole practitioner who grossed over $1M just last year! Thats a lot of WORK!

But it seems to me that AMC has a point. What exactly is the difference? 13 Trustee, UST in 7s and the UST in 11s?.... They are all looking after unsecured creditors when unsecured creditors should be doing it for themselves. Still, I don't seem to remember "Word Processor" in the Johnson factors... ??

[Steve Chambers]

Good comments, but why do we assume standing trustees will solve the problem? I do consumer Chapter 7s mostly and I am sick of seeing trustees' fee applications in the exact amount of what the trustee has collected through administration of the estate. I have one case where only one creditor has filed a proof of claim, for less than $200, yet the trustee continues to "administer" the estate by suing three individuals for alleged preferntial transfers. The fundamental problem is that everyone involved is paid out of the estate.