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And the Wind Blows Wild Again

posted by Stephen Lubben

I wade into the chapter 11 professional fee debate again, this time in the context of the UST's proposed guidlines for attorneys fees in big cases.


Was it not 11 USC 330 (a)(3)(F) which allowed for runaway fees:

(F) whether the compensation is reasonable based on the customary compensation charged by comparably skilled practitioners in cases other than cases under this title.

Now that Congress fixed the low fees commanded by bankruptcy professionals prior to enactment of the “Code” let Congress fix the high fees presently charges in runaway chapter 11 cases. It is time to dispense with subsection (F).

Actually, section 330(a)(3)(F) was intended to control runaway professional costs by tying bankruptcy rates to a non-bankruptcy market standard. The issue has more to do with whether section 330(a)(3)(F) can practically be enforced. Let's suppose that the Office of the U.S. Trustee wants to object to BigLawFirm's rates in, say, GM's bankruptcy. First, the OUST is going to need an expert. Second, the OUST is going to have to define the "relevant market" for the non-bankruptcy comp -- shades of antitrust law. Is it a corporate rate, a tax rate, a litigation rate, or some blend of the foregoing for restructuring work? Additionally, the data set is constantly evolving because of the passage of time -- the OUST (or the expert it turns to) is going to have to maintain (or have access to) a database of STATS proportion to keep up with the Joneses. Getting to that database will have a cost associated with it -- picture pouring the detail from all of those fee applications into a computer. Perhaps CM/ECF and electronic filing will evolve to the point where it will be able to produce meaningful statistical information regarding professional fees. We are not there yet and, even when we do get there, Congress' insistence upon a non-bankruptcy standard renders data pulled from bankruptcy cases of limited utility.

So, 11 USC 330(a)(2)(F) was enacted to curb attorney fees but can’t be enforced because any standard would be too difficult to establish.
That is a better reason to repeal the code section - it is unenforceable.
In all honesty let’s not try to rewrite history, that makes it impossible to analyze the problem.
The history is clear:

In re Busy Beaver Bldg. Ctrs., Inc., 19 F.3d 833, 850 (3d Cir. 1994) (“Congress determined, it appears, that on average the gain to the estate of employing able, experienced, expert counsel would outweigh the expense to the estate of doing
so, and that unless the estate paid competitive sums it could not retain such counsel on a regular basis.”); 3 Collier on Bankruptcy, ¶330.04[3][b] (Lawrence P. King, et al., eds., 15th ed. 1997) (“The economy factor was abandoned under the Bankruptcy Code in favor of the new policy that attorneys engaged in bankruptcy cases should receive compensation in parity with that received by attorneys performing services in comparable situations.”).

I don’t deny that “no look” fees fixed by the court are not “runaway fees”.
Additionally, few other practices of law command and collect full billable hours like in a chapter 11 fee application, and few other areas of law charge to prepare the bill, which in bankruptcy can easily add 10% or more as a sur charge to already fully billed fees.

Robert: The suggestion that I am trying to "rewrite history" is silly. Actually, I make the same point in my post that was made in Busy Beaver: rates are tied to a non-bankruptcy "market" standard, and there is no "bankruptcy discount."

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