Who Pays for Telephonic Court Hearings (and What Is Reasonable)

After 9/11, I wrote a column extolling the benefits of telephonic hearings. Although
I have not conducted a scientific survey on the matter, personal experience and
communications with colleagues suggests that the practice is growing rapidly.
More and more courts are equipped with teleconference speaker systems, and more
and more judges are willing to permit telephonic participation by just about
anyone who requests it.

</p><p>Though individual
case-by-case ethical and professional judgments must be made about the need
for a personal appearance, when telephonic alternatives are provided, there
are many cases where the professional's participation is in a monitoring
capacity or is sufficiently modest in substance that a telephonic alternative
is very welcome. It serves client interests by greatly reducing travel time and
expense, as well as the cost of out-of-town accommodations (especially when the
travel would be long-distance) and it enhances our sense of personal and family
security when we can reduce the number of out-of-town trips we have to make.<small>^{<a href="#2" name="2a">2</a>}</small>

</p><p>To
make the teleconference hearing work, a few basic rules of practice and
etiquette have emerged. Someone has to make the call-in arrangements, usually
by (a) booking a commercial conference call service to arrange a call-in number
at a designated time, and (b) distributing the call-in information to the
participants and the court. Persons on the phone ordinarily have to use their
handsets or mute their microphones when they are not speaking, and need to be
especially attentive to what is occurring in the court to know when it is
appropriate to speak or not. Speaker/participants must also identify
themselves each time they speak. These practices are familiar to most
professionals. They are about the same for court hearings as they are for
private client conference calls and other conference call meetings.

</p><p>As
teleconferencing has grown for hearings, especially in the bankruptcy context,
there are apparently no hard-and-fast rules on the question of who pays and
what is reasonable. How does that usually work? The practice seems to vary from
court to court. In some cases, the court instructs debtor's counsel to
set up a call-in reservation with a commercial service, so the cost is borne by
the estate. In other cases, the party with the first request for telephonic
participation is directed to make the arrangements. There, assuming that party
is not the debtor, the cost may be borne by the client of the requesting
counsel. That is what would happen if the lawyer booked or subscribed to a
commercial service call-in and then recorded the cost as an expense to the
client. The question of whether the cost of a telephonic hearing should be
borne by an estate or in some allocable manner by all the participants is
likely answered best on a case-by-case basis. It may depend on whether the
hearing is of an emergency nature, or whether it is a monthly omnibus hearing.
It may depend on the party on whose behalf it is arranged. Is it a debtor
motion or motions, or is it a creditor request for relief? It may depend
further on whether it is a two-party controversy or a proceeding involving
multiple parties. Because parties are always free to come to the courthouse
without being charged for it (aside from the time and travel expense), it can
be argued that an estate should almost never have to bear the cost of a
teleconference. On the other hand, if the estate bears the expense, there is a
kind of fairness involved because (in most cases) the creditors collectively
are the real bearers of the burden. Because it is a convenience offered by the
courts, it can also be argued that the court itself on limited budget should
almost never have to bear the cost.

</p><p>While there is not likely to be agreement to any uniform set of rules governing who
pays, it is clear that no matter who pays there is a problem for someone if the
expenses are not reasonable. If the expenses are subject to court review and
approval, as they might be if procured by a debtor or a committee, the
bankruptcy court itself would be expected to review the telephone charges for
reasonableness. Bankruptcy courts typically restrict expense reimbursement to
real cost recovery, and tend to disapprove any expense reimbursement that
appears to contain a profit component on the theory that profit should be built
into the professional fee. If the expenses are incurred by counsel for a
creditor, a client is going to review the bills and may also have reason to
question charges that appear to be well "above-market."

</p><p>I was prompted to address this subject, and in particular the reasonableness of
the teleconference arrangements and fees, when I was confronted with
information about a practice in at least one bankruptcy court that I am
convinced is inappropriate. As background, it is useful to consider
"going rates" for teleconference services. We researched teleconference
service charges covering some 15 different service providers. The rates for
these services, involving typical features such as a common call-in number at a
reserved time, range from 9 cents per participant per minute (for toll-free
calls) to about 39 cents per participant per minute (for operator-assisted
calls). (One service we researched charges as much as 75 cents per participant
per minute for an operator-assisted call.) The cheapest rates appear to be for
the rapidly growing "reservationless" conference call services.
Under this system (to which my firm subscribes), a permanent toll-free
conference call number is assigned to each firm professional (each person gets
his or her own number) with permanent access codes for host and participants.
To activate the call, one merely gives the call-in information to the
participants and tells them when to call. The service used by my firm charges
10-15 cents per minute per port (each port being a phone that can have more
than the participant present) for toll-free calls. The price rises to 11-19
cents for calls requiring operator assistance.

</p><p>Excluding
the outlying 75 cents-per-minute service, the range of 9-39 cents equates to a
difference of about $18 an hour per participant between the low and high rates.
Thus, if there are many participants, the money could add up and be material,
whether the cost is borne by an estate, creditor or other party in interest.
Presumably, if the party setting up the call has done the market research and
has justification for using an operator (which always comes at a higher rate),
a court (or client) is likely to give deference to the reasonableness of the
rate.

</p><p>Now,
let's turn to the practice that I believe is inappropriate.

</p><p>I
have not performed any survey and cannot say whether or not the practice is
widespread.<small>^{<a href="#3" name="3a">3</a>}</small> However, here is precisely what occurred. The court in question
permitted a telephonic hearing (as apparently it does routinely). In order to
participate in the hearing, counsel were directed to a specific
court-designated commercial conference call service. The conference call
service then required as a condition of participation that counsel complete an
application form (including basic information verifying that the lawyer had
authority to appear at the hearing) and pay a non-refundable fee of $40,
regardless of the length of the hearing. Only upon receiving the application
and proof of payment would the service provide the call-in information.

</p><p>These
requirements were inconvenient as compared to the arrangements necessary to
schedule conference calls through most commercial services. Time was needed to
fill out an application form by hand (thus, some lawyer fee time was required).
Because counsel was unwilling to provide a personal credit card number for the
charges (and did not have a firm card on file with the service), the firm had
to issue a check (requiring more time and paperwork by both lawyer and
secretary), and the check had to be faxed and overnighted to the service.
Contrast this to most commercial conference call services, which can be booked
in a three-minute call by a secretary, at most, and do not require advance
payment or billable time by a lawyer.

</p><p>The
hearing involved status conferences in numerous adversary proceedings, so the
number of participants could have been quite high. The amount of time any one
participant had to be on the phone was a function of when the
participant's case was called. If it was called first, the participant
was off within five minutes. If it was called last, the participant was likely
on the call for more than an hour. Regardless of the length of
participation—that is, regardless of how long the phone service was used
by any participant—the court-designated service still received that $40
fee from every single participant.

</p><p>One
could argue that a system in which a court directs any party who wishes to
participate telephonically to engage only one approved service that charges a
common fee (in this case, $40) to every participant is fairer than the
aforementioned alternatives because the cost is shared all the way around by
the participants and not borne by the estate as a whole or any one party. The
sharing or allocation of the expense does not make it reasonable, however.
Additionally, as indicated in my preliminary comments, I believe the practice
of a judicial restriction to a single commercial service is inappropriate
(whether the expense is reasonable or not).

</p><p>However,
the impropriety of the court's restriction to a single commercial service
is amplified where, as here, the cost of the service appears to be
significantly above market. Let's do the math. The $40 fee for the
service required by the court in the example above covers the first 90 minutes,
and then another $40 is required for each 90-minute segment thereafter. That
works out to about 44 cents a minute (higher than all the researched
alternatives, except one), but only if all 90 minutes of a segment is used. If
your case was the first one called, and you were off the call in 5 minutes,
then you paid the equivalent of $8 a minute. If the call lasted 30 minutes,
then the rate equated to $1.33 per minute. Compare that with the commercial
alternatives that were not available in that case. At 10 cents per minute,
available under my firm's subscription to a "reservationless"
conference call system, $40 would buy you hearing time of nearly 6 hours, 40
minutes! (Another way of looking at it is that a 90-minute hearing would cost
$9 per participant under the reservationless subscription, vs. $40 under the
service required by the court.) Or consider, for a five-minute call, the
reservationless charge is $0.50 vs. $40 for the commercial service required by
the court.

</p><p>Courts
prefer operator-assisted calls, and for good reason. An operator can oversee
the call-in process, and then connect the entire phone bank to the court, for
broadcast on the court's speaker system, when the court is ready. So
there is some argument for higher operator-assisted rates for this service. But
the supervision and coordination with the court could also be handled by a
designated lawyer (such as a lawyer with a subscription service, or otherwise
arranging the call-in) or by a court clerk who can call in to the central
number and then arrange for transfer to the court speaker system.

</p><p>Some
people argue that private operators at higher rates are necessary for courts to
ensure that only properly authorized persons are on a teleconferenced court
hearing. Certainly, in the $40-per-participant example, one could not
participate unless one knew the precise case number and could state that they
were representing a party in interest. I simply do not agree with it. Court
hearings are open to the public, and members of the public who attend do not
need to register or otherwise identify themselves to the court. Persons who wish
to be heard or make appearances are required to make representations, but they
could make them as easily to the court on the record of the teleconference as
they could to an operator in advance.

</p><p>Even
in the $40-per-participant example, with numerous adversary proceedings and
the potential for at least as many telephonic appearances, it does not seem
terribly difficult for appearances to be made on a case-by-case basis (they
have to be made as such in any event so the court knows who is speaking when), and
the value added from having an operator verify those identities in advance does
not seem to be worth the cost or have any countervailing policy justification.

</p><p>Finally,
there is the basic question of the propriety of a court directing the use of a
specific service, apart from the cost. It is one thing for a court to require
that a teleconference hearing have certain features that can be supplied by any
number of commercial services, and then permit the responsible party to make
the selection. It is quite another thing for the court to require one specific
service with no alternatives available, especially where, as here, that service
is significantly more expensive and inconvenient than any alternative.

</p><p>Bankruptcy
courts should not be in the business of promoting commercial conference call
services, whether the costs are reasonable or not. If the court requires
certain features to assure clarity, security, control or other reasons, the
court can set forth its requirements while still permitting a party in interest
to make the call arrangements. The court could even suggest services that it
knows to have the appropriate capabilities.

</p><p>I
do not mean to suggest that any bankruptcy court has acted deliberately to do
anything inappropriate with respect to teleconferencing services. The practice
discussed herein may well have developed from the best of intentions, and the
issues discussed herein inadvertently overlooked. If I've got it wrong,
or if I've missed some essential countervailing policies or justifications,
I'm sure someone will let me know. In the meantime, if these observations
ring true, the <i>ABI Journal</i> will again have served as an effective medium of
communicating with the bankruptcy community and fostering positive changes for
the practice of bankruptcy generally.

</p><hr>
<h3>Footnotes</h3>

<p>^{<small><a name="1">1</a></small>} This
article expresses the author's opinions, and his views should not be
attributed to either his firm or the American Bankruptcy Institute. Special
thanks are due to Gerald Willey, a bankruptcy assistant in the New York office
of Mayer, Brown, Rowe &amp; Maw, who assisted with the research on telephone
conference call services and charges. <a href="#1a">Return to article</a>

</p><p>^{<small><a name="2">2</a></small>} Teleconference
hearings can also be convenient for professionals where travel is not an issue,
in some cases permitting juggling of multiple appearances in the same day, or
otherwise managing competing responsibilities. <a href="#2a">Return to article</a>

</p><p>^{<small><a name="3">3</a></small>} My
source(s) and the identity of the court(s) involved will be kept confidential
for obvious reasons. <a href="#3a">Return to article</a>