In years past, a debate raged over “local vs. national rates.” The controversy subsided, because courts outside of New York and Delaware generally began allowing compensation to counsel at the rates ubiquitous in their home districts, even when the rates were higher than those prevailing in the venue where the case was located.
The debate also subsided because so many reorganizations are filed in Delaware or New York, where there is no observable cap on hourly rates.
The “local vs. national” debate reemerged in the chapter 11 reorganization of the Roman Catholic Diocese of Great Falls, Mont.
Counsel for the official creditors’ committee filed an application for a first allowance of interim compensation, seeking about $350,000 in time charges. According to the March 8 opinion by Bankruptcy Judge Jim D. Pappas of Boise, Idaho, the requested hourly rates ranged from $325 for travel time to $650. He observed that “the bulk” of the charges were at the “higher rate.”
For non-attorney services, committee counsel sought $150 to $350 per hour, according to Judge Pappas.
Judge Pappas cut the interim allowance by more than one-third, directing payment of $225,000. Judge Pappas said he “roughly” based the interim award on the hourly rates for attorneys and non-lawyers charged by other estate professionals.
Significantly, however, Judge Pappas did not base the allowance on local Montana rates. Rather, he said, counsel had not yet established a record to show that the requested rates were “reasonable” when compared to “the outcomes on the important issues in this case.”
Although counsel had disclosed their rates at the outset, Judge Pappas said in his retention order that he was not pre-approving rates.
Without questioning counsel’s competency or the necessity or benefit flowing from the services, Judge Pappas said that Section 330(a) saddles counsel with the burden of demonstrating that the hourly rates are “reasonable.” Although there were no objections to the interim fee request, Judge Pappas said he had “an independent duty to review the reasonableness” of the requested compensation.
Judge Pappas bemoaned the lack of comment from the U.S. Trustee. Absent a “thoughtful response” from the government, the judge said he was “reluctant” to grant compensation in the full amount sought.
Turning to the fee application itself, Judge Pappas said the requested rates were higher than anything he had approved in 28 years on the bench. He noted that the debtor’s counsel were charging $325 to $375 for similar services on “the very same projects.”
While he said the attorneys’ rates were “high,” Judge Pappas said he was “frankly astounded” by non-legal rates “of $255 to $350 per hour.” He said the rates were “nearly double those charged for similar services by other estate professionals.” To approve higher rates for non-lawyers, the firm must provide “substantially more information about the credentials” of the non-lawyers, the judge said.
Looking at the lawyers’ time charges, Judge Pappas said that the “vast bulk” was charged at the highest rates. While he could not be sure, Judge Pappas said he “might assume” that the supervising attorneys “have not appropriately delegated responsibility” to lawyers charging lower rates.
Judge Pappas said he was “reluctant” to award compensation at the higher rates “without a more thoughtful consideration of the potential impact” on the “interests of other parties, including the creditors,” since allowances of compensation “will inevitably reduce” the recovery by sexual abuse claimants. A confirmed plan, he said, “will be difficult to achieve if estate funds are consumed by administrative expenses.”
“Candidly,” Judge Pappas said, “the Court harbors doubts that this reorganization can successfully proceed if estate professionals’ fees are approved at the rates requested by counsel.”
Allowing interim compensation at “roughly” the hourly rates charged by other estate professionals, Judge Pappas said that committee counsel had not yet proven that the “requested amounts of compensation are reasonable.” He decided to defer a decision about higher rates until the court could consider the relationship between the total compensation sought by committee counsel compared to the compensation sought and awarded “to all estate professionals, and to the outcomes of the important issues in this case.”
Judge Pappas did award the entire $29,000 sought in reimbursement of expenses.