The U.S. Bankruptcy Court for the Southern District of Illinois recently issued an opinion in two related chapter 11 cases, In re Herrin Clinic Ltd. [1] and In re Bozorgzadeh, et al., [2] regarding a law firm's fee application for work done in the two cases. Attorneys should take note of the court's opinion, as it highlights the dichotomy between the court's interests and role as a gatekeeper for the efficient administration of justice, and the attorney's need to ensure that it competently and adequately represents its clients' interests.
The bankruptcy cases were filed as a result of a state court judgment entered against the debtors, Herrin Clinic Ltd., Shahriar S. Bozorgzadeh and Kelly L. Evans, and one nondebtor, Herrin Medical Clinic Ltd. The debtors appealed the state court's judgment and as the bankruptcy court stated in its opinion, the bankruptcy cases "are best characterized as placeholders, offering chapter 11 protections to Herrin and the individual debtors while they await the decision of the appellate court."
In early March 2011, the debtors' counsel of record filed an amended application in each case seeking interim attorneys' fees and expenses for the time period of Feb. 11, 2010, to Jan. 31, 2011. In the Herrin case, the law firm sought interim compensation of $77,377.50 and expenses of $5,765.66 and in the individual debtors' case, the law firm sought interim compensation of $71,051.50 and expenses of $5,792.40. The applications were objected by the U.S. Trustee and a secured creditor of the debtors.
The court significantly reduced the fees sought by the law firm and ordered that it be allowed interim compensation in the amount of $59,940 and expenses of $5,430.26 in the Herrin case, and interim compensation in the amount of $58,938.25 and expenses of $5,457.00 in the individual debtors' case. In its opinion, the bankruptcy court raised several issues with the law firm's application.
The bankruptcy court found portions of the fees excessive given the routine nature of the tasks, repeatedly finding that many of the matters in the cases were uncontested and several tasks did not warrant the amount of time expended. In decreasing fees related to the drafting of motions and other documents, the bankruptcy court stated that "it appears to the Court that debtors' counsel was overpreparing for a battle with no foe." The court also decreased fees related to the drafting of a motion that was never filed, as the court found that it did not benefit the bankruptcy estates. Lastly, the court took issue with several tasks that it found to be duplicative between the two cases.
The bankruptcy court's opinion highlighted the competing—but ultimately reconcilable—interests of the Bankruptcy Code, the court and the attorney. The court seeks efficiency, expecting that work be done in a manner that wastes no resources. In the Herrin case, the court protected the interests of all interested parties and ensured that the debtor's estate was not unnecessarily depleted. An attorney certainly has an interest in working efficiently and a debtor's attorney works to preserve the debtor's estate, but at the same time, attorneys seek to fully represent their clients in the most competent manner possible and to be completely prepared.
While competent representation does not inevitably translate into the completion of unnecessary tasks and the billing of unreasonable fees, the bankruptcy court's opinion clearly indicated that a court and attorney will not always agree on what constitutes “competent representation.” Specifically, courts and attorneys have differing views on whether certain tasks are routine or essential, and on the amount of time that is necessary to complete those tasks that are essential. Because courts are the ultimate gatekeeper and have the power to allow or disallow fees, it is incumbent on the attorney to align his or her duty of competent representation with the court's interests in efficiency and preventing the waste of resources. A practitioner can do several things, both before and during the representation, to ensure that these interests are aligned.
1. Think ahead. Before accepting the representation, think clearly about the anticipated course of the case and what actions can be taken to avoid later work that might be deemed unnecessary. In the opinion discussed above, the bankruptcy court disallowed fees for work done on an issue that "should have been reviewed and analyzed prior to filing" which "should have been simple to review and address."
2. Court-imposed deadlines. An attorney must properly prepare for a hearing on any motion and in determining the amount of preparation needed, should always consider how the court presiding over the case operates with regard to opposition to motions. Most attorneys have been faced with arguing against an objection raised after a court-ordered deadline has passed, including at a hearing. These instances create a legitimate hesitancy on the attorney’s part to not fully prepare for a hearing even if a timely opposition has not been filed. In short, the wise attorney must prepare for the possibility that a court will allow an untimely opposition to be asserted. Applying the rules of the above opinion, the attorney, in meeting his or her duty to fully defend the client, runs the risk of losing fees for time spent preparing for a hearing during which no opposition is heard. In order to maximize his or her chances of avoiding such a result, the attorney should at the beginning of the case or proceeding ask the court to include in its scheduling order express language establishing that absent the consent of the parties or good cause shown, the deadlines in the order will be strictly enforced by the court, and the court will refuse to hear any objections made after the deadline. In addition, also consider asking the court to include a provision in that same order that provides that in the event an untimely opposition is allowed, a continuance of the hearing, if requested, will be granted (absent extraordinary circumstances) because fundamental fairness requires that the attorney be allowed to fully prepare to respond to the arguments advanced in the opposition, and with an acknowledgment that extra costs will be incurred as a result of the continuance.
3. Communication. Though an attorney should always communicate regularly with his or her client, discussions with the client regarding the facts of the case can prevent unnecessary work or significantly decrease the amount of time needed to complete tasks. Likewise, having the client clearly communicate its motivations and expectations can have a similar effect.
4. Preparing to explain. An attorney will often provide the court with time entries in order to support a request for fees. By writing time entries in a clear and descriptive manner, an attorney can directly explain to the court what he or she is doing and why it is necessary. In addition, attorneys can take notes or draft memorandums to the file as a record regarding a situation that precipitated the need for a motion or an occurrence that could not have been reasonably foreseen that rendered an already completed task moot. Accordingly, when ordered by the court to justify certain time entries, the attorney can clearly explain the situation and why the action taken was necessary. In the Herrin case, the attorney drafted a motion that was never filed, and the bankruptcy court disallowed the fees for the time spent drafting the motion. Though the circumstances surrounding the unfiled motion were not explained by the bankruptcy court, it may have appeared to the attorney to be essential at the time it was drafted. However, as all attorneys are well aware, situations change such that seemingly critical motions are rendered pointless. In such a situation, it is incumbent on the attorney to demonstrate to the court that the work was necessary.
Though attorneys have a duty to competently represent their clients, attorneys also have duty to align their interests with those of the court. The Herrin opinion provides an instructive example of how attorneys can work efficiently and bill effectively so that these interests are reconciled.