Case Nos. 01-55472-JRG, 01-55473-JRG Jointly Administered for Administrative Purposes Only.United States Bankruptcy Court, N.D. California.
April 5, 2005
ORDER ON PRICEWATERHOUSECOOPERS LLP’S THIRD THROUGH FINAL FEE APPLICATIONS
JAMES GRUBE, Bankruptcy Judge
I. INTRODUCTION
By notice filed February 19, 2004, PricewaterhouseCoopers (PwC) sought final approval of $1,239,356.77 in fees and $18,241.64 in expenses for the period from November 8, 2001 through December 12, 2003. However, by an order filed on October 22, 2003, the court awarded PwC fees of $521,437.65 and reimbursement of expenses in the amount of $6,882.10 on a final basis. These fees approved on a final basis were from December 7, 2001 through May 31, 2002, the period covered by the first and second fee applications. For that reason, the court will only consider PwC’s final application as applicable to the period after May 31, 2002 through December 12, 2003, which is reflected in the third fee application through the final fee application.
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On March 23, 2004, the court ordered the audit of PwC’s fees for the third through final fee applications. This resulted in the audit of total fees of $548,399.50 and total expenses of $8,673.67.[1] For the reasons herein stated, PwC’s request for fees is denied in part and granted in part.
II. FEES
Section 330 of the Bankruptcy Code provides that the court may award to a professional person employed under §§ 327 or 1103 reasonable compensation for actual, necessary services rendered and reimbursement of actual, necessary expenses. In determining the amount of reasonable compensation, the court considers the nature, the extent, and the value of the of such services, taking into account all relevant factors. 11 U.S.C. § 330(a)(3). With this in mind, the court reviewed the audit report. Having reviewed the audit report submitted to the court on September 16, 2004, there are several items that need to be addressed.
A. Intra-office conferences and meetings and conferencesattended by more than one professional require a generalreduction in fees.
The amount of intra-office conferences and attendance at conferences and meetings by multiple professionals has been an ongoing issue in this case. As indicated in the audit report, fees that fall within these
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categories still appear to be excessive. [See Exhibits D and E.][2] Intra-office conferences comprise approximately $110,142.80 of the fees sought and of that amount approximately $97,426.50 involve multiple professionals billing for the same intra-office conference. [See Exhibit D.] Multiple attendance at conferences and meetings comprise $75,105.60 of the fees sought, excluding the entries that appear on Exhibit D. [See Exhibit E.] Combined, this accounts for a little more than 31% of the fees audited.
The Bankruptcy Court for the Northern District of California maintains Guidelines for Compensation of Professionals.[3]
Guidelines 15 and 16 provide:
15. Conferences — Professionals should be prepared to explain time spent in conferences with other professionals or paraprofessionals in the same firm. Failure to justify this time may result in disallowance of all fees related to such conferences.
16. Multiple Professionals — Professionals should be prepared to explain the need for more than one professional or paraprofessional from the same firm at the same court hearing, deposition or meeting. Failure to justify this time may result in compensation for only the person with the lowest billing rate.
Consistent with the court’s guidelines, the general rule is that no more than one professional may charge the estate for intra-office conferences and meetings absent an adequate explanation. In re Bennett Funding Group, Inc., 213 B.R. 234, 245 (Bankr. N.D.N.Y. 1997); In re A.A.D.C., Inc., 193 B.R. 448, 450-51 (Bankr. N.D. Ohio 1996); In re Poseidon Pools of America,Inc., 180 B.R. 718, 731 (Bankr. E.D.N.Y. 1995). This is equally applicable to outside meetings and conferences attended
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by more than one professional.
PwC’s explanation for the intra-office conferences and attendance at meetings by more than one professional is a generic response that these activities were related to each professional’s engagement and was more efficient in the long run.
The court questions this explanation when most of the intra-office conferences were at least one hour in length. In addition, PwC offers no indication that when more than one professional was present at these conferences and meetings it was because the professional held a particular expertise that did not result in a duplication of effort. For example, the court has found in some circumstances that conferences and meetings would involve two professionals who bill at more than $500 per hour. [See, e.g. Exhibit D: page 5, entries of 9/24/02; Exhibit E: page 5, entries of 3/27/03.] The court assumes that a professional billing at more than $500 per hour has a high level of expertise such that the professional would need little assistance.
The court has reviewed the number of intra-office conferences and multi-attended meetings and takes the approach of disallowing the fees of the professional in these conferences with the highest hourly rate. In situations where more than two professionals were present, the court still considered only the one professional at the highest hourly rate. The amount of fees related to intra-office conferences was $46,427.00 and the amount of fees related to meetings attended by more than one professional was $37,470.30, which totals $83,897.30.
However, in a complex case no single professional is going to possess all of the skills to accomplish the necessary tasks. The estate is better served where multiple professionals with the required expertise are
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utilized. In these circumstances, some communication is required. Because the court recognizes that some amount of intra-office conferencing and multi-attended meetings will occur, the court will reduce these fees by 50%. Taking 50% of $83,897.30, the court disallows fees in the amount of $41,948.65.
B. Billing increments at .50 and 1.0 hour increments are soextensive that a general reduction is warranted.
The audit report also points out the number of entries in which PwC billed in increments of .50 or 1.0 hour. [See Exhibit A.] The UST states that it had brought this issue to PwC’s attention in May 2003, and had been told by PwC that in the future it would bill in .10 hour increments. The UST seeks an adjustment to account for this. PwC responds that its internal policy requires employees to report their time in .10 of an hour increments.
The court’s Guideline 12 requires that professionals keep time records in minimum increments of .10 hour and professionals who utilize a minimum billing increments greater than .10 hour are subject to a reduction of their request. Given the UST’s statement that this issue was brought to PwC’s attention and the number of entries in increments of .50 and 1.0 hours, the court reduces total fees by $5,000.00 to account for this situation.
C. Compensation for services that are not adequately describedis disallowed.
The audit report highlights a number of entries that contain vague descriptions of the work involved. [See Exhibit B.] The court has reviewed the entries and denies fees for the following entries: Exhibit B-1, Ingras 9/10/03 and 9/11/03; Exhibit B-2, Abraham 2/18/03 and 2/20/03; Exhibit B-2, Elek 11/19/02 and 11/20/02; and Exhibit B-2, Hall 11/4/03.
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This results in a fee reduction of $3,543.20. The report also describes clumped entries. [See Exhibit C.] PwC states that multiple tasks that were significantly interrelated were treated as one task. The court finds this explanation to be reasonable.
D. Nonworking travel billed at full time is denied in part.
Nonworking travel is categorized in the audit report. [See Exhibit F.] The court’s order of December 18, 2001, provides that “[t]ravel time for Professionals where work on these cases is not otherwise being performed during such travel time may be charged at 50% of the hourly rate of the Professional, for no more than six (6) hours per day.” The court has reviewed the nonworking travel time and located an entry in which the professional billed at full time instead of 50% of the hourly rate. [See Exhibit F: Momsen 1/9/03.] Thus, fees are reduced by $183.50.
E. Time entries reflecting administrative/clerical activitiesare not compensable by the estate.
The audit report points out entries that appear to be related to administrative/clerical activities. [See Exhibit G.] Clerical services are overhead expenses and are not compensable under § 330(a) of the Bankruptcy Code. Sousa v. Miguel(In re United States Trustee), 32 F.3d 1370, 1374 (9th Cir. 1994). Services such as filing, assembling or compiling documents, organizing files, calendaring dates, making copies, faxing or transmitting, moving records, to name a few, are inherently clerical.
Having reviewed the entries in Exhibit G, the court finds the entries to be clerical and administrative in nature and thus denies $4,143.50 in fees.
F. Miscellaneous aspects of PwC’s final fee application.
In PwC’s final fee application, it states that it is still owed $48,006.20 on account of fees in the second fee application covering the
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period of March 1, 2002 through May 31, 2002. As discussed from the outset, the court had approved the fees in the second fee application on a final basis and in doing so disallowed $57,702.50 in fees. Thus, the court denies PwC’s request for $48,006.20 because it is related to the second fee application period.
PwC also seeks $37,298.28 in fees that the court denied at the hearing on the sixth fee application. However, this amount was included in the total amount audited and thus, there is no further reason to address this request.
The court also notes that the $548,399.50 in fees audited include fees in the amount of $1,975.50 that PwC had agreed to waive as part of the third fee application.[4] This reduction is reflected in the February 3, 2003 fee order. Thus, the court further reduces PwC’s fee request by $1,975.50.
Finally, PwC failed to submit to the auditor the data in electronic form as required by the court’s order dated March 23, 2004. The result was an increase in the amount charged by the auditor from a cap of 1% of the total fees audited to a cap of 1.25% of the fees audited. This resulted in an increase in the audit fee of $1,392.68. PwC’s fees will be reduced in this amount as it is not reasonable for the estate to bear the burden of this cost.
Thus, the court denies $58,187.03 in fees requested for the period from the third fee application through the final fee application.
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III. EXPENSE ITEMS THAT ARE DISALLOWED.
A. Postage.
As for expenses, several issues have arisen as a result of the audit. PwC requests a total reimbursement of $4,200.00 for postage on two entries dated August 31, 2002, and November 30, 2002, each for $2,100.00. [See Findings, page 15.] No additional information is given to support these expenses and the court is unable to evaluate whether these charges are reasonable. In its response to the audit, PwC offers no explanation for these charges. Thus, reimbursement for these expenses is denied.
B. Mileage.
Under the Guidelines, travel of one hour or less round-trip is not reimbursable. The audit report points out several trips in which reimbursement for mileage is sought. [See Exhibit N.] Given the distance traveled, the court assumes the trips billed were at least one hour. However, the court is concerned that the mileage sought reflects at least two and at times four professionals separately billing for mileage on the same date to go to the same location. [See Exhibit N.] The court does not find this to be an efficient use of time and resources and reduces this expense by $89.81.
C. Travel Expenses.
The court also denies reimbursement for an airline cancellation fee in the amount of $247.50. [See Findings, page 16.] In addition, the court denies a $215.00 round-trip taxi expense because during the same trip, $61.78 is sought for a car rental. [See Findings, page 6; Exhibit 0.]
Finally, the expenses that are related to attendances at meetings by
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more than one professional amount to $3,813.19. [See Exhibit 0.][5] Having concluded a 50% reduction for fees related to meetings attended by more than one professional is warranted, the court likewise finds a 50% reduction in expenses to be warranted. Thus, the court denies $1,906.59 in travel-related expenses.
The court denies $6,658.90 in expenses for the period from the third fee application through the final fee application.
IV. CONCLUSION
The court approves on a final basis fees in the amount of $490,212.47, having denied fees in the amount of $58,187.03, for the period from the third fee application through the final fee application. Reimbursement for expenses is approved in the amount of $2,014.77, the court having denied $6,658.90 in expenses for the period from the third fee application through the final fee application.[6] All fees and expenses that are denied are done so on a final basis. Any fees and expenses PwC has received in excess of those approved herein are to be returned to the reorganized debtor.
The court notes that the audit was ordered to cover the third fee application through the period included in the final fee application. When the court reviewed the amounts previously approved on an interim basis, plus holdbacks and agreed to reductions, and the fees and expenses sought for the final application period, the total amount of fees and expenses matches the amount audited. Thus, the court will consider the amount audited as the total fees and expenses before the court for approval on a final basis.