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Category: Fee Examiner

Courts Call Upon Fee Examiners in Large Chapter 11 Cases

May 6, 2024

A recent Law.com story by Dan Roe, “Nickel and Dimed: Fee Examiners More Common Amid Rise in Contentious”, reports that, within weeks of being ordered by the U.S. Court of Appeals for the Third Circuit to appoint an independent examiner to the bankruptcy of fraudulent cryptocurrency exchange FTX, U.S. Bankruptcy Judge John Dorsey of the District of Delaware issued a related order of his own.  Starting in early February, Dorsey ordered the appointment of fee examiners in all Chapter 11 cases before him where assets and/or liabilities exceeded $50 million—the threshold for “larger Chapter 11 cases,” according to the Office of the U.S. Trustee.

While the U.S. Trustee Program provides for the use of fee examiners in such cases, examiners aren’t required and frequently aren’t appointed in pre-packaged bankruptcies and cases that aren’t particularly contentious.  However, a rise in bankruptcies involving fraud and mass tort litigation is causing more bankruptcy lawyers to face scrutiny over their billing practices.  “Fee examiners have become more prevalent recently because of very significant bankruptcy cases seeking recompense for alleged abuses,” said J. Scott Bovitz, a Los Angeles attorney who represents fee examiner Nancy Rapoport in bankruptcy court.

For instance, fee examiners have lopped six- and seven-figure amounts off of recent cryptocurrency bankruptcies such as Celsius, Voyager and BlockFi as well as recent bankruptcies involving tort claims such as Boy Scouts of America, fire protection company Kidde-Fenwal and LTL Management, a company formed to divert Johnson & Johnson’s tort liability over cancer attributed to the company’s talcum powder.  In their assessments of Big Law bills, fee examiners look for duplicate and redundant tasks, block or “lumped” billing, vague time entries, staffing inefficiencies, excessive expenses and more.

“I always tell professionals that my goal is not to reduce anyone’s fees because everyone did everything perfectly,” said Robert Keach, a fee examiner and the co-chair of the bankruptcy practice at Maine law firm Bernstein Shur.  “I haven’t found that case yet.”  According to Keach, most fee examinations end up taking 5% to 7% off of a legal bill, although some recent cases have been higher. In July, Dorsey cut roughly $1 million in fees off Pillsbury Winthrop Shaw Pittman’s $6 million tab for its work restructuring a California luxury hotel owner.  “It is not the Court’s job to piece together entries and try to make sense of them.  Each entry must be capable of evaluation on its own.  Many of Pillsbury’s entries are not,” Dorsey wrote.

Fee examiners also come at a cost to the estate, although Keach noted that the costs of examining fees are almost always offset by the reduction of professional fees resulting from examiners’ work.  In a December fee application for the BlockFi bankruptcy, examiner Elise Frejka, a New York-based solo practitioner, requested a total of $168,500 for 269 hours of work billed at an hourly rate of $675.

The biggest reductions in recent fee examinations sometimes came from firms that billed smaller amounts than those of debtor’s counsel. Representing debtor Kidde-Fenwal, Sullivan & Cromwell agreed to roughly $100,000 in fee reductions for vague and repetitive time entries and potentially unnecessary attendance levels at board meetings and on calls.

However, while Sullivan & Cromwell billed roughly $9 million in the bankruptcy, Brown Rudnick lost even more money to the fee examiner despite billing less than $6 million representing the creditors committee.  The firm was docked for vague time entries, “certain junior associate time,” potential duplication and overlap of tasks, unnecessary attendance levels and other miscellaneous issues with time entries.

Rapoport, a fee examiner and a professor at the William S. Boyd School of Law at the University of Nevada, Las Vegas, said she doesn’t believe law firms are intentionally inflating their fees so much as not exercising adequate billing judgment.  “What I do see is a combination of two problems: bad billing hygiene, such as block-billing, vague entries, and rounded hours, which is often improved after a few conversations with a fee examiner, and the use of more senior billers to do more junior work than they should be doing,” Rapoport said.  “I also find that the weekly ‘all hands on deck’ meetings need to be able to justify why each professional is in the room.”

In other recent bankruptcies, law firms escaped with 100% of their fees intact, although such firms had already offered discounts for time spent preparing fee applications and “transitory” timekeepers who billed less than five hours in a given month.  In the BlockFi bankruptcy, Kirkland & Ellis made out with 99.9% of its fees intact, while the examiner granted the full requested amounts to Cole Schotz and Haynes and Boone.

Chapter 11 Fee Examiner OKs $20.4M in Fees for 15 Firms

February 8, 2024

A recent Law 360 story by Alex Wittenberg, “Kidde-Fenwal’s Ch. 11 Fee Examiner Oks $20.4M for 15 Firms”, reports that the fee examiner appointed in fire-suppression company Kidde-Fenwal's Chapter 11 case has recommended that a Delaware bankruptcy judge approve $20.4 million in pay for 15 firms working on the proceedings, after they agreed to cut their requested compensation by about $333,000.

In a report submitted, examiner Diana G. Adams detailed interim fees requested by law firms and others working on behalf of Kidde-Fenwal Inc., its unsecured creditors committee and an ad hoc group of governmental claimants.  The fees cover work conducted from Aug. 1 to Oct. 31 by professionals for the debtor and the creditors committee, and work done from mid-May or June 1 to July 31 by firms representing the ad hoc group.

U.S. Bankruptcy Judge Laurie Selber Silverstein ordered the appointment of a fee examiner in July to help avoid duplication of efforts by counsel for unsecured creditors in the case.  Kidde-Fenwal is one of the companies at the center of massive multidistrict litigation over the sale and use of toxic firefighting foams.

The debtor's attorneys, from five separate firms, requested about $9.61 million in total for their work during the period and agreed to reduce their fees to $9.49 million following discussions with Adams, according to the report.  Sullivan & Cromwell LLP stands to be the highest-paid firm representing the debtor, with reduced fees of $5.27 million and an hourly rate of $1,347.

Seven firms representing unsecured creditors asked for $10.1 million in total and agreed to reductions of about $187,000. Brown Rudnick LLP's reduced fees for representing the committee amount to about $4.05 million.  Three companies working for the ad hoc committee of governmental claimants would reap $1.01 million after cuts of around $23,000.

Kidde-Fenwal filed for Chapter 11 protection in May 2023, saying it faced more than $1 billion of liability tied to claims arising from a former subsidiary's manufacture and sale of aqueous film-forming foam.  The chemical foams have given rise to thousands of lawsuits alleging the companies caused lingering pollution of public waterways and aquifers, and to billions of dollars in toxic exposure claims tied to cancers, thyroid diseases, elevated liver enzymes and decreased fertility among those exposed.

After Judge Silverstein ordered the appointment of an examiner in July, Kidde-Fenwal asked the court to approve its request to pay the ad hoc group of governmental claimants, an atypical arrangement.  The debtor said doing so was necessary in part because of prohibitions against government-entity membership in regular unsecured creditor committees.