Following two public comment periods spanning more than a year as well as a public meeting, the Office of the United States Trustee (the "UST") has issued new guidelines for attorney compensation in larger chapter 11 cases. The new guidelines apply to larger cases filed on or after November 1, 2013. A larger chapter 11 case is defined as a chapter 11 case with $50 million or more in assets and $50 million or more in liabilities, aggregated for jointly administered cases and excluding single asset real estate cases. The guidelines are intended to "enhance disclosure and transparency in the compensation process and to help ensure that attorneys' fees and expenses are based on market rates." The guidelines also address disclosure of certain information in applications for retention filed under sections 327 and 1103 of the Bankruptcy Code.
The initial guidelines established by the UST in 1996 titled "Guidelines for Reviewing Applications for Compensation and Reimbursement of Expenses filed under 11 U.S.C. § 330" (the "1996 Guidelines") will continue in effect for the review of applications filed under section 330 in (1) larger chapter 11 cases by those seeking compensation who are not attorneys, (2) all chapter 11 cases below the larger case threshold, and (3) cases under other chapters of the Bankruptcy Code. The UST plans to update the 1996 Guidelines in phases, and the changes governing larger chapter 11 cases is the first phase. The new fee guidelines are not binding, but the UST plans to lobby bankruptcy courts to incorporate them into their local rules of practice and procedure.
With the revised guidelines, the UST intended to address many considerations on fees including staffing inefficiencies, rate increases, transitory professionals, block billing or lumping, vague or repetitive entries, overhead, non-working travel, geographic variations in rates, budgets, and staffing plans.
The new guidelines provide for more stringent and detailed practices, including:
- Mandatory use of budgets and staffing plans to improve case management;
- Disclosure of rate increases that occur during a representation;
- Fee rates based upon the location of the attorney's home office;
- Submission of billing records in an open, searchable electronic format so that the UST and other interested parties can sort, search, and filter data for analysis by timekeeper, task code, date, or key words or events;
- Use of independent fee committees and fee examiners; and
- Use of model forms and templates for applications seeking payment of fees and reimbursement of expenses.
The new guidelines include requirements for client verifications and counsel statements. The client must verify the professional's retention application, which should describe the process and decision to retain counsel as well as explain the process for managing counsel's fees and expenses. The applicant must disclose customary billing rates and terms, disclose prepetition billing rates and terms and, if it changed postpetition, explain why and what's different.
With respect to the contents and format of fee applications, the UST's guidelines require the inclusion of certain general information from each professional as well as customary and comparable compensation (including blended rates). They also require information about case status, budget, staffing plans, and interim fee applications. Counsel may need to provide an explanation if requested fees and expenses exceed the budget by 10% or more.
The guidelines discuss the use of special review entities to monitor professional's fees and expenses (i.e., fee review committees or an independent fee examiner). They also discuss specific considerations for the retention and compensation of co-counsel, including the necessity for separate counsel, a comparison of billing rates with lead counsel, measures taken to avoid duplication of work, and projected savings to the estate.
In order to assist professionals in complying with the new guidelines, the UST has developed .pdf fillable forms for Exhibits A through E of the fee applications:
- Exhibit A – Customary and Comparable Compensation Disclosures with Fee Applications
- Exhibit B – Summary of Timekeepers Included in this Fee Application
- Exhibit C-1 – Budget
- Exhibit C-2 – Staffing Plan
- Exhibit D-1 – Summary of Compensation Requested by Project Category
- Exhibit D-2 – Summary of Expense Reimbursement Requested by Category
- Exhibit E – Summary Cover Sheet of Fee Application
Click here to read the UST Fee Guidelines.
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