Reading Broadcasting, Inc .

Although the application refers to section 330, it is apparent that this second1
application was not intended as a final one.
UNITED STATES BANKRUPTCY COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
In re : Chapter 11
READING BROADCASTING, INC. :
Debtor : Bankruptcy No. 05-26563bif
.................................................
MEMORANDUM
.................................................
Miller Coffey Tate, LLP (“MCT”), which firm serves as accountant to the
chapter 11 trustee, has filed a fee application covering the period from January 1, 2007
through June 30, 2007. In this application, MCT seeks an allowance under 11 U.S.C. §
331 of fees in the amount of $163,027.00 and reimbursement of expenses totaling1
$2,001.38. This application is opposed by the Philadelphia Television Network, Inc.
(“PTN”), which entity has filed the largest unsecured claim in this case. PTN argues that
MCT should be allowed only $82,223.62 in fees and is not entitled to have any expenses
reimbursed.
A hearing was held to consider the application and the objection thereto.
Both parties were afforded the opportunity to offer evidence in support of their respective
positions. Thereafter, they both submitted very thoughtful post-hearing memoranda.
Based upon the arguments made at the hearing and after review of their memoranda, it is
apparent that MCT and PTN have differing viewpoints regarding the proper scope of
MCT’s engagement and thus the types of services appropriate for this accounting firm to
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provide. As with many disputes, I conclude, for the reasons that follow, that both parties
raise some meritorious positions and others that are less persuasive.
I.
This chapter 11 commenced on October 7, 2005, with the filing of a
voluntary chapter 11 petition. Shortly thereafter, certain creditors (including PTN) filed
motions to appoint a chapter 11 trustee. The United States trustee sought an examiner.
On November 9, 2005, an examiner was appointed. The examiner then filed a report on
December 12, 2005, which report resulted in an order on January 13, 2006 granting the
pending motion to appoint a chapter 11 trustee. On January 17, 2006, the United States
trustee selected George L. Miller as the trustee. Mr. Miller is a certified public
accountant and a principal in the firm of Miller Coffey Tate, LLP.
Mr. Miller then sought to engage his own firm as “forensic accountants and
bankruptcy consultants.” His application explained the services that MCT would provide,
as well as those it would not:
The Trustee requires the services of a Forensic Accountant
and Bankruptcy Consultant to perform, but is not limited to,
the following services:
a. Assist in preparation and review of the Debtor’s financial
statements;
b. Assist in preparation and review of the Debtor’s Monthly
Operating Guideline Reports;
c. Review of short term cash flow forecasts, cash collateral
budgets and financial projections;
d. Assist the Trustee in proposed plans of reorganization.
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e. Review and analyze the financial information for inclusion
in the Disclosure Statement to the Plan of Reorganization;
f. Prepare analyses of various causes of actions under
bankruptcy law, such as, preferences, fraudulent conveyances
and turnover actions;
g. Assist the Trustee in pursuing causes of action for the
benefit of the estate;
h. Attend meetings with the Trustee and Court hearings as
required;
1. Provide expert testimony on behalf of the Trustee;
j. Preparation of corporate income tax returns;
k. Perform such other accounting, tax or consulting services
as may be requested and authorized by the Trustee.
4. MCT will not perform the following services so as to
prevent duplication of professional services:
a. Perform an audit in accordance with generally accepted
auditing.
b. Perform business valuations.
c. Provide the Trustee with business advice regarding any DIP
financing or restructuring advice regarding reorganization.
d. Serve as business broker for any potential asset sales or sale
of the business.
Trustee’s Application to Employ Miller Coffey Tate, LLP, ¶¶ 3-4.
The trustee’s application also disclosed the hourly rates at which MCT
agreed to provide these services:
Applicant is informed that the normal hourly fees of MCT are
as follows:
a) Partners and Principals $270.00 - $400.00
b) Managers $200.00 - $265.00
c) Seniors $155.00 - $195.00
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The first fee application covered the period from January 24, 2006 until2
December 31, 2006. It received no objections and was allowed in large measure.
4
d) Staff $85.00 - $150.00
Id., ¶ 8. This engagement request was not opposed by any party in interest and was
approved by this court on March 13, 2006.
The instant second fee application reflects that services were provided by2
five MCT employees: Daniel J. Coffey, CPA; William A. Homony; Megan J. Dumm;
Stephen D. Key; and Damon J. Karras. Mr. Coffey was described as the partner
responsible for the engagement. Mr. Homony was described as a senior accountant who
coordinated and supervised the other accountants and employees working on this
engagement. Ms. Dumm and Messrs. Key and Karras were other senior and staff
accountants who provided services to the trustee. Mr. Coffey’s time is billed at an hourly
rate of $400 for 204.20 hours of services; Mr. Homony billed at $220 per hour for 312.40
hours; Ms. Dumm billed at $145 per hour for 74.70 hours; Mr. Key billed at $135 per
hour for 10 hours; and Mr. Karras billed at $125 per hour for 3.50 hours.
The services rendered by these five accounting professionals were
categorized by MCT in its fee application as follows:
SERVICES RENDERED AMOUNT
Claims Analysis $10,674.50
Post-petition Financing 20,670.50
General 13,151.00
Litigation 80,553.00
Operating Reports 12,030.00
Plan of Liquidation 18,340.00
Asset Sales 6,222.00
Tax 1,386.00
Total $163,027.00
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Claims analysis involved review of the proofs of claims filed, along with
analysis of the debtor’s records for corroboration. The application refers in particular to
assisting the trustee in challenging claims filed by creditors PTN and HLM
Communications, LLC. The majority of the time spent was by Mr. Coffey. Postpetition
Financing activities concerned preparation of monthly, quarterly and annual reports
submitted to Gladstone, the postpetition lender, and an outside independent accounting
firm. The majority of these services were performed by Mr. Homony. The General
category included services that “assist[ed] the Trustee in the construction and
implementation phases of the [Digital Transmission System] and preparation of the first
fee application submitted by MCT.” Application, Ex. A-6. Mr. Homony provided the
majority of these services.
Litigation services, which comprise about one-half of the fee sought with
Mr. Homony spending the majority of time followed by Mr. Coffey, involved
“investigation and compilation of data and information from the Debtor’s records and
analysis of transactions with insider entities and former directors and officers of the
Debtor from 1991 to 2006.” Application, Ex. A-7. This information and analysis were
communicated to the trustee’s counsel for use in an adversary proceeding filed and
docketed at Adv. No. 06-0643. In addition, services were provided in connection with a
discovery request concerning an administrative claim filed by SOT, Inc. Id. MCT also
provided services concerning possible preference actions and to assist the trustee in
compliance with a subpoena from the local United States Attorney. Other services, to be
discussed below, were also provided in this category.
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MCT’s services in connection with the trustee’s proposed liquidating
chapter 11 plan were described in the application as follows:
Services rendered in this category represent review and
analysis of financial data and information of the Debtor and
assistance provided to the Trustee and counsel in connection
with the preparation of the Trustee’s Plan of Liquidation and
Disclosure Statement and subsequent amendments. Such
services included the review and analysis of creditors and
amounts by class, the preparation of a liquidation analysis,
and assistance with the preparation of information and
treatment of creditors included in the Plan and Disclosure
Statement.
Philadelphia Television Network, Inc. filed a Plan of
Reorganization which required review and challenge by the
Trustee. Assistance was provided in formulating objections
to the proposed Plan of Reorganization.
Ex. A-9. Only Messrs. Coffey and Homony provided these services, with Mr. Homony
providing the majority of the time spent.
The trustee’s proposed chapter 11 plan (which plan was confirmed after this
fee application was filed) contained a provision to sell the debtor’s television station
assets. In that regard, MCT (through Messrs. Homony and Coffey) offered certain
limited assistance to another professional engaged by the trustee:
Services rendered in this category include the preparation and
compilation of financial and nonfinancial data to assist the
Trustee’s investment banker in marketing the Debtor’s
business and responding to information requests by potential
buyers.
Application, Ex. A-10.
PTN’s objection to MCT’s fee application is based upon numerous grounds.
First, it maintains that Mr. Coffey’s hourly rate for services should be reduced from $400
per hour to $300 per hour. It also contends that numerous services were unnecessary, not
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As this bankruptcy case pre-dates the effective date of BAPCPA, the earlier3
version of section 330 is relevant. See In re Goucher, 378 B.R. 445, 447 (Bankr. M.D. Pa. 2007);
In re Holland, 374 B.R. 409 (Bankr. D. Mass. 2007).
7
beneficial, were outside the scope of MCT’s duties, were duplicative and excessive, or
were not sufficiently detailed to permit allowance. Those objections are detailed in
PTN’s posthearing memorandum and can be summarized as follows:
1. Time Spent on Items not Beneficial to the Estate– $25,074.00
2. Time Spent on Items Within the Duty of the Trustee– $11,678.00
3. Time Spent on Fee Application– $7,780.00
4. Time Spent on Duplicative Items– $13,053.00
5. Time Spent on Items That Was Excessive– $3,871.00
6. Time Spent on Items Accompanied By Vague Descriptions– $6,366.00
7. Hourly Rate Reduction– $10,980.00
PTN’s Posthearing Memorandum, Ex. H. PTN also seeks disallowance of all expenses,
arguing that they are insufficiently detailed to warrant reimbursement.
Before addressing these objections and MCT’s responses thereto, certain
generally accepted principles regarding the allowance of professional fees under sections
330 and 331 and will be outlined.
II.
Section 331 of the Bankruptcy Code permits any professional engaged by a
trustee under section 327, such as an accountant, to receive interim compensation as
permitted by section 330. Section 330(a)(1)(A) provides that a professional engaged by a
trustee can be awarded “reasonable compensation for actual, necessary services
rendered.” Furthermore, section 330(a)(3) provides:3
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In determining the amount of reasonable compensation to be
awarded, the court shall consider the nature, the extent, and
the value of such services, taking into account all relevant
factors, including–
(A) the time spent on such services;
(B) the rates charged for such services;
(C) whether the services were necessary to the
administration of, or beneficial at the time at
which the service was rendered toward the
completion of, a case under this title;
(D) whether the services were performed within
a reasonable amount of time commensurate with
the complexity, importance, and nature of the
problem, issue, or task addressed; and
(E) whether the compensation is reasonable
based on the customary compensation charged
by comparably skilled practitioners in cases
other than cases under this title.
Allowance of reasonable fees under section 330(a) for a professional such
as an accountant is determined using the lodestar approach. See, e.g., In re Busy Beaver
Building Centers, Inc., 19 F.3d 833, 849, 856 (3d Cir. 1994); In re Macrophage, Inc.,
2007 WL 708926, at *3 (D.N.J. 2007). The lodestar method involves the multiplication
of a prevailing market hourly rate, taking into account the experience of the professional
and the nature of the professional services provided, by the number of hours reasonably
expended in providing those services. See, e.g., In re Busy Beaver Building Centers, Inc.,
19 F.3d at 849 n.21 (“Under the lodestar analysis, a court first establishes a reasonable
hourly rate (corresponding to the value of the services and the cost of comparable services
in § 330(a)(1)) for each set of compensable services (corresponding to the nature of the
services in § 330(a)(1)), and then multiplies each rate by the reasonable number of hours
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of compensable work included in each respective set (corresponding to the time and
extent of the services in § 330(a)(1))”); see also Pennsylvania Environmental Defense
Foundation v. Canon-McMillan School District, 152 F.3d 228, 231-32 (3d Cir. 1998).
In applying section 330(a), a bankruptcy court must consider the benefit
achieved by the services rendered. See, e.g., In re Engel, 124 F.3d 567, 573 (3d Cir.
1997). Indeed, the Third Circuit Court of Appeals noted that there is an “express mandate
of ‘benefit-to-the-estate’ imposed by § 330.” Id. at 577. The language of section
330(a)(3), however, only requires that the services be reasonably likely to yield a benefit
to the estate at the time they were provided; not that they actually do so:
This duty placed Aimen under an obligation to his client, the
debtor’s estate, to abandon the preference suit once it became
reasonably obvious that further litigation would cost more
than it was likely to bring into the estate. We emphasize the
words “reasonably obvious.” The standard is an objective
one: did a time come when a reasonable lawyer in Aimen’s
position would have abandoned the suit? And it allows room
for differences in judgment. When abandonment is not the
obviously right course, when reasonable professionals could
differ over the right course, the professional is not to be
penalized, just as a trustee is not to be surcharged for a
discretionary judgment that later proves to have been
mistaken.
Matter of Taxman Clothing Co., 49 F.3d 310, 315 (7th Cir. 1995) (citation omitted);
accord In re Ames Department Stores, Inc., 76 F.3d 66, 71-72 (2d Cir. 1996), abrogated
in part on other grounds by Lamie v. U.S. Trustee, 540 U.S. 526 (2004):
In enacting section 330, Congress departed somewhat from
this doctrine of strict review, taking the position that
“compensation in bankruptcy matters be commensurate with
the fees awarded for comparable services in non-bankruptcy
cases.” In the Matter of UNR Indus., Inc., 986 F.2d 207,
208-09 (7th Cir. 1993). With the 1994 amendments of section
330, Congress made another move towards greater equity in
estate management. It provided that an award for fees might
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be made for services that were “beneficial at the time at which
the service was rendered,” § 330(a)(3)(C), and, by inverse
construction, “reasonably likely to benefit the debtor’s estate.”
Id. (a)(4)(A)(ii)(I). . . .
As reasoned in Collier, if the services of a debtor’s attorney
“are reasonably likely to benefit the debtor’s estate, they
should be compensable.” 2 Collier ¶ 330.04 at 330-43. Upon
remand, this is the test the bankruptcy court should apply in
an objective manner, based upon what services a reasonable
lawyer or legal firm would have performed in the same
circumstances. See In the Matter of Taxman Clothing Co., 49
F.3d 310, 315 (7th Cir. 1995).
See, e.g., In re Mednet, 251 B.R. 103, 108 (B.A.P. 9th Cir. 2000); In re Auto Parts Club,
Inc., 211 B.R. 29, 35 (B.A.P. 9th Cir. 1997) (Standard under section 330(a) “is an
objective one as to whether the fees were reasonable and necessary at the time they were
incurred. . . . The policy behind § 330 is not one based on hindsight, but rather one based
on an objective determination at the time services were rendered.”). Where accounting
services rendered on behalf of the trustee were clearly not necessary for the
administration of the bankruptcy case, compensation will not be awarded. See In re Das
A. Borden & Co., 131 F.3d 1459, 1463-64 (11th Cir. 1997).
In addition, in determining the reasonableness of professional fees under
section 330(a) in a chapter 11 case, accountants’ fees are considered under the same
standard as attorneys’ fees. See, e.g., In re Adventist Living Centers, Inc., 137 B.R. 692,
696 (Bankr. N.D. Ill. 1991). As would apply with a fee request made by counsel to a
chapter 11 debtor in possession, billing judgment, staffing, and interoffice conference
time and the nature of the services provided must be carefully reviewed to determine a
proper allowance under sections 330(a) and 331:
In order to receive compensation for services rendered to a
Chapter 11 debtor-in-possession, counsel is not required to
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have achieved confirmation. . . . Nevertheless, attorneys’ fees
must measure up to the standards of reasonableness contained
in 11 U.S.C. § 330 before they may be allowed as an expense
to be borne by the bankruptcy estate. The time spent on tasks
performed must not be excessive, and it is incumbent upon
attorneys seeking approval of compensation from the
bankruptcy estate to exercise billing judgment. . . . Clerical
work is part of office overhead and is subsumed in an
attorney’s hourly rate; consequently it is not compensable
from the bankruptcy estate. . . . Similarly, excessive time
spent by an attorney in instructing or delegating primarily
ministerial tasks to a paralegal is part of a law firm’s
intra-office administration and will, therefore, be disallowed
as unnecessary. Cf. In re New Boston Coke Corp., 299 B.R.
432, 445 (Bankr. E.D. Mich. 2003) (noting that “[g]enerally,
holding an intra-office conference for the purpose of training
attorneys is not compensable.”).
In re Potter, 2007 WL 1672142, at *4 (Bankr. D.N.M. 2007) (citations omitted); see also
In re Adventist Living Centers, Inc., 137 B.R. at 697; In re American International
Airways, Inc., 69 B.R. 396 (Bankr. E.D. Pa. 1987).
Furthermore, bankruptcy courts should insure that professionals do not
unfairly receive compensation for overstaffing cases or having senior professionals
perform services that a less senior professional could provide, see In re Adventist Living
Centers, Inc., 137 B.R. at 698, and bill only for reasonable time expended. See In re
Jefsaba, Inc.,172 B.R. 786 (Bankr. E.D. Pa. 1994); Kenneth Leventhal & Co. v. Spurgeon
Holding Corp., 152 B.R. 511, 516 (N.D. Ill. 1993); In re Chas. A. Stevens & Co., 109
B.R. 853, 854, 856 (Bankr. N.D. Ill. 1990).
Finally, professionals engaged by a trustee, including accountants, should
not perform services that are outside the scope of their engagement. See In re Bicoastal
Corp., 122 B.R. 140, 147-48 (Bankr. M.D. Fla. 1990). If the professional services
provided are within the scope of the court-approved engagement, they will be
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compensable if reasonable in duration and staffed appropriately, unless they were clearly
of no benefit at the time they were rendered. See generally Killoren v. Boyd, Cronk &
Co., 119 F.2d 1 (8th Cir. 1941) (accounting firm was compensated under the former
Bankruptcy Act for services rendered at the trustee’s request and within the scope of its
engagement). Conversely, if the services rendered were outside of the scope of the
professional’s engagement, then such services likely were either of no benefit to the estate
or were duplicated by another professional whose scope included such services. See
generally In re Computer Learning Centers, Inc., 285 B.R. 191, 205-06 (Bankr. E.D. Va.
2002) (discussing narrow exceptions to this principle).
III.
A.
As mentioned earlier, calculation of fees allowed under 11 U.S.C. § 330
involves computation of the appropriate “lodestar.” As explained by the Third Circuit
Court of Appeals:
The most familiar formula courts in this circuit use to
calculate attorneys’ fees is undoubtedly the "lodestar"
approach, an approach with its roots in common fund cases
and fee-shifting statutes. Under the lodestar analysis, a court
first establishes a reasonable hourly rate (corresponding to the
value of the services and the cost of comparable services in §
330(a)(1)) for each set of compensable services
(corresponding to the nature of the services in § 330(a)(1)),
and then multiplies each rate by the reasonable number of
hours of compensable work included in each respective set
(corresponding to the time and extent of the services in §
330(a)(1)).
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In re Busy Beaver Building Centers, Inc., 19 F.3d 833, 849 n.21 (3d Cir. 1994).
To determine the appropriate hourly rate, a court should look to the market
rate for such services. Id. at 849. A determination of the relevant market rate considers
the experience of the individual professional who provided the services. See, e.g., In re
Cendant Corp. PRIDES Litigation, 243 F.3d 722, 732 n.11 (3d Cir.), cert. denied sub
nom., Kirby McInerney & Squire, LLP v. Joanne A. Aboff Family Trust, 534 U.S. 889
(2001); Lake v. First Nationwide Bank, 900 F. Supp. 726, 735 (E.D. Pa. 1995); In re
Paster, 119 B.R. 468, 469 (E.D. Pa. 1990) (“[R]easonable hourly rate is set by the court
based upon a number of factors, ‘including the difficulty of the task, the prevailing market
rate for counsel of petitioner’s experience, counsel’s normal billing rate, and the rates
awarded by other courts in similar circumstances’”) (quoting Jungkurth v. Eastern
Financial Services, Inc., 87 B.R. 333, 337 (E.D. Pa. 1988)).
A bankruptcy judge may use his own knowledge of the market and of the
professional’s experience to determine the appropriate hourly rate. See, e.g., In re
Recycling Industries, Inc., 243 B.R. 396, 404 n.6 (Bankr. D. Colo. 2000); see also In re
Busy Beaver Building Centers, Inc., 19 F.3d at 854 (“Although this case does not present
us with a pressing need to define precisely how a bankruptcy court should verify the
market rates, if any, for select clerical services, we observe that certainly a bankruptcy
judge’s experience with fee petitions and his or her expert judgment pertaining to
appropriate billing practices, founded on an understanding of the legal profession, will be
the starting point for any analysis.”).
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In this contested matter, PTN challenges the hourly rate sought by MCT for
the services provided by Mr. Coffey. Instead of $400 per hour, PTN maintains that his
market rate should be $300.
According to Mr. Coffey’s Curriculum Vitae, he is a 1972 college graduate,
has been licensed as a certified public accountant since 1977, and has been a certified
fraud examiner since 1996 and a forensic certified public accountant since 2007. Ex.
MCT-1. Mr. Coffey has been associated with MCT since 1987, and with Windsor
Communication Group, Inc. and Touche Ross & Co. prior to that date. He has provided
services to numerous chapter 11 debtors in possession, as well as various bankruptcy
trustees, and has testified frequently in bankruptcy related matters. Id. He has also
provided services to the local United States Attorney in a criminal matter, as well as for a
non-bankruptcy court receiver. Id.
One of my colleagues awarded MCT fees in the Drexel Industries, LLC
bankruptcy case, which included an hourly rate of $330 for Mr. Coffey for services
rendered in 2003. Mr. Coffey also averred that partners in accounting firms providing
services in bankruptcy cases outside this district requested compensation at hourly rates
from $330 to $800. Application, Ex. B. Finally, MCT represented that Mr. Coffey’s
hourly rate in this case is the same as the firm charges in its non-bankruptcy engagements.
Based upon this evidence, as well as my knowledge of rates charged by
accounting firms for bankruptcy work in this district, I agree with MCT that the market
value for services provided by someone with Mr. Coffey’s experience and credentials is
$400 per hour. Thus, PTN’s objection on this point will be denied.
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B.
PTN objects to the time spent by MCT in preparing and reviewing monthly
operating reports submitted by the trustee. In this chapter 11 case, the trustee has been
operating the debtor’s business, a television station. PTN argues that the trustee is a
certified public accountant and so was capable of preparing his own reports. PTN
calculates that Messrs. Coffey and Homony spent $11,678 in connection with these
reports, which services fell within the trustee’s duty to perform. PTN’s Post-hearing
Memorandum, Ex. B.
As observed by one commentator, the trustee’s accounting firm will
typically prepare monthly reports for chapter 11 operating entities:
In most jurisdictions, the debtor in possession or the operating
trustee will be required to file monthly financial statements,
especially profit and loss statements, so that the United States
trustee will be able to monitor the economic performance of
the business. These statements will generally be prepared by
an accounting firm, familiar with the deviations from
generally accepted accounting principles that are expected in
the preparation of operating statements in bankruptcy cases.
Bernstein, Collier Compensation, Employment & Appointment of Trustees &
Professionals in Bankruptcy Cases, ¶ 1.10 (2004).
Even though the trustee is himself an accountant, it is permissible to
delegate that function when the trustee is operating a business and preparation of monthly
reports will be time-consuming, for the same reasons that a trustee who is an attorney can
engage his own law firm and delegate legal issues to that firm. See, e.g., In re
Interamericas, Ltd., 321 B.R. 830 (Bankr. S.D. Tex. 2005); In re Kieffer, 306 B.R. 197
(Bankr. N.D. Ohio 2004). Moreover, the trustee’s approved application to engage MCT
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The trustee has been represented by two law firms as general bankruptcy counsel;4
albeit, not at the same time. The first law firm ceased operations and was replaced by present
counsel in April 2007.
16
expressly referred to the latter’s role in preparing and reviewing monthly operating
reports.
As PTN does not argue that the time spent by MCT in connection with
these operating reports is excessive, and my review supports this implicit position, its
objection on this issue will also be denied.
C.
PTN further objects, as not beneficial to the estate, to services provided by
MCT that were primarily categorized by the applicant as litigation support. Indeed,
compensation for services rendered in this category is perhaps the chief dispute between
PTN and MCT. The objector states:
Accountants employed by MCT billed excessive amounts of
time for performing work outside the scope of their
employment by spending hours upon hours reviewing
deposition and hearing transcripts, pleadings, and researching
criminal matters. It is unfathomable to PTN why MCT, in
their employment as certified public and forensic accountants,
would be required to perform the duties of an attorney, when
two law firms have already been retained by the Trustee in
this bankruptcy proceeding.
PTN’s Memorandum, at 1. The objector seeks to reduce allowed compensation by4
$25,074 for services it views as outside the scope of MCT’s engagement as well as its
expertise. See PTN’s Memorandum, Ex. A.
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MCT acknowledges that some of the services for which it now seeks an
allowance involved Messrs. Coffey and Homony reviewing pleadings filed, including
drafts of pleadings, along with deposition and hearing transcripts that arose in this chapter
11 case as well as in a separate district court civil action. See, e.g., entries of 1/2/07;
2/9/07; 3/7/07; 3/28/07; 4/17/07; 4/18/07; 5/3/07; 6/1/07; 6/6/07; 6/22/07; 6/25/07;
6/28/07. During the hearing, Mr. Coffey explained his reasons for some of the reviews
undertaken by him or Mr. Homony:
Well, if I may go back to the myriad of hearings to obtain a
Trustee -- and I did read those transcripts. I know it’s been
criticized but that was, to me, a source of free discovery on a
lot of items that were challenged with insiders principally
SOT, there’s a big issue with tower ownership, there’s an
issue of whether millions of dollars had been misappropriated
by these insiders.
There was questions about loans at 29% interest rates to
insiders, et cetera. We reviewed those transcripts. The Judge
addressed those in his order appointing the Trustee to look
into insider transactions. And our scope of employment was
to assist the Trustee with any and all causes of action for
recovery of assets to the Estate.
***
I reviewed transcripts as a fertile ground for free discovery
because these -- there were six, I believe, hearings over the
course of the time frame to obtain a Trustee. In addition there
were depositions taken during this period of insiders, I believe
Mr. Root, Mr. Matt Miller, Mr. Cohen and they focused and
included issues that were very important for following the
insider transactions and developing the complaint that
ultimately was made for recovery against those individuals.
There was testimony regarding tower ownership and things of
that nature that just expedited into review and where to look
for things. So that’s why it was very important to understand
people’s positions taken in those sworn testimony.
Q. Okay. Well, how does this -- how did this benefit in your
view the Estate and the Creditors -- the performance of these
services?
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A. It assisted us in preparing the complaints. It was like –
taking interviews of people to find out information. A lot of
these -- this data was prosecuted by PTN’s counsel to obtain a
Trustee.
They had done research, they had assisted us in getting the job
done. So we got a head start on it by reviewing these
transcripts.
N.T. at 86, 110-11.
In addition to reviewing transcripts for discovery purposes, MCT reviewed,
inter alia, pleadings such as objections to settlements and to the fee application filed by
the trustee’s former counsel, 4/17/07, a criminal information filed against a former debtor
officer, 6/27/07, and a memorandum of law filed in opposition to judgment on the
pleadings, 6/25/07; conducted research concerning a criminal referral by the trustee to the
local United States Attorney, 3/8/07; advised trustee’s counsel regarding “grand jury
issues,” 5/4/07; and assisted in physically escorting a fired debtor employee off the
premises, 5/7/07.
As for its litigation services, MCT argues in its memorandum that they were
all necessary and beneficial to the estate:
Applicant reviewed pleadings and transcripts, that is,
documents that can be characterized as legal in nature rather
than clearly a financial record, for multiple purposes. . . .
First, Applicant reviewed these documents in order to acquire
information of self-dealing, fraud and other misconduct for
causes of action against insiders. Also, this information was
useful in understanding the operations of the Debtor and the
history of the Debtor which in turn better equipped Applicant
to compile the necessary financial information with respect to
the sale, the plan and litigation and to otherwise assist the
Trustee. In addition, review of these documents assisted Mr.
Coffey in his preparation as a witness at depositions and in
court.
MCT’s Memorandum, at 19.
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More generally, MCT also justifies its actions by observing that the trustee
is operating a business and there were few employees of the debtor available to assist him
in so doing. Furthermore, the trustee is charged with asserting claims, collecting assets
and making criminal referrals. Thus, MCT considered that the scope of its engagement
was to undertake any actions that might assist the trustee in the performance of his duties:
as its employees, “from an administrative standpoint [were] the strongest [viz, most
capable, most reliable] people involved in that organization . . . so when he needed
something done, he called us.” N.T. at 85. Such actions, in MCT’s view, included
reviewing all pleadings, transcripts and documents as they could have some bearing on
the trustee’s ability to recover assets, confirm a plan, and administer this case for the
benefit of creditors.
Although I appreciate that MCT’s goal in providing the challenged services
was to investigate thoroughly and assist the trustee in any manner possible, I agree with
PTN in part and find that MCT’s engagement and approved role in this chapter 11 case
were less broad, and so some of its services were outside the scope of forensic accounting
or consulting.
As one commentator has observed, it is the chapter 11 trustee, not his
accountant, who is the central actor in the case:
The chapter 11 trustee, when appointed or elected, replaces
the debtor in possession and becomes the fulcrum around
which the reorganization process takes place. The trustee
takes possession of the property of the estate. The trustee
initiates or maintains all appropriate legal actions. The trustee
operates the debtor’s business. The trustee investigates. The
trustee reports. The trustee meets with the debtor and the
creditors’ committee. The trustee disseminates information.
The trustee files the reorganization plan and the disclosure
statement. The trustee secures court approval of the
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disclosure statement. The trustee solicits consents and obtains
court confirmation of the plan. The trustee implements the
plan, vests the assets in the reorganized entity, and sees to the
closing up of the case.
Sulmeyer, Collier Handbook for Trustees & Debtors in Possession, ¶ 7.01 (2007).
Section 327(a) authorizes the chapter 11 trustee, with court approval, to
engage professionals, such as attorneys and accountants, to assist the trustee in the
performance of his duties when professional assistance is necessary and of benefit to the
bankruptcy estate. These professionals do not replace the trustee; and their assistance is
limited to the professional’s sphere of expertise.
Here, although MCT was authorized to “assist the Trustee in pursuing
causes of action for the benefit of the estate,” it was not engaged to provide legal advice
or to determine which potential claims are supported by existing facts. The trustee hired
competent bankruptcy counsel for that role; nor was MCT engaged to recommend to the
trustee whether the legal advice given should be followed. Bankruptcy counsel is
engaged to take discovery if necessary, review transcripts with an eye toward potential
claims, and draft and review pleadings. There can be instances in which counsel or the
trustee properly seeks assistance from his accountants to evaluate certain data, prepare for
hearings and even participate in the preparation of pleadings. In this contested matter,
however, my review of the fee application and the testimony presented shows that MCT
in some instances acted in ways that overlapped with the functions of the trustee and
trustee’s counsel, rather than merely assisting them.
In In re Computer Learning Centers, Inc., 285 B.R. at 202-08, the court
discussed whether an accounting firm should be compensated when the services provided
exceeded the scope of its engagement. The bankruptcy court analogized such a request to
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the retroactive enlargement of the engagement order, which can be permitted only in very
limited circumstances:
At the hearing on the accountant’s fourth fee application, the
trustee orally requested that the accountant’s scope of
employment be expanded so that the accounting firm could be
paid for all the services it performed. This is similar to
approving the employment of an attorney retroactively. In
order to obtain a retroactive enlargement of the scope of
employment, the trustee must show that the employment
would have been approved originally, that there is no
prejudice to the estate or the creditors and that there is good
cause for the delayed request.
Id., 285 B.R. at 206; see also Matter of Arkansas Co., Inc., 798 F.2d 645, 650 (3d Cir.
1986) (“[T]he bankruptcy court may grant retroactive approval only if it finds, after a
hearing, that it would have granted prior approval, which entails a determination that the
applicant satisfied the statutory requirements of 11 U.S.C. §§ 327(a) and 1103(a) that the
applicant be disinterested and not have an adverse interest, and that the services
performed were necessary under the circumstances.”).
In this chapter 11 case, had MCT originally sought court approval to
undertake broad transcript and pleadings review, prepare criminal referrals, or other types
of duties normally undertaken by the trustee himself or his bankruptcy counsel, such a
broad request would have elicited objections and would have been denied. Parties in
interest would have anticipated (and indeed this occurred) that certain of the litigation
services undertaken by MCT would duplicate services provided by special litigation
counsel (who filed the first complaint against the debtor’s former officers and directors)
and by former and current bankruptcy counsel (who prepared the amended complaint).
Indeed, these attorneys collectively had, by June 30, 2007, billed the estate more than
$200,000 for litigation related services.
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Thus, some disallowance of MCT’s requested compensation associated
with the litigation category is warranted. Upon review of services rendered by Messrs.
Coffey and Homony in this category, I find that a reduction of $16,900 is justified. I have
allowed compensation for services provided to the trustee or to bankruptcy counsel that
were within MCT’s expertise and were necessary to assist them without duplication.
D.
PTN also objects to an allowance for services that it considers not
sufficiently described, duplicative services provided by multiple MCT employees (i.e.,
interoffice conferences, see generally In re Adventist Living Centers, Inc., 137 B.R. at
697) and time considered excessive in light of the nature of the service and the experience
of the professional who rendered it. MCT concedes that its fee application inadvertently
includes identical entries for 2.7 hours of Mr. Coffey’s time.
In analyzing the numerous time entries, I agree with PTN in part:
$12,409.50 of the value of the services performed should not be awarded. See Kenneth
Leventhal & Co. v. Spurgeon Holding Corp., 152 B.R. 511 (N.D. Ill. 1993); see generally
In re Das A. Borden & Co., 131 F.3d 1459 (11th Cir. 1997) (accounting services
disallowed that are not beneficial to the estate).
E.
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PTN also objects to MCT’s request to be compensated for time spent in
preparing its initial fee application. It calculates that 27.1 hours of the present
application, valued at $7,780, concern services devoted exclusively to that task.
Section 330(a)(6), added to the Bankruptcy Code in 1994, provides:
Any compensation awarded for the preparation of a fee
application shall be based on the level and skill reasonably
required to prepare the application.
Therefore, this court is empowered to allow compensation for time spent by a
professional in preparing a fee application in appropriate circumstances. See, e.g., In re
Computer Learning Centers, Inc., 285 B.R. at 219. As with all compensation requests,
services for which an award is made should be performed within a reasonable amount of
time given the nature of the services rendered. 11 U.S.C. § 330(a)(3)(D).
Here, MCT spent 27.1 hours involving Messrs. Coffey and Homony in
preparing the firm’s first interim fee application. Mr. Coffey stated that the first fee
application in a case such as this requires extra administrative time to set up the
classifications for services and background support. Even so, the time spent is excessive
given the experience of those involved, and so should not have required all of the 10.1
hours of Mr. Coffey’s services billed plus an additional 17 hours of Mr. Homony’s time.
Accordingly, a deduction of $3,300 is warranted. See generally In re Fibermark, Inc., 349
B.R. 385, 410 (Bankr. D. Vt. 2006); In re Computer Learning Centers, Inc., 285 B.R. at
224-25.
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F.
In addition, and not included in its fee application, MCT now seeks
reimbursement of the time its counsel spent in litigating PTN’s objection to its fee
application. Courts are divided over whether Congress, in enacting section 330(a)(6),
intended for professionals to charge the estate for the expense of engaging counsel to
defend a challenge to a fee application, as well as for the preparation of the application
itself. See generally 3 Collier on Bankruptcy, ¶ 330.04[5][a] (15th ed. rev. 2008).
In general, the “American Rule” regarding attorney’s fees in federal court
cases, see generally, Alyeska Pipeline Service Co. v. Wilderness Society, 421 U.S. 240
(1975), is applicable to bankruptcy litigation. See, e.g., Matter of Pro-Snax Distributors,
Inc., 157 F.3d 414, 419 (5th Cir. 1998); In re Computer Learning Centers, Inc., 285 B.R.
at 222; In re Jessee, 77 B.R. 59, 61-62 (Bankr. W.D. Va. 1987). Thus, each party in a
federal court dispute, including bankruptcy disputes, typically must pay its own counsel
fees, regardless of the outcome. Here, MCT does not seek reimbursement of counsel fees
from PTN; rather, it seeks an administrative expense charged to the bankruptcy estate.
Some courts conclude that an award of counsel fees for defending against
an objection to a fee request, in the absence of a specific congressional directive, is
inappropriate. See In re St. Rita’s Associates Private Placement, L.P., 260 B.R. 650, 652
(Bankr. W.D.N.Y. 2001). Other courts hold that such an award is possible in appropriate
circumstances, especially when the objections have little or no merit. See In re Riverside-
Linden Inv. Co., 945 F.2d 320, 323 (9th Cir. 1991).
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If I assume arguendo that section 330(a)(6) does permit including the legal
fees expended in defending a fee application, I conclude that such an award is unjustified
in this instance. As noted above, PTN’s objections were not frivolous or posed in bad
faith. The objector holds an unsecured claim and its dividend in this chapter 11 case
would be diminished by the allowance of administrative expenses under section 330(a).
The challenge to the proper scope of MCT’s engagement was legitimate; moreover, some
other objections have been sustained in part. Therefore, MCT and PTN should each have
to bear the expense of litigation in this contested matter. See In re Computer Learning
Centers, Inc., 285 B.R. at 225-26.
G.
Finally, PTN objects to reimbursement of any of the expenses, contending
that none are sufficiently described. On this point I disagree in large part. While greater
detail would have been helpful, I can conclude that reimbursement of MCT’s listed
expenses is appropriate except for the category of mileage. Other than the identity of the
employee traveling and the date of travel, one cannot determine the destination, purpose
or even the mileage rate charged. Accordingly, $589.32 in expenses will be disallowed.
See In re Fibermark, Inc., 349 B.R. at 410; In re Chas. A. Stevens & Co., 109 B.R. 853,
856 (N.D. Ill. 1990).
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The United States trustee expressed concern at the fee hearing that payment of5
any interim award could adversely affect the trustee’s ability to operate the debtor. This concern
pre-dates the confirmation of the trustee’s liquidation plan. Given the terms of that plan, and the
trustee’s understanding of his need to have sufficient funds to operate until closing of the station
assets sale, as well as the need to treat all administrative expenses equally, I shall not preclude
the trustee from exercising his judgment regarding the timing of payment of this interim award.
26
An appropriate order will be entered under section 331.5
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UNITED STATES BANKRUPTCY COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
In re : Chapter 11
READING BROADCASTING, INC. :
Debtor : Bankruptcy No. 05-26563bif
.................................................
ORDER
.................................................
AND NOW, this 3rd day of April 2008, upon consideration of the second
interim fee application filed by Miller Coffey Tate, LLP (MCT), which firm serves as
accountant to the chapter 11 trustee, for services provided and expenses incurred during
the period from January 1, 2007 through June 30, 2007,
And upon consideration of the objections thereto filed by the Philadelphia
Television Network, Inc.,
And for the reasons stated in the accompanying memorandum, it is hereby
ordered that the application is granted in part pursuant to 11 U.S.C. § 331. MCT is
awarded $130,417.50 in fees and $1,412.06 in reimbursement of expenses.
_________________________
BRUCE FOX
United States Bankruptcy Judge
copies to:
George L. Miller
Miller Coffey Tate, LLP
8 Penn Center, Suite 950
1628 JFK Blvd
Philadelphia, PA 19103
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Paul J. Winterhalter, Esq.
Corinne M. Samler, Esq.
Law Offices of Paul J Winterhalter, P.C.
1717 Arch Street, Suite 4110
Philadelphia, PA 19103
Daniel Astin, Esq.
Magdalena Schardt, Esq.
Fox Rothschild, LLP
2000 Market Street, 10th Floor
Philadelphia, PA 19103
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