DANA L. RASURE, Bankruptcy Judge.
TABLE OF CONTENTS
I. JURISDICTION...............................................................774
II. FINDINGS OF FACT...........................................................775
A. Prepetition Relationship between Latshaw and LCPI .....................775
B. Postpetition Events ...................................................779
1. Cash collateral ...................................................780
2. Latshaw's Claim against LCPI filed in the Lehman Bankruptcy
Case ............................................................781
3. LCPI's Proof of Claim filed in Latshaw's bankruptcy case ..........782
4. Disclosure Statement and Plan Confirmation ........................783
C. Post-Confirmation Events ..............................................787
1. Execution of the Post-Confirmation Implementation Documents .......787
2. Claims Litigation .................................................787
a. Pre-confirmation...............................................787
b. Post-confirmation..............................................789
3. Fees incurred in filing Fee Applications ..........................792
III. CONCLUSIONS OF LAW.........................................................794
A. Scope of ¶ 9.5(b) of the Prepetition Credit Agreement .................795
B. Reasonableness Analysis ...............................................798
1. The bankruptcy case was not complex ...............................799
2. The number of lawyers assigned to work on this case resulted in
substantial duplication of efforts, and no billing judgment was
applied .........................................................799
3. Underutilization of local counsel .................................801
4. Unreasonable hourly rates .........................................802
5. Fees are disproportionate to the risk .............................805
C. The Unreasonable Portion of Fees and Expenses Will Not Be Allowed
as an Unsecured Claim under § 502(b) ...........................805
D. Allowed Fees ..........................................................806 1. Fees for Prepetition Services .....................................806 a. Prepetition "Case Administration" Tasks .......................807 b. Prepetition "Credit Agreement" Tasks ..........................807 c. Prepetition "Fee Application" Tasks ...........................808 2. Fees for Postpetition Services ....................................808 a. Postpetition administration of Lehman Bankruptcy Case..........808 b. "Case Administration" .........................................809 c. "Cash Collateral...............................................811 d. "Plan and Disclosure Statement" ...............................813 e. "Credit Agreement" ............................................814 f. "Fee Application"..............................................815 g. "Non-Working Travel"...........................................816 h. "Claims Litigation" ...........................................816 3. Summary of Allowed Fees ...........................................818 E. Allowed Expenses ......................................................818 1. LCPI's Out-of-Pocket Expenses .....................................818 2. Weil's Expenses ...................................................818 a. Travel and Transportation Expenses of $42,121.23 ..............819 b. Business Meal Expenses of $3,403.02 ...........................820 c. Telephone and Facsimile Expenses of $144.31 ...................821 d. Postage and Express Mail Expenses of $2,162.01 ................821 e. Messenger and Process Service Expenses of $350.79 .............821 f. Duplicating Expenses of $25,007.44 ............................822 g. Consultants and Witness Fees of $7,664.40 .....................822 h. Corporation Service Expenses of $1,232.60 .....................822 i. Court Reporting Expenses of $7,798.35 .........................823 j. Computerized Research Expenses of $47,532.29 ..................823 3. Conner & Winters'Expenses .........................................823 4. Summary of Allowed Expenses .......................................824 IV. CONCLUSIONS ...............................................................824
Before the Court is the Amended Application for Allowance of Claim of Lehman Commercial Paper, Inc. for Interest, Fees, and Expenses Under Section 506(b) of the Bankruptcy Code (Doc. 288) filed on August 17, 2010, by secured creditor Lehman Commercial Paper, Inc. ("LCPI"), as amended and supplemented by LCPI on July 28, 2011 (Doc. 491) (collectively the "Application"); the Objection to Lehman Commercial Paper Inc.'s Application for Allowance of Claim of Lehman Commercial Paper Inc. for Interest, Fees, and Expenses Under Section 506(b) of the Bankruptcy Code (Doc. 301) filed on August 23, 2010, by the Debtors Latshaw Drilling, LLC and Latshaw Drilling & Exploration Company, Inc. (collectively "Latshaw" or the "Latshaw entities"), as supplemented on August 11, 2011 (Doc. 494) (collectively, the "Latshaw Objection"); the United States Trustee's Limited Objection Regarding Lehman Commercial Paper Inc.'s Application for Allowance of Claim for Interest, Fees and Expenses Under Section 506(b) of the Bankruptcy Code (Doc. 307) filed on August 24, 2010, as supplemented on November 25, 2011 (Doc. 499) (collectively, the "UST Objection"); and the Response to Objections to Amended and Supplemental Application for Allowance of Claim of Lehman Commercial Paper Inc. for Interest, Fees, and Expenses Under § 506(b) of the Bankruptcy Code (Doc. 500) filed by LCPI on December 9, 2011 ("LCPI's Response to Objections").
In 2008, LCPI retained Weil Gotshal & Manges LLP ("Weil") to represent it in
LCPI contends that these fees and expenses were reasonably incurred in its "enforcement or preservation of any rights" under the Prepetition Credit Agreement.
An evidentiary hearing on the Application was held on December 13, 2011, and the matter was taken under advisement. Upon consideration of the pleadings, evidence presented at the hearing, prior proceedings occurring in this bankruptcy case and certain orders entered in LCPI's own Chapter 11 bankruptcy case (administratively consolidated into Bankruptcy Case No. 08-13555 (S.D.N.Y.)) (the "Lehman Bankruptcy Case"), of which the Court takes judicial notice, arguments of counsel, and applicable law, the Court finds and concludes as follows:
This is a core proceeding as described by 28 U.S.C. § 157(a), (b)(2)(B), and (b)(2)(O). The Court has jurisdiction of this proceeding by virtue of 28 U.S.C. § 1334, Local Civil Rule 84.1(a) of the United States District Court for the Northern District of Oklahoma, and retention of jurisdiction provisions contained in the order confirming Latshaw's Chapter 11 plan.
Since 1981, Latshaw has successfully operated a business leasing mobile drilling rigs to the oil and gas industry. During the time period relevant herein, Latshaw was engaged in a strategy of capital expansion, adding rigs to its fleet. In 2008, Inc. Magazine rated Latshaw 91st on its list of the 500 fastest growing private companies in the United States, and in 2009, Latshaw was ranked 118th of those 500 companies. As of the date of the trial, Latshaw employed approximately 400 people in Oklahoma and Texas, and generated annual revenue of approximately $80 million.
In 2005, Latshaw owned one rig and had 23 employees. From 2005 to 2008, Latshaw constructed at least nine additional drilling rigs. Large public oil and gas companies, such as Chesapeake Energy and XTO Energy, leased Latshaw's rigs to explore natural gas fields as Latshaw's rigs were designed to accommodate horizontal drilling projects. Latshaw's employees operated the leased rigs. Construction of the rigs was first financed by a $60 million credit agreement entered into between Latshaw and LCPI. In 2006, LCPI increased the line of credit to $80 million, on which Latshaw drew $78.5 million. In 2008, after Latshaw repaid $18.5 million to reduce the balance to approximately $60 million, LCPI agreed to increase Latshaw's borrowing capacity by $40 million (to $100 million) so that Latshaw could erect six more rigs. On July 11, 2008, the parties entered into the "$100,000,000 Amended and Restated Credit Agreement among Latshaw Drilling Company, LLC, as Borrower, Latshaw Drilling & Exploration Company, The Several Lenders from Time to Time Parties Hereto, Lehman Brothers Inc., as Arranger, Lehman Commercial Paper Inc., as Syndication Agent, and Lehman Commercial Paper Inc., as Administrative Agent Dated as of July 11, 2008."
Less than one month later, on September 15, 2008, LCPI's affiliate, Lehman Brothers Holdings Inc. ("LBHI"), and a number of LBHI's subsidiaries and affiliates, filed petitions for relief under Chapter 11 of the Bankruptcy Code in the Southern District of New York. LCPI, however, was not one of the LBHI affiliates that filed on September 15, 2008.
On September 17, 2008, Latshaw submitted to LCPI a written request to draw the remaining $37 million LCPI had committed to fund.
On October 5, 2008, LCPI filed its petition under Chapter 11 of the Bankruptcy Code in the Southern District of New York. Latshaw was, of course, then stayed from attempting to enforce its rights against LCPI. Finally, in December 2008, Eric Salzman, a representative of LCPI, called Trent Latshaw and requested that Latshaw simply release LCPI from its unfunded commitment. By December 2008, LCPI's default on its commitment had forced Latshaw to cancel building two new rigs it had anticipated putting into service.
In January 2009, LCPI internally confirmed that Latshaw had timely made all payments required by and within the terms of the Prepetition Credit Agreement.
Then, on May 26, 2009, LCPI advised Latshaw that the financial information Latshaw had been providing to it was not in the form required by the Prepetition Credit Agreement, and further that Latshaw had no right to cure these past technical defaults. LCPI also contended that Latshaw had failed to maintain a five million dollar key man life insurance policy as required by the agreement. Finally, LCPI demanded that Latshaw provide extensive specific financial information and documentation within nine days.
At a meeting held in Tulsa on June 4, 2009, Trent Latshaw advised LCPI's representatives that he had supplied financial information exactly in the manner as instructed by Robert Chambers, the LCPI representative in the Houston office that personally handled the Latshaw account. LCPI requested permission to contact Latshaw's accounting firm in order to obtain unconsolidated financial statements and other financial information sought by LCPI, which Latshaw granted. Latshaw also advised LCPI representatives that LCPI had previously expressly waived, in writing, the life insurance policy requirement.
Apparently, the financial information LCPI demanded was not critical to LCPI's evaluation of Latshaw's loan because LCPI did not contact Latshaw's accounting firm to obtain the information. Instead, on June 17, 2009, LCPI presented to Latshaw — "[a]s a follow up to our meeting ... on June 4th, 2009" — a proposal to restructure the Prepetition Credit Agreement that "addresse[d] the Lenders' concerns."
Because Latshaw was in substantial compliance with the Prepetition Credit Agreement (and LCPI was admittedly in default), Latshaw rejected the proposal to restructure the agreement on these despotic terms. On July 10, 2009, LCPI again sent a notice detailing purported technical defaults, again claiming a failure to obtain life insurance — a requirement that Latshaw had already demonstrated had been waived by LCPI — and the failure to produce
On July 13, 2009, LCPI swept $5,446,339.41 from Latshaw's operating account and held this sum as additional collateral,
On August 7, 2009, Ableco sent Latshaw a letter demanding payment of approximately $75,000 for legal fees incurred by Ableco's counsel for the period of February 3, 2009, to August 5, 2009 (the period in which LCPI was contriving grounds for default), ostensibly pursuant to ¶ 9.5(b) of the Prepetition Credit Agreement.
On September 18, 2009, Latshaw filed a two-page proof of claim in LCPI's bankruptcy case in the amount of $18,090,000 for "unfunded commitment damages."
On September 29, 2009, LCPI again declared Latshaw to be in default of the Prepetition Credit Agreement based upon its belief that Latshaw failed to remit $311,458.67 in insurance proceeds to LCPI as required by the Prepetition Credit Agreement.
When it became clear to Latshaw that LCPI intended to foreclose on its drilling rigs, a move that would have destroyed Latshaw's thriving and lucrative business and put 400 employees out of work, Latshaw filed this bankruptcy case.
The Court has never seen any evidence, throughout this case, that Latshaw lacked the means to repay LCPI. Rather than negotiating minor concessions to compensate Latshaw for LCPI's admitted default at the time LCPI sought a release of its unfunded commitment in December 2008 (for example, refunding the pro rata portion of the $600,000 commitment fee, for which Latshaw received nothing), LCPI made the strategic decision to search for nonfinancial defaults as leverage, and then attempted to extort another round of transaction fees and increased interest on funds Latshaw had already borrowed and was faithfully repaying, and to demand warrants for twenty percent of Latshaw's equity.
When Latshaw refused to be bullied into restructuring the loan, LCPI seized over $5 million of Latshaw's operating funds to hold as additional collateral, and searched for additional leverage to force Latshaw to renegotiate the agreement that LCPI breached. Ultimately, by accelerating this performing loan on technical grounds, LCPI drove Latshaw into bankruptcy court.
There is no question that but for LCPI's own financial failure,
LCPI requests reimbursement from Latshaw of approximately $125,000.00 for fees it incurred from December 2008 to the date Latshaw filed its Chapter 11 petition.
On November 11, 2009 (the "Petition Date"), the two Latshaw entities that were parties to the Prepetition Credit Agreement filed petitions for relief under Chapter 11 of the Bankruptcy Code. The two cases were jointly administered. For the purpose of determining whether LCPI acted to protect its interests during Latshaw's bankruptcy case in a fair, efficient, and prudent manner and with reasonable restraint, the Court makes the following findings to recount the course of Latshaw's Chapter 11 case and the extent of LCPI's
On November 18, 2009, the Court held a preliminary hearing in connection with Latshaw's request to use cash and receivables in which LCPI and Ableco had a security interest. Latshaw contended that its debt to LCPI and Ableco (totaling approximately $69 million) was secured by collateral with a going-concern value of $193 million and a liquidation value of in excess of $100 million. Although LCPI was in possession of a recent appraisal by an independent third party, Hadco International ("Hadco"), which confirmed those figures, LCPI would not concede that it was vastly oversecured.
An agreed interim cash collateral order providing for Latshaw's use of cash for three weeks was entered. The order submitted by the parties contained standard boilerplate language and standard adequate protection provisions, and anticipated that the terms of the order (other than the budget) would govern the use of collateral until at least January 12, 2010.
On December 2, 2009, a final cash collateral hearing was held, and a final agreed order governing the period through January 12, 2010, was entered.
On January 12, 2010, the Court held the review hearing contemplated by the final cash collateral order. The parties agreed to a budget for the use of cash collateral through April 30, 2010, with a review hearing set for April 21, 2010. The Court entered a second agreed cash collateral order containing material terms identical to the previous order.
Resolution of Latshaw's use of cash collateral was routine and uncontroversial. However, LCPI incurred fees of $81,420.50 ($64,370.50 to Weil and $17,050.00 to Conner & Winters)
As previously stated, in September 2009, Latshaw filed a two-page proof of claim against LCPI in the Lehman Bankruptcy Case to preserve its right to seek recourse for LCPI's default under the Prepetition Credit Agreement. On January 22, 2010, LCPI objected to Latshaw's proof of claim.
On February 24, 2010, in response to LCPI's objection, Latshaw amended its proof of claim in the Lehman Bankruptcy Case. Latshaw also filed a request that it be allowed to withdraw that amended proof of claim because LCPI had filed a proof of claim concerning the same transaction in Latshaw's bankruptcy case, against which Latshaw was claiming recoupment. Identical claims and counterclaims were now pending before two courts.
On April 12, 2010, LCPI filed a reply (again 13 pages) opposing Latshaw's request to withdraw its amended proof of claim and requesting the New York bankruptcy court to rule on its objection to Latshaw's claim on the merits.
On February 16, 2010, LCPI filed identical claims against each of the Latshaw entities for payment due under the Prepetition Credit Agreement in an amount of not less than $45,847,390.21, comprised of principal, accrued interest, and an estimated $500,000.00 for additional costs, expenses, and attorney fees (the "Disputed Claim"). Five Weil attorneys participated in drafting a six page attachment to the proof of claim forms. The attachment simply describes the loan transaction, perfection, and the amount allegedly owed, and contains six paragraphs of the usual disclaimers and reservations of rights. In total, Weil billed $9,694.50 for 17.5 hours spent drafting the proofs of claim.
On February 24, 2010, each of the Latshaw entities filed an objection to LCPI's claims on identical grounds. Latshaw argued that (1) LCPI's material breach of the Prepetition Credit Agreement excused Latshaw's further performance and (2) LCPI's claim should be reduced by the amount of damages caused by LCPI's breach and the unearned commitment fee paid to LCPI (through recoupment).
Meanwhile, between February 16, 2010, and March 16, 2010, five Weil lawyers billed 93.8 hours for discussing, and collectively composing and revising a "claims litigation strategy memo," resulting in fees of $43,868.50.
On April 23, 2010, the Latshaw entities amended their objections to LCPI's claims, asserting that provisions in the Prepetition Credit Agreement that limit the type of damages recoverable by Latshaw after LCPI's breach were unenforceable due to LCPI's alleged fraud and willful misconduct. Specifically, Latshaw alleged that LCPI knew that it was insolvent at the time LCPI made the loan commitment that it failed to fund, but LCPI failed to disclose these material facts to Latshaw, inducing Latshaw to enter into the Prepetition Credit Agreement with LCPI rather than with some other lender.
On April 8, 2010, the Latshaw entities filed a proposed Joint Disclosure Statement and proposed Joint Chapter 11 Plan.
On May 24, 2010, Latshaw filed a proposed First Amended Plan to correct technical errors.
The hearing on the adequacy of the disclosure statement was held on May 26, 2010. In order to address issues raised by the parties and by the Court, Latshaw amended the plan and disclosure statement. The amended disclosure statement was approved on June 4, 2010.
On July 13, 2010, LCPI voted against the plan and filed a 30-page objection to confirmation of the plan (the "Confirmation Objection").
No other creditor objected to confirmation.
On July 15, 2010, the Court held a preconfirmation status conference in order to set deadlines for exchanging evidence to be presented at the now-contested confirmation hearing. Witness lists and proposed exhibits were to be submitted to the Court by July 20, 2010.
Latshaw's counsel drafted and circulated a standard confirmation order to which was attached the Third Amended Joint Plan of Reorganization, the First Amendment to Third Amended Joint Chapter 11 Plan of Reorganization and Statement of No Adverse Impact, and the Letter Agreement (collectively, the "Plan"). After LCPI quibbled about the form of order, the Court held a telephonic hearing, and on August 2, 2010, entered the order confirming plan submitted by Latshaw.
In total, Weil billed $200,879.50 for services designed to frustrate confirmation of a plan that provided that LCPI would retain its liens and would receive, over three years, deferred cash payments totaling the present value of LCPI's secured claim, to the extent such claim was allowed, which is exactly what the Bankruptcy Code requires in order to confirm a plan over the dissenting vote of a secured creditor.
LCPI incurred fees of $253,315.50 to oppose a feasible, confirmable 100% plan.
Mac Finlayson, one of the Tulsa lawyers representing Latshaw in preparing the post-confirmation implementation documents to close the Restructured Credit Agreement transaction, appeared as a witness at the hearing on LCPI's Application, and the Court admitted into evidence the affidavit of Mr. Finlayson and attachments thereto.
As another example, the Plan provided that Latshaw would deposit funds into an interest-bearing escrow account in an amount equal to amortized monthly payments on LCPI's Disputed Claim as security for payments due to LCPI in the event that its entire Disputed Claim was allowed. LCPI demanded that Latshaw execute an agreement that the funds, once in escrow, were no longer Latshaw's property, the effect of which would have vested all the escrowed funds in LCPI, even if the Disputed Claim was not allowed in full.
LCPI also insisted on an intercreditor agreement and adequate protection language in the event of a subsequent Latshaw bankruptcy, neither of which had been contemplated by the Plan or Restructured Credit Agreements.
Because the closing documentation satisfied Ableco's careful and capable counsel, the Court concludes that one experienced corporate attorney and one experienced paralegal, rather than four corporate attorneys and four bankruptcy attorneys, could have efficiently closed the transaction on behalf of LCPI. LCPI did not establish that its own status as a Chapter 11 debtor added any complexity to the closing of the Restructured Credit Agreement, and if it did, any increase in the expense resulting from Lehman Bankruptcy Case is not reasonably charged to Latshaw.
Prior to confirmation of the Plan on July 22, 2010, and prior to the commencement of discovery in the Claims Litigation, Weil lawyers billed 734.7 hours in the Claims Litigation category resulting in fees of $403,124.00.
After the Plan was confirmed, discovery commenced in the Claims Litigation. Discovery tasks were assigned to Weil associates located in Dallas, Texas, who had not previously been involved in the Latshaw bankruptcy case. Two of the more senior Dallas associates conducted the bulk of the discovery and trial preparation. Weil also retained and trained contract attorneys to review documents for production in discovery.
While eight Dallas litigators conducted discovery and otherwise prepared for trial in the Claims Litigation, the litigation partner in Houston, three or four bankruptcy attorneys in New York, and lawyers at Conner & Winters in Tulsa, were all kept advised of, and reviewed and commented on, the progress of the proceeding, compounding the fees several-fold. For instance, on July 30, 2010, Latshaw filed a motion seeking to admit into evidence certain conclusions contained in the report drafted by the court-appointed examiner in the Lehman Bankruptcy Case.
Thereafter, discovery ensued, with only minor skirmishes that were generally resolved by stipulation following brief nonevidentiary hearings. The Court does recognize that LCPI's ability to access its own documents for production to Latshaw was problematic, as the documents were no longer kept in the ordinary course of business because LCPI had transferred assets (and associated documents and computer files) to Barclays Capital and had transferred documents and files to various document repositories. LCPI's recordkeeping was disrupted as a consequence of its own Chapter 11 filing, a condition that did not exist when Latshaw entered into the Prepetition Credit Agreement. It is not reasonable to expect Latshaw to bear the cost of the additional time and expense involved in locating and retrieving LCPI's own documents (from Barclays Capital, for instance).
The Claims Litigation was originally scheduled to be tried on October 18, 2010.
On March 3, 2011, LCPI filed a Motion in Limine seeking to exclude, on the grounds of judicial estoppel, certain evidence that Latshaw intended to present to establish the diminution in value of certain assets, namely rig components.
On March 29, 2011, the parties appeared in Tulsa for a settlement conference before United States District Judge Claire V. Eagan. On March 30, 2011, this Court held the final pretrial conference, at which a final Pretrial Order was entered.
On April 1, 2011, the parties partially settled the Disputed Claim. The settlement, approved by this Court on May 27, 2011, and by the New York Bankruptcy Court on June 16, 2011, provided that LCPI held a secured claim (principal and interest), as of March 31, 2011, in the amount of $38,879,732.91.
LCPI incurred fees of approximately $37,000.00 attending to the settlement documentation (which was drafted primarily by Latshaw's counsel) and drafting a Rule 9019 motion to obtain the approval of the settlement in the Lehman Bankruptcy Case.
Immediately after Latshaw's Plan was confirmed, LCPI filed its first application for allowance of an expense claim under § 506(b) of the Bankruptcy Code (the "First § 506(b) Application"), requesting that $1,401,982,33 in fees, costs, expenses and interest be added to its Disputed Claim.
The First § 506(b) Application (without attachments) consists of only eleven pages of text (twenty-one numbered paragraphs). Four pages relate the basic procedural history of the case, one page includes a quotation of § 506(b) and another includes a quotation of § 9.5(b) of the Prepetition Credit Agreement (i.e., the fee-shifting provision). Two pages are devoted to describing, in bullet points, fifteen general categories of services rendered by the Weil firm, and one-half page is devoted to describing four categories of services rendered by Conner & Winters. One paragraph calculates accrued unpaid interest. Another paragraph explains that LCPI will be incurring additional fees and expenses. The final paragraph provides notice and opportunity for hearing. None of the eleven pages contains any legal analysis.
Attached to the application are four exhibits. Exhibit A consists of invoices and expense reports that demonstrate LCPI's out-of-pocket expenses. Exhibit B consists of a one-page summary of Weil's expenses totaled by category; a two-page timekeeper summary chart listing each Weil professional that billed time on the Latshaw matter, the professional's year of bar admission, hourly rate, total hours billed, and total fees billed; and 118 pages of time entries in chronological order. The time entries are not segregated by task category, however, rendering it impossible for the Court (or any reviewer) to determine whether time spent and fees charged for any particular task was reasonable. Exhibit C contains the same types of summaries for Conner & Winters, along with copies of Conner & Winters' billing statements through July 31, 2010, and its work-in-process statement through August 12, 2010. Exhibit D is a copy of an email advising Latshaw of the amount of interest due to LCPI on August 13, 2010.
LCPI did not present any evidence that compiling the information for and drafting a standard § 506(b) application required the skills or attention of eight lawyers. In fact, in light of the mundane legal issue involved (i.e., § 506(b)), and the fact that Weil segregated its services on the Latshaw matter from services rendered in its own bankruptcy case,
After the settlement of the Disputed Claim was approved, LCPI filed its amended and supplemental application for allowance of expenses under § 506(b), requesting reimbursement of a total of $2,799,854.02 ($2,643,452.00 in fees and $156,402.00 in expenses) (the "Second § 506(b) Application").
Six Weil lawyers spent 52.9 hours and billed $26,845.50 to draft and compile the Second § 506(b) Application.
Again, Weil assigned too many lawyers to draft the § 506(b) applications, and an unreasonable number of hours were spent by inexperienced lawyers billing at elevated hourly rates.
Section 506(b) authorizes an oversecured creditor to recover "reasonable fees, costs, or charges provided for under the agreement or State statute under which such claim arose."
With respect to the first two requirements quoted above, it is undisputed that LCPI has an allowed secured claim and that LCPI is oversecured. Latshaw's objection focuses on the third and fourth requirements. LCPI has the burden of establishing its entitlement to fees and the reasonableness of the fees sought.
Regarding entitlement to fees, LCPI cites ¶ 9.5(b) of the Prepetition Credit Agreement. Latshaw argues that because LCPI would not have incurred fees and expenses but for LCPI's breach of the Prepetition Credit Agreement, all fees sought, "particularly that portion described as Claims Litigation, along with related expenses, must be denied" as outside the scope of ¶ 9.5(b).
Initially, the Court notes that temporally, § 506(b) only authorizes recovery of reasonable fees and expenses incurred after the petition date.
The relevant portion of ¶ 9.5(b) of the Prepetition Credit Agreement provides —
Latshaw argues that LCPI would not have had to incur any of the fees or expenses that it now seeks to impose on Latshaw had LCPI not breached the Prepetition Credit Agreement. As a factual matter, the Court agrees, but that fact does not resolve the issue of whether the fee-shifting provision of the Prepetition Credit Agreement applies nevertheless. The question is whether LCPI's efforts to defend itself against Latshaw's pursuit of redress for the breach, and LCPI's efforts to establish the validity and amount of its claim in Latshaw's bankruptcy case (which Latshaw contested only because of LCPI's breach) can be characterized as "enforcement or preservation" of LCPI's rights under the Prepetition Credit Agreement. Accordingly, the Court must first determine the scope of the "enforcement or preservation" language.
The Prepetition Credit Agreement is "governed by, and construed and interpreted in accordance with, the law of the State of New York."
Although the issue in the cited cases was whether an indemnification clause could be read to include fees arising from litigation between the contracting parties rather than litigation between one party to the contract and third parties resulting from the conduct of the other contractual party, the policy — reading fee-shifting clauses narrowly because parties should bear their own litigation expenses — is applicable here.
The Hooper court advises that the interpretation should be "restrained to the particular occasion and to the object which the parties had in view,"
Paragraph 9.5(b) is situated within the context of a multi-faceted section entitled "Payment of Expenses." Clause (b) of ¶ 9.5 addresses just one of many types of expenses a lender or agent may incur that the borrower agrees to reimburse. Clause (a) of ¶ 9.5 requires the borrower to pay expenses, including attorney fees, incurred by the lender or agent in documenting, implementing, syndicating, and administering the credit transaction itself, and clause (c) shifts administrative costs, such as recording fees and taxes, to the borrower. Under clause (d) of ¶ 9.5, the borrower agrees to indemnify and hold the lender harmless from losses and expenses, including attorney fees, incurred in defense of third party lawsuits arising out of the transaction or the borrower's conduct and performance in connection therewith, or the borrower's use of the proceeds or collateral.
Because clauses (a), (c), and (d) specifically encompass reimbursement of attorney fees related to documenting and closing the transaction, perfecting security interests, administering the loan, and defending third party actions, the "enforcement" and "preservation" of rights language of clause (b) should be interpreted to require reimbursement of fees and expenses in instances not already addressed by the other clauses. Fees and expenses incurred by the lender in litigation between the borrower and lender naturally fall within the scope of "enforcement" and "preservation" of rights.
Latshaw argues that because New York law "implies good faith and fair dealing" in every contract, ¶ 9.5(b) cannot be interpreted to require a non-defaulting borrower such as Latshaw to pay fees LPCI incurred in defending itself from the consequences of its own breach. The problem with that argument, however, is that Latshaw demanded a reduction in the debt (or offsetting damages) that may or may not have been warranted under the agreement, and LCPI may have been legally justified in refusing to capitulate. Because the Claims Litigation was settled, the complicated issues concerning the parties' respective rights following LCPI's failure to honor its commitment to fund, and the extent of Latshaw's liability to LCPI and/or LCPI's liability to Latshaw following the alleged mutual breaches, were never resolved on the merits. Although Latshaw presented evidence at the hearing on the § 506(b) Application that established that LCPI chose a shamelessly aggressive, and expensive, strategy to collect the debt and mitigate losses, the Court cannot assume that LCPI lacked good faith with respect to enforcing and preserving its rights under the agreement in the absence of a full airing of the parties' competing claims.
In any event, the Court concludes that the plain language of ¶ 9.5(b), even "narrowly construed," does not limit LCPI's entitlement to reimbursement of its fees and expenses to situations in which it was not in default. The fee-shifting provision is certainly highly skewed to favor LCPI. It encompasses actions both offensive (enforcement) and defensive (preservation). It is not mutual. It is not even dependent upon LCPI prevailing in litigation. And while the provision may not seem fair or equitable in this situation, the Court cannot impose restrictions on LCPI's entitlement to fees that are not set forth in the Prepetition Credit Agreement.
Latshaw also submits that it is not reasonable to assess fees incurred in connection with the Claims Litigation against Latshaw because LCPI's admitted breach initiated the dispute. Again, the Court concludes that LCPI's assertion and prosecution of the Disputed Claim, and its response to Latshaw's affirmative defenses, were actions intended to enforce provisions of the agreement
With limited exceptions that are detailed below, the fees and expenses sought by LCPI fall within the scope of "enforcement" or "preservation" of LCPI's rights under the terms of the Prepetition Credit Agreement. Accordingly, LCPI's "entitlement to fees, costs, or charges" is "provided for" under the agreement, satisfying the third prong of § 506(b).
The Prepetition Credit Agreement permits LCPI to demand payment or reimbursement of fees and expenses only to the extent that they are reasonable. The fourth prong of ¶ 506(b) also permits only reasonable fees and expenses to be added to an oversecured claim. This limiting principle mitigates some of the inequity inherent in the breadth of the agreement's unilateral fee-shifting provision.
Black's Law Dictionary defines "reasonable" as "fair, proper, or moderate under the circumstances."
Bankruptcy courts have broad discretion to determine whether certain charges to the debtor are reasonable under § 506(b).
A trilogy of opinions arising out of the bankruptcy of Wonder Corporation of America
With these principles in mind, the Court makes the following general observations.
The Latshaw Chapter 11 case was not a complex case. LCPI filed only a handful of pleadings, which were described in the above findings of fact. LCPI should have reasonably believed that it was, at all times, significantly oversecured. Because Latshaw was solvent and profitable, LCPI should have reasonably believed that its claim, once adjudicated, would be paid in full. The only legitimately disputed issue in the case was the amount of LCPI's claim.
LCPI seeks fees for services provided by twenty-eight Weil lawyers and paraprofessionals (based in three different cities — New York, Houston, and Dallas) and four Conner & Winters lawyers and para-professionals (based in Tulsa). This proliferation of lawyers resulted in a substantial duplication of efforts, as multiple lawyers billed for reading, reviewing, and revising the same pleadings and documents, sometimes multiple times. Weil's time records reflect that interoffice conferences (in person, or by phone or email) between and among the professionals billing in this case represent a sizable portion of the total hours billed. There is no evidence that Weil exercised billing judgment
A simple example shows how LCPI's fees were magnified by the combination of overstaffing and failure to exercise billing judgment. On several occasions, four or five Weil lawyers prepared for, participated in, and billed for, the same telephonic hearing. At the telephonic hearing held in connection with a non-evidentiary discovery issue,
Latshaw's legal team, on the other hand, consisted of two experienced Tulsa lawyers who performed the bulk of the bankruptcy case administration, and two New York lawyers who focused primarily on the LCPI Claims Litigation.
Prior to the Plan's effective date, Latshaw's lean legal team billed a total of $462,208.50; LCPI's fees were $1,292,801.75 during the same period.
Post-confirmation, Latshaw's fees totaled $510,321.75, while LCPI incurred fees, primarily in the Claims Litigation category, of $1,237,301.75.
The Court concludes that under the circumstances of this case, LCPI's legal team was overstaffed, resulting in inefficiency and duplication, the cost of which was not mitigated by the proper exercise of billing judgment.
LCPI underutilized the considerable Chapter 11 bankruptcy expertise offered by the two Conner & Winters partners, Timothy Trump and Andrew Turner, acting as local counsel. Mr. Trump was admitted in 1984, and is certified by the American Board of Certification in consumer and business bankruptcy law. He billed LCPI $370 per hour.
While Mssrs. Trump and Turner were well qualified to represent LCPI on matters
Conner & Winters' professionals, however, were relegated to reviewing the pleadings drafted by Weil lawyers and filing those pleadings electronically, and reviewing pleadings filed by other parties in the bankruptcy case (adding yet another layer of fees). Only a few entries in Conner & Winters' time records reflect drafting or performing other legal tasks or dispensing legal advice. From the time records, it does not appear that Conner & Winters' attorneys had contact with LCPI representatives or with Weil attorneys, except in connection with electronically filing documents drafted by Weil attorneys, and accompanying Weil attorneys to hearings.
LCPI's representative testified that he never discussed with Weil lawyers, or with anyone else, whether Conner & Winters should handle any aspect of the Latshaw bankruptcy case.
Absent unusual circumstances, when a creditor is entitled to assess fees against the debtor or its estate, reasonable hourly rates are those "in line with those prevailing in [the] community [where the bankruptcy case is pending] for similar services by lawyers of reasonably comparable skill, experience and reputation."
Rates prevailing in this community for similar services by lawyers of reasonably comparable skill, experience, and reputation were demonstrated at trial in several ways. First, LCPI's own local counsel, Conner & Winters, billed $370 to $430 per hour for partners having in excess of 25 years experience, and billed $165 to $175 per hour for associates and $135 per hour for paralegals. Second, partners with over 25 years of experience at MorrelSaffaCraige, P.C., Latshaw's bankruptcy counsel, also based in Tulsa, charged $250 to $300 per hour, and the firm charged $50 per hour for paralegal services. The Court has approved these rates as reasonable.
Finally, practitioners in the Northern District of Oklahoma conduct an annual local rate survey for the purpose of establishing a range of reasonable rates for lawyers with various levels of experience, which was used by Latshaw's expert witness in opining on the reasonableness of LCPI's fee request.
Latshaw's New York based counsel, Satterlee Stephens Burke & Burke LLP, was engaged by Latshaw prepetition to represent it in the Lehman Bankruptcy Case, and was approved as special counsel in this case in connection with the Claims Litigation. Satterlee charged the estate $535 per hour for partner Christopher Belmonte's services, the same rate it charged its New York clients. Mr. Belmonte was admitted to the bar in 1977. Satterlee also billed $300 per hour for services of an associate with 8 years of experience.
LCPI argues that the fees and expenses incurred in connection with this case were already approved as reasonable by the bankruptcy judge in the Lehman Bankruptcy Case, and were paid by LCPI's bankruptcy estate.
In addition, LCPI claims it was justified in employing in this case the same counsel it retained to represent it in the Lehman Bankruptcy Case, and in expending extraordinary resources litigating Latshaw's claim objection, because LCPI's bankruptcy estate held $2.8 billion in partially-funded revolving loans similar to the Latshaw loan. Apparently, LCPI feared that the result of the Latshaw Claims Litigation might establish some precedent or preclusion that could affect its ability to collect those other outstanding assets.
In evaluating the reasonableness of fees sought under § 506(b),
Although "creditors are entitled to engage counsel and pay for constant, comprehensive, and aggressive representation, ... where services are not reasonably necessary or action is taken because of an attorney's excessive caution or overzealous advocacy, courts have the right and duty, in the exercise of discretion, to disallow fees under § 506(b)."
In this case, the hefty equity cushion that protected LCPI's secured claim from erosion was never seriously called into question.
Before proceeding further, the Court must address an additional argument asserted by LCPI. While LCPI's reasonable contractual fees may be allowed as part of its secured claim under § 506(b), LCPI contends that the amount of fees and expenses the Court deems unreasonable should be allowed as an unsecured claim, citing the Eleventh Circuit Court of Appeals opinion in In re Welzel.
Welzel concerned a debt arising from a note that provided upon default, 15% of
Welzel is distinguishable from this case because the fee provision in Welzel's note did not provide for "reasonable" fees, but instead, simply a fee equal to 15% of the unpaid balance. The 15% fee provision was fully enforceable under state law regardless of whether the amount was reasonable in relation to the legal effort required. As a result, while the secured claim could only include the reasonable portion of the fee under § 506(b), the unreasonable portion of the 15% fee was relegated to unsecured status, and tested for allowance under § 502 of the Bankruptcy Code. Because the balance of the 15% fee was enforceable under state law, there was no barrier to its allowance under § 502(b).
In Latshaw's case, the Prepetition Credit Agreement provides that LCPI may recover only reasonable fees and expenses from Latshaw, so any claim for fees and expenses found by the Court to be unreasonable is per se unenforceable. Section 502(b)(1) provides that an unsecured claim shall be allowed "except to the extent that... such claim is unenforceable against the debtor and property of the debtor, under any agreement ... for a reason other than because such claim is contingent or unmatured."
As stated above, Weil rendered services to LCPI in connection with the Prepetition Credit Agreement for almost a year before Latshaw filed its Chapter 11 petition.
Weil's prepetition entries for "Case Administration" (spanning January 23, 2009 through October 30, 2009) obviously do not relate to administering Latshaw's bankruptcy case, since Latshaw had not yet filed its Chapter 11 petition. Thus, the Court has to assume that these fees were incurred in connection with administration of the Lehman Bankruptcy Case. The entries primarily represent correspondence between LCPI attorneys, Ableco attorneys, and LCPI representatives, and also include drafting an "executive summary re Latshaw," apparently for use in the Lehman Bankruptcy Case.
When LCPI filed its Chapter 11 petition, Latshaw was an innocent bystander, a borrower whose credit agreement had been breached by LCPI. The expense of administering LCPI's bankruptcy must be borne by LCPI's estate, not tacked onto Latshaw's debt. LCPI's prepetition fees in the "Case Administration" category, totaling $4,600.50 (10.4 hours), are disallowed.
LCPI's legal fees for prepetition services related to the "Credit Agreement" (spanning December 12, 2008, through November 10, 2009), total $123,937.50.
Most of the time in this category was billed by three corporate lawyers with little experience — lawyers who had been admitted to the bar from zero to five years and whose billing rates ranged from $355 to $565. Tasks performed by one of these lawyers were reported to and/or reviewed by two or three other lawyers, all of whom billed their time. As mentioned above,
The Court also concludes that fees incurred by LCPI in conjunction with the
Accordingly, the Court finds and concludes that counsel, acting reasonably, fairly, prudently, and efficiently to protect the rights of LCPI under the Prepetition Credit Agreement, could have performed such a service, at New York rates, by assigning the task to one experienced corporate lawyer and an associate. In order to address issues arising in the Lehman Bankruptcy Case, the Court concludes that one experienced bankruptcy lawyer should have sufficed. Proper allocation of resources would have eliminated the redundancy that exaggerated the fee. The Court concludes that $25,000.00 constitutes a reasonable fee for reasonable prepetition efforts to "enforce" the agreement and protect LCPI's rights.
Weil billed LCPI $1,491.00 for prepetition work on its fee application. These entries cannot possibly pertain to preparing the § 506(b) Application submitted in this case, and therefore such fees are disallowed.
After Latshaw filed its bankruptcy case in November 2009, LCPI continued allocating fees for services constituting administration of Lehman Bankruptcy Case to its claim against Latshaw. At various points, Weil attorneys met with the Official Unsecured Creditors Committee seated in the Lehman Bankruptcy Case ("Committee") and its counsel to report on the status of the Latshaw claim. Weil billed approximately $9,000.00 for these meetings, and seeks to shift these fees to
LCPI requests reimbursement of $180,873.00 for 327.8 hours Weil billed in the "Case Administration" category.
Some of the services itemized in the Case Administration category include engaging local counsel, reviewing pleadings, and developing and drafting a "strategy memo." However, most of the "Case Administration" category reflects billing for discussions, emailing, and conferencing between and among lawyers and paraprofessionals. Significantly, the time records reflect very limited communications with LCPI representatives, Ableco's counsel, and Latshaw's counsel. On the other hand, the records reveal hours and hours spent insuring that all the lawyers working on the case were apprised of, and had read, reviewed and commented on, or summarized for someone else, the same ideas, memos, pleadings, and research. In other words, the cost of "Case Administration" was multiplied by redundancy and duplication of efforts. LCPI also involved itself in minor matters (and incurred fees) even when it did not make economic sense. In addition, the cost incurred was often not commensurate to the result desired.
In one example, unreasonable fees were generated in reacting to the filing of the Unopposed Motion for Relief from Automatic Stay of Chesapeake Operating, Inc. ("Chesapeake").
LCPI did not object to the motions, but did comment on the proposed orders. Agreed orders were entered on both motions, granting stay relief and assumption of the contract.
Another example of excessive and unjustified involvement concerns a second-year Weil associate, admitted in 2007, who spent (and billed) at least 78.8 hours consulting with other Weil lawyers and drafting a "strategy memo" for the Latshaw bankruptcy case. This memo was reviewed and revised by three other Weil lawyers, who collectively spent an additional 20.3 hours. In total, LCPI incurred fees of $54,352.00 for this case administration "strategy memo."
One more example: When LCPI and Latshaw agreed that the stay in the Lehman Bankruptcy Case should be modified to allow the Disputed Claim to heard and determined by this Court, Mr. Belmonte (Latshaw's New York counsel) drafted a proposed stipulated order for entry in the Lehman Bankruptcy Case and circulated it for comment to Mr. Craige (Latshaw's Tulsa counsel) and counsel for Ableco and LCPI. Mr. Belmonte billed 10.4 hours for drafting, circulating, and revising the stipulation pursuant to the solicited comments,
The Court further notes that one Weil attorney, admitted to the bar in 2009, spent the majority of his billed time in the Case Administration category simply reviewing pleadings as they were filed, reviewing other lawyers' emails and work product, attending "strategy" meetings and conferences among the more senior lawyers, and preparing for and attending hearings at which his attendance was unnecessary. This attorney billed 71.0 hours in the "Case Administration" category at $395 to $495 per hour, resulting in fees of approximately $30,000.00.
Accordingly, evidence of pervasive duplication of efforts caused by overstaffing and charges for unnecessary tasks requires a reduction in the amount of fees allowed for Case Administration. The Court concludes that LCPI's case administration fees should not exceed Latshaw's case administration fees,
LCPI incurred fees of at least $81,420.50 ($64,370.50 to Weil for 99.7 hours of services and $17,050.00 to Conner & Winters for 46.6 hours of services) in connection with its effort to protect its collateral during Latshaw's use thereof during the course of the bankruptcy case.
Moreover, LCPI did not establish that the cash collateral matter was complex or difficult, or that Latshaw was not cooperative. When asked why local counsel could not have handled these consensual cash collateral matters, LCPI's witness contended that Weil's substantial participation was necessary because the cash collateral matter was intimately related to the allowance of LCPI's claim.
Again, duplication of efforts increased the cost of representation. In the initial week of Latshaw's bankruptcy, three Weil lawyers spent over 40 hours (billing almost $30,000.00) developing a cash collateral order. Although much of the work thereafter was performed by the Weil lawyer that appeared at the cash collateral hearings, three Weil partners (billing $790 to $870 per hour) reviewed that lawyer's work. One Conner & Winters lawyer billed for services in the cash collateral category, which consisted, for the most part, of reviewing drafts prepared by others and advising as to local custom and practice. As stated above, this effort resulted in an initial short term cash collateral order, and thereafter, another interim order that was essentially renewed on a periodic basis until confirmation. The Court found LPCI's position regarding Latshaw's use of cash and protections it demanded to be over-reaching and potentially prejudicial to Latshaw's other creditors. LCPI's aggressive stance was not warranted by the facts, and thus the expenditure of substantial fees in pursuing adequate protection was not reasonable or necessary to protect its claim.
One stark example of redundant services is the 9.2 hours spent by LCPI's "litigation partner" in Houston reviewing the cash collateral orders drafted by LCPI's team of bankruptcy attorneys situated in New York, for which Weil billed $7,102.50. One newly admitted attorney billed $790.00 for 2 hours spent simply reviewing drafts of cash collateral orders. Neither of these fees were reasonable or necessary to protect LCPI's collateral.
The Court concludes that it was not reasonable for LCPI to invest such extensive efforts, and incur in excess of $80,000 in fees, for protection LCPI clearly did not need, but which Latshaw willingly provided in any event. The Court concludes that the cash collateral issue could have been competently and efficiently handled by local counsel if provided with the appropriate background information from LCPI's representatives or its New York bankruptcy attorneys. Thus, reimbursement at rates in excess of local prevailing rates is
By eliminating unnecessary duplication of efforts and reducing the hourly rate to a high local rate of $370 per hour, the Court concludes that a reasonable fee for services necessary for protection of LCPI's interest in cash collateral should not exceed $20,000.00. Thus, $20,000.00 is allowed in this category, and the remainder requested is disallowed.
LCPI seeks reimbursement of fees in connection with Latshaw's plan and disclosure statement for services rendered by Weil in the amount of $200,879.50 (386.3 hours) and for services rendered by Conner & Winters in the amount of $5,996.00 (16.4 hours), for a total of $206,875.50 (402.7 hours).
Seven Weil lawyers were involved in drafting and pursuing the confirmation objection, including LCPI's Houston litigation counsel. Five Weil lawyers billed time in connection with the unfiled disclosure statement objection. Three lawyers appeared on behalf of LCPI at the confirmation hearing, two of whom traveled from New York and Houston. Even putting aside the lack of merit to the objection, duplication of efforts by up to seven lawyers charging from $395 to $870 per hour also contributed to an excessive overall fee for the task. Reasonable exercise of billing judgment requires a firm to write off excessive time billed by inexperienced lawyers to compensate for the considerable learning curve required to become proficient in Chapter 11 practice, especially where such lawyers bill at rates exceeding those charged by highly experienced local practitioners in the same case. Again, such training is firm overhead, not an expense fairly chargeable to LCPI or Latshaw.
Moreover, LCPI's groundless objection compelled Latshaw and Ableco to respond, increasing Latshaw's counsel fees and Ableco's § 506(b) claim.
In addition, as the Court found above, because analysis of Latshaw's proposed plan and disclosure statement did not require any special familiarity with the Lehman Bankruptcy Case or the Claims Litigation, assigning to Weil the task of addressing the plan and disclosure statement was not justified. Reimbursement of any time reasonably spent on this issue must be at customary local rates.
"[A] bankruptcy court may, and very well should, disallow fees under § 506(b) where the creditors' actions have, in fact, unreasonably hindered the entire reorganization process."
In the Credit Agreement category, LCPI seeks to recover $347,249.00 for 678.4 hours of services rendered by Weil.
Services provided by Weil in the first period included numerous meetings, emails, and other "communications" between lawyers in the corporate department and lawyers in the bankruptcy department concerning the Prepetition Credit Agreement. What was being discussed and why the corporate lawyers were still involved is
During this first postpetition period, Weil lawyers spent 124.1 hours on these tasks, billing $75,395.00. The Court concludes that the majority of the services described were reactionary and/or obstructionist, rather than truly necessary to protect LCPI's interests, and were incompatible with appropriate deference to Latshaw's right to propose a plan under the Bankruptcy Code.
In the one-month period following confirmation, seven Weil lawyers and one paralegal spent 247.5 hours, and billed $130,317.00, for services relating to closing the Restructured Credit Agreement, including the unnecessary, unwarranted, and duplicative efforts, described earlier, that obstructed the implementation of the confirmed plan and increased attorney fees incurred by Latshaw and Ableco. LCPI did not establish that 247.5 hours of services rendered over a month's time was reasonable or necessary to protect or preserve LCPI's rights.
During the third period, August 27, 2010, to June 30, 2011, time billed in the Credit Agreement category (30.4 hours) appears to be related to documenting an amendment to the Restructured Credit Agreement as a result of the parties' settlement, and attending to collateral issues. For these services, LCPI seeks reimbursement of $16,418.50 in fees.
The Court concludes that a reasonable fee for reasonable post-petition services under this category is $45,000.00, and the remainder requested is disallowed. Again, overstaffing resulted in inefficiency and multiplication of the time spent by several-fold, which should have been adjusted, but was not, by appropriate billing judgment.
Weil billed 117.1 hours to prepare the First § 506(b) Application, 52.9 hours to prepare the Second § 506(b) Application, and 16.6 hours on miscellaneous matters in the "Fee Application" category, resulting in fees of $89,710.50 (186.6 hours).
Weil's billing records include $74,696.00 for 211.0 hours of "non-working travel" time.
One lawyer traveled from Houston to attend a hearing on a discovery motion, billing $2,873.00 for non-working travel time.
Travel related to discovery tasks, including preparing deponents, and taking and defending depositions, resulted in $36,633.75 charged for non-working travel. Normally, traveling to the location of a deponent's residence would qualify as a reasonable travel expense, but in this case, Weil sent lawyers from Houston and Dallas to prepare and defend deponents, generally representatives of LCPI, in New York, raising the question of whether it is reasonable to charge Latshaw for such expense when LCPI had a team of competent and fully informed lawyers in its New York office. The Court concludes that while LCPI was entitled to divide the tasks among lawyers as it desired, Latshaw should not bear the extra cost when the tasks could be accomplished more efficiently.
Two Weil lawyers that traveled to Tulsa for the first settlement conference, one from New York and one from Houston, billed $4,031.25 for non-working travel time. Four lawyers billed non-working travel, two from New York and two from Dallas, for the second settlement conference, billing $10,541.50.
Accordingly, the Court will allow $30,000.00 in the non-working travel category, which represents the reasonable expense incurred in connection with attending court-mandated settlement conferences and a reasonable number of hours of non-working travel for discovery purposes. The remainder billed in this category is disallowed.
In the Claims Litigation category, Weil billed $1,617,304.50 (2,767.3 hours) and Conner & Winters billed $38,930.50 (104.5 hours), for a total of $1,656,234.50 (2,871.8 hours). Fees in the amount of
These few discrete tasks add up to $553,782.50 in fees (in excess of 947.5 hours), which is indicative of the excessive time devoted to not especially complicated tasks, and the effect of overstaffing and overlawyering. Only a handful of pleadings were filed in connection with the Claims Litigation, but three or four or five or six lawyers billed for drafting these pleadings, and even more billed for discussing them and reviewing them.
The remaining $1,093,870.00 (1,911.2 hours) not itemized above reflects time expended in attending one or two in-court hearings and a couple of telephonic hearings, conducting discovery (LCPI deposed two witnesses; Latshaw deposed three), attending two settlement conferences, and preparing for trial. Significantly, the $1.647 million incurred in Claims Litigation does not include any time actually trying the case, as the claim was settled on the eve of trial.
LCPI's post-effective date fees, which were almost solely incurred in connection with the Claims Litigation, totaled $1,237,301.75 in fees (2,260.7 hours).
In summary, fees in the amount of $660,500.00 are allowed, and the balance requested is disallowed. This figure represents approximately 25% of LCPI's request, which is consistent with the findings that LCPI's professionals multiplied efforts by a factor of at least four. To the extent that the issues were more complex or more professionals were needed due to the existence of the Lehman Bankruptcy Case, LCPI must absorb the cost of complexity; Latshaw played no role in Lehman's epic downfall. This matter was grossly "overlawyered," and the costs of the extraordinary efforts expended by LCPI — first to defeat Latshaw's rights under the Prepetition Credit Agreement, and then to deny Latshaw a fair opportunity to restructure the accelerated loan under Chapter 11 — must be borne by LCPI.
LCPI requests reimbursement for out-of-pocket expenses incurred (1) by LCPI representatives traveling from New York to Tulsa for the June 2009 meeting with Latshaw regarding LCPI's proposed restructuring proposal and for two postpetition mediation sessions ($10,165.60) and (2) in retaining Superior Asset Appraisals to perform a "desktop appraisal" of certain of Latshaw's equipment in connection with Latshaw's use of cash collateral ($5,000.00).
One LCPI representative who attended the June 2009 meeting submitted an expense report that included meals on days he worked late in March 2009 through June 2009, but LCPI did not present evidence that these meals were related to travel or related to the Latshaw loan.
The Court concludes that $15,050.64 was reasonably expended for the enforcement and preservation of LCPI's rights, and the remainder is disallowed.
LCPI requests reimbursement of expenses incurred by Weil in the amount of $137,416.44, summarily categorized as follows:
Travel and Transportation $42,121.23 Business Meals $3,403.02 Telephone/Facsimile $144.31 Postage and Express Mail $2,162.01 Duplicating $25,007.44 Consultants/Witness Fees $7,664.40 Corporation Service $1,232.60
Messenger/Process Service $350.79 Court Reporting $7,798.35 Computerized Research/Other Research $47,532.29 ___________ TOTAL: $137,416.44
Shortly prior to the hearing on LCPI's § 506(b) Application, LCPI filed a pleading that included a chart itemizing each individual expense.
Aggregating all expenses identified as airfare, agency fees, hotels, meals, parking, and ground transportation produced a total of $38,386.83
Without evidence of special circumstances, it is not reasonable to impose the cost of a professional's transportation to and from the office upon a client (or the client's indemnitor) simply because the attorney chose to work on that client's matter after normal working hours. Reimbursement of local transportation costs, totaling $410.93, will be disallowed.
With respect to air travel, Weil has a "travel department" that makes reservations for its professionals.
The Court will allow $15,000.00 as reasonable out-of-town travel expenses, with the remainder disallowed.
Meal expenses incurred while traveling have already been addressed in the Travel and Transportation category above. Other business meals Weil charged to LCPI appear to be meals consumed by Weil personnel while working in the office, presumably while working overtime, and these meal expenses total $589.82.
LCPI seeks $144.31 for Weil's telephone and facsimile charges. Of that amount, $124.95 is characterized as "International Mobile Phone Data Expenses" incurred in August 2010
LCPI seeks $2,162.01 for Postage and Express Mail charges incurred by Weil. In Weil's Expense Detail, the Court located express mail charges totaling only $2,098.08,
Of the express mail charges ($2,098.08), $34.09 was charged to express mail something to Milbank, Tweed, Hadley & McCoy (counsel to the Committee representing Lehman's unsecured creditors) in Washington DC;
The Court concludes that $182.41 of express mail charges and $9.90 of postage charges were reasonably incurred, and will be allowed, and the remainder requested in this category is disallowed.
Weil incurred expenses of $350.79 for employing On Time Couriers, Inc. and Deluxe Delivery Systems,
The Court recognizes that the discovery in the Claims Litigation was document-intensive. Weil charged $.10 per page to make regular photocopies in-house, for which LCPI seeks reimbursement of $10,311.50,
Weil also charged LCPI $.10 per page for in-house "printing" of documents (presumably from a digital source) for a total of $3,991.20,
Weil also charged LCPI $320.00 to duplicate two CD/DVD's in-house,
Overall, duplication expenses in the amount of $20,113.21 are allowed, and the remainder requested is disallowed.
Theses fees were paid by Weil to an entity identified only as M.E.L. Valuations for "Expert Fees re Accounting of Various Rig Parts" and "Consult-Latshaw Drilling Fees for Finalizing Report and Research."
LCPI seeks reimbursement of $1,232.60 paid for services rendered by Corporation Service Company apparently related to lien searches and filing fees.
Weil obtained certified transcripts of the depositions of Trent Latshaw, H. Liao, Eric Salzman, T. Keresztes (Latshaw's expert witness), and one other unidentified deponent, which resulted in expenses of $6,308.35. In addition, Weil paid a videographer $1,490.00 to videotape the depositions of Trent Latshaw and Mr. Keresztes. LCPI did not present any evidence as to why videotaping the depositions of Mssrs. Latshaw and Keresztes was necessary; it would be reasonable to assume that, as Latshaw's main witnesses, they would be appearing in person at trial. Absent some justification for videotaping the depositions, the Court finds such expense unnecessary and unreasonable.
Accordingly, the Court will allow the expense of the transcripts in the amount of $6,308.35, and disallow the videographer expense in the amount of $1,490.00.
Included in the Computerized Research category are Westlaw, LEXIS,
Westlaw and LEXIS charges totaled $47,070.37. However, Weil provided an explanation for the purpose of electronic research for only a handful of the Westlaw and LEXIS sessions charged; the cost for those sessions totaled $19,138.21, which still seems excessive, but will be allowed. The remaining expenses set forth in the Computerized Research category are disallowed.
LCPI requests reimbursement of expenses incurred by Conner & Winters in the total amount of $3,819.98,
Filing/Recording Fees $551.00
Telephone $3.60
Transcript $702.25
Photocopies $1,439.70
Postage $219.16
Professional Service $19.40
PACER $73.52
Fed-X $811.35
_________
TOTAL: $3,819.98
Other than the summary, LCPI presented documentary evidence of Conner & Winters' expenses for only four of these categories: Filing fees, photocopies, PACER, and Fed-X.
Filing fees consist of seven pro hac vice fees for the seven Weil lawyers that entered an appearance in this case, totaling $525.00, and a $26.00 fee to obtain a CD of a hearing.
The documentation reflects that Conner & Winters charged $2,760.15 for 18,401 pages of in-house photocopying ($.15 per page), but LCPI requests reimbursement of only $1,439.70 (approximately $.08 per page).
LCPI presented a running list of PACER charges incurred by Conner & Winters for two time periods, and these total
On April 1, 2011, Conner & Winters incurred a total of $687.82 in Fed-X charges to ship fourteen boxes from Tulsa to Weil's New York office, which boxes arrived in New York on April 4, 2011.
In addition, on March 29, 2011, Conner & Winters incurred an additional $123.53 to ship two additional boxes from Tulsa to Weil in New York. This charge also appears reasonable and is allowed.
Although LCPI did not provide any receipts or other evidence, or an explanation, regarding the necessity or reasonableness of expenses in the other categories (Telephone — $3.60, Postage — $219.16, and Professional Service — $19.40), the Court will allow such de minimis expenses as reasonable in light of the tasks accomplished by local counsel.
In addition, although LCPI did not provide any receipts or explanation with respect to the request for reimbursement of Transcript expenses, a review of the docket sheet in this case indicates that Conner & Winters ordered transcripts of three hearings held herein, the cost of which totaled $702.25.
To recap, reimbursement of $88,775.98 — consisting of (1) LCPI's direct expenses in the amount of $15,050.64, (2) expenses incurred by Weil in the amount of $70,130.36, and (3) expenses incurred by Conner & Winters in the amount of $3,594.98 — is allowed. All other expenses requested are disallowed.
LCPI's Application is granted in part and denied in part. LCPI is entitled, under § 506(b), to a secured claim in the amount of $749,275.98.
Plan at 49.
The principal drafters of the objection were associate attorneys with 0-3 years experience, yet their hourly rates ranged from $395 to $550 per hour. Contesting the plan's feasibility and good faith, and compliance with the best interests of creditors test, was spurious in light of the overwhelming, known, and undisputed evidence that Latshaw had a healthy capital structure, was operating at a significant profit, and had never — before or after the bankruptcy filing — failed to make any required installment note payment. Moreover, the plan provided that LCPI would retain its liens, and its allowed secured claim would be fully satisfied in a relatively short period of time. Weil's senior attorneys must have recognized that these arguments would be overruled, but they authorized preparation and filing the Confirmation Objection anyway, only to withdraw these shallow arguments a week later. LCPI unfairly seeks to impose the expense of this 235-hour academic exercise on Latshaw. Associate training and development is not the type of reasonable expense contemplated under the Prepetition Credit Agreement's fee provision, nor is it a reasonable expense under § 506(b).
To be sure, creditors have the right to vote against and object to confirmation of a reorganization plan, but it strains credulity to believe that LCPI's objection was made in good faith. Under Latshaw's plan, LCPI was to receive all relief to which it was entitled under the Bankruptcy Code. The Court is hard-pressed to imagine a plan more favorable to LCPI. To the extent that LCPI took issue with some terms of the Restructured Credit Agreement, such issues were not the focus of the Confirmation Objection, and were ultimately resolved through a brief round of good faith negotiation on the morning of the confirmation hearing. The Court viewed the Confirmation Objection as an attempt to gain leverage in the litigation over the amount of LCPI's claim, and not a legitimate or good faith objection to plan confirmation.
Unfortunately, Latshaw and Ableco were compelled to respond to the Confirmation Objection before it was withdrawn (the cost of which was borne by Latshaw). See Docs. 264, 267. Their responses demonstrated the stark disconnect between LCPI's legal arguments and the undisputed facts in the Latshaw case. The Court also spent considerable time trying to make sense of the Confirmation Objection before it was withdrawn.
Finally, the Court notes that because analysis of Latshaw's proposed plan did not require any intimate familiarity with LCPI's own bankruptcy case, assigning the task to Weil's bankruptcy team was not justified. LCPI's lead local counsel — a seasoned and respected attorney with over 25 years of bankruptcy experience — could have effectively and efficiently analyzed the plan, the Prepetition Credit Agreement and Restructured Credit Agreements, and Latshaw's financial state, to determine whether LCPI had any legitimate objection to confirmation, and if so, could have drafted a defensible objection. At an hourly rate of $370, LCPI's local counsel could have addressed the disclosure statement and plan for a tiny fraction of what LCPI was billed for the abandoned Confirmation Objection.
Since neither Weil nor Conner & Winters billed Latshaw directly, it appears that LCPI paid Weil and Conner & Winters for the services rendered in the Latshaw matter through the interim fee application process in the Lehman Bankruptcy Case.
LCPI argues that Weil did in fact bill its client, the bankrupt LCPI estate, the exact amount requested herein. The Court observes that, unfortunately, fees charged to the estate in large chapter 11 cases do not get the scrutiny that a solvent client would give to a legal bill presented for such services. The fact that Weil would and did bill the LCPI bankruptcy estate for duplicative and excessive services does not persuade the Court that such fees are reasonable. Latshaw's expert witness (who, as general counsel of a financial institution, routinely scrutinized legal fees billed by that institution's outside counsel), blamed excessive rates, excessive annual increases in rates, overstaffing, and unnecessary duplication of efforts for what, in his opinion, were excessive fees and expenses in this case. Testimony of N. Tomlins, Tr. 12/13/11 at 149-60.
Again, while LCPI's claim was large (i.e., $45 million), the bankruptcy case involved only a handful of creditors, was not at all complex, and a plan was confirmed approximately eight months after the petition was filed that provided for rapid payment of 100% of LCPI's allowed claim, exactly the treatment promised by Latshaw at the first hearing.
Likewise, LCPI believed it was reasonable to oppose confirmation of the Plan because "Latshaw was arguing that the allowed amount of the LCPI claim ... should be zero, and that would have resulted in vastly different treatment [than Ableco]." Id. at 75. However, the appropriate battleground for debating the amount of LCPI's claim was the Claims Litigation proceeding; the Plan did not establish the amount of LCPI's claim.
Id. at 524.
