Federal Register, Volume 78 Issue 116 (Monday, June 17, 2013)

[Federal Register Volume 78, Number 116 (Monday, June 17, 2013)]
[Notices]
[Pages 36248-36276]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-14323]

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DEPARTMENT OF JUSTICE

Appendix B Guidelines for Reviewing Applications for Compensation
and Reimbursement of Expenses Filed Under United States Code by
Attorneys in Larger Chapter 11 Cases

AGENCY: Executive Office for United States Trustees, Justice.

ACTION: Notice of internal procedural guidelines.

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SUMMARY: In 1996, in accordance with Congress's mandate in 28 U.S.C.
586(a)(3)(A), the United States Trustee Program (``USTP'') established
Guidelines for Reviewing Applications for Compensation and
Reimbursement of Expenses filed under 11 U.S.C. 330. See 28 CFR Part
58, Appendix A (``Appendix A guidelines''). The USTP has drafted
additional guidelines for reviewing applications for compensation and
reimbursement of expenses filed by attorneys in larger chapter 11 cases
with $50 million or more in assets and $50 million or more in
liabilities, aggregated for jointly administered cases. Single asset
real estate cases, as defined in 11 U.S.C. 101(51B), filed under
chapter 11 are excluded from these guidelines.
These guidelines that apply to the USTP's review of applications
for compensation filed by attorneys in larger chapter 11 cases will be
published in the Federal Register and entitled Appendix B--Guidelines
for Reviewing Applications for Compensation and Reimbursement of
Expenses Filed Under 11 U.S.C. 330 by Attorneys in Larger Chapter 11
Cases (``Appendix B guidelines''). Until the USTP adopts other
superseding guidelines, the Appendix A guidelines will continue in
effect for the USTP's review of applications filed under section 330
in: (1) Larger chapter 11 cases by those professionals seeking
compensation who are not attorneys; (2) all chapter 11 cases with less
than $50 million in assets and $50 million in liabilities, aggregated
for jointly administered cases; (3) all chapter 11 single asset real
estate cases; and (4) all cases under other chapters of the Bankruptcy
Code.
The USTP will continue to review and update these guidelines, as
appropriate.

DATES: Effective Date: November 1, 2013.

FOR FURTHER INFORMATION CONTACT: Nan Roberts Eitel, Associate General
Counsel for Chapter 11 Practice, Executive Office for United States
Trustees, 441 G St. NW., Suite 6150, Washington, DC 20530.

SUPPLEMENTARY INFORMATION: The authority for these guidelines is 28
U.S.C. 586(a)(3)(A), which provides that United States Trustees may
review ``in accordance with procedural guidelines adopted by the
Executive Office of the United States Trustee (which guidelines shall
be applied uniformly by the United States Trustee except when
circumstances warrant different treatment) applications filed for
compensation and reimbursement under section 330 of title 11 . . . .''
Id. The guidelines are to be applied by the USTP; however, they are not
exclusive and do not limit the United States Trustee's discretion to
object to or comment on a particular application.
Because the Appendix B guidelines, like the Appendix A guidelines,
constitute procedural guidelines that apply to the USTP's review of fee
applications, they are not subject to the Administrative Procedure
Act's formal notice and comment provisions. Nonetheless, to engage the
bankruptcy community, the USTP followed an extensive notice and
comment-like process by reaching out to various bankruptcy judges and
the National Bankruptcy Conference before drafting the Appendix B
guidelines, posting a draft of the Appendix B guidelines to its public
Web site for public comment, holding a public meeting, and posting a
revised draft of the Appendix B guidelines responding to the comments
to its public Web site for further public comment before finalizing.

Table of Contents

I. Appendix B--Guidelines for Reviewing Applications for
Compensation and Reimbursement of Expenses Filed Under 11 U.S.C. 330
by Attorneys in Larger Chapter 11 Cases
II. Exhibit A: Customary and Comparable Compensation Disclosures
With Fee Applications
III. Exhibit B: Summary of Professionals Included in This Fee
Application
IV. Exhibit C: Budget and Staffing Plan
V. Exhibit D: Summary of Compensation Requested by Project Category
VI. Exhibit E: Summary Cover Sheet of Fee Application
VII. Exhibit F: Analysis of Comments Received and Summary of
Significant Changes in Response to Comments

[[Page 36249]]

Appendix B--Guidelines for Reviewing Applications for Compensation and
Reimbursement of Expenses Filed Under 11 U.S.C. 330 by Attorneys in
Larger Chapter 11 Cases

A. General Information

1. United States Trustees may review ``in accordance with
procedural guidelines adopted by the Executive Office of the United
States Trustee (which guidelines shall be applied uniformly by the
United States trustee except when circumstances warrant different
treatment), applications filed for compensation and reimbursement under
section 330 of title 11 . . . .'' 28 U.S.C. 586(a)(3)(A)(i). United
States Trustees may also file ``with the court comments with respect to
such application and, if the United States Trustee considers it to be
appropriate, objections to such application.'' Id. The Executive Office
for United States Trustees (``Executive Office'') adopted procedural
guidelines, which apply to all cases commenced on or after October 22,
1994. See 28 CFR Part 58, Appendix A.
2. Because the circumstances in larger chapter 11 cases warrant
different treatment, the Executive Office adopted these Appendix B
guidelines (``Guidelines'') to apply only when United States Trustees
review applications for compensation filed by attorneys employed under
sections 327 or 1103 of the United States Bankruptcy Code, 11 U.S.C.
101, et seq. (``Code''), in chapter 11 cases where the debtor's
petition lists $50 million or more in assets and $50 million or more in
liabilities, aggregated for jointly administered cases and excluding
single asset real estate cases as defined in 11 U.S.C. 101(51B)
(``threshold'').
3. The United States Trustees will use these Guidelines to review
applications for compensation filed by attorneys employed under
sections 327 or 1103 of the Code in all chapter 11 cases that meet the
threshold and that are filed on or after October 1, 2013. The
Guidelines generally will not apply to counsel retained as an ordinary
course professional pursuant to appropriate court order or local rule
(``ordinary course professional''), unless the professional is required
to file a fee application under such court order or local rule.
4. The Guidelines express the USTP's policy positions, and the USTP
will use these Guidelines in the absence of controlling law or rules in
the jurisdiction. Thus, the Guidelines do not supersede local rules,
court orders, or other controlling authority. However, these Guidelines
do not limit the USTP's ability to seek changes in controlling laws or
rules through litigation, appeals, and other actions.
5. Only the court has authority to award compensation and
reimbursement under section 330 of the Code. The Guidelines focus on
the disclosure of information relevant to the court's award of
compensation and reimbursement of expenses under section 330 of the
Code. The Guidelines reflect standards and procedures in section 330 of
the Code and Bankruptcy Rule 2016. Applications containing the
information requested in these Guidelines will assist review by the
court, the parties, and the United States Trustee.
6. Because the review of fee applications under section 330 of the
Code is inextricably intertwined with the terms and conditions of
employment approved by the court when the applicant is retained, these
Guidelines also address disclosure of certain information in
applications for retention filed under sections 327 and 1103 of the
Code.
7. Nothing in the Guidelines should be construed:
a. To limit the United States Trustee's discretion to request
additional information necessary for the review of a particular fee
application or to refer any information provided to the United States
Trustee to any law enforcement authority of the United States or a
state.
b. To limit the United States Trustee's discretion to determine
whether to file comments or objections to fee applications.
c. To create any private right of action on the part of any person
enforceable against the United States Trustee or the United States.

B. United States Trustee's Goals and Considerations In Reviewing and
Commenting On Fee Applications

1. Goals: In determining whether to object to or comment on fee
applications, the United States Trustee will be guided by the following
goals. These goals, however, are not exclusive and in no way limit the
discretion of the United States Trustee to object or comment. In
applying the Guidelines, the United States Trustee seeks:
a. To ensure that bankruptcy professionals are subject to the same
client-driven market forces, scrutiny, and accountability as
professionals in non-bankruptcy engagements.
b. To ensure adherence to the requirements of section 330 of the
Code so that all professional compensation is reasonable and necessary,
particularly as compared to the market measured both by the applicant's
own billing practices for bankruptcy and non-bankruptcy engagements and
by those of other comparable professionals.
c. To increase disclosure and transparency in the billing practices
of professionals seeking compensation from the estate.
d. To increase client and constituent accountability for overseeing
the fees and billing practices of their own professionals who are being
paid by the estate.
e. To encourage the adoption of budgets and staffing plans
developed between the client and the applicant to bring discipline,
predictability, and client involvement and accountability to the
compensation process.
f. To decrease the administrative burden and increase the
efficiency of review of fee applications.
g. To assure that, even in the absence of an objection, the burden
of proof to establish that fees and expenses are reasonable and
necessary remains on the applicant seeking compensation and
reimbursement.
h. To increase public confidence in the integrity and soundness of
the bankruptcy compensation process.
2. Considerations on fees: The Guidelines are intended to elicit
information that will aid the United States Trustee, the parties, and
the court in determining whether the fees and expenses sought in a fee
application are reasonable and necessary as required by section 330 of
the Code. In applying section 330 to the review of fee applications,
the United States Trustee will consider the following:
a. Section 330 factors: The factors expressly set forth in section
330 of the Code, including:
i. The time spent.
ii. The rates charged.
iii. Whether the services were necessary to the administration of,
or beneficial towards the completion of, the case at the time they were
rendered.
iv. Whether services were performed within a reasonable time
commensurate with the complexity, importance, and nature of the
problem, issue, or task addressed.
v. The demonstrated skill and experience in bankruptcy of the
applicant's professionals.
vi. Whether compensation is reasonable based on the customary
compensation charged by comparably skilled practitioners in cases other
than cases under title 11.

The United States Trustee may object to the extent that the applicant
fails to provide sufficient information to satisfy its burden under
section 330.
b. Comparable services standard: Whether the applicant provided

[[Page 36250]]

sufficient information in the application to establish that the
compensation sought is reasonable as compared to the market measured by
the billing practices of the applicant and its peers for bankruptcy and
non-bankruptcy engagements. The United States Trustee will ordinarily
object to fees that are above the market rate for comparable services.
Exhibit A is a model form that may be useful in providing this
information.\1\
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\1\ The model forms included as exhibits to the Guidelines are
templates offered as guidance to facilitate preparation and review
of requested information.
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c. Staffing inefficiencies: Whether there was duplication of effort
or services, or whether the seniority or skill level of the applicant's
professional was commensurate with the complexity, importance, and
nature of the issue or task. The United States Trustee may object if
any duplication is unjustified or unjustifiable, including if multiple
professionals unnecessarily attend hearings or meetings. The United
States Trustee may also object if the skill level of the professional
rendering a particular service is not commensurate with the task. The
United States Trustee encourages applicants to consider how to assign
and staff more routine and ``commoditized'' work, such as avoidance
actions and claims objections, and to consider whether lower cost co-
counsel should be retained for discrete types of work, while being
careful to avoid duplication, overlap, and inefficiencies. Factors the
USTP will consider in determining whether to object to the retention or
compensation of co-counsel are described more specifically in ] F.
Nothing in the Guidelines should be construed as precluding the
retention and payment of ``ordinary course professionals,'' subject to
appropriate motions and orders in a particular case. Nothing in the
guidelines should be construed as precluding the retention of special
counsel under section 327(e) or local counsel under section 327(a).
d. Rate increases: \2\ Whether the application contains rates
higher than those disclosed and approved on the application for
retention or any supplemental application for retention or agreed to
with the client. Exhibit B is a model form that may be useful in
providing this information. The United States Trustee may object if the
applicant fails to justify any rate increases as reasonable.
Boilerplate language in the retention application filed under section
327 of the Code is insufficient.
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\2\ ``Rate increases'' as used in the Guidelines exclude annual
``step increases'' historically awarded by the firm in the ordinary
course to attorneys throughout the firm due to advancing seniority
and promotion. Applicants should not characterize actual rate
increases that are unrelated to an attorney's advancing seniority
and promotion as ``step increases'' in an effort to thwart
meaningful disclosure or billing discipline. If a firm does not
distinguish between ``step increases'' and other types of rate
increases, it should disclose and explain all rate increases as
requested.
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e. Transitory professionals: Whether any of the applicant's
professionals billed only a few hours to the matter with insufficient
evidence of benefit to the estate. The United States Trustee may object
if the applicant fails to justify the necessity or benefit of these
professionals' services.
f. Routine billing activities: Whether an applicant billed for
routine billing activities that typically are not compensable outside
of bankruptcy. Most are not compensable because professionals do not
charge a client for preparing invoices, even if detailed. Reasonable
charges for preparing interim and final fee applications, however, are
compensable, because the preparation of a fee application is not
required for lawyers practicing in areas other than bankruptcy as a
condition to getting paid. Activities that the United States Trustee
may object to as non-compensable include but are not limited to:
i. Excessive redaction of bills or invoices for privileged or
confidential information. Professionals and paraprofessionals whose
compensation will be paid by the bankruptcy estate know at the
inception that their billing records must be publicly filed and should
draft time entries and prepare invoices to both minimize redactions and
avoid vague descriptions. The time spent for redactions should be
reasonably proportional to the overall fees sought.
ii. Reviewing or revising time records.
iii. Preparing, reviewing, or revising invoices.
iv. Preparing, reviewing, or revising monthly fee statements,
notices or other informal interim compensation requests to the extent
duplicative of the preparation of the related interim or final fee
application filed with the court under section 330 of the Code (or vice
versa).
v. Preparing the final fee application to the extent duplicative of
the preparation of interim fee applications.
g. Contesting or litigating fee objections: Whether the fee
application seeks compensation for time spent explaining or defending
monthly invoices or fee applications that would normally not be
compensable outside of bankruptcy. Most are not compensable because
professionals typically do not charge clients for time spent explaining
or defending a bill. The USTP's position is that awarding compensation
for matters related to a fee application after its initial preparation
is generally inappropriate, unless those activities fall within a
judicial exception applicable within the district (such as litigating
an objection to the application where the applicant substantially
prevails). Thus, the United States Trustee may object to time spent
explaining the fees, negotiating objections, and litigating contested
fee matters that are properly characterized as work that is for the
benefit of the professional and not the estate.
h. Block billing or lumping: Whether the entries in the application
are recorded in increments of .1 of an hour and whether discrete tasks
are recorded separately. The United States Trustee will object to block
billing or lumping. Each timekeeper, however, may record one daily
entry that combines tasks for a particular project that total a de
minimis amount of time if those tasks do not exceed .5 hours on that
day.
i. Vague or repetitive entries: Whether the application contains
sufficient information to identify the purpose of the work or the
benefit to the estate. The United States Trustee may object to vague or
repetitive entries that are otherwise unjustified. Phrases like
``attention to'' or ``review file,'' without greater specificity or
more detail, are generally insufficient.
j. Overhead: Whether the application includes activities that
should be considered part of the applicant's overhead and not billed to
the estate. Tasks that the United States Trustee may object to as
overhead include clerical tasks and word processing. The United States
Trustee may also object to fees for summer clerks or summer associates,
which are more properly the firm's overhead for recruiting and
training.
k. Non-working travel: Whether the application includes time billed
for non-working travel at the full rate. The United States Trustee may
object if the applicant seeks compensation at a professional's full
rate for time spent traveling without actively working on the
bankruptcy case or while working on other unrelated matters.
l. Geographic variations in rates: Whether the applicant increased
the hourly rates of its professionals and paraprofessionals based
solely on the geographic location of the bankruptcy case. The United
States Trustee will not object to ``non-forum'' rates of professionals
when the ``non-forum'' rates are based on the reasonable rates where
the professionals maintain their primary office, even if the locally

[[Page 36251]]

prevailing rates where the case is pending are lower (i.e., a
professional may bill the same reasonable rate in any forum).
Conversely, the United States Trustee will object if professionals
increase their rates based on the forum where the case is pending when
they bill lower rates where they maintain their primary offices.
m. Budgets and staffing plans: Whether the fee application
sufficiently explains: (i) Any substantial increase (e.g., 10% or more)
in the amount requested in the fee application as compared to any
client-approved budget; and (ii) any increase in the number of
professionals and paraprofessionals billing to the matter during the
application period as compared to any client-approved staffing plan.
The United States Trustee ordinarily will seek the use of fee and
expense budgets and staffing plans, either with the consent of the
parties or by court order as soon as feasible after the commencement of
the case, as described more specifically in ] E. In reviewing the fee
application, the United States Trustee will consider any budget and
staffing plan filed retrospectively with the application. Exhibit C is
a model budget (Exhibit C-1) and staffing plan (Exhibit C-2), and
Exhibit D-1 is a model form that may be useful in reporting fees sought
in comparison to client-approved budgets.
n. Verified and other statements: Whether the client has provided a
verified statement with the applicant's retention application regarding
its budgeting, review, and approval process for fees and expenses, and
whether the applicant has made similar representations and disclosures
in the retention application and fee application.
3. Considerations on expenses: In applying section 330 to the
review of applications for reimbursement of reasonable, actual, and
necessary expenses, the United States Trustee will consider the
following:
a. Proration: Whether the applicant has prorated shared expenses
where appropriate between the estate and other cases and has adequately
explained the basis for any such proration. For example, applicants
should prorate travel expenses that are applicable to more than one
case.
b. Reasonable: Whether the expense is reasonable and necessary. For
example, travel should be in coach class. First class and other above
standard travel or accommodations will normally be objectionable.
c. Customary: Whether the requested expenses are customarily
charged to the applicant's non-bankruptcy clients and by other
comparable professionals. The United States Trustee will ordinarily
object to expenses that are not customary, absent a specific and
adequate justification.
d. Actual: Whether the expenses incurred or paid by the applicant
reflect the actual cost of such expenses to the applicant and whether
any mark-up is justified. Mark-ups will ordinarily be objectionable.
e. Overhead: Whether the expenses are or should be non-reimbursable
overhead costs incident to the operation of the applicant's office and
not particularly attributable to an individual client or case. Without
limitation, the United States Trustee will ordinarily consider the
following expenses to be overhead: Word processing, proofreading,
secretarial and other clerical services, rent, utilities, office
equipment and furnishings, insurance, taxes, telephone charges (other
than actual charges for multi-party conference calls incurred by
counsel in connection with the case), and library and publication
charges.
f. Local rule or order: Whether the applicant has adhered to
allowable rates or charges for expenses as may be fixed by any local
rule or order of the court. Expenses that are not allowable will
normally be objectionable.
g. Unusual: Whether unusual expenses are supported by detailed
explanations and allocated, where practicable, to specific projects.
The United States Trustee may object if unusual expenses are
unsupported or unjustified.
h. Receipts: Whether receipts for larger or unusual expenses are
available for review upon request.

C. Contents and Format of Applications for Compensation and
Reimbursement Of Expenses

1. General: All applications should include sufficient detail to
demonstrate compliance with the standards of 11 U.S.C. 330. The fee
application should also contain sufficient information about the case
and the applicant so that the court, the parties, and the United States
Trustee can review it without searching for relevant information in
other documents. The information sought below will facilitate review of
the application and should be provided in every fee application.
2. Information to be provided about the applicant and the scope of
the application:
a. Name of applicant.
b. Name of client.
c. Petition date.
d. Retention date.
e. Date of order approving employment.
f. Time period covered by application.
g. Terms and conditions of employment and compensation, including
source of compensation, existence of and terms controlling any
retainer, and any budgetary or other limitations on fees.
h. Whether the application is interim under section 331 or final
under section 330.
i. The date and terms of any order allowing filing of interim
applications more frequently than every 120 days, if applicable.
j. Whether the applicant seeks compensation under a provision of
the Code other than section 330.
k. For each professional and paraprofessional who billed on the
matter during the application period:
i. Name.
ii. Title or position.
iii. Primary department, group, or section.
iv. Date of first admission to the bar, if applicable.
v. Total fees billed included in application.
vi. Total hours billed included in application.
vii. Current hourly rate contained in this application.
viii. Hourly rate contained in the first interim application.
ix. The number of rate increases since the inception of the case.

Exhibit B is a model form that may be useful in providing the
information requested in ] C.2.k.
l. If the applicant has increased rates during the case, the
application should disclose the effect of the rate increases. For
comparison purposes, the applicant should calculate and disclose the
total compensation sought in the fee application using the rates
originally disclosed in the retention application. Exhibit E is a model
form that may be useful in providing the requested calculation.
3. Information to be provided about customary and comparable
compensation:
a. The blended hourly rate either billed or collected during the
preceding year for the applicant's timekeepers.
i. The application should disclose the blended hourly rate for the
aggregate of either:
(a) All of the applicant's domestic timekeepers; or
(b) All timekeepers in each of the applicant's domestic offices in
which timekeepers collectively billed at least 10% of the hours to the
bankruptcy case during the application period.

[[Page 36252]]

ii. The application should also segregate the timekeepers in ]
C.3.a.i. by the various categories of professionals and
paraprofessionals maintained by the applicant (e.g., partner, counsel,
sr. counsel, associate, etc.), and disclose the blended hourly rate for
each category of timekeeper.
iii. To calculate the blended hourly rate billed, divide the dollar
value of hours billed by the number of hours billed (regardless of when
the work was performed) for the relevant timekeepers during the
applicable time period. To calculate the blended hourly rate collected,
divide the revenue collected by the number of hours billed for the
relevant timekeepers during the applicable time period.
iv. In calculating the blended hourly rate:
(a) Full service law firms should generally exclude all bankruptcy
engagements or all data from timekeepers practicing primarily in a
bankruptcy group or section.
(b) Law firms that practice exclusively or primarily in bankruptcy
should exclude all estate-billed bankruptcy engagements.
(c) The applicant may exclude:
(1) Pro bono engagements.
(2) Other engagements for clients who are employees or charitable
organizations that are billed at materially discounted rates.
(d) The applicant should include discounted or alternative fee
arrangements, other than those engagements in ] C.3.a.iv.(c). For any
fee arrangements not billed by the hour to the client but for which the
applicant tracks hours and revenue by hours worked, the applicant
should include this information in the calculation. If the applicant's
calculation includes any fee arrangements not billed by the hour, the
applicant should concisely explain the methodology it used to calculate
the blended hourly rates.
v. The ``preceding year'' can be either the applicant's prior
completed fiscal year or a rolling 12 month year.
b. The blended hourly rate billed to the bankruptcy case during the
application period for all of the applicant's timekeepers.
i. The application should disclose the blended hourly rate billed
in the aggregate for all timekeepers who billed to the matter.
ii. The application should also segregate the timekeepers by the
various categories of professionals and paraprofessionals maintained by
the applicant (e.g., partner, counsel, sr. counsel, associate, etc.),
and disclose the blended hourly rate billed for each category of
timekeeper.
iii. To calculate the blended hourly rate billed, divide the dollar
value of hours billed by the number of hours billed (regardless of when
the work was performed) for the relevant timekeepers during the
application period.
Exhibit A is a model form that may be useful in providing this
information.
c. Applicants can propose detailed and specific disclosures, other
than those requested at ] C.3.a.-b., that are tailored to the
applicant's circumstances and ability to gather and organize internal
information, but the United States Trustee may object to the adequacy
of the disclosure if it is insufficient to enable the United States
Trustee to evaluate whether the requested compensation is comparable
and customary.
4. ``Safe harbor'': An applicant's disclosure of blended hourly
rates in accordance with ] C.3.a.-b. will provide a limited ``safe
harbor'' from additional requests from the United States Trustee for
information about customary and comparable compensation under section
330(a)(3)(F) of the Code. This ``safe harbor'' is without prejudice to
the United States Trustee's ability to seek additional information
based upon the particular facts and circumstances of the case, to file
an objection, or to offer evidence on comparable compensation from
other sources.
5. Statement from the applicant: The applicant should answer the
questions below in the fee application. Many questions require only a
yes or no answer. The applicant, however, is free to provide additional
information if it chooses to explain or clarify its answers.
a. Did you agree to any variations from, or alternatives to, your
standard or customary billing rates, fees or terms for services
pertaining to this engagement that were provided during the application
period? If so, please explain.
b. If the fees sought in this fee application as compared to the
fees budgeted for the time period covered by this fee application are
higher by 10% or more, did you discuss the reasons for the variation
with the client?
c. Have any of the professionals included in this fee application
varied their hourly rate based on the geographic location of the
bankruptcy case?
d. Does the fee application include time or fees related to
reviewing or revising time records or preparing, reviewing, or revising
invoices? (This is limited to work involved in preparing and editing
billing records that would not be compensable outside of bankruptcy and
does not include reasonable fees for preparing a fee application.). If
so, please quantify by hours and fees.
e. Does this fee application include time or fees for reviewing
time records to redact any privileged or other confidential
information? If so, please quantify by hours and fees.
f. If the fee application includes any rate increases since
retention:
i. Did your client review and approve those rate increases in
advance?
ii. Did your client agree when retaining the law firm to accept all
future rate increases? If not, did you inform your client that they
need not agree to modified rates or terms in order to have you continue
the representation, consistent with ABA Formal Ethics Opinion 11-458?
6. Information about budget and staffing plans: If the applicant
consents to, or the court directs, the use of budgets and staffing
plans, as described more generally in ] E, the applicant should attach
the client-approved budget and client-approved staffing plan to the fee
application for the time period covered by the fee application. Both
original and any amended budgets and staffing plans should be included.
a. The budget and staffing plan for the fee application period
should be filed when the fee application is filed, not when the client
and the applicant agree on the budget and staffing plan. For example,
the budget disclosed with each interim fee application should relate to
work already performed and reflected in that application. Thus, if the
client approved four, 30-day budgets that collectively covered a 120-
day interim application period, then these four budgets should be
attached.
b. Budgets may be redacted as necessary to protect privileged and
confidential information, and such redactions may be compensable if the
disclosure of the privileged or confidential information cannot
otherwise be avoided through careful drafting. But the time spent for
redactions should be reasonably proportional to the overall fees
sought. Redactions may be unnecessary if the applicant uses the model
budget in Exhibit C-1, which budgets total hours and fees by project
category, see ] C.8., and without descriptive entries.
c. The fee application should also include a summary of fees and
hours budgeted compared to fees and hours billed for each project
category. Exhibit D-1 is a model form that may be useful in reporting
fees sought in comparison to the budget.
d. The applicant should provide an explanation if the fees sought
in the fee application exceed the budget during the application period
by 10% or more.

[[Page 36253]]

e. The applicants should provide an explanation if fees are sought
in the fee application for a greater number of professionals than
identified in the staffing plan.
7. Information about prior interim applications:
a. With respect to each prior interim application, counsel should
provide the following information:
i. Date(s) filed and period covered.
ii. Fees and expenses requested.
iii. Fees and expenses approved.
iv. Approved fees and expenses paid.
v. Approved fees and expenses remaining unpaid.
vi. Date(s) of previous order(s) on interim compensation or
reimbursement of expenses.
b. Counsel should provide the following information on a cumulative
basis since case inception:
i. Fees and expenses requested.
ii. Fees and expenses approved.
iii. Approved fees and expenses paid.
iv. Approved fees and expenses remaining unpaid.
v. Fees and expenses disallowed or withdrawn.
8. Project categories for billing records: To facilitate effective
review of the application, all time and service entries should be
arranged by project categories.
a. Only one category should be used for a given activity.
Professionals should make their best effort to be consistent in their
use of categories, whether within a particular firm or by different
firms working on the same case. It would be appropriate for all
professionals to discuss the categories in advance and agree generally
on how activities will be categorized.
b. The project categories set forth below should be used to the
extent applicable. The following list of project categories is not
exclusive, and applicants are encouraged to consult with the United
States Trustee regarding the need to formulate case-specific project
billing with respect to a particular case.
i. Asset Analysis and Recovery: Identification and review of
potential assets including causes of action and non-litigation
recoveries.
ii. Asset Disposition: Sales, leases (section 365 matters),
abandonment and related transaction work related to asset disposition.
iii. Assumption and Rejection of Leases and Contracts: Analysis of
leases and executory contracts and preparation of motions specifically
to assume or reject.
iv. Avoidance Action Analysis: Review of potential avoiding actions
under Sections 544-549 of the Code to determine whether adversary
proceedings are warranted.
v. Budgeting (Case): Preparation, negotiation, and amendment to
budgets for applicant.
vi. Business Operations: Issues related to debtor-in-possession
operating in chapter 11 such as employee, vendor, tenant issues and
other similar problems.
vii. Case Administration: Coordination and compliance activities
not specifically covered by another category.
viii. Claims Administration and Objections: Specific claim
inquiries; bar date motions; analyses, objections and allowances of
claims.
ix. Corporate Governance and Board Matters: Preparation for and
attendance at Board of Directors meetings; analysis and advice
regarding corporate governance issues, including trustee, examiner, and
CRO issues; review and preparation of corporate documents (e.g.,
articles and bylaws, etc.).
x. Employee Benefits and Pensions: Review and preparation related
to employee and retiree benefit issues, including compensation,
bonuses, severance, insurance benefits, and 401K, pensions, or other
retirement plans.
xi. Employment and Fee Applications: Preparation of employment and
fee applications for self or others; motions to establish interim
procedures.
xii. Employment and Fee Application Objections: Review of and
objections to the employment and fee applications of others.
xiii. Financing and Cash Collateral: Matters under sections 361,
363 and 364 including cash collateral and secured claims; loan document
analysis.
xiv. Litigation: Contested Matters and Adversary Proceedings (not
otherwise within a specific project category), each identified
separately by caption and adversary number, or title of motion or
application and docket number, and using the Uniform Task Based
Management System (``UTBMS'') Litigation Task Code Set.\3\
---------------------------------------------------------------------------

\3\ See UTBMS.com for information on uniform task codes commonly
used in legal billing.
---------------------------------------------------------------------------

xv. Meetings and Communications with Creditors: Preparation for and
attendance at section 341(a) meeting and any other meetings with
creditors and creditors' committees.
xvi. Non-Working Travel: Non-working travel where the court
reimburses at less than full hourly rates.
xvii. Plan and Disclosure Statement: Formulation, presentation and
confirmation; compliance with the plan confirmation order, related
orders and rules; disbursement and case closing activities, except
those related to the allowance and objections to allowance of claims.
xviii. Real Estate: Review and analysis of real estate-related
matters, including purchase agreements and lease provisions (e.g.,
common area maintenance clauses).
xix. Relief from Stay and Adequate Protection: Matters relating to
termination or continuation of automatic stay under 11 U.S.C. 362 and
motions for adequate protection under 11 U.S.C. 361.
xx. Reporting: Statement of financial affairs, schedules, monthly
operating reports, and any other accounting or reporting activities;
contacts with the United States Trustee not included in other
categories.
xxi. Tax: Analysis of tax issues and preparation of federal and
state tax returns.
xxii. Valuation: Appraise or review appraisals of assets.
c. The applicant should provide a brief narrative summary of the
following information for each project category:
i. A description of the project, its necessity and benefit to the
estate, and its status, including all pending litigation for which
compensation and reimbursement are requested.
ii. The identity of each person providing services on the project.
iii. A statement of the number of hours spent and the amount of
compensation requested for each professional and paraprofessional on
the project.
9. Time and service entries within each project category:
a. Time and service entries should be reported in chronological
order within each project category.
b. Each time or service entry should include:
i. The timekeeper's name.
ii. Time spent on task.
iii. Hourly rate.
iv. Fees sought for each entry.
v. Description of task or service.
c. Time should be recorded contemporaneously in increments of no
more than one tenth (.1) of an hour. A disproportionate number of
entries billed in half- or whole-hour increments may indicate that
actions are being lumped or not accurately billed.
d. Services should be described in detail and not combined or
``lumped'' together, with each service showing a separate time entry.
Each timekeeper, however, may record one daily entry that combines
tasks for a particular project that total a de minimis amount of time
if those tasks do not exceed .5 hours on that day.

[[Page 36254]]

e. Entries should give sufficient detail about the work,
identifying the subject matter of the communication, hearing, or task
and any recipients or participants.
f. If more than one professional attends a hearing or conference,
the applicant should explain the need for multiple attendees.
10. Electronic billing records: The billing records (detailed time
and service entries) substantiating the application should be provided
in an open and searchable electronic data format: (i) With the
application to the court, the debtor-in-possession (or trustee),
official committees, the United States Trustee, and the fee review
committee, fee examiner, and fee auditor; and (ii) upon request, to any
other party in interest.\4\ The applicant may provide the electronic
data in the manner in which it maintains it. An applicant that does not
maintain billing data electronically is encouraged to consult with the
United States Trustee about providing paper copies of such information.
The applicant's submission of electronic data does not relieve the
applicant of its obligations under the Code, local rules, and any
applicable compensation or case management orders, including providing
paper copies if required.
---------------------------------------------------------------------------

\4\ See www.LEDES.org for information regarding open electronic
data formats commonly used in legal e-billing.
---------------------------------------------------------------------------

11. Case status: The following information should be provided to
the extent possible:
a. A brief summary of the case, discussing key steps completed and
key steps remaining until the case can be closed.
b. The amount of cash on hand or on deposit, the amount and nature
of accrued unpaid administrative expenses, and the amount of
unencumbered funds in the estate.
c. Any material changes in the status of the case that occur after
the filing of the fee application should be raised at the hearing on
the application or, if a hearing is not required, prior to the
expiration of the time period for objection.
12. Expense Categories: To facilitate effective review of the
application, all expense entries should be arranged by expense
categories.
a. The expense categories set forth below should be used to the
extent applicable:
i. Copies.
ii. Outside Printing.
iii. Telephone.
iv. Facsimile.
v. Online Research.
vi. Delivery Services/Couriers.
vii. Postage.
viii. Local Travel.
ix. Out-of-town Travel:
(a) Transportation.
(b) Hotel.
(c) Meals.
(d) Ground Transportation.
(e) Other (please specify).
x. Meals (local).
xi. Court Fees.
xii. Subpoena Fees.
xiii. Witness Fees.
xiv. Deposition Transcripts.
xv. Trial Transcripts.
xvi. Trial Exhibits.
xvii. Litigation Support Vendors.
xviii. Experts.
xix. Investigators.
xx. Arbitrators/Mediators.
xxi. Other (please specify).
b. Although certain expense categories may appear in the category
list, the United States Trustee may still object to the inclusion of
any expenses that should properly be deemed an applicant's overhead.
See ] B.3.e.
c. Unusual items require more detailed explanations and should be
allocated, where practicable, to specific projects.
13. Contents of application for reimbursement of reasonable,
actual, and necessary expenses: Any expense for which reimbursement is
sought must be reasonable, actual, and necessary, and must be of the
kind customarily billed to non-bankruptcy clients.
a. Expenses should be reported in chronological order within each
expense category.
b. Each expense should include the following information:
i. Amount.
ii. Description and pertinent detail (e.g., copy costs, messengers,
computer research, type of travel, type of fare, rate, destination,
etc.).
iii. Date incurred.
iv. Who incurred the expense, if relevant.
v. Reason for expense.
14. Summaries:
a. All applications should contain a summary cover sheet that
provides the information below. Exhibit E is a model form that may be
useful in transmitting this information.
i. Name of applicant.
ii. Name of client.
iii. Time period covered by this application.
iv. Total compensation sought this period.
v. Total expenses sought this period.
vi. Petition date.
vii. Retention date.
viii. Date of order approving employment.
ix. Total compensation approved by interim order to date.
x. Total expenses approved by interim order to date.
xi. Total allowed compensation paid to date.
xii. Total allowed expenses paid to date.
xiii. Blended rate in this application for all attorneys.
xiv. Blended rate in this application for all timekeepers. See
Exhibit A.
xv. Compensation sought in this application already paid pursuant
to a monthly compensation order but not yet allowed.
xvi. Expenses sought in this application already paid pursuant to a
monthly compensation order but not yet allowed.
xvii. Number of professionals included in this application.
xviii. If applicable, the number of professionals included in this
application not included in a staffing plan approved by the client.
xix. If applicable, difference between fees budgeted and
compensation sought for this period.
xx. Number of professionals billing fewer than 15 hours to the case
during this period.
xxi. If the applicant has increased rates during the case, the
application should disclose the effect of the rate increases. For
comparison purposes, the applicant should calculate and disclose the
total compensation sought in the application using the rates originally
disclosed in the retention application.
b. All applications should summarize fees and hours by project
category and expenses by expense category. Exhibit D-1 (fees) and
Exhibit D-2 (expenses) are model forms that may be useful in providing
this information.
c. All applications should summarize professionals (preferably in
alphabetical order) included in the fee application by the
professional's name, title, primary practice group, date of first
admission, fees, hours, rates, and number of rate increases. Exhibit B
is a model form that may be useful in providing this and other
information.

D. Applications For Employment

1. Statement from the applicant. The applicant should answer the
questions below in all applications for employment filed under sections
327 or 1103 of the Code. Most questions require only a yes or no
answer. The applicant, however, is free to provide additional
information if it chooses to explain or clarify its answers.
a. Did you agree to any variations from, or alternatives to, your
standard or customary billing arrangements for this engagement?

[[Page 36255]]

b. Do any of the professionals included in this engagement vary
their rate based on the geographic location of the bankruptcy case?
c. If you represented the client in the 12 months prepetition,
disclose your billing rates and material financial terms for the
prepetition engagement, including any adjustments during the 12 months
prepetition. If your billing rates and material financial terms have
changed postpetition, explain the difference and the reasons for the
difference.
d. Has your client approved your prospective budget and staffing
plan, and, if so, for what budget period?
2. Verified statement from the client: \5\ The client should
provide a verified statement with all applications for employment filed
under sections 327 and 1103 of the Code that addresses the following:
---------------------------------------------------------------------------

\5\ A verified statement is either a declaration executed in
accordance with 28 U.S.C. 1746 or an affidavit conforming to the
laws of the jurisdiction where executed.
---------------------------------------------------------------------------

a. The identity and position of the person making the verification.
The person ordinarily should be the general counsel of the debtor or
another officer responsible for supervising outside counsel and
monitoring and controlling legal costs.
b. The steps taken by the client to ensure that the applicant's
billing rates and material terms for the engagement are comparable to
the applicant's billing rates and terms for other non-bankruptcy
engagements and to the billing rates and terms of other comparably
skilled professionals.
c. The number of firms the client interviewed.
d. If the billing rates are not comparable to the applicant's
billing rates for other non-bankruptcy engagements and to the billing
rates of other comparably skilled professionals, the circumstances
warranting the retention of that firm.
e. The procedures the client has established to supervise the
applicant's fees and expenses and to manage costs. If the procedures
for the budgeting, review and approval of fees and expenses differ from
those the client regularly employs in non-bankruptcy cases to supervise
outside counsel, explain how and why. In addition, describe any efforts
to negotiate rates, including rates for routine matters, or in the
alternative to delegate such matters to less expensive counsel.
f. The client verification should be appropriately detailed and
should not be a routine form prepared by the client's bankruptcy
counsel.

E. Budgets and Staffing Plans, In General

1. In a larger chapter 11 case that meets the threshold, the United
States Trustee ordinarily will seek the use of fee and expense budgets
and staffing plans, either with the consent of the parties or by court
order as soon as feasible after the commencement of the case. As set
forth in ] B.2.m above, the United States Trustee will consider fee
applications in the context of budgets and staffing plans used in the
case, and the professionals are urged to consult with the United States
Trustee whether they anticipate delays in formulating budgets. The
United States Trustee will also consider whether the client has
approved the applicant's budget and staffing plan when reviewing
applications for employment. See ] D.1.d. Exhibit C contains a model
budget (Exhibit C-1) and staffing plan (Exhibit C-2).
2. Budgets and staffing plans should be agreed to between the
professional and its client.
3. Budgets can and should be amended as necessary to reflect
changed circumstances or unanticipated developments.
4. The appropriate budget period should be decided between the
professional and its client. For example, the budget could be provided
for the next month, the next 120-day interim application period, or for
any other time period as agreed.
5. The staffing plan should use the same planning period as the
budget.
6. In the staffing plan, the number of professionals expected to
work on the matter during the budget period may be disclosed either by
category of timekeeper (e.g., 25 associates) or by years of experience
(e.g., 15 lawyers with 8-14 years of experience).
7. Except as provided in ] E.8. below, any disclosure of the budget
and staffing plan to the United States Trustee and other parties will
be retrospective only in conjunction with the fee application. See ]
C.6. above.
8. Absent the parties' consent, the United States Trustee may seek
a court order expressly authorizing the exchange of budgets by counsel
for the debtor-in-possession and the official committees once they are
approved by their respective clients or whenever amended. These budgets
may be provided subject to an appropriate confidentiality agreement and
redacted to protect privileged or confidential information. Such
redactions may be compensable if the disclosure of the privileged or
confidential information cannot otherwise be avoided through careful
drafting. But the time spent for redactions should be reasonably
proportional to the overall fees sought. The confidential and
prospective exchange of budgets between these fiduciaries concerns the
administration of the case and potentially avoids duplication,
consistent with the requirements of section 1103 of the Code.

F. Retention and Compensation of Co-Counsel

1. Scope of retention:
a. Where a debtor retains multiple section 327(a) bankruptcy
counsel, the retention applications should clearly specify which firm
is acting as lead counsel and should clearly delineate the areas of
secondary counsel's responsibility. In general, it should be presumed
that all bankruptcy matters in the case will be handled by the lead
counsel unless the retention application specifically assigns them to
secondary counsel.
b. The retention application should not contain an indeterminate or
open-ended description of secondary counsel's duties. In particular,
retention orders should not contain language permitting secondary
counsel to perform additional, unspecified services at the discretion
of the debtor or the lead counsel.
c. When a new matter within the authorized scope of secondary
counsel's engagement is assigned by the lead counsel to secondary
counsel, secondary counsel need not file a supplemental retention
application and obtain an amended order. Rather, secondary counsel
should file a supplemental declaration in accordance with Bankruptcy
Rule 2014, and provide notice of the filing sufficient to afford
parties in interest an opportunity to object. Nevertheless, if the
matter does not fall within the authorized scope of the engagement,
secondary counsel should file a supplemental retention application and
obtain an amended order to expand the scope of the engagement to
include that matter.
d. Except to the extent that such work is directly relevant to its
assigned duties, secondary counsel should not perform or be compensated
for general case administration duties, such as preparing agenda
letters, monitoring dockets, reviewing pleadings, or attending hearings
at which it does not directly participate.
e. The retention application should clearly identify to whom the
proposed secondary counsel will report. In most cases, secondary
counsel should report directly to the management of the debtor.

[[Page 36256]]

2. Necessity for retention:
a. Applications to retain secondary counsel should contain
sufficient facts to support any contention that employment of an
additional law firm will benefit the estate. Secondary counsel may be
either ``efficiency counsel'' or ``conflicts counsel.'' Efficiency
counsel is secondary counsel employed to handle more routine and
``commoditized'' work, such as claims objections and avoidance actions,
at lower cost to the estate than lead bankruptcy counsel. Conflicts
counsel is secondary counsel employed when lead bankruptcy counsel is
subject to a limited, not pervasive, conflict of interest that prevents
it from performing some small part of its duties.
b. In the case of efficiency counsel, the retention application
should include, at a minimum, a comparison of the billing rates of the
lead counsel and secondary counsel and a projection of the total cost
savings to the estate that would result from employing secondary
counsel. The retention application should also identify any other
factors that would weigh for or against retaining secondary counsel,
including any significant differences in associated travel costs.
c. In the case of conflicts counsel, the retention application
should set forth with specificity the nature of the lead counsel's
conflict, including the identity of any relevant party whom the lead
counsel has represented, a description of the nature of that
representation, and the terms of any waivers or covenants that affect
the lead counsel's ability to take action adverse to that party. The
application should also set forth any procedures that the debtor
proposes to adopt in response to that conflict, including any ethical
walls to which the lead counsel will be subject.
3. Lead counsel's conflicts:
a. In most cases, applications for the retention of conflicts
counsel are filed because either the debtor is aware at the outset that
its proposed lead counsel is subject to a conflict of interest that
prevents it from performing some part of its duties, or in response to
an objection to retention filed by the United States Trustee or other
party. The United States Trustee should carefully review the proposed
conflicts counsel's retention to assure that the lead counsel's
conflicts are not so pervasive as to give rise to an objection to the
lead counsel's retention rather than the appointment of secondary
counsel.
b. As in any case, the United States Trustee should review the lead
counsel's conflicts based on the particular facts and circumstances of
the case, including the specific terms of the proposed conflicts
counsel's retention. The following are circumstances that may indicate
that the retention of conflicts counsel is inappropriate and should
weigh in favor of an objection to the retention application of the lead
counsel:
i. The responsibilities of conflicts counsel are not confined to
discrete legal matters.
ii. The conflicts counsel will be used to handle matters that are
inseparable from the major reorganization activities of the case (e.g.,
negotiation of major plan provisions).
iii. The conflicts counsel will act under the direct supervision
of, and at the direction of, the lead counsel.
iv. The conflicts counsel's role will include filing or advocating
pleadings that have been drafted by lead counsel.
v. The conflicts counsel has been retained to litigate matters in
which the lead counsel has represented the debtor in settlement
negotiations.
vi. The debtor will not (or cannot) create an ethical wall to
screen the lead counsel from the work of the conflicts counsel.
c. One recent trend has been for law firms to obtain limited
conflicts waivers that permit them to engage in settlement negotiations
against certain entities, but which require them to assign the matter
to conflicts counsel in the event that the dispute is litigated in
court. Such arrangements are generally objectionable, and the United
States Trustee retains discretion whether to object in a particular
situation. Negotiation without the ability to litigate against a party
usually will render a lawyer disqualified from the matter, and such
disqualification cannot be cured by retention of conflicts counsel to
handle the litigation.
4. Billing and fee matters: The United States Trustee should
encourage both lead and secondary counsel to submit their billing
records in a format that will enable the United States Trustee and
other interested parties to easily identify any duplication or overlap
in their work. Matters for which secondary counsel is primarily
responsible should be assigned a separate billing code, and fee
statements should clearly reflect both the amount of time that lead
counsel or other professionals have spent on the matter assigned to
secondary counsel, as well as the amount of time that secondary counsel
has spent on matters outside its primary responsibility.
5. Non-compensable services: The United States Trustee should
monitor the fees of both lead counsel and secondary counsel for
services that are unnecessary, duplicative, or that do not benefit the
estate, and should advise counsel in advance that the United States
Trustee will object to any such fees. Among other examples, the United
States Trustee should object to fees for the following:
a. Excessive time bringing secondary counsel ``up to speed'' on the
case, including time spent reviewing background materials that are not
germane to secondary counsel's areas of responsibility;
b. ``Shadowing'' of secondary counsel by lead counsel (or vice
versa);
c. Unnecessary attendance of attorneys from both lead and secondary
counsel at court hearings and conferences, and other meetings;
d. Reviewing, editing, or revising the work product of the other
counsel; or
e. Unnecessary duplication of case administration tasks, such as
monitoring the docket, reviewing pleadings, or preparing hearing agenda
letters.

G. Special Fee Review Entities

1. Generally: In a larger chapter 11 case where a significant
number of professionals will be retained and the normal fee application
and review process would be especially burdensome, the United States
Trustee ordinarily will seek the court's appointment of a special fee
review entity, such as a fee review committee or an independent fee
examiner. Such an entity can assist the court and parties in reviewing
fee applications and can bring consistency, predictability, and
transparency to the process. Although whether a fee review entity is
appointed is ultimately the court's decision, the United States Trustee
will follow these Guidelines in connection with fee review entities,
subject to the court's directions and orders.
2. Timing: The United States Trustee ordinarily will seek the
appointment of a fee review entity as soon as practicable after the
order for relief.
3. Purpose: A fee review entity's primary purpose is to ensure that
professional fees and expenses paid by the estate are reasonable,
actual, and necessary, as required by section 330 of the Code. Thus, a
fee review entity should monitor, review, and where appropriate, object
to interim and final applications for fees and expenses filed by
professionals who seek compensation from the estate. If a case has a
monthly compensation order permitting the payment of fees and expenses
before approval of interim or final applications, the fee review entity
should also monitor, review, and where appropriate, object to monthly
invoices submitted for payment. The fee review entity can also
establish other measures

[[Page 36257]]

to assist the court and the professionals in complying with the Code,
the Federal Rules of Bankruptcy Procedure, local rules or general
orders, the Guidelines, and other controlling law within the
jurisdiction. In the absence of local rules or general orders and other
controlling law within the jurisdiction, a fee review entity should
monitor, review, and where appropriate, object to interim and final fee
applications under section 330 in accordance with these Guidelines.
4. Models: A fee review entity can take one of several forms. The
determination of the appropriate form for a particular case will be the
product of consultation among the United States Trustee, the debtor,
and any official committee, but it is ultimately the court's decision.
There are several possible models, including a fee review committee, a
fee review committee with an independent member, and an independent fee
examiner.
a. Fee review committee: The court could appoint a Fee Review
Committee, which should ordinarily consist of representatives of the
debtor-in-possession, the unsecured creditors committee, any other
official committee, and the United States Trustee. The representatives
of the debtor-in-possession and the official committee(s) should not be
retained professionals whose fees and expenses will be subject to
review by the Fee Review Committee. One member of the Fee Review
Committee should be designated as chairman, but that person's function
should be administrative. The chairman should serve as a point of
contact for any professionals retained by the Fee Review Committee.
Each member should have one vote, and decisions should be reached by
majority vote. The order appointing the Fee Review Committee or any
protocol developed by the members may address other administrative
issues, including the resolution of any tie vote.
b. Fee review committee with independent member: The court could
appoint a Fee Review Committee, as described above, and add an
``Independent Member'' as chairman. The Independent Member should be an
experienced person not otherwise involved in the case as a party in
interest or as a representative of a party in interest. The Independent
Member will perform administrative functions and serve as the primary
contact for any professionals retained by the Fee Review Committee. In
addition, the Independent Member will be an active participant in the
substantive discussions of the Fee Review Committee and will, in
consultation with the committee, meet and otherwise communicate with
professionals whose compensation is subject to the committee's review.
Each member, including the Independent Member, should have a vote, and
decisions should be reached by majority vote. In the event of a tie
vote, the Independent Member's vote should be determinative. The United
States Trustee will, at the court's request, solicit suggestions from
parties in interest for appointment as the Independent Member and
submit several names to the court for consideration.
c. Independent fee examiner: The court may appoint a single person
to serve as an Independent Fee Examiner for the case. The Fee Examiner
should be an experienced person not otherwise involved in the case as a
party in interest or a representative of a party in interest. The order
appointing the Fee Examiner should fully describe the Fee Examiner's
duties and reporting obligations.
5. Retention of professionals: A fee review entity should be
authorized, subject to court approval, to retain professionals,
including but not limited to attorneys and fee auditors, to assist in
discharging its duties. The United States Trustee, however, may not
participate in or vote on the hiring of professionals for the fee
review entity, although the United States Trustee may suggest persons
who should serve as Independent Members or Independent Fee Examiners.
6. Compensation: The Fee Review Committee's professionals, the
Independent Member, and the Independent Fee Examiner should be
compensated in accordance with the fee procedures established in the
case and should file interim and final fee applications for
consideration under the reasonableness standards set forth in 11 U.S.C.
Sec. 330(a). Compensation under a flat fee arrangement may be
appropriate in certain cases but only if subject to reasonableness
review under section 330.
7. Rights of a party in interest: A fee review entity should have
the rights of a party in interest in connection with fee issues, and
should be authorized to negotiate fee disputes with retained
professionals, to object to fee applications both interim and final, to
object to monthly invoices if a case is governed by a monthly
compensation order, and to undertake discovery in connection with
contested fee matters.
8. Budgets: If the court directs that budgets be adopted by
retained professionals, a fee review entity should establish guidelines
and requirements for the preparation and submission of fee and expense
budgets by the retained professionals. A fee review entity should also
consider whether case-specific project billing codes should be
developed to facilitate preparation and review of fee applications.
9. Dispute resolution: A fee review entity should establish
procedures to resolve fee disputes with retained professionals, while
retaining the right to file and prosecute objections if disputes cannot
be resolved.
10. Exculpation and indemnification: The order appointing a fee
review entity should contain appropriate provisions exculpating and
indemnifying Fee Review Committee members, the Independent Member, or
the Fee Examiner from any liability arising out of their service.

Clifford J. White III,
Director, Executive Office for United States Trustees.

Exhibit A--Customary and Comparable Compensation Disclosures With Fee
Applications
[See Guidelines ] C.3. for definitions of terms used in this Exhibit]
------------------------------------------------------------------------
Blended hourly rate
-------------------------------------
Billed or
Category of timekeeper (using collected firm or
categories already maintained by offices for Billed in this
the firm) preceding year, fee application
excluding
bankruptcy
------------------------------------------------------------------------
Sr./Equity Partner/Shareholder
------------------------------------------------------------------------
Jr./Non-equity/Income Partner
------------------------------------------------------------------------
Counsel
------------------------------------------------------------------------

[[Page 36258]]

Sr. Associate (7 or more years
since first admission)
------------------------------------------------------------------------
Associate (4-6 years since first
admission)
------------------------------------------------------------------------
Jr. Associate (1-3 years since
first admission)
------------------------------------------------------------------------
Staff Attorney
------------------------------------------------------------------------
Contract Attorney
------------------------------------------------------------------------
Paralegal
------------------------------------------------------------------------
Other (please define)
------------------------------------------------------------------------
All timekeepers aggregated
------------------------------------------------------------------------

Case Name and Number:--------------------------------------------------

Applicant's Name:------------------------------------------------------

Date of Application:---------------------------------------------------

Interim or Final:------------------------------------------------------

Guidelines for Reviewing Applications for Compensation and
Reimbursement of Expenses Filed Under 11 U.S.C. Sec. 330 by Attorneys
in Larger Chapter 11 Cases

Exhibit B--Summary of Timekeepers Included in This Fee Application
----------------------------------------------------------------------------------------------------------------
Hourly rate billed Number of
Hours -------------------------- rate
TITLE OR Department, Date of first Fees billed billed in increases
Name POSITION group, or admission\1\ in this this In this In first since
section application application application interim case
application inception
----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------
\1\ If applicable.

Case Name and Number:--------------------------------------------------

Applicant's Name:------------------------------------------------------

Date of Application:---------------------------------------------------

Interim or Final:------------------------------------------------------

Guidelines for Reviewing Applications for Compensation and
Reimbursement of Expenses Filed Under 11 U.S.C. Sec. 330 by Attorneys
in Larger Chapter 11 Cases

If the parties consent or the court so directs, a budget approved
by the client in advance should generally be attached to each interim
and final fee application filed by the applicant. If the fees sought in
the fee application vary by more than 10% from the budget, the fee
application should explain the variance. See Guidelines ] C.8. for
project category information.

Exhibit C-1--BUDGET
------------------------------------------------------------------------
Project category Estimated hours Estimated fees
------------------------------------------------------------------------
Asset Analysis and Recovery
------------------------------------------------------------------------
Asset Disposition
------------------------------------------------------------------------

[[Page 36259]]

Assumption and Rejection of Leases
and Contracts
------------------------------------------------------------------------
Avoidance Action Analysis
------------------------------------------------------------------------
Budgeting (Case)
------------------------------------------------------------------------
Business Operations
------------------------------------------------------------------------
Case Administration
------------------------------------------------------------------------
Claims Administration and
Objections
------------------------------------------------------------------------
Corporate Governance and Board
Matters
------------------------------------------------------------------------
Employee Benefits and Pensions
------------------------------------------------------------------------
Employment and Fee Applications
------------------------------------------------------------------------
Employment and Fee Application
Objections
------------------------------------------------------------------------
Financing and Cash Collateral
------------------------------------------------------------------------
Litigation: Contested Matters and
Adversary Proceedings (not
otherwise within a specific
project category)--identify each
separately by caption and
adversary number, or title of
motion or application and docket
number
------------------------------------------------------------------------
Meetings and Communications with
Creditors
------------------------------------------------------------------------
Non-Working Travel
------------------------------------------------------------------------
Plan and Disclosure Statement
------------------------------------------------------------------------
Real Estate
------------------------------------------------------------------------
Relief from Stay and Adequate
Protection
------------------------------------------------------------------------
Reporting
------------------------------------------------------------------------
Tax
------------------------------------------------------------------------
Valuation
-------------------------------------
Total
------------------------------------------------------------------------

Case Name and Number:--------------------------------------------------

Applicant's Name:------------------------------------------------------

Date of Application:---------------------------------------------------

Interim or Final:------------------------------------------------------

Guidelines for Reviewing Applications for Compensation and
Reimbursement of Expenses Filed Under 11 U.S.C. Sec. 330 by Attorneys
in Larger Chapter 11 Cases

If the parties consent or the court so directs, a staffing plan
approved by the client in advance should generally be attached to each
interim and final fee application filed by the applicant. If the fees
are sought in the fee application for a greater number of professionals
than identified in the staffing plan, the fee application should
explain the variance.

Exhibit C-2--Staffing Plan
----------------------------------------------------------------------------------------------------------------
Category of timekeeper \1\ (using Number of timekeepers expected to work on
categories maintained by the firm) the matter during the budget period Average hourly rate
----------------------------------------------------------------------------------------------------------------
Sr./Equity Partner/Shareholder .......................................... ........................
----------------------------------------------------------------------------------------------------------------
Jr./Non-equity/Income Partner .......................................... ........................
----------------------------------------------------------------------------------------------------------------
Counsel .......................................... ........................
----------------------------------------------------------------------------------------------------------------
Sr. Associate (7 or more years since first .......................................... ........................
admission)
----------------------------------------------------------------------------------------------------------------
Associate (4-6 years since first .......................................... ........................
admission)
----------------------------------------------------------------------------------------------------------------
Jr. Associate (1-3 years since first .......................................... ........................
admission)
----------------------------------------------------------------------------------------------------------------

[[Page 36260]]

Staff Attorney .......................................... ........................
----------------------------------------------------------------------------------------------------------------
Contract Attorney .......................................... ........................
----------------------------------------------------------------------------------------------------------------
Paralegal .......................................... ........................
----------------------------------------------------------------------------------------------------------------
Other (please define) .......................................... ........................
----------------------------------------------------------------------------------------------------------------
\1\ As an alternative, firms can identify attorney timekeepers by years of experience rather than category of
attorney timekeeper: 0-3, 4-7, 8-14, and 15+. Non-attorney timekeepers, such as paralegals, should still be
identified by category.

Case Name and Number:--------------------------------------------------

Applicant's Name:------------------------------------------------------

Date of Application:---------------------------------------------------

Interim or Final:------------------------------------------------------

Guidelines for Reviewing Applications for Compensation and
Reimbursement of Expenses Filed Under 11 U.S.C. Sec. 330 by Attorneys
in Larger Chapter 11 Cases

Exhibit D-1--Summary of Compensation Requested by Project Category
[See Guidelines ] C.8. for project category information.]
----------------------------------------------------------------------------------------------------------------
Hours Fees budgeted
Project category budgeted \1\ \1\ Hours billed Fees sought
----------------------------------------------------------------------------------------------------------------
Asset Analysis and Recovery
----------------------------------------------------------------------------------------------------------------
Asset Disposition
----------------------------------------------------------------------------------------------------------------
Assumption and Rejection of Leases and Contracts
----------------------------------------------------------------------------------------------------------------
Avoidance Action Analysis
----------------------------------------------------------------------------------------------------------------
Budgeting (Case)
----------------------------------------------------------------------------------------------------------------
Business Operations
----------------------------------------------------------------------------------------------------------------
Case Administration
----------------------------------------------------------------------------------------------------------------
Claims Administration and Objections
----------------------------------------------------------------------------------------------------------------
Corporate Governance and Board Matters
----------------------------------------------------------------------------------------------------------------
Employee Benefits and Pensions
----------------------------------------------------------------------------------------------------------------
Employment and Fee Applications
----------------------------------------------------------------------------------------------------------------
Employment and Fee Application Objections
----------------------------------------------------------------------------------------------------------------
Financing and Cash Collateral
----------------------------------------------------------------------------------------------------------------
Litigation: Contested Matters and Adversary
Proceedings (not otherwise within a specific
project category)--identify each separately by
caption and adversary number, or title of
motion or application and docket number
----------------------------------------------------------------------------------------------------------------
Meetings and Communications with Creditors
----------------------------------------------------------------------------------------------------------------
Non-Working Travel
----------------------------------------------------------------------------------------------------------------
Plan and Disclosure Statement
----------------------------------------------------------------------------------------------------------------
Real Estate
----------------------------------------------------------------------------------------------------------------
Relief from Stay and Adequate Protection
----------------------------------------------------------------------------------------------------------------
Reporting
----------------------------------------------------------------------------------------------------------------
Tax
----------------------------------------------------------------------------------------------------------------
Valuation
---------------------------------------------------------------

[[Page 36261]]

TOTAL
----------------------------------------------------------------------------------------------------------------
\1\ If applicable.

Case Name and Number:--------------------------------------------------

Applicant's Name:------------------------------------------------------

Date of Application:---------------------------------------------------

Interim or Final:------------------------------------------------------

Guidelines for Reviewing Applications for Compensation and
Reimbursement of Expenses Filed Under 11 U.S.C. Sec. 330 by Attorneys
in Larger Chapter 11 Cases

Exhibit D-2--Summary of Expense Reimbursement Requested by Category
[See Guidelines ] C.12. for expense category information]
------------------------------------------------------------------------
Category Amount
------------------------------------------------------------------------
Copies ...................................
------------------------------------------------------------------------
Outside Printing ...................................
------------------------------------------------------------------------
Telephone ...................................
------------------------------------------------------------------------
Facsimile ...................................
------------------------------------------------------------------------
Online Research ...................................
------------------------------------------------------------------------
Delivery Services/Couriers ...................................
------------------------------------------------------------------------
Postage ...................................
------------------------------------------------------------------------
Local Travel ...................................
------------------------------------------------------------------------
Out-of-Town Travel: ...................................
(a) Transportation ...................................
------------------------------------------------------------------------
(b) Hotel ...................................
------------------------------------------------------------------------
(c) Meals ...................................
------------------------------------------------------------------------
(d) Ground Transportation ...................................
------------------------------------------------------------------------
(e) Other (please specify) ...................................
------------------------------------------------------------------------
Meals (local) ...................................
------------------------------------------------------------------------
Court Fees ...................................
------------------------------------------------------------------------
Subpoena Fees ...................................
------------------------------------------------------------------------
Witness Fees ...................................
------------------------------------------------------------------------
Deposition Transcripts ...................................
------------------------------------------------------------------------
Trial Transcripts ...................................
------------------------------------------------------------------------
Trial Exhibits ...................................
------------------------------------------------------------------------
Litigation Support Vendors ...................................
------------------------------------------------------------------------
Experts ...................................
------------------------------------------------------------------------
Investigators ...................................
------------------------------------------------------------------------
Arbitrators/Mediators ...................................
------------------------------------------------------------------------
Other (please specify) ...................................
------------------------------------------------------------------------

Case Name and Number:--------------------------------------------------

Applicant's Name:------------------------------------------------------

Date of Application:---------------------------------------------------

Interim or Final:------------------------------------------------------

Guidelines for Reviewing Applications for Compensation and
Reimbursement of Expenses Filed Under 11 U.S.C. Sec. 330 by Attorneys
in Larger Chapter 11 Cases

Exhibit E--Summary Cover Sheet of Fee Application
----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------
Name of applicant ..............................
----------------------------------------------------------------------------------------------------------------
Name of client ..............................
----------------------------------------------------------------------------------------------------------------
Time period covered by this application ..............................
----------------------------------------------------------------------------------------------------------------
Total compensation sought this period ..............................
----------------------------------------------------------------------------------------------------------------
Total expenses sought this period ..............................
----------------------------------------------------------------------------------------------------------------
Petition date ..............................
----------------------------------------------------------------------------------------------------------------
Retention date ..............................
----------------------------------------------------------------------------------------------------------------
Date of order approving employment ..............................
----------------------------------------------------------------------------------------------------------------
Total compensation approved by interim order to date ..............................
----------------------------------------------------------------------------------------------------------------
Total expenses approved by interim order to date ..............................
----------------------------------------------------------------------------------------------------------------
Total allowed compensation paid to date ..............................
----------------------------------------------------------------------------------------------------------------
Total allowed expenses paid to date ..............................
----------------------------------------------------------------------------------------------------------------
Blended rate in this application for all attorneys ..............................
----------------------------------------------------------------------------------------------------------------

[[Page 36262]]

Blended rate in this application for all timekeepers ..............................
----------------------------------------------------------------------------------------------------------------
Compensation sought in this application already paid pursuant to a monthly ..............................
compensation order but not yet allowed
----------------------------------------------------------------------------------------------------------------
Expenses sought in this application already paid pursuant to a monthly ..............................
compensation order but not yet allowed
----------------------------------------------------------------------------------------------------------------
Number of professionals included in this application ..............................
----------------------------------------------------------------------------------------------------------------
If applicable, number of professionals in this application not included in ..............................
staffing plan approved by client
----------------------------------------------------------------------------------------------------------------
If applicable, difference between fees budgeted and compensation sought for this ..............................
period
----------------------------------------------------------------------------------------------------------------
Number of professionals billing fewer than 15 hours to the case during this ..............................
period
----------------------------------------------------------------------------------------------------------------
Are any rates higher than those approved or disclosed at retention? If yes, ..............................
calculate and disclose the total compensation sought in this application using
the rates originally disclosed in the retention application
----------------------------------------------------------------------------------------------------------------

Case Name and Number:--------------------------------------------------

Applicant's Name:------------------------------------------------------

Date of Application:---------------------------------------------------

Interim or Final:------------------------------------------------------

Guidelines for Reviewing Applications for Compensation and
Reimbursement of Expenses Filed Under 11 U.S.C. Sec. 330 by Attorneys
in Larger Chapter 11 Cases

Exhibit F

ANALYSIS OF COMMENTS RECEIVED AND SUMMARY OF SIGNIFICANT CHANGES IN
RESPONSE TO COMMENTS

A. INTRODUCTION

On November 4, 2011, the United States Trustee Program (``USTP'')
posted for public comment an initial draft of the Appendix B--
Guidelines for Reviewing Applications for Compensation and
Reimbursement of Expenses Filed under 11 U.S.C. Sec. 330 by Attorneys
in Larger Chapter 11 Cases (``Appendix B guidelines'' or
``Guidelines''). The Appendix B guidelines reflect eight core
principles:
1. Ensuring that fee review is subject to client-driven market
forces, accountability, and scrutiny.
2. Ensuring adherence to the requirements of section 330 of the
Bankruptcy Code so that all professional compensation is reasonable and
necessary, particularly as compared to the market measured both by the
professional's own billing practices for bankruptcy and non-bankruptcy
engagements and by those of its peers.
3. Enhancing meaningful disclosure by professionals and
transparency in billing practices.
4. Increasing client and constituent accountability for overseeing
the fees and billing practices of their own professionals.
5. Encouraging the development of budgets and staffing plans to
bring discipline, predictability, and client involvement and
accountability to the compensation process.
6. Decreasing the administrative burden of review.
7. Maintaining the burden of proof on the fee applicant, and not
the objecting party.
8. Increasing public confidence in the integrity and soundness of
the bankruptcy compensation process.
The USTP received more than two dozen comment letters on the
initial draft of the Appendix B guidelines posted on November 4, 2011.
The USTP thereafter convened a public meeting regarding the Appendix B
guidelines on June 4, 2012. Seven commenters appeared at the public
meeting, and this discussion is reflected in the transcript of the
public meeting.
The USTP reviewed the written and oral comments to the initial
draft of the Appendix B guidelines, and on November 2, 2012, posted its
analysis of those comments and a summary of the significant revisions
incorporated in the second draft of the Appendix B guidelines. See ]
B.2. below.\1\ At the same time, the USTP also posted the second draft
of the Appendix B guidelines for an additional and final comment period
ending November 23, 2012.
---------------------------------------------------------------------------

\1\ Summary of Significant Changes and Analysis of Comments
Received After Posting Initial Draft Guidelines for Comment on
November 4, 2011.
---------------------------------------------------------------------------

The USTP received six comment letters on the second draft. After
reviewing the comments to the second draft, the USTP finalized and
issued the Appendix B guidelines. The USTP's analysis of the comments
on the second draft and a summary of the significant revisions
incorporated in the final Appendix B guidelines as issued follow the
USTP's comment analysis on the initial draft. See ] C. below.\2\
---------------------------------------------------------------------------

\2\ Summary of Significant Changes and Analysis of Comments
Received After Posting Revised Draft Guidelines for Final Comment on
November 2, 2012.
---------------------------------------------------------------------------

All comments to the initial and second drafts of the Appendix B
guidelines, as well as the transcript of the June 4, 2012, public
meeting, are available for review on the USTP's website, at http://www.justice.gov/ust/eo/rules_regulations/guidelines/public_comments.htm. An analysis of the primary comments received on both
drafts and a summary of the significant changes made in response to the
comments follow.

B. SUMMARY OF SIGNIFICANT CHANGES AND ANALYSIS OF COMMENTS RECEIVED
AFTER POSTING INITIAL DRAFT GUIDELINES FOR COMMENT ON NOVEMBER 4, 2011

1. Summary of Significant Changes Following Posting of Initial Draft
Appendix B Guidelines for Comment on November 4, 2011

a. THRESHOLD FOR APPLICATION: The threshold for application has
been revised to $50 million or more in assets and $50 million or more
in liabilities, aggregated for jointly administered cases and excluding
single asset real estate cases. Guidelines ] A.2.\3\ The initial
threshold was $50 million in assets and liabilities combined.
---------------------------------------------------------------------------

\3\ All references are to the final Appendix B guidelines as
issued.
---------------------------------------------------------------------------

b. DISCLOSURES FOR CUSTOMARY AND COMPARABLE COMPENSATION AND CLIENT
VERIFICATIONS: The disclosures that the USTP will request regarding
customary and comparable compensation have been amended. Guidelines ]
C.3. Instead of disclosing high, low and average rates, the revised
Guidelines provide that applicants disclose blended billing rates in
the aggregate and by category of professional. Guidelines ] C.3.a-b.
Applicants have the flexibility to report

[[Page 36263]]

their blended rate information for non-bankruptcy engagements based on
either time billed or revenue collected either for the firm (domestic
offices only) or offices in which timekeepers billed at least 10% of
the hours to the bankruptcy case during the application period.
Guidelines ] C.3.a.i. The revised Guidelines clarify that pro bono and
materially discounted charitable or firm-employee engagements may be
excluded from the non-bankruptcy blended rate computation. Guidelines ]
C.3.a.iv.(c). Disclosure in accordance with ] C.3.a.-b. of the
Guidelines will provide a limited ``safe harbor'' from additional
requests from the United States Trustee for information about customary
and comparable compensation under section 330(a)(3)(F) of the
Bankruptcy Code, without prejudice to the United States Trustee's
ability to seek additional information based upon the particular facts
and circumstances of the case, to file an objection, or to offer
evidence on comparable compensation from other sources. Guidelines ]
C.4.
c. BUDGETS AND STAFFING PLANS: A budget and staffing plan will be
used only with the consent of the professionals or if the United States
Trustee obtains a court order. Guidelines ] E.1. The United States
Trustee will ask that the counsel for the debtor-in-possession and
official committees exchange their budgets once client-approved,
Guidelines ] E.8., and that professionals provide budgets and staffing
plans to the United States Trustee retrospectively with the fee
application. Guidelines ]] C.6.a., E.7.-8. Budgets may be redacted to
protect privileged or confidential information. Guidelines ]] C.6.b.,
E.8. The Guidelines clarify that the attorney and the client should
decide the appropriate budget period, and that budgets may be amended
as necessary to reflect changed circumstances or unanticipated
developments. Guidelines ]] E.3.-4.
d. TASK CODES AND SUB-CATEGORY ACTIVITY CODES: The 20 sub-category
activity codes have been deleted. Instead, the USTP slightly modified
the project categories in the existing Guidelines for Reviewing
Applications for Compensation and Reimbursement of Expenses filed under
11 U.S.C. Sec. 330, 28 C.F.R. Part 58, Appendix A (``Appendix A
guidelines''). Guidelines ] C.8.b.; Exhibits C-1, D-1. First, the USTP
added a ``Budgeting'' category to reflect the intention to seek the use
of budgets for the applicant in most cases that satisfy the threshold.
Second, to provide better transparency and accountability, the USTP
extracted and separately categorized certain tasks that are included in
the broader Appendix A guidelines' project categories, all but one of
which is included in the long-established Uniform Task Based Management
System (``UTBMS'') bankruptcy code set.\4\ These tasks are: Assumption
and Rejection of Leases and Contracts; Avoidance Action Analysis;
Corporate Governance and Board Matters; Litigation; Non-Working Travel;
Real Estate; and Reporting.
---------------------------------------------------------------------------

\4\ The UTMBS was developed in the mid-1990s by the Association
of Corporate Counsel and the American Bar Association and is now
under the jurisdiction of the non-profit LEDES Oversight Committee.
See www.LEDES.org. Task-based billing, coded and aggregated by type
of work performed, allows corporate clients to have ``consistent
enforcement'' of their ``outside counsel billing guidelines and
alleviat[ed] some of the burden on bill reviewers. Time entry coding
assists with reporting and facilitates comparison . . . .'' See
www.utbms.com.
---------------------------------------------------------------------------

e. CO-COUNSEL RETENTIONS AND STAFFING EFFICIENCIES: Debtors and
official committees are encouraged to use co-counsel arrangements to
achieve better staffing and fee efficiencies. Guidelines ]] B.2.c., F.
These arrangements include using less expensive co-counsel for certain
routine, commoditized, or discrete matters to avoid duplication,
overlap, and inefficiencies.
f. DEBTORS' ESTIMATE OF FEES INCURRED IN ORDINARY COURSE AND NOT
BECAUSE OF BANKRUPTCY: This requested disclosure has been deleted.
g. REDACTIONS: The USTP will not object to compensation for limited
redactions to protect privileged or confidential information in the
budget or the fee application, the disclosure of which could not be
avoided through drafting. Guidelines ]] B.2.f., C.6.b., E.8.
h. CLIENT AGREEMENT TO RATE INCREASES: The applicant's statement
for the fee application adds an additional question: ``Did your client
agree when retaining the law firm to accept all future rate increases?
If not, did you inform your client that they need not agree to modified
rates or terms in order to have you continue the representation,
consistent with ABA Formal Ethics Opinion 11-458?'' Guidelines ] C.5.f.
The client's verification at the time of the fee application has been
deleted.

2. Discussion of Initial Public Comments after Posting Initial Draft
for Comment on November 4, 2011 and the Public Meeting Held June 4,
2012

As of October 19, 2012, the USTP had received 31 comments on the
Appendix B guidelines. In addition, seven commenters appeared at the
public meeting held on June 4, 2012, and this discussion is reflected
in the transcript of the public meeting. Many of the comments contained
several sub-comments. The USTP appreciates the comments and has
considered each comment carefully. The USTP's response to the most
significant comments are discussed below, starting with the ``General
Comments'' section and continuing with comments categorized by specific
subject matter.

a. GENERAL COMMENTS

1) Comment: Official committees, the U.S. Trustee, and the court
already review fee applications. The Appendix A guidelines should not
be updated because the current system works well and changes would not
improve the administration of bankruptcy cases.
Response: The existing Appendix A guidelines were adopted 16 years
ago, and law firm billing practices and billing technology have evolved
considerably since then. Better data and better technology permit
comparisons that would have been difficult, if not impossible, two
decades ago. In addition, while clients have substantially improved the
way they manage and pay their counsel outside of bankruptcy, estate-
paid bankruptcy engagements may not have been subject to comparable
discipline. In its comment, the Managed Funds Association (``MFA''), an
industry group that represents regular consumers of sophisticated legal
services in both bankruptcy and non-bankruptcy engagements, asserted
that ``bankruptcy compensation has moved from the economy of
administration standard to a premium standard by which bankruptcy
professionals are effectively compensated at rates higher than those
realized in comparable non-bankruptcy engagements. . . . In bankruptcy
cases, we do not perceive the same cost control-driven constraints
[that we see in non-bankruptcy engagements or bankruptcy engagements
not subject to section 330] . . . .'' MFA letter dated September 21,
2012, p. 2 (``MFA Letter''). Similarly, one academic took the view that
the bankruptcy compensation process generally requires improvement,
including better disclosures. See generally Professor Nancy B.
Rapoport, Letters dated December 14, 2011, and May 1, 2012, and Public
Meeting Tr., pp. 11-36. The Appendix B guidelines seek to remain
current with contemporary law firm practice and improve the fee
application process for all stakeholders.
2) Comment: The Appendix B guidelines would benefit from a robust

[[Page 36264]]

and open rule-making process. Similarly, the USTP should ``convene a
series of meetings with practitioners, judges, and debtors and
creditors' committees . . . to discuss the USTP's concerns with the
current fee process and hear and solicit views on the relevant issues
from the participants.'' 119 law firms' letter dated January 30, 2012,
p. 14 (``119 Law Firms' Initial Letter'').
Response: The Appendix B guidelines are internal procedural
guidelines that are not subject to the notice-and-comment process of
the Administrative Procedure Act (``APA''). Nevertheless, recognizing
the importance of the proposed Guidelines to the bankruptcy system, the
USTP has solicited a great deal of public comment within a framework
that exceeds APA requirements.
The USTP engaged in pre-drafting outreach to various bankruptcy
judges and practitioners. In November 2011, the USTP posted on its
website the initial draft Appendix B guidelines for public comment
through the end of January 2012. The USTP posted the comments on its
website as they were received and re-opened the comment period at the
request of various commenters. The USTP convened a public meeting on
June 4, 2012, and invited the public--and all commenters--to attend and
to make presentations. The USTP made available on its website a
transcript of the public meeting and advised interested parties that it
would revise the Guidelines as necessary after consideration of the
comments and post a second draft for an additional (third) comment
period. The USTP also considered written submissions after the public
meeting.
The USTP concludes that no changes are necessary to the process
that the USTP employed to solicit public comment or to the Guidelines
based on these comments.

b. SCOPE OF THE APPENDIX B GUIDELINES

3) Comment: The threshold of $50 million in combined assets and
liabilities is too low. In addition, certain types of cases, such as
single asset real estate cases, should be excluded from the Appendix B
guidelines.
Response: The USTP reviewed available data before setting the
initial threshold. A combined assets and liabilities standard was
adopted based on the metric used in the American Bankruptcy Institute's
chapter 11 fee study, see Stephen J. Lubben, Corporate Reorganization
and Professional Fees, 82 Am. Bankr. L.J. 77, 105 (2008),\5\ and it is
the formula used by some courts, including one in the District of
Delaware, when determining whether to appoint fee examiners. See
General Order Re: Fee Examiners in Chapter 11 Cases With Combined
Assets and/or Liabilities in Excess of $100,000,000 (Bankr. D. Del.
Dec. 16, 2009) (Sontchi, J.). The $50 million threshold appeared to
apply to approximately 40% of all chapter 11 cases filed in the
District of Delaware and 10% of all cases filed in the Southern
District of New York. Virtually every other judicial district would
have had approximately one or two cases a year at this level.
---------------------------------------------------------------------------

\5\ Professor Lubben used the sum of assets and liabilities as a
measure of debtor size to select large cases for his analysis.
---------------------------------------------------------------------------

Although a few commenters offered suggestions on revising the
threshold, there was no clear basis for those suggestions. For example,
the NBC suggested raising the threshold from $50 million to $100
million but did not have a particular basis for its suggestion and
acknowledged that, ``[t]here is no precise answer here . . . .'' Public
Meeting Tr., p. 59.
The group of 118 law firms (previously 119) suggested a complex
formula resulting in an even higher threshold. 118 law firms'
supplemental letter dated April 16, 2012, p. 2 (``118 Law Firms'
Supplemental Letter''). The suggested threshold would require all of
the following:
More than $250 million in assets.
More than $50 million of unencumbered assets.
More than $250 million of unsecured debt.
At least 250 unsecured creditors (excluding present and
former employees).
More than $50 million of syndicated debt for borrowed
money.
The petition does not collect asset, debt, and creditor information
in the manner necessary to determine whether a particular case meets
the threshold suggested by the commenters. Therefore, it is impossible
to confirm without further information whether any chapter 11 cases
that are currently pending in any judicial district or that have been
filed since 2009, would meet that proposed threshold. Under the 118 law
firms' proposal, debtors would need to provide in their first day
filings the information necessary to answer these five questions or
risk uncertainty and delay.
The USTP revised the threshold after evaluating additional data in
light of the comments. Guidelines ] A.2. First, the threshold was
increased to a combination of at least $50 million in assets and $50
million in liabilities, based on the values shown on the petition.
Second, the USTP agreed that single asset real estate cases should be
excluded because they do not routinely entail the complexities of other
large cases and revised the Guidelines to exclude them. Without
controlling for single asset real estate cases, the USTP estimates that
approximately one-half of the chapter 11 cases subject to the revised
Guidelines would be filed outside of the District of Delaware and the
Southern District of New York, in approximately two-thirds of the
USTP's judicial districts.
4) Comment: The Appendix B guidelines should apply to all estate
compensated professionals.
Response: The USTP is revisiting the fee guidelines in phases.
Other considerations are relevant in evaluating the fee applications of
financial advisors and other professionals, as well as attorneys in
chapter 11 cases below the threshold in the Appendix B guidelines.
Until the USTP promulgates new guidelines, the Appendix A guidelines
remain in effect for the USTP's review of fee applications of other
types of professionals in chapter 11 cases that meet the threshold, of
professionals in all chapter 11 cases below the threshold, and of all
professionals in cases not under chapter 11.
The USTP concludes that no changes are necessary to the Guidelines
based on these comments.

c. COMPARABLE COMPENSATION DISCLOSURES

5) Comment: The comparable billing disclosures proposed by the USTP
are overly burdensome.
Response: The necessity for comparable billing data arises from the
Bankruptcy Code, which requires that courts determine ``reasonable
compensation'' based on, among other factors, ``customary compensation
charged by comparably skilled practitioners in cases other than cases
under title 11.'' 11 U.S.C. Sec. 330. The USTP concurs that the
disclosure of data for the necessary comparison to customary
compensation outside of bankruptcy must strike the right balance
between the parties' and the court's need for evidence and the
professional's burden of providing it.
The National Bankruptcy Conference (``NBC'') suggested
modifications to the Appendix B guidelines intended to preserve the
ability of reviewers to meaningfully evaluate fee applications while
arguably lessening the burden on the applicants. In substance, the NBC
proposed that applicants should be

[[Page 36265]]

provided with a ``menu'' of three possible, alternative methods for
demonstrating comparable compensation. These options are: (1) a
certification that would compare the billing rates of certain of the
attorneys assigned to the case with their billing rates in other
engagements; (2) a certification comparing the blended rates of the
firm or office as a whole to its overall billing rate in the past year;
or (3) a client verification detailing the steps it took to ensure that
it was being charged reasonable market rates. NBC's supplemental letter
dated February 27, 2012, pp. 3-5. The NBC further proposed that firms
satisfying any of the three alternatives should receive a limited
``safe harbor'' from a USTP objection on whether the firm has met its
burden to disclose customary and comparable compensation information.
Id., pp. 2-3.
The USTP agrees that many of the NBC's suggestions have merit,
subject to further modification. The NBC's menu of options could too
easily be circumvented by uncorroborated and boilerplate certifications
and therefore would not represent a substantial improvement on current
practices. In addition, the MFA suggested that the comparability
disclosure should be ``more plainly and overtly referenced than
capturing it in a blended rate as the NBC proposed.'' MFA Letter, p. 4.
Based on these comments, the USTP has revised the Appendix B
guidelines regarding customary and comparable compensation, ] C.3., as
follows:
a) The USTP adopted the NBC's ``blended hourly rate'' disclosures,
with some modifications. See Guidelines ] C.3.
Professionals should disclose blended rate information by
category of timekeeper. The USTP modified the NBC's suggestion of a
single, aggregate blended rate in order to ensure that staffing
patterns, which may vary for different types of cases, do not mask
differences in blended rates among professionals within the firm that
have the same level of experience. If higher blended rates are charged
by bankruptcy professionals as compared to similarly experienced
professionals in other practice areas, then the applicant should
explain why the bankruptcy rate is higher and how the rate satisfies
the statutory standard. Disclosing the blended rate by category of
professional also obviates the need for the NBC's suggested disclosure
of staffing percentages for bankruptcy and other engagements, which the
USTP understood would have been difficult for certain firms to
calculate.
To provide flexibility, blended hourly rate information
may be disclosed on either an as-billed or as-collected basis. Blended
hourly rates should be calculated as total dollar value of hours billed
(or collected) divided by the number of hours.\6\
---------------------------------------------------------------------------

\6\ The USTP adopted NBC's calculation of ``blended hourly
rate,'' which was the same as the USTP's original formula for
``average rate billed.''
---------------------------------------------------------------------------

To provide further flexibility, the USTP also adopted the
NBC's suggestion that firms choose one of two alternative groups of
timekeepers for the blended rate disclosures. Firms may calculate the
blended rate based on all domestic timekeepers throughout the firm or,
alternatively, on all timekeepers in only those domestic offices in
which professionals collectively billed at least 10% of the hours to
the matter during the relevant application period.
b) The USTP partially adopted the NBC's suggestion of a limited
``safe harbor.'' An applicant that provides the disclosures in the
Appendix B guidelines at ] C.3. will receive a limited ``safe harbor''
from additional requests from the United States Trustee for information
about customary and comparable compensation under section 330(a)(3)(F)
of the Bankruptcy Code. The United States Trustee, however, is not
precluded by the ``safe harbor'' from seeking additional information
based on the particular facts and circumstances of the case, filing an
objection, or offering evidence on comparable compensation from other
sources. Guidelines ] C.4.
c) The USTP also adopted the NBC's proposal that other meaningful
and detailed evidence may satisfy the professional's disclosure
obligations on comparable and customary compensation, which is
consistent with the MFA's suggestion of an alternative flexible
standard to avoid the Guidelines' obsolescence as billing practices
evolve. Disclosures other than in compliance with the Guidelines at ]
C.3. fall outside the scope of the ``safe harbor,'' and the United
States Trustee might object to the adequacy of those disclosures.
Guidelines ] C.3.c.
6) Comment: Given the prevalence of alternative fee arrangements
and other variable terms of engagements outside of bankruptcy,
including volume or repeat business discounts and other individually
negotiated billing arrangements, the disclosures seek incomplete or
inaccurate information and will not establish comparability. Similarly,
pro bono or other types of engagements should be excluded.
Response: Several commenters expressed the view that the requested
data on hourly rates actually billed would not establish comparable
data because it would not account for such things as volume discounts
or other alternative fee arrangements. This conclusion ignores that
applicants may choose to explain why a particular alternative fee
arrangement would be an inaccurate point of comparison for bankruptcy
engagements. Moreover, excluding these arrangements would circumvent
comparability with the firm's bankruptcy fees as required by the
Bankruptcy Code, because ``[d]iscount arrangements . . . are regularly
sought and given in non-bankruptcy engagements; therefore, we think
that any safe harbor should measure the market by the effective
discount provided in non-bankruptcy engagements.'' MFA Letter, p. 3.
The USTP concludes that no changes are necessary to the Guidelines
based on these comments, except for one clarification: The USTP agrees
that for all comparable billing rate disclosures, firms may exclude pro
bono, charitable, or firm-employee engagements that were never
contemplated to be billed at or near standard or full rates. Guidelines
] C.3.a.iv.(c).
7) Comment: The increased disclosures of actual comparable billing
data will force sophisticated practitioners and firms to withdraw from
a bankruptcy practice because they would choose to leave bankruptcy
practice before disclosing this data. This would result in decreased
competition for estate-paid bankruptcy work.
Response: These comments suggest that estate-paid professionals may
ignore the requirement in section 330 that an applicant establish that
its compensation is comparable to compensation outside of bankruptcy.
The USTP concludes that no changes are necessary to the Guidelines
based on these comments.
8) Comment: Some commenters stated that requiring disclosure of the
lowest hourly rates billed seeks to re-impose the economy of
administration standard rejected by Congress in the 1978 Bankruptcy
Code. In contrast, other commenters stated that requiring the
disclosure of high, average, and low hourly rates might ``normalize''
the market at the high range and therefore drive up estate costs.
Response: These comments are irreconcilable. The USTP does not seek
to re-impose the economy of administration standard rejected by the
1978 Code any more than it seeks to foster premium compensation for
bankruptcy. By emphasizing actual market forces, the revised Appendix B
guidelines reinforce the legislative

[[Page 36266]]

purpose of the 1978 Code as embodied in section 330--that comparable
services are the standard by which to measure bankruptcy fees.
``Comparable'' does not mean ``economy'' or ``premium'' as the standard
against which bankruptcy fees should be measured.
Nevertheless, the USTP agrees with the NBC's suggestion that the
average (or blended) hourly billed rate is the most meaningful of the
originally requested disclosures. Accordingly, the USTP revised the
Appendix B guidelines to delete the request for any disclosure of low
and high rates billed. The USTP retains the right to seek further
information based on the facts and circumstances in a particular case
or if an applicant does not choose to disclose billing information in
compliance with the limited ``safe harbor'' option at ] C.4.
9) Comment: Some commenters stated that the additional disclosures
of actual comparable billing data will increase the cost of preparing
fee applications and, therefore, chapter 11 bankruptcy cases. Other
commenters stated that it is logistically impossible for even the most
sophisticated law firms to generate low, high, and average billed rates
by attorney or other comparable billing data sought in the Appendix B
guidelines.
Response: Sophisticated law firms maintain and study copious
amounts of data and metrics for various purposes, including managing
their own profitability, determining partner compensation, and meeting
client expectations. As the co-chairman of the NBC stated at the public
meeting, ``firm billing systems are just huge databases. . . . [W]hen a
firm wants to do a bill, it extracts data from the database, and when
it wants to do financial reporting statistics, it extracts data from
the database.'' Public Meeting Tr., pp. 71-73. A law firm that
maintains that it is impossible to provide this information may explain
in the fee application and attest in its statement why it is unable to
do so.
The evidence is overwhelming that law firms routinely obtain and
review billing data in setting their rates outside of bankruptcy. For
example, many firms provide internal billing and other financial data
that is made available to participating firms in a variety of surveys,
including the Citi Private Bank Law Watch Annual Survey of Law Firm
Financial Performance, PriceWaterhouseCoopers BRASS Survey (billing
rate and associate salary survey), the Thomson Reuters Peer Monitor
data, Hildebrandt International surveys, and various Altman Weil
Surveys. In addition, firms (including many that commented on the
Guidelines) routinely disclose aggregate billing rate information to
periodicals for publication, including the National Law Journal
(``NLJ'') 250 Annual Billing Rate survey, which provides low, high, and
average rates by timekeeper class for a number of firms and includes
far more detailed information than the information requested in the
Appendix B guidelines.
Although there will be some additional work for the professionals
in preparing fee applications with these disclosures, the financial
data to be disclosed will come from the professionals' accounting and
finance staff. Moreover, as explained above, the USTP revised the
Guidelines to no longer require disclosure of low and high rates. The
USTP concludes that no further changes are necessary to the Guidelines
based on these comments.
10) Comment: A firm's actual billing data is attorney-client
privileged, confidential, and proprietary. Alternatively, the USTP
should seek comparable billing data from outside proprietary sources,
such as CitiBank, Hildebrand, and Hoffman Alvery.
Response: The proposed disclosure of blended billing rates in the
Appendix B guidelines does not require the disclosure of attorney-
client privileged information. The disclosure is not a communication
with a client and does not identify particular clients.
Moreover, the broad dissemination of a firm's billing information
to third parties, as discussed in the prior response, is inconsistent
with the contentions that the information is legally privileged and
that clients consistently maintain such information as proprietary. For
example, the CT Tymetrix and Corporate Executive Board Real Rate Report
2012 analyzes actual invoice data provided by clients. The 2012 report
reviewed $7.6 billion in law firm billings generated from 2007 through
2011 by more than 4,000 law firms and roughly 120,000 timekeepers.
Although the Real Rate Report does not disclose rates of particular
firms or attorneys, it is generated from the billing data firms send to
their clients.
To the extent that commenters suggest that the USTP obtain
comparable billing data from outside survey sources, these are
generally unavailable to the USTP (and the court as the arbiter). For
example, CitiBank and PWC BRASS surveys are only available to those who
participate and for a fee. In addition, comparability under section 330
requires consideration of fees charged by comparably skilled
practitioners within the firm for other types of engagements as well as
fees charged by other firms providing similar services. These surveys
address comparability with other firms, not within the firm.
Some commenters state that their billing rates are proprietary
business information and that their business will be harmed if they
disclose them, presumably because disclosure would allow law firms to
bid for work against each other more effectively. Other commenters
appear concerned that if their rate structures are transparent to their
clients, those clients may be better positioned to negotiate fees. The
commenters, however, do not explain why their pecuniary interest in
preventing transparency in billing practices should outweigh the need
to produce evidence that satisfies the Bankruptcy Code's comparable
services requirement.
The USTP concludes that no changes are necessary to the Guidelines
based on these comments.
11) Comment: The Appendix B guidelines should only obtain
comparability data from domestic practitioners because international
billing practices vary widely.
Response: The USTP agrees and has revised the Guidelines to clarify
that comparability data should be reported for U.S. professionals only.
Guidelines ] C.3.a.i.

d. BUDGETS AND STAFFING PLANS

12) Comment: Budgets and staffing guidelines are unduly burdensome.
Response: The requested budgets are a summary with little detail.
Presumably attorneys in complex chapter 11 cases--at least once the
critical early days of a case have passed--make some effort to plan
next steps, to strategize on ultimate outcome, and to assign tasks
accordingly, taking into account their experience in other complex
cases.
Moreover, requesting budgets and staffing plans in bankruptcy cases
is consistent with practices employed by clients outside of bankruptcy
to manage legal costs. The USTP budget and staffing templates are
modeled after the Association of Corporate Counsel's (``ACC'') Sample
Case Budget Template.\7\ The ACC is a global bar association for in-
house counsel with 29,000 members employed by over 10,000
organizations. The extensive resources provided by ACC to its members
on legal project management, including budgeting and staffing,

[[Page 36267]]

strongly suggest that budgeting and staffing plans are mainstream and
common features of legal engagements across a wide spectrum of
businesses.
---------------------------------------------------------------------------

\7\ See http://www.acc.com/legalresources/resource.cfm?show=743131; see also http://www.acc.com/ValueChallenge/resources/avcresources.cfm?rs_vc=365.
---------------------------------------------------------------------------

The USTP slightly modified the ACC template. See Exhibit C. First,
the USTP separated the budget template from the staffing template.
Second, the USTP budget template at Exhibit C uses the modified project
categories in ] C.8.b. of the Guidelines, as described more fully in
the response to Comment 18 below. Third, in the revised Appendix B
guidelines, the USTP further simplified the staffing plan to reduce the
perceived burden. Rather than asking for identification of each
professional proposed to work on the engagement, the revised USTP
template requests the number of professionals by category of timekeeper
(e.g., 10 partners, 30 associates, etc.) or experience level, as well
as their average hourly rates (billed or collected). Unlike the ACC
template, however, the USTP revised staffing plan does not ask for this
information for each project category.
13) Comment: Public disclosure of budgets with interim fee
applications will reveal confidential strategy information and give
adversaries advantages.
Response: The USTP addressed this concern in the initial draft of
the Appendix B guidelines in two ways. First, the budgets and staffing
plans are to be publicly disclosed retrospectively with the fee
application and for the same time period covered by the fee
application. Guidelines ]] C.6., E.7.-8. Second, the budget template is
a summary chart of aggregate hours and fees by project code, without
the detail of the budget that the professional provided to its client
prospectively at the beginning of the fee application period. Exhibit
C-1. While the budget submitted with the fee application will
retrospectively summarize the fees estimated to be required during that
period, the fee application itself and invoices contain the detailed
information about what was actually done during the period.
Nevertheless, to further address this concern, the USTP revised the
Guidelines to provide that budgets and invoices may be redacted as
necessary, and such redactions may be compensable if necessary to
protect privileged or confidential information that must be disclosed.
Guidelines ]] C.6.b., E.8. But the time spent for redactions should be
reasonably proportional to the overall fees sought. Redactions,
particularly to address issues of litigation strategy, may be
unnecessary if the applicant uses the model budget in Exhibit C, which
budgets total hours and fees by project category without descriptive
entries.
The USTP also revised the Guidelines to provide for one prospective
disclosure of the budget on a confidential basis: between counsel for
the debtor-in-possession and official committees once the budgets have
been approved by their respective clients or whenever they are amended.
Guidelines ] E.8. As the NBC commented, there are at least two ``set[s]
of professionals compensated out of the estate . . . looking out for
the estate's interests.'' NBC letter dated January 30, 2012, p. 2.
Official committees routinely receive confidential or other sensitive
information during the case that they are precluded from sharing. In
addition to providing the budgets under appropriate confidentiality
agreements, the debtor and committees may redact the budgets to address
privilege or confidentiality concerns. Guidelines ]] C.6.b., E.8. The
confidential and prospective exchange of budgets between these
fiduciaries facilitates communication, avoids duplication of effort,
and promotes efficiency in the administration of the bankruptcy case,
consistent with the requirements of section 1103 of the Bankruptcy
Code.
14) Comment: Budgets are ineffective and provide little, if any,
benefit to the estate because bankruptcy is just too unpredictable to
budget.
Response: Budgets are a planning tool for disciplined and
deliberative case management that business clients routinely expect of
their professionals outside of bankruptcy. The pervasiveness of this
practice supports the conclusion that budgets are effective to focus
the scope of the engagement and the efficiency in staffing.
Moreover, the concern about the alleged unpredictability of
bankruptcy engagements in particular is overstated. All budgets--
whether for a bankruptcy case, a litigation matter, a chapter 13
debtor, a law firm, a business, or the government--are an informed
estimate of expectations, identifying that which is predictable based
on historical experience and that which is truly volatile and beyond
the budgeter's control.
Indeed, budgets for professional fees are already a regular feature
of chapter 11 cases. Secured lenders typically require debtors and
their counsel to prepare budgets as a condition to the estate's use of
cash collateral. Similarly, parties in the case, including the debtor
and official committees, often insist that examiners prepare and file
budgets and work plans.
The USTP concludes that no changes are necessary to the budget and
staffing guidelines based on these comments.
15) Comment: Budgets should not be mandatory.
Response: Only the courts can award compensation and determine what
requirements professionals must satisfy consistent with section 330 to
be paid from the estate. The Appendix B guidelines are internal
procedural guidelines that the USTP will follow ``in the absence of
controlling law or rules in the jurisdiction'' in reviewing
applications for compensation and determining whether to comment or
object. Guidelines ] A.4. In some instances, the Guidelines reflect
disclosures, standards, or procedures that the United States Trustee
may consider presumptively reasonable or presumptively unreasonable
when deciding whether to object to fee applications.
After considering these comments, the USTP revised the Guidelines
to clarify that, although budgets are not mandatory, the parties may
agree to the budgets or the court may require them. Guidelines ]] C.6.,
E.1. If the parties do not consent, the United States Trustee generally
will move the court to require budgets of estate-paid attorneys in
larger chapter 11 cases consistent with the Guidelines.
16) Comment: Budgets should be non-binding and should be able to be
amended.
Response: The USTP agrees. The revised Appendix B guidelines
provide that ``[b]udgets can and should be amended as necessary to
reflect changed circumstances or unanticipated developments.''
Guidelines ] E.3. Similarly, the Guidelines request an explanation if
the fees sought in the application exceed the budget during the
application period by at least 10%, and whether the applicant has
discussed the variance with the client. Guidelines ]] C.2.l., C.5.b.;
Exhibit C.
The USTP concludes that no changes are necessary to the Guidelines
based on these comments.
17) Comment: Time spent preparing budgets and staffing plans should
be compensable.
Response: The USTP agrees. For this reason, the Appendix B
guidelines, both as originally proposed and as revised, include a
suggested project category for ``budgeting.'' Guidelines ] C.8.b.;
Exhibits C-1, D-1.
The USTP concludes that no changes are necessary to the Guidelines
based on these comments.

[[Page 36268]]

e. PROJECT CODES AND CATEGORIES

18) Comment: The project categories and sub-categories create 480
possible coding combinations, which is unworkable and unduly
complicated without a corresponding benefit.
Response: The Appendix A guidelines contain suggested project codes
that professionals have used for years to categorize their time in fee
applications. To further assist the court and parties in reviewing fee
applications, the USTP had proposed additional disclosures in the
initial draft of the Appendix B guidelines in the form of sub-
categories for the project codes, substantially comparable to the UTBMS
activity codes used with task codes in legal billing.
Based on these comments to streamline project coding, the USTP
revised the Appendix B guidelines to eliminate the proposed sub-
categories. The Appendix B guidelines will continue to use the project
categories from the Appendix A guidelines with slight modifications.
First, the USTP added a ``Budgeting'' category to reflect the intention
to seek the use of budgets for the applicant in most cases that satisfy
the threshold. Second, to provide better transparency and
accountability, the USTP extracted and separately categorized certain
tasks that are included in the broader Appendix A project
categories.\8\ See Guidelines ] C.8.b. All but one of these tasks
(``Reporting'') is included in the long-established UTBMS bankruptcy
code set.
---------------------------------------------------------------------------

\8\ ``Reporting'' was extracted from the existing ``Case
Administration'' category. ``Assumption and Rejection of Leases and
Contracts'' was extracted from ``Asset Disposition.'' ``Avoidance
Action Analysis'' was extracted from ``Litigation.'' ``Corporate
Governance and Board Matters,'' ``Real Estate'' and ``Non-working
Travel'' span across a number of the existing Appendix A project
categories.
---------------------------------------------------------------------------

Based on these revisions to the project categories, the USTP
conformed other requested disclosures that incorporate the modified
project categories, such as the budgets and the reconciliation of fee
applications to budgets. See Exhibits C-1, D-1.
The USTP retains discretion not to seek coding or to seek case-
specific coding if the standard template does not meet the needs of a
particular case.

f. CO-COUNSEL AND STAFFING EFFICIENCIES

19) Comment: The USTP should encourage the use of co-counsel for
more routine or ``commoditized'' work, such as preference actions and
claims objections, to bring efficiencies to the bankruptcy estate.
Response: This suggestion was raised by several commenters,
including the NBC, Professor Lubben, and Togut, Segal & Segal. It is
also similar to the local counsel requirement in the District of
Delaware. The USTP agrees that applicants should consider how to assign
and staff more routine and ``commoditized'' work, and whether lower
cost co-counsel should be retained for discrete types of work, provided
that the use of multiple section 327(a) bankruptcy counsel must not
mask disqualifying conflicts and connections, and co-counsel must avoid
duplication of services.
The USTP revised the Appendix B guidelines to provide that
retention applications should clearly specify lead counsel and clearly
delineate secondary counsel's responsibility. See Guidelines ] F. In
general, all bankruptcy matters should presumptively be handled by lead
counsel unless the retention application specifically assigns them to
secondary counsel. The retention application should not contain
indeterminate or open-ended duties for secondary counsel, and retention
of secondary counsel must benefit the estate.
The USTP will carefully review the proposed co-counsel retention to
ensure that the lead counsel does not have a pervasive conflict
requiring disqualification that the retention of secondary counsel is
designed to conceal or ignore. The USTP will also monitor the fees of
both lead and secondary counsel for services that are unnecessary,
duplicative, or not beneficial to the estate.
At the public meeting, one commenter suggested that the USTP should
also include a proposed form of order for the retention of co-counsel.
Public Meeting Tr., pp. 99-100. In developing a proposed form of order,
the USTP will benefit from experience with these Guidelines and
declines to address a specific form of order at this time.

g. ELECTRONIC DATA

20) Comment: Submitting electronic billing records creates
confidentiality concerns.
Response: Fee applications with detailed invoices are routinely
filed and served on parties in a particular case through the courts'
Case Management/Electronic Case Filing (CM/ECF) system. In addition,
once filed this information is available to the general public through
the courts' Public Access to Court Electronic Records (PACER) system.
There should be no confidentiality concern in providing the same data
in a format that can be queried and sorted.
The USTP concludes that no changes are necessary to the Guidelines
based on these comments.
21) Comment: Submitting electronic data may require firms to revamp
their billing software.
Response: The USTP suggested using LEDES standards because this is
the universal standard adopted by law firms, clients, and e-billing
vendors and because no particular software is required. See
www.LEDES.org. Because it is an open standard, a firm can provide
electronic data in the same format in which it maintains the data and
does not need to modify its existing billing software.
The USTP concludes that no changes are necessary to the Guidelines
based on these comments.

h. APPLICATIONS FOR EMPLOYMENT AND RELATED VERIFICATIONS

22) Comment: The USTP has no statutory authority to address
compensation issues at the retention stage.
Response: The USTP is statutorily required to adopt uniform
guidelines for the review of professional compensation applications. 28
U.S.C. Sec. 586(a)(3)(A). The review of fee applications under section
330 of the Bankruptcy Code is inextricably intertwined with the terms
and conditions of the applicant's retention under section 327 or 1103.
The NBC, among others, supports the view that a closer consideration of
the terms of compensation at the outset of the case can lead to less
controversy later and benefit both the professionals and the estate.
See Public Meeting Tr., p. 74. The USTP's adoption of uniform
guidelines governing the review of applications for retention under
sections 327 and 1103 of the Bankruptcy Code on issues that are
relevant to fee applications benefits professionals, the court, and
parties in interest by providing predictability in enforcement and is
consistent with the USTP's statutory mandate.
The NBC proposed adding a client verification at the retention
stage. The USTP agrees and has modified the Appendix B guidelines to
provide that clients supply a verified statement on retention.
Guidelines ] D.2. This is in lieu of the previously requested client
verification with the fee application. The proposed verification may
explain the steps the client took to ensure compensation was comparable
to the non-bankruptcy market, to control legal fees as it would outside
of chapter 11, and to negotiate rates.

[[Page 36269]]

The USTP concludes that no other changes are necessary to the
Guidelines based on these comments.

i. FEE APPLICATIONS

23) Comment: The USTP exceeds its statutory authority when it
reviews and comments on interim fee applications filed under section
331. The USTP may only comment on final fee applications under section
330.
Response: Consistent with its statutory duties, the USTP has
commented on and objected to thousands of interim fee applications, and
is unaware that any party has challenged the USTP's right to appear and
be heard in that litigation. In addition to 28 U.S.C. Sec. 586(a)(3),
section 307 of the Bankruptcy Code gives the United States Trustee
broad authority to raise, to be heard, and to appear on any issue in
any case. Moreover, deferring all objections to the final fee
application would seem unfair and unduly prejudicial to the
professionals, in addition to being unduly burdensome to the USTP, the
court, and other parties in interest.
The USTP concludes that no changes are necessary to the Guidelines
based on these comments.
24) Comment: The Appendix B guidelines fail to consider that for
many debtors a significant portion of estate-paid work is for non-
bankruptcy matters. Other practitioners stated that the Guidelines
require debtors' attorneys to speculate about what legal fees the
debtor would have incurred outside of bankruptcy, which will be costly
and of no value.
Response: The USTP originally included a disclosure to address the
complaint that the public misunderstands professional fees in
bankruptcy because some of the fees that the court must approve may not
result from the bankruptcy filing. Thus, the fee application may
include fees for matters for which the debtor routinely engaged counsel
before the bankruptcy filing. The USTP did not anticipate that
providing this data would be time-consuming or arduous because
applicants could provide historical data. Nevertheless, the group of
119 law firms, representing a broad segment of the bankruptcy legal
community and including many of the firms that are routinely involved
in the larger cases meeting the threshold, stated that this disclosure
``serves no useful purpose.'' 119 Law Firms' Initial Letter, p. 7.
Based on this comment, the USTP eliminated the disclosure.

j. COMPENSATION FOR PARTICULAR MATTERS

25) Comment: Redaction of bills or invoices for privileged or
confidential information should be compensable.
Response: The USTP has re-evaluated its position in light of these
comments. It is important that clients receive informative invoices
that may contain privileged or confidential information. But
professionals whose compensation will be paid by the bankruptcy estate
know at the inception that their billing records must be publicly filed
and should draft time entries and prepare invoices both to minimize
redactions and to avoid vague descriptions. Therefore, the time for
redacting invoices that are submitted under a monthly compensation
order or filed with the fee application should be kept to a minimum and
bear some reasonable relationship to the overall fees sought.
Guidelines ] B.2.f.
26) Comment: The Appendix B guidelines prohibit the use of
transitory professionals and the attendance of multiple attorneys at
meetings or hearings.
Response: This comment is inaccurate. In these two instances, the
Guidelines instruct the United States Trustee to seek an explanation of
practices that could be evidence of billing abuses. Guidelines ]]
B.2.c., e. An adequate explanation will avert an objection on this
guideline.
The USTP concludes that no changes are necessary to the Guidelines
based on these comments.
27) Comment: Precluding compensation for preparing monthly invoices
is inappropriate.
Response: The ability to bill monthly is an accommodation to
professionals to enable them to avoid the delay incumbent in the
interim fee application process. The professional's decision to avail
itself of this opportunity should not cost the estate additional money.
The United States Trustee may object if a professional seeks
compensation for the preparation of monthly invoices that is
duplicative of fees that the professional later seeks for the
preparation of the fee application related to those invoices. Based on
these comments, the USTP has revised the Appendix B guidelines to
clarify its position. See Guidelines ] B.2.f.
28) Comment: Attorneys should be entitled to compensation for
litigating and negotiating objections to fee applications.
Response: The Appendix B guidelines provide that ``[r]easonable
charges for preparing interim and final fee applications . . . are
compensable,'' (] B.2.f.) (emphasis in original), because the
preparation of a fee application is not required for lawyers practicing
in areas other than bankruptcy as a condition to getting paid. But time
spent beyond the initial preparation of the applications, including
without limitation time spent explaining the fees, negotiating
objections, and litigating contested fee matters, is properly
characterized as work that is for the benefit of the professional, and
not the estate. Such services are therefore not compensable under 11
U.S.C. Sec. 330(a)(4)(ii) because they are neither reasonably likely
to benefit the debtor's estate nor necessary to the administration of
the bankruptcy case. This result is consistent with non-bankruptcy
practice because law firms typically do not charge clients for time
spent explaining or defending a bill. Thus, the USTP's position is that
awarding compensation for fee application matters beyond the initial
preparation of the application is inappropriate, unless those
activities fall within an applicable and judicially recognized
exception (such as litigating an objection to the application where the
applicant substantially prevails).
The USTP has clarified its position in the Guidelines based on
these comments. See Guidelines ] B.2.f.
29) Comment: Attorneys should always be able to charge their
highest rate, and are not bound by their lower ``home forum'' rate when
the bankruptcy case is pending in a higher-priced market, for example,
New York.
Response: The Appendix B guidelines provide that the USTP will not
object to attorneys charging their ``home forum'' rate regardless of
where a case is pending. Guidelines ] B.2.l. This recognizes that a
substantial component of a professional's billing rate is overhead
attributable to the professional's home office, and does not penalize
professionals (or their clients in their choice of professionals)
solely because of the forum in which the case is pending.
By contrast, the group of 118 law firms (formerly 119) proposed
that, if a lawyer from St. Louis, for example, traveled to New York for
a bankruptcy case, the St. Louis lawyer should charge New York rates.
118 Law Firms' Supplemental Letter, p. 2. But the 118 law firms would
not have the New York lawyer traveling to St. Louis charge St. Louis
rates. This result is illogical because it is not based on the
professional's overhead (or even the forum in which the case is
pending). Additionally, travel costs are typically reimbursed by the
estate, and allowing professionals to receive both a rate

[[Page 36270]]

higher than their home forum rate and reimbursement for travel costs is
unreasonable.
The USTP concludes that no changes are necessary to the Guidelines
based on these comments.
30) Comment: Routine expenses, such as copies and long distance
calls, should not require explanation. Similarly, referring to
telephone charges as ``overhead'' might result in objection to long
distance and conference charges currently allowed.
Response: Clients outside of bankruptcy increasingly refuse to
reimburse expenses, even routine ones, that clients consider part of a
firm's overhead. Thus, the Appendix B guidelines provide that the
United States Trustee will ordinarily object to expenses not
customarily charged by the applicant to its non-bankruptcy clients and
by the applicant's peers in the market, as well as overhead expenses
incident to the operation of the applicant's office. Guidelines ]]
B.3.c., e.
31) Comment: Routine objection to summer associate time and non-
working travel at full rate are not market-based.
Response: These commenters did not provide any support for the
contention that sophisticated clients routinely pay for summer
associate time or full rates for non-working travel. Indeed, the USTP
understands that it has long been customary for firms to write off the
time of their summer associates, which is more properly attributed to
recruitment and training. And clients increasingly refuse to pay for
first or second year associates working on their matters.
The USTP concludes that no changes are necessary to the Guidelines
based on these comments.
32) Comment: Fee enhancements should be based on agreements between
counsel and clients, subject to court approval.
Response: A central principle of the Appendix B guidelines is that
bankruptcy fees should be reasonable, fully disclosed, and consistent
with market norms. For this reason, it is problematic when bankruptcy
professionals seek to compel the estate, through their clients, to pay
them a fee enhancement or a bonus that is not based on their
contractual agreement and disclosed and approved at retention. An
applicant's request for fees above the amounts it initially represented
in its retention application remains subject to section 330 of the
Bankruptcy Code, including the comparability requirements of section
330(a)(3)(F), and other applicable law. Therefore, fee enhancements
should be available only in extraordinary circumstances and solely to
the extent that a professional outside of bankruptcy would be entitled
to demand fees from the client in excess of a contractually agreed upon
amount.
Upon further consideration, the USTP concludes that the issue of
fee enhancements should, at this time, be addressed on a case-by-case
basis and thus deleted the considerations pertaining to fee
enhancements from the Guidelines.

k. FEE REVIEW ENTITIES

33) Comment: Fee examiners and fee committees are appropriate only
if the court believes they will be helpful. Similarly, special fee
review procedures should not be included in the Appendix B guidelines.
Response: The appointment of a fee examiner or a fee committee is a
decision reserved to the judgment of the bankruptcy court. To enhance
the transparency and integrity of the fee review process, the
Guidelines simply offer several alternative models that the USTP may
suggest in a particular case. Guidelines ] G.
The success of the fee examiner in the case of In re General Motors
Corp., No. 09-50026 (Bankr. S.D.N.Y. filed June 1, 2009), and of the
fee committee in the case of In re Lehman Brothers Holdings, Inc., No.
08-13555 (Bankr. S.D.N.Y. filed Sept. 15, 2008), has demonstrated that
alternative fee review arrangements can have salutary effects. The fee
examiner and fee committee have identified both discrete issues with
the applications of certain professionals and global issues affecting
compensation sought by many professionals. When possible, they have
negotiated an acceptable resolution of those issues. When agreement
could not be reached, they have presented the issues to the court in an
organized manner that eased the burden of fee review on the court and
others.
The USTP concludes that no changes are necessary to the Guidelines
based on these comments.
34) Comment: The costs of fee examiners should be borne by the
federal government.
Response: Presumably the commenter intended that the USTP bear
these costs. The Bankruptcy Code is premised on bankruptcy estates
paying the costs of administration, including professional fees. See,
e.g., 11 U.S.C. Sec. Sec. 330, 503(b), 507(a)(2); 28 U.S.C. Sec.
1930. Fee examiners and fee committees are typically sought in cases
that are administratively solvent and very complex to ease the burden
of fee review on the court and parties in interest. It is reasonable
that the costs of administration of the estate include the cost of a
fee examiner or a fee committee.
The USTP concludes that no changes are necessary to the Guidelines
based on these comments.

l. MISCELLANEOUS COMMENTS

35) Comment: One commenter stated that firms should not have to
disclose all rate increases under all circumstances. Rather, the
commenter proposed that firms should only disclose annual rate
increases exceeding 10% and should not have to disclose any ``standard
seniority step ups'' regardless of amount or any annual increases of
10% or less.
Response: The cumulative cost to the estate of regular rate
increases of, for instance, 10% per year over the life of a lengthy
chapter 11 case is significant. This additional cost would be
compounded by annual step increases as attorneys advance in seniority.
At a minimum, law firms should disclose the additional cost being borne
by the estate and its creditors as a result of increased rates so the
parties, the court, and the United States Trustee can evaluate whether
the requested compensation is reasonable, comparable, and customary.
The USTP concludes that no changes are necessary to the Guidelines
based on these comments.
36) Comment: The guideline on billing a disproportionate amount of
time in .5 and 1.0 hour increments is not realistic.
Response: This is not a change from the existing Appendix A
guidelines. Moreover, routinely billing in those increments can be
suggestive of billing abuses and failure to carefully track an
attorney's time.
The USTP concludes that no changes are necessary to the Guidelines
based on these comments.
37) Comment: The Appendix B guidelines lack consequences that would
give professionals incentives to comply with them.
Response: The Guidelines are internal procedural guidelines that
the USTP will follow in reviewing and commenting on fee applications in
the absence of controlling law or rules in a jurisdiction. The
Guidelines do not supersede local rules, court orders, or other
controlling authority. Only the court has the authority to award
compensation and reimbursement under section 330 of the Bankruptcy Code
and to provide incentives for complying with the Guidelines. Guidelines
]] A.1.-5.

[[Page 36271]]

The USTP concludes that no changes are necessary to the Guidelines
based on this comment.
38) Comment: Greater transparency in fee applications would reduce
concerns and address allegations that professionals are overly
compensated for unnecessary work and diverting value.
Response: One of the USTP's stated goals has been to bring greater
transparency to the compensation process in chapter 11 cases and to
foster public confidence in the integrity of that process.
The USTP concludes that no changes are necessary to the Guidelines
based on these comments.

C. SUMMARY OF SIGNIFICANT CHANGES AND ANALYSIS OF COMMENTS RECEIVED
AFTER POSTING REVISED DRAFT GUIDELINES FOR FINAL COMMENT ON NOVEMBER 2,
2012

1. Summary of Significant Changes Following Posting of Revised
Draft Appendix B Guidelines for Final Comment on November 2, 2012
a. DISCLOSURES OF CUSTOMARY AND COMPARABLE COMPENSATION: Applicants
should include a concise description of the methodology used to
calculate hourly blended rates if the calculation includes any fee
arrangements not billed by the hour. Guidelines ] C.3.a.iv.(d).
b. BUDGETS: Absent the parties' consent, the United States Trustee
may seek a court order encouraging the prospective sharing of budgets
by counsel for the debtors-in-possession and the official committees.
Guidelines ] E.8.
c. CO-COUNSEL RETENTION: Guidance regarding the use of secondary
counsel, either efficiency or conflicts co-counsel, has been clarified
as follows:
1) When a new matter within the authorized scope of engagement for
efficiency or conflicts co-counsel is assigned by lead counsel to that
co-counsel, co-counsel need not file a supplemental retention
application and obtain an amended order. Rather, co-counsel should file
a supplemental declaration in accordance with Bankruptcy Rule 2014 and
provide notice of the filing sufficient to afford parties in interest
an opportunity to object. Nevertheless, if the matter does not fall
within the authorized scope of engagement, co-counsel should file a
supplemental retention application and obtain an amended order to
expand the scope of the engagement to include that matter. Guidelines ]
F.1.c.
2) The use of conflicts counsel to litigate a specific matter as to
which lead counsel's involvement is limited to negotiation is generally
objectionable, and the United States Trustee retains discretion whether
to object in a particular situation. Negotiation without the ability to
litigate against a party usually will render a lawyer disqualified from
the matter, and such disqualification cannot be cured by retention of
conflicts counsel to handle the litigation. Guidelines ] F.3.c.
d. ORDINARY COURSE PROFESSIONALS: The Guidelines will not apply to
counsel retained and paid as an ordinary course professional pursuant
to appropriate court order or local rule (``ordinary course
professional''), unless the professional is required to file a fee
application under such court order or local rule. Guidelines ] A.3.
e. ELECTRONIC BILLING RECORDS: The applicant should provide
electronic billing data to the court, the debtor-in-possession (or
trustee), official committees, the United States Trustee, and the fee
review committee, examiner or auditor. Other parties in interest should
receive the electronic billing data upon request. Guidelines ] C.10.
f. APPLICATIONS FOR EMPLOYMENT AND RELATED VERIFICATIONS:
Applicants who represented the client in the 12 months prepetition
should disclose in the application for employment specific and material
information regarding their prepetition billing rates and financial
terms to explain the reasons for any difference between prepetition and
postpetition billing rates and terms. Guidelines ] D.1.c. In the
verification provided by an applicant who also represented the client
prepetition, the disclosure of the applicant's ``effective rate'' has
been deleted, and instead, the applicant should disclose and explain
any postpetition change in ``billing rates and material financial
terms.'' Id. The client verification has been revised to delete the
undefined term ``market rate'' and instead to use terms expressly
contained in the statute. Thus, the client should disclose the steps
taken to ensure that the applicant's billing rates and terms are
comparable to the applicant's billing rates and terms for other
engagements and to those of other comparably skilled professionals.
Guidelines ] D.2.b.-c.
g. MONTHLY INVOICES: The United States Trustee will not object to
the extent that monthly invoices under a monthly compensation order
effectively serve as the interim fee applications and the applicant
seeks no additional compensation for preparing the interim fee
application because the time was expended on the related monthly
invoices (or vice versa). Guidelines ] B.2.f.(iv).
h. ``FEES ON FEES'': The USTP's position on fees for contesting or
litigating objections to applications for compensation has been
amended. ``Fees on fees'' are generally inappropriate unless they fall
within a judicial exception applicable within the district allowing
such fees. The word ``binding'' has been deleted from the exception.
Guidelines ] B.2.g.
i. STEP INCREASES: The disclosure of rate increases and
calculations of their effect may exclude annual ``step increases''
historically awarded in the ordinary course to attorneys throughout the
firm due to advancing seniority and promotion, if the firm
distinguishes between ``step increases'' and other types of rates
increases. Nevertheless, applicants should not attempt to characterize
actual rate increases that are unrelated to an attorney's advancing
seniority and promotion as ``step increases'' in effort to thwart
meaningful disclosure or billing discipline. If a firm does not
distinguish between ``step increases'' and other types of rate
increases, it should disclose and explain all rate increases.
Guidelines ] B.2.d.
j. OVERHEAD: Actual charges for multi-party conference calls
related to the case will be considered a reimbursable expense, not
overhead. Guidelines ] B.3.e.
k. EFFECTIVE DATE: The effective date of the Guidelines has been
changed from July 1, 2013 to November 1, 2013, to afford sufficient
time for the courts to incorporate the Guidelines into local rules and
practice and for the bankruptcy bar to become familiar with the new
disclosure provisions.
l. EXHIBITS: The Guidelines have been revised to incorporate
certain information that was previously included in exhibits and to
renumber the remaining exhibits. The project categories and expense
categories formerly at Exhibit E have been incorporated into the
Guidelines at ] C.8. (project categories for billing records) and ]
C.12. (expense categories). The ``United States Trustee Considerations
on the Retention and Compensation of Co-Counsel'' formerly at Exhibit B
have been incorporated into the Guidelines at ] F.
2. Discussion of Public Comments after Posting Revised Draft for
Final Comment on November 2, 2012
The USTP received six comment letters in response to the USTP's
posting of the revised draft of the Appendix B guidelines. Many of the
comments contained several sub-parts. The USTP appreciates the comments
and has considered each carefully. Those

[[Page 36272]]

comments that simply repeated earlier arguments against any reform or
improvement of the fee review process were addressed in the preceding
analysis of the initial draft, see ] B.2. above, and will not be
revisited here. The USTP's responses to the most significant comments
are discussed below, and the comments are categorized by the same
subject matters used above in ] B to categorize comments on the initial
draft.\9\
---------------------------------------------------------------------------

\9\ Summary of Significant Changes and Analysis of Comments
Received After Posting Initial Draft Guidelines for Comment on
November 4, 2011.
---------------------------------------------------------------------------

a. GENERAL COMMENTS

N/A

b. SCOPE OF THE APPENDIX B GUIDELINES

1) Comment: Use of the Appendix B guidelines by the United States
Trustee should be discretionary, rather than mandatory, in cases that
meet the revised threshold.
Response: Consistent with 28 U.S.C. Sec. 586(a)(3)(A), the
Appendix B guidelines are internal procedures that the United States
Trustees will apply in reviewing applications for compensation filed by
attorneys employed under section 327 or 1103 in chapter 11 cases that
meet the threshold. The Guidelines provide transparency in the USTP's
review of fee applications by providing notice of the USTP's policy
positions in the absence of controlling law or rules in the
jurisdiction. They also create greater efficiency in the review of the
applications by the court, parties in interest, as well as the USTP,
and provide uniformity and predictability in enforcement nationally. In
administering any particular case, the United States Trustee may
exercise discretion in applying the Guidelines based on the facts of
that case. The exercise of such discretion in a specific case will not
be routine or obviate the Guidelines in any particular district.
The USTP concludes that no changes are necessary to the Guidelines
based on these comments.

c. COMPARABLE COMPENSATION DISCLOSURES

2) Comment: The disclosure of blended rates for comparable services
should exclude rates from dissimilar areas of practice, such as
insurance defense.
Response: This comment misconstrues the statutory standard
specified in section 330(a)(3)(F). That section expressly requires that
reasonableness should be determined ``based on the customary
compensation . . . in cases other than cases under this title [11].''
11 U.S.C. Sec. 330(a)(3)(F). Thus, a disclosure of blended rates that
takes into account the rates charged in non-bankruptcy matters simply
reflects Congress's stated intent that bankruptcy practitioners be
compensated on terms comparable to other areas of practice, and no
worse and no better. See Guidelines ] C.3. The applicant retains the
right, and is encouraged, to supplement its disclosure with additional
information explaining the different rate structures of the various
practice groups in the firm and their impact on the firm's blended
rate.
The USTP concludes that no changes are necessary to the Guidelines
based on these comments.
3) Comment: The Appendix B guidelines permit bankruptcy boutiques
to exclude estate-billed engagements from the blended rate computation
for comparable services, but do not permit full-service law firms to do
so. This exclusion should apply to all law firms.
Response: This comment may misunderstand the Appendix B guidelines
as they apply to full-service firms. Consistent with section
330(a)(3)(F), the blended rate computation for comparable services
rendered by full-service firms is based on non-bankruptcy matters
billed by the firm, but not matters arising in bankruptcy cases
(whether estate-paid or not). Guidelines ] C.3.a.iv.(a). Because
bankruptcy boutiques often do not conduct a significant volume of work
in non-bankruptcy matters, they are subject to a slightly different
computation, which includes non-estate paid bankruptcy work (as the
closest approximation to what those firms would likely bill outside of
bankruptcy) while continuing to exclude estate-paid work. Guidelines ]
C.3.a.iv.(b). There is no need to extend this specific exclusion to
full-service firms because all bankruptcy-related work is already
excluded from the blended rate computation for full-service firms.
The USTP concludes that no changes are necessary to the Guidelines
based on these comments.
4) Comment: The limited safe harbor on the disclosure of comparable
billing data should be an absolute safe harbor from a United States
Trustee objection or further disclosure.
Response: The United States Trustee has a statutory duty to review
and comment on applications for compensation as ``appropriate.'' 28
U.S.C. Sec. 586(a)(3)(A). Accordingly, the USTP cannot prospectively
limit the United States Trustee's prosecutorial discretion or authority
to remedy billing abuses or insufficient disclosures. The limited safe
harbor, however, is an effort to provide professionals with some
comfort that making these types of disclosures will normally be
sufficient to avoid the United States Trustee seeking further
comparable billing information from the applicant. Guidelines ] C.4.
Among other things, an absolute safe harbor would lead to the anomalous
result where a party that fully disclosed that its bankruptcy rates are
higher than its non-bankruptcy rates would be immune from an objection
while admitting that it has violated the statutory standard for
reasonable compensation.
The USTP concludes that no changes are necessary to the Guidelines
based on these comments.
5) Comment: The comparable billing data is proprietary, should be
sought only from external sources, should be provided confidentially to
the United States Trustee, and should only be obtained through
discovery by the United States Trustee, not through proactive
disclosure.
Response: The suggestion that specific disclosures of customary and
comparable compensation should be provided only upon request instead of
proactively by the applicant improperly shifts the evidentiary burden
under section 330 away from the applicant and onto the court, the
United States Trustee, and other parties in interest. An applicant
seeking to be paid by the bankruptcy estate under section 330 has an
affirmative burden to prove that the compensation sought is reasonable,
including by offering evidence sufficient to satisfy section
330(a)(3)(F). The court and other parties in interest, in addition to
the United States Trustee, are entitled to information necessary to
evaluate the reasonableness of an application for compensation. The
statute and public interest requires transparency of the bankruptcy
compensation process for the multiple stakeholders in the case.
Finally, it is inefficient and uneconomical for the court and parties
to have the United States Trustee propound identical discovery requests
in every larger chapter 11 case when the United States Trustee will
presumptively seek this information.
The USTP concludes that no changes are necessary to the Guidelines
based on these comments.
6) Comment: If an applicant includes a discounted or alternative
arrangement in the blended hourly rate disclosures, the applicant
should also explain its calculation methodology. Applicants should be
required to disclose the specifics of any discount or

[[Page 36273]]

other alternative billing arrangement in non-bankruptcy matters.
Response: The USTP agrees that a concise statement of methodology
on how the applicant calculated the blended hourly rates would be
helpful and would enable those reviewing the information to determine
whether the disclosed data fully and accurately reflects the
information necessary for the comparison contemplated by section 330.
The Appendix B guidelines have been so amended. See Guidelines ]
C.3.a.iv.(d). Because the effect of discounts and alternative billing
arrangements should generally be reflected in the blended hourly rate,
a requirement that applicants disclose the specifics of every discount
would be unlikely to produce a benefit that would outweigh the burden
of making such disclosures. If the blended hourly rate does not capture
the effect of discounts and alternative billing, the explanation of how
the rate was calculated should explain this and may lead to further
inquiry by the United States Trustee. The USTP adopted a middle ground
by seeking blended rates and explanations rather than other potentially
useful and informative disclosures that are more burdensome.
7) Comment: In its response to the comments to the Appendix B
guidelines as initially posted November 4, 2011, the USTP stated that
``[a] law firm that maintains that it is impossible to provide''
information relevant to the blended rate disclosures ``may explain in
the fee application and attest in its statement why it is unable to do
so.'' See Response to Comment 9 in ] B.2.c. above. A commentator
replied that the standard should be changed from ``impossible'' to
``impracticable,'' and some applicants may not easily produce the
requested disclosures because it is cost prohibitive to produce.
Response: The USTP agrees that an impracticability standard is more
appropriate. Nevertheless, as the USTP explained in its response to the
prior comments, most law firms that are retained in the larger cases
that meet the threshold should have the technology and resources
necessary to provide this information. See, e.g., Response to Comment 9
in ] B.2.c. above; Response to Comment 21 in ] B.2.g. above. Therefore,
with rare exception, cost should not be a basis for asserting
impracticability in providing the blended rate disclosures.
The USTP concludes that no changes are necessary to the Guidelines
based on these comments.

d. BUDGETS AND STAFFING PLANS

8) Comment: The sharing of budgets and staffing plans between
debtors-in-possession and official committees should be voluntary.
Response: The USTP encourages counsel for the debtors-in-possession
and official committees to prospectively share their respective budgets
once agreed to by their clients or amended, subject to an appropriate
confidentiality agreement and redaction to protect privileged or
confidential information. As the USTP previously explained in response
to the comments to the Appendix B guidelines as originally posted
November 4, 2011, the confidential and prospective exchange of budgets
between these fiduciaries facilitates communication, potentially avoids
duplication, and promotes efficiency in the administration of the
bankruptcy case, consistent with the requirements of section 1103 of
the Bankruptcy Code. See Response to Comment 13 in ] B.2.d. above. The
USTP has clarified the Appendix B guidelines to provide that, in the
absence of the parties' agreement, the United States Trustee may seek a
court order expressly authorizing the prospective sharing of budgets by
counsel for the debtors-in-possession and the official committees.
Guidelines ] E.8.
9) Comment: Budgets should not be required; they should only be
encouraged. Moreover, even if not required, detailed budgets should not
be sought in every case because they are unnecessary, costly, and
burdensome and constrain the professionals' flexibility in handling the
case. Other commenters said that the USTP-sought budgets would be
redundant of cash collateral and debtor-in-possession (``DIP'') loan
budgets already used in every case.
Response: In its response to the comments to the Guidelines as
originally posted November 4, 2011, the USTP highlighted that it had
revised the Appendix B guidelines to provide that the United States
Trustee will seek budgets and staffing plans only with the consent of
the parties or by court order. See Response to Comment 15 in ] B.2.d.
above. The USTP also fully addressed the concerns about the
effectiveness and burden to applicants of providing budgets and
staffing plans. See Response to Comments 12 and 14 in ] B.2.d. above.
It is undisputed that clients frequently require budgets inside and
outside of bankruptcy, and that secured lenders in bankruptcy cases
typically require debtors and their counsel to prepare budgets as a
condition to the estate's use of cash collateral. The USTP believes
that such sound practices ought to be followed as part of the fee
review process. Moreover, the budgeting guidelines are not redundant of
cash collateral and DIP loan budgets, which typically include a single
line-item for professional fees, insofar as the guidelines include a
reasonable amount of additional and relevant detail, such as a
description of major areas of activity.
The USTP concludes that no changes are necessary to the Guidelines
based on these comments.
10) Comment: Budgets should not use the bankruptcy project or task
codes.
Response: As the USTP explained in its response to the comments to
the Guidelines as originally posted November 4, 2011, budgets serve at
least two important purposes: they help ensure that professional fees
will be incurred in a more disciplined manner, and are a helpful tool
to evaluate applications for compensation. See Response to Comments 12
and 14 in ] B.2.d. above. By using a common set of project and task
codes, the Appendix B guidelines serve both of these purposes by
ensuring that the budgeted and actual fees can be directly and
transparently compared. See Exhibit D-1.
The USTP concludes that no changes are necessary to the Guidelines
based on these comments.
11) Comment: Budgets should not be sought during the first sixty
days of a case.
Response: The Appendix B guidelines do not impose an inflexible
timetable for adopting a budget. Consistent with practices for
submitting cash collateral and DIP loan budgets, the USTP's position is
that budgets should be adopted earlier, rather than later.
The USTP concludes that no changes are necessary to the Guidelines
based on these comments.

e. PROJECT CODES AND CATEGORIES

N/A

f. CO-COUNSEL AND STAFFING EFFICIENCIES

12) Comment: No supplemental application for employment and
corresponding order should be necessary when lead counsel transfers a
matter to conflicts co-counsel.
Response: The USTP has clarified the Appendix B guidelines to
provide that when a new matter within the authorized scope of
engagement for either efficiency or conflicts co-counsel is assigned by
lead counsel to that co-counsel, co-counsel need not file a

[[Page 36274]]

supplemental retention application and obtain an amended order. Rather,
co-counsel should file a supplemental declaration in accordance with
Bankruptcy Rule 2014, and provide notice of the filing sufficient to
afford parties in interest an opportunity to object. Nevertheless, if
the matter does not fall within the authorized scope of engagement, co-
counsel should file a supplemental retention application and obtain an
amended order to expand the scope of the engagement to include that
matter. Guidelines ] F.1.c.
13) Comment: The Appendix B guidelines should not provide that the
USTP will object to the use of conflicts counsel in situations in which
lead counsel may negotiate, but not litigate, a particular matter.
Response: The USTP has revised the Appendix B guidelines to clarify
that the use of conflicts counsel to litigate a specific matter as to
which lead counsel's involvement is limited to negotiation is generally
objectionable, and the United States Trustee retains discretion whether
to object in a particular situation. Negotiation without the ability to
litigate against a party usually will render a lawyer disqualified from
the matter, and such disqualification cannot be cured by retention of
conflicts counsel to handle the litigation. Guidelines ] F.3.c.
14) Comment: The Appendix B guidelines should clarify that they do
not limit the use of ordinary course professionals, local counsel, or
special counsel.
Response: The USTP agrees and has amended the Appendix B guidelines
accordingly. See Guidelines ] B.2.c.
15) Comment: The Appendix B guidelines should not apply to ordinary
course professionals or special counsel.
Response: The Appendix B guidelines have been clarified to provide
that they do not preclude the use of counsel retained and paid as an
ordinary course professional pursuant to appropriate court order or
local rule. Guidelines ] B.2.c. The USTP acknowledges that ordinary
course professionals are distinguishable from other counsel retained by
the estate, including special counsel, because the court's order
authorizing the retention or local rule governs whether and when they
are required to file a fee application. Thus, the Appendix B guidelines
have been further clarified to provide that generally they will not
apply to an ordinary course professional, unless the professional is
required to file a fee application under the court's order authorizing
retention or local rule. Guidelines ] A.3.

g. ELECTRONIC DATA

16) Comment: Electronic records should be provided only to the
debtor, official committees, and the United States Trustee.
Response: Section 330 provides for an open and public bankruptcy
compensation process whereby all parties in interest and the court have
access to relevant information necessary to evaluate whether the
applicant has sustained its burden that the compensation sought to be
paid from the estate is reasonable. Nevertheless, the USTP agrees that
it is likely more efficient that, in the ordinary course, an applicant
provide the billing data in an electronic format to the court, the
United States Trustee and those parties in interest most likely to use
the information electronically, provided that other parties in interest
may obtain it upon request. Accordingly, the USTP has revised the
Appendix B guidelines to provide that an applicant should provide
electronic billing data to the court, the debtor in possession (or
trustee), official committees, the United States Trustee, and the fee
review committee, examiner, or auditor. Other parties in interest
should receive the electronic billing data upon requesting it from the
applicant. Guidelines ] C.10.

h. APPLICATIONS FOR EMPLOYMENT AND RELATED VERIFICATIONS

17) Comment: If an applicant has represented the client at any time
during the 12 months prepetition, then it should disclose in the
retention application the specifics of its billing arrangement,
including discounted rates, write-down policies, or other material
terms affecting the billing and compensation arrangement. Similarly, if
the applicant has changed the terms of its billing arrangements with
the client during the postpetition period, the applicant should explain
why.
Response: The USTP agrees that these specific disclosures and
explanations would be helpful and meaningful. The USTP has amended the
Appendix B guidelines to provide that applicants who represented the
client in the 12 months prepetition should disclose specific and
material information regarding their prepetition billing rates and
financial terms to explain the reasons for any difference between
prepetition and postpetition billing rates and terms. Guidelines ]
D.1.c.
18) Comment: The applicant's disclosure with the application for
employment currently asks whether the applicant is billing its client
at the same ``effective rate'' as was in effect prepetition. This may
cause confusion because alternative arrangements may not readily
translate into hourly rates and elsewhere the Appendix B guidelines use
the term blended hourly rate.
Response: The USTP agrees and has amended the Appendix B guidelines
to delete references to ``effective rate.'' Instead, the applicant
should disclose and explain any postpetition change in ``billing rates
and material financial terms.'' Guidelines ] D.1.c.
19) Comment: The client verification with the application for
employment should not verify that the engagement is at ``market rate.''
Rather, the client should only verify that the rate and terms are
proper under the circumstances because clients should be free to select
the best counsel for the engagement.
Response: The Bankruptcy Code requires that the compensation for an
estate-paid engagement be reasonable as compared to customary
compensation for similarly skilled practitioners in cases other than
under Title 11. That means a market rate. Nevertheless, the USTP has
clarified the Appendix B guidelines to conform to the language of
section 330. Guidelines ]] D.2.b., d.

i. FEE APPLICATIONS

N/A

j. COMPENSATION FOR PARTICULAR MATTERS

20) Comment: Compensation for preparing monthly invoices when a
case has a monthly compensation order should be allowed if it is not
duplicative of preparing interim fee applications. Conversely,
compensation for preparing interim fee applications should be allowed
if it is not duplicative of preparing monthly invoices.
Response: The USTP agrees and has revised the Appendix B guidelines
to provide that the United States Trustee will not object to the extent
that monthly invoices under a monthly compensation order effectively
serve as the interim fee application and the applicant seeks no
additional compensation for preparing the interim fee application
because the time was expended on the related monthly invoices (or vice
versa). Guidelines ] B.2.f.(iv).
21) Comment: Applicants should be compensated for responding to
inquiries and negotiating issues related to applications for
compensation.
Response: The USTP disagrees. Applicants should and do have the
incentive to prepare an unobjectionable

[[Page 36275]]

application for compensation in the first instance. Reasonable and
proportionate time for fee application preparation is compensable.
Applicants should not be rewarded with additional compensation for
responding to inquiries and objections that should have been avoided,
particularly when the statutory standards are well-developed and the
USTP guidelines are clear.
The USTP concludes that no changes are necessary to the Guidelines
based on these comments.
22) Comment: The Appendix B guidelines make an exception for
objecting to ``fees on fees'' for activities that fall within a
``judicially-recognized and binding exception (such as litigating an
objection to the application where the applicant substantially
prevails).'' The use of the word ``binding'' suggests only authority by
the applicable court of appeals on an issue would be considered
binding, whereas the prevailing law in the lower courts would not.
Response: The USTP has clarified its position to provide that fees
for contesting or litigating objections to applications for
compensation are generally inappropriate unless they fall within a
judicial exception applicable within the district allowing such fees.
The term ``binding'' has been deleted from the exception. Guidelines ]
B.2.g.
The USTP concludes that no other changes are necessary to the
Guidelines based on these comments.
23) Comment: The USTP standard that it will object to fees for
responding to objections to fees unless the applicant substantially
prevails on the objection should be the court's decision and is
inconsistent with the Bankruptcy Code.
Response: This standard represents the litigating position of the
USTP that applicants who pursue unmeritorious positions in defending
their fees, and thereby waste the resources of the court and parties,
should not be entitled to payment of fees. The USTP's position follows
the bankruptcy court's decision in In re Motors Liquidation Co., No.
09-50026, Bench Decision on Pending Fee Issues, at 2 (Bankr. S.D.N.Y.
Nov. 23, 2010) (ECF No. 7896), which appropriately takes into account
inherent litigation risks and the reasonableness of the applicant's
arguments.
The USTP concludes that no changes are necessary to the Guidelines
based on these comments.
24) Comment: The Appendix B guidelines should not treat phone
charges related to multi-party, case-specific conference calls as
overhead and should instead consider them a reimbursable expense.
Response: The USTP agrees and has revised the Appendix B guidelines
to provide that actual charges for multi-party conference calls related
to the case will be considered a reimbursable expense, not overhead.
Guidelines ] B.3.e.

k. FEE REVIEW ENTITIES

25) Comment: If the court appoints a fee committee, fee examiner,
or other reviewer, the United States Trustee should defer all
compensation and expense inquiries and objections to such reviewed to
avoid subjecting the applicant to multiple and competing demands for
information.
Response: The United States Trustee has an independent statutory
duty to review and comment on applications for compensation. 28 U.S.C.
Sec. 586(a)(3)(A). That duty cannot be delegated. Nevertheless, the
United States Trustee will not lightly deviate from positions taken by
the fee committee, examiner or other reviewer.
The USTP concludes that no changes are necessary to the Guidelines
based on these comments.
26) Comment: The United States Trustee should use discretion and
only seek a fee committee or examiner when circumstances dictate.
Similarly, the appointment should be sought at the earliest stages of
the case.
Response: The Appendix B guidelines already address these issues
and provide that the United States Trustee will ``ordinarily'' seek
appointment of a fee review entity. Guidelines ] G.1. The Guidelines
acknowledge that the appointment is ultimately the court's decision.
Similarly, the United States Trustee will ordinarily seek a fee
committee, examiner or other review entity ``as soon as practicable
after the order for relief.'' Guidelines ] G.2.
The USTP concludes that no changes are necessary to the Guidelines
based on these comments.
27) Comment: The scope of fee review entities should be expanded to
include active consultation with and oversight of the clients regarding
the retention of professionals and the terms of those retentions, which
should reflect market-driven considerations.
Response: The USTP strongly concurs that section 330(a)(3)(F)
expresses Congress' intention that professional compensation in
bankruptcy be market driven. Oversight of professionals retained on
behalf of the estate must be limited to ensuring that they satisfy the
requirements set by Congress in the Bankruptcy Code, including sections
327 and 330, without overreaching. Moreover, while the United States
Trustee ordinarily will seek the appointment of a fee review entity as
soon as practicable after the order for relief, it typically will not
be in place when most applications for employment are filed early in
the case. Consequently, the Appendix B guidelines are not being changed
to give the fee review entities any additional express
responsibilities.
The USTP concludes that no changes are necessary to the Guidelines
based on these comments.

l. MISCELLANEOUS COMMENTS

28) Comment: One commenter suggested that the Appendix B guidelines
``provide a useful template for any court that wishes to systematize a
law firm's explanation of its fees and expenses'' in larger chapter 11
cases, and that if the courts adopted these as local rules that ``would
create a single set of expectations for what belongs in fee
applications in such cases.'' Prof. Rapoport Letter, dated November 6,
2012.
Response: The USTP agrees and will urge courts to incorporate the
Appendix B guidelines into their local rules or general orders, as many
have with the existing Appendix A guidelines. Uniformity and
consistency in the USTP's review of fee applications will benefit the
courts, the applicants, and the public, in addition to the USTP.
Moreover, before the Guidelines go effective, the USTP will engage in a
systematic training and outreach effort related to the Appendix B
guidelines, including coordination and training with relevant
professional associations.
The USTP concludes that no changes are necessary to the Guidelines
based on these comments.
29) Comment: The requested disclosures for rate increases should
not include annual ``step increases'' related to the advancement of an
attorney but should be limited only to increases of the overall rate
structure.
Response: The USTP agrees. The USTP has revised the Appendix B
guidelines to provide that the disclosure of rate increases and
calculations of their effect may exclude annual ``step increases''
historically awarded in the ordinary course to attorneys throughout the
firm due to advancing seniority and promotion, if the firm
distinguishes between ``step increases'' and other types of rates
increases. Guidelines ] B.2.d., n.2. Nevertheless, applicants should
not attempt to characterize actual rate increases that are unrelated to
an attorney's advancing seniority and promotion as ``step increases''
in effort

[[Page 36276]]

to thwart meaningful disclosure or billing discipline. If a firm does
not distinguish between ``step increases'' and other types of rate
increases, it should disclose and explain all rate increases.

June 12, 2013----------------------------------------------------------

Submitting on Behalf of the U.S. Trustees Office,
Jerri Murray,

Department Clearance Officer for PRA, U.S. Department of Justice

[FR Doc. 2013-14323 Filed 6-14-13; 8:45 am]
BILLING CODE P