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A reminder about the requirement that fees must be reasonable before a bankruptcy court will authorize their payment.

By Nancy Rapoport

Blaire Cahn has done a lovely write-up at Weil's Bankruptcy Blog (here) of the Ninth Circuit's recent opinion in Montana Department of Revenue  v. Duncan, No. 09-36062, 2010 WL 4903952 (9th Cir. Dec. 2, 2010).

Having done my fair share of fee reviews--and I enjoy fee examining work!--I think that the main issue for attorneys seeking payment from estate funds is a question of judgment.  It's hard, when someone is in the middle of a case, to take the time to ask, "Should I be doing this work?," especially when clients want 100% top-notch work at all times.  But that judgment--at the time someone has to make the go/no-go decision on billing for something--is crucial.

I think that the most rewarding part of fee examining work is having the luxury to call up a professional, if I have a question about the bill, and talk through whether the work (or the expense) was reasonable.  Sometimes, the professional explains why some hinky looking number was actually reasonable, and then I don't have a problem with it and can forward it on, quite happily, to the court for a final decision.  Sometimes, though, the work or expense really can't be considered reasonable.  (My favorite example:  billing the cost of a man's shirt to the estate, on the theory that there was an unexpected overnight visit.)  The job of a fee examiner is to help the court determine reasonableness, because the court makes that ultimate call.

The tough part about reasonableness is the danger of hindsight bias.  I look for "reasonable at the time that the decision to bill/expense something is made"--not for "unreasonable several months later, in retrospect." Hindsight bias really shouldn't complicate the review.

In the end, it's all about using judgment (and then hoping that the court agrees with you).  For more of my take on fees, see here.

Full post as published by Nancy Rapoport's Blogspot on January 14, 2011 (boomark / email).