Bankruptcy

Undead, Undead, Undead

By Stephen Lubben

If you study chapter 11 professional fees long enough, you will see certain arguments that never seem to go away. The one I keep hoping is gone, only to see it rise again, involves "overhead." The latest attempt to reanimate this argument appears in the FGIC Corporation chapter 11 case, where the new UST from New York City has objected to Kirkland's word-processesing charges.

The problems with the overhead argument are two-fold:  proponents typically assume that the concept of "overhead" is self-applying, kind of like an accounting plain-meaning rule, and that the concept is static. But save for an attempt to charge clients for a law firm's utility bills or rent, it seems entirely reasonable that what "counts" as overhead could vary from professional to professional. One firm might build the cost of secretarial overtime into the hourly rates, while another allocates it to clients on a "as used" basis.

And just because a particular category of expense was once overhead does not mean that it must always remain overhead. While I'm sure there once was a time when world-processing was built into the hourly rates of attorneys, I think that time passed along with the use of those multi-colored cards around the function keys at the top of the keyboard.

One suspects that the folks who work in the UST office are constantly surprised when they have to pay for meals on a flight -- unless, of course, they fly first class.

And the whole thing makes no sense. What does the UST think will happen if they object to word-processing charges? My guess is that instead of a word processor taking care of the document, the task will fall to a first-year associate whose entry of "draft disclosure statement" will be allowed without objection. Which is better for the client and the estate?

Full post as published by Credit Slips on January 27, 2011 (boomark / email).