United States Trustees; Guidelines Relating to the Bankruptcy Reform Act of 1994

Federal RegisterMay 17, 1996

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DEPARTMENT OF JUSTICE

28 CFR Part 58

United States Trustees; Guidelines Relating to the Bankruptcy

Reform Act of 1994

AGENCY: Department of Justice.

ACTION: Final internal procedural guidelines.

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SUMMARY: The Department of Justice is establishing internal procedural

guidelines for reviewing applications for compensation and

reimbursement of expenses filed by case trustees and professionals

under section 330 of Title 11, United States Code. These procedural

guidelines are not intended to supersede local rules, but are to be

read as complementing the procedures set forth in local rules.

To keep all published rules, regulations, and guidelines pertaining

to the United States Trustee Program in one section of the Code of

Federal Regulations, the title to 28 CFR 58 will be amended to include

the Bankruptcy Reform Act of 1994.

EFFECTIVE DATE: January 30, 1996.

FOR FURTHER INFORMATION CONTACT:

Martha L. Davis, General Counsel, or Kathleen Dunivin Schmitt,

Attorney, (202) 307-1399. This is not a toll-free number.

SUPPLEMENTARY INFORMATION: This action is in response to the Bankruptcy

Reform Act of 1994, which amended 28 U.S.C. 586(a)(3)(A) to direct

United States Trustees to review applications for compensation and

reimbursement of expenses in accordance with procedural guidelines

adopted by the Executive Office for United States Trustees. The

guidelines are to be applied uniformly by the United States Trustees,

except when circumstances warrant different treatment.

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Executive Order 12866

These guidelines have been drafted and reviewed in accordance with

Executive Order 12866, section 1(b), Principles of Regulation. The

Director, Executive Office for United States Trustees, has determined

that these guidelines are not a ``significant regulatory action'' under

Executive Order 12866 section 3(f), Regulatory Planning and Review.

These guidelines pertain to the internal management of the Department

and as such are not subject to central Office of Management and Budget

review pursuant to section 6 of Executive Order 12866. Accordingly,

these guidelines have not been reviewed by the Office of Management and

Budget pursuant to Executive Order 12866.

Regulatory Flexibility Act

The Director, Executive Office for United States Trustees, in

accordance with the Regulatory Flexibility Act (5 U.S.C. Sec. 605(b)),

has reviewed these guidelines and by approving them certifies that

these guidelines will not have a significant economic impact on a

substantial number of small entities.

List of Subjects in 28 CFR Part 58

Bankruptcy, Trusts, and Trustees.

For the reasons set forth in the preamble, the Department of

Justice proposes to amend 28 CFR part 58 as follows:

PART 58--REGULATIONS RELATING TO THE BANKRUPTCY REFORM ACTS OF 1978

AND 1994

1. The heading of Part 58 is revised to read as set forth above.

2. The authority citation for Part 58 continues to read as follows:

Authority: 28 U.S.C. 509, 510, 586(e), 588(d).

3. Appendix A is added to Part 58 to read as follows:

Appendix A to Part 58--Guidelines for Reviewing Applications for

Compensation and Reimbursement of Expenses Filed Under 11 U.S.C. 330

(a) General Information. (1) The Bankruptcy Reform Act of 1994

amended the responsibilities of the United States Trustees under 28

U.S.C. 586(a)(3)(A) to provide that, whenever they deem appropriate,

United States Trustees will review applications for compensation and

reimbursement of expenses under section 330 of the Bankruptcy Code,

11 U.S.C. 101, et seq. (``Code''), in accordance with procedural

guidelines (``Guidelines'') adopted by the Executive Office for

United States Trustees (``Executive Office''). The following

Guidelines have been adopted by the Executive Office and are to be

uniformly applied by the United States Trustees except when

circumstances warrant different treatment.

(2) The United States Trustees shall use these Guidelines in all

cases commenced on or after October 22, 1994.

(3) The Guidelines are not intended to supersede local rules of

court, but should be read as complementing the procedures set forth

in local rules.

(4) Nothing in the Guidelines should be construed:

(i) To limit the United States Trustee's discretion to request

additional information necessary for the review of a particular

application or type of application or to refer any information

provided to the United States Trustee to any investigatory or

prosecutorial authority of the United States or a state;

(ii) To limit the United States Trustee's discretion to

determine whether to file comments or objections to applications; or

(iii) To create any private right of action on the part of any

person enforceable in litigation with the United States Trustee or

the United States.

(5) Recognizing that the final authority to award compensation

and reimbursement under section 330 of the Code is vested in the

Court, the Guidelines focus on the disclosure of information

relevant to a proper award under the law. In evaluating fees for

professional services, it is relevant to consider various factors

including the following: the time spent; the rates charged; whether

the services were necessary to the administration of, or beneficial

towards the completion of, the case at the time they were rendered;

whether services were performed within a reasonable time

commensurate with the complexity, importance, and nature of the

problem, issue, or task addressed; and whether compensation is

reasonable based on the customary compensation charged by comparably

skilled practitioners in non-bankruptcy cases. The Guidelines thus

reflect standards and procedures articulated in section 330 of the

Code and Rule 2016 of the Federal Rules of Bankruptcy Procedure for

awarding compensation to trustees and to professionals employed

under section 327 or 1103. Applications that contain the information

requested in these Guidelines will facilitate review by the Court,

the parties, and the United States Trustee.

(6) Fee applications submitted by trustees are subject to the

same standard of review as are applications of other professionals

and will be evaluated according to the principles articulated in

these Guidelines. Each United States Trustee should establish

whether and to what extent trustees can deviate from the format

specified in these Guidelines without substantially affecting the

ability of the United States Trustee to review and comment on their

fee applications in a manner consistent with the requirements of the

law.

(b) Contents of Applications for Compensation and Reimbursement

of Expenses. All applications should include sufficient detail to

demonstrate compliance with the standards set forth in 11 U.S.C.

Sec. 330. The fee application should also contain sufficient

information about the case and the applicant so that the Court, the

creditors, and the United States Trustee can review it without

searching for relevant information in other documents. The following

will facilitate review of the application.

(1) Information about the Applicant and the Application. The

following information should be provided in every fee application:

(i) Date the bankruptcy petition was filed, date of the order

approving employment, identity of the party represented, date

services commenced, and whether the applicant is seeking

compensation under a provision of the Bankruptcy Code other than

section 330.

(ii) Terms and conditions of employment and compensation, source

of compensation, existence and terms controlling use of a retainer,

and any budgetary or other limitations on fees.

(iii) Names and hourly rates of all applicant's professionals

and paraprofessionals who billed time, explanation of any changes in

hourly rates from those previously charged, and statement of whether

the compensation is based on the customary compensation charged by

comparably skilled practitioners in cases other than cases under

title 11.

(iv) Whether the application is interim or final, and the dates

of previous orders on interim compensation or reimbursement of

expenses along with the amounts requested and the amounts allowed or

disallowed, amounts of all previous payments, and amount of any

allowed fees and expenses remaining unpaid.

(v) Whether the person on whose behalf the applicant is employed

has been given the opportunity to review the application and whether

that person has approved the requested amount.

(vi) When an application is filed less than 120 days after the

order for relief or after a prior application to the Court, the date

and terms of the order allowing leave to file at shortened

intervals.

(vii) Time period of the services or expenses covered by the

application.

(2) Case Status. The following information should be provided to

the extent that it is known to or can be reasonably ascertained by

the applicant:

(i) In a chapter 7 case, a summary of the administration of the

case including all moneys received and disbursed in the case, when

the case is expected to close, and, if applicant is seeking an

interim award, whether it is feasible to make an interim

distribution to creditors without prejudicing the rights of any

creditor holding a claim of equal or higher priority.

(ii) In a chapter 11 case, whether a plan and disclosure

statement have been filed and, if not yet filed, when the plan and

disclosure statement are expected to be filed; whether all quarterly

fees have been paid to the United States Trustee; and whether all

monthly operating reports have been filed.

(iii) In every case, 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.

(iv) Any material changes in the status of the case that occur

after the filing of the fee

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application should be raised, orally or in writing, at the hearing

on the application or, if a hearing is not required, prior to the

expiration of the time period for objection.

(3) Summary Sheet. All applications should contain a summary or

cover sheet that provides a synopsis of the following information:

(i) Total compensation and expenses requested and any amount(s)

previously requested;

(ii) Total compensation and expenses previously awarded by the

court;

(iii) Name and applicable billing rate for each person who

billed time during the period, and date of bar admission for each

attorney;

(iv) Total hours billed and total amount of billing for each

person who billed time during billing period; and

(v) Computation of blended hourly rate for persons who billed

time during period, excluding paralegal or other paraprofessional

time.

(4) Project Billing Format. (i) To facilitate effective review

of the application, all time and service entries should be arranged

by project categories. The project categories set forth in Exhibit A

should be used to the extent applicable. A separate project category

should be used for administrative matters and, if payment is

requested, for fee application preparation.

(ii) The United States Trustee has discretion to determine that

the project billing format is not necessary in a particular case or

in a particular class of cases. Applicants should be encouraged to

consult with the United States Trustee if there is a question as to

the need for project billing in any particular case.

(iii) Each project category should contain a narrative summary

of the following information:

(A) a description of the project, its necessity and benefit to

the estate, and the status of the project including all pending

litigation for which compensation and reimbursement are requested;

(B) identification of each person providing services on the

project; and

compensation requested for each professional and paraprofessional on

the project.

(iv) Time and service entries are to be reported in

chronological order under the appropriate project category.

(v) Time entries should be kept contemporaneously with the

services rendered in time periods of tenths of an hour. Services

should be noted in detail and not combined or ``lumped'' together,

with each service showing a separate time entry; however, tasks

performed in a project which total a de minimis amount of time can

be combined or lumped together if they do not exceed .5 hours on a

daily aggregate. Time entries for telephone calls, letters, and

other communications should give sufficient detail to identify the

parties to and the nature of the communication. Time entries for

court hearings and conferences should identify the subject of the

hearing or conference. If more than one professional from the

applicant firm attends a hearing or conference, the applicant should

explain the need for multiple attendees.

(5) Reimbursement for Actual, Necessary Expenses. Any expense

for which reimbursement is sought must be actual and necessary and

supported by documentation as appropriate. Factors relevant to a

determination that the expense is proper include the following:

(i) Whether the expense is reasonable and economical. For

example, first class and other luxurious travel mode or

accommodations will normally be objectionable.

(ii) Whether the requested expenses are customarily charged to

non-bankruptcy clients of the applicant.

(iii) Whether applicant has provided a detailed itemization of

all expenses including the date incurred, description of expense

(e.g., type of travel, type of fare, rate, destination), method of

computation, and, where relevant, name of the person incurring the

expense and purpose of the expense. Itemized expenses should be

identified by their nature (e.g., long distance telephone, copy

costs, messengers, computer research, airline travel, etc,) and by

the month incurred. Unusual items require more detailed explanations

and should be allocated, where practicable, to specific projects.

(iv) Whether applicant has prorated expenses where appropriate

between the estate and other cases (e.g., travel expenses applicable

to more than one case) and has adequately explained the basis for

any such proration.

(v) Whether expenses incurred by the applicant to third parties

are limited to the actual amounts billed to, or paid by, the

applicant on behalf of the estate.

(vi) Whether applicant can demonstrate that the amount requested

for expenses incurred in-house reflect the actual cost of such

expenses to the applicant. The United States Trustee may establish

an objection ceiling for any in-house expenses that are routinely

incurred and for which the actual cost cannot easily be determined

by most professionals (e.g., photocopies, facsimile charges, and

mileage).

(vii) Whether the expenses appear to be in the nature

nonreimbursable overhead. Overhead consists of all continuous

administrative or general costs incident to the operation of the

applicant's office and not particularly attributable to an

individual client or case. Overhead includes, but is not limited to,

word processing, proofreading, secretarial and other clerical

services, rent, utilities, office equipment and furnishings,

insurance, taxes, local telephones and monthly car phone charges,

lighting, heating and cooling, and library and publication charges.

(viii) Whether applicant has adhered to allowable rates for

expenses as fixed by local rule or order of the Court.

Exhibit A--Project Categories

Here is a list of suggested project categories for use in most

bankruptcy cases. 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.

This list is not exclusive. The application may contain additional

categories as the case requires. They are generally more applicable

to attorneys in chapter 7 and chapter 11, but may be used by all

professionals as appropriate.

Asset Analysis and Recovery: Identification and review of

potential assets including causes of action and non-litigation

recoveries.

Asset Disposition: Sales, leases (Sec. 365 matters), abandonment

and related transaction work.

Business Operations: Issues related to debtor-in-possession

operating in chapter 11 such as employee, vendor, tenant issues and