96 Am. Bankr. L.J. 311 (2022)
53 Pages Posted: 28 Jul 2022
Date Written: 2022
In most situations, when a lawyer sends a bill to a client, the client pays the fees. When the client believes that a fee or expense is unreasonable, the client will ask for reductions. Conscientious lawyers review a bill before sending it to the client, exercising judgment in terms of what fees and expenses are reasonable. But in bankruptcy cases, the estate pays the court-appointed professionals’ fees and expenses out of unsecured funds or from a cash collateral carveout. Thus, the responsibility for scrutinizing the fees and expenses falls not to a particular client, but to the court, per 11 U.S.C. § 330. The debtor-in-possession isn’t particularly motivated to pay attention to line items on a bill, especially in a bet-the-company case. Moreover, most debtors in possession aren’t sure what activities are necessary or which level of professional should be performing which tasks. Creditors might pay attention to the overall burn rate of fees, but often, the cost of objecting to a fee application outweighs the potential benefit in filing the objection. The United States Trustee or a fee examiner can evaluate line-item entries, raising issues about reasonableness; however, those parties question line items months after the time has been recorded. That Monday-morning quarterbacking is not nearly as efficient as is exercising judgment at the time that the professional is doing the actual work. Time written off is time that a professional can’t redeploy. We argue that developing a mindset that focuses on billing judgment at the time of performing the work, whether for a bankrupt estate or a solvent client, is better for the bankruptcy estate or client and better for the professionals themselves. The trick lies in how to deploy data and social science to nudge people into developing a better billing judgment mindset.
Keywords: bankruptcy, attorney fees, lawyer fees, professional fees, professional ethics, legal ethics, reasonableness, reasonable fees
JEL Classification: K1, K10, K19, K20, K22, K29, K35, K39, K40, K49, J24
Suggested Citation: Suggested Citation