[Federal Register Volume 61, Number 97 (Friday, May 17, 1996)]
[Rules and Regulations]
[Pages 24889-24892]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-11799]



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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.

[[Page 24890]]

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

[[Page 24891]]

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
    (C) a statement of the number of hours spent and the amount of 
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 
other similar problems.
    Case Administration: Coordination and compliance activities, 
including preparation of statement of financial affairs; schedules; 
list of contracts; United States Trustee interim statements and 
operating reports; contacts with the United States Trustee; general 
creditor inquiries.
    Claims Administration and Objections: Specific claim inquiries; 
bar date motions; analyses, objections and allowances of claims.
    Employee Benefits/Pensions: Review issues such as severance, 
retention, 401K coverage and continuance of pension plan.
    Fee/Employment Applicants: Preparation of employment and fee 
applications for self or others; motions to establish interim 
procedures.
    Fee/Employment Objections: Review of and objections to the 
employment and fee applications of others.
    Financing: Matters under Secs. 361, 363 and 364 including cash 
collateral and secured claims; loan document analysis.
    Litigation: There should be a separate category established for 
each matter (e.g., XYZ Litigation).
    Meetings of Creditors: Preparing for and attending the 
conference of creditors, the Sec. 341(a) meeting and other 
creditors' committee meetings.
    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.
    Relief From Stay Proceedings: Matters relating to termination or 
continuation of automatic stay under Sec. 362.
    The following categories are generally more applicable to 
accountants and financial advisors, but may be used by all 
professionals as appropriate.
    Accounting/Auditing: Activities related to maintaining and 
auditing books of account, preparation of financial statements and 
account analysis.
    Business Analysis: Preparation and review of company business 
plan; development and review of strategies; preparation and review 
of cash flow forecasts and feasibility studies.

[[Page 24892]]

    Corporate Finance: Review financial aspects of potential 
mergers, acquisitions and disposition of company or subsidiaries.
    Data Analysis: Management information systems review, 
installation and analysis, construction, maintenance and reporting 
of significant case financial data, lease rejection, claims, etc.
    Litigation Consulting: Providing consulting and expert witness 
services relating to various bankruptcy matters such as insolvency, 
feasibility, avoiding actions, forensic accounting, etc.
    Reconstruction Accounting: Reconstructing books and records from 
past transactions and bringing accounting current.
    Tax Issues: Analysis of tax issues and preparation of state and 
federal tax returns.
    Valuation: Appraise or review appraisals of assets.

    Dated: April 25, 1996.
Joseph Patchan,
Director.
[FR Doc. 96-11799 Filed 5-16-96; 8:45 am]
BILLING CODE 4410-01-M