1995 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

3-14-1995

Zolfo, Cooper & Co v Sunbeam

Precedential or Non-Precedential:

Docket 94-3271

Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_1995

This decision is brought to you for free and open access by the Opinions of the United States Court of Appeals for the Third Circuit at Villanova

University School of Law Digital Repository. It has been accepted for inclusion in 1995 Decisions by an authorized administrator of Villanova

University School of Law Digital Repository. For more information, please contact Benjamin.Carlson@law.villanova.edu.

Recommended Citation

"Zolfo, Cooper & Co v Sunbeam" (1995). 1995 Decisions. Paper 75.

http://digitalcommons.law.villanova.edu/thirdcircuit_1995/75
 UNITED STATES COURT OF APPEALS 

 FOR THE THIRD CIRCUIT 

 ___________ 

 No. 94-3271 

 ___________ 

 ZOLFO, COOPER & CO., 

 Appellant 

 

v. 

 SUNBEAM-OSTER COMPANY, INC. 

 _______________________________________________ 

 On Appeal from the United States District Court 

 for the Western District of Pennsylvania 

 (D.C. Civil Action No. 91-cv-01665) 

 ___________________ 

 Argued November 1, 1994 

 Before: SCIRICA, LEWIS and RONEY*, Circuit Judges

 (Filed March 14, 1995) 

 JOY F. CONTI, ESQUIRE (ARGUED) 

 DAVID F. McGONIGLE, ESQUIRE 

 Kirkpatrick & Lockhart 

 1500 Oliver Building 

 Pittsburgh, Pennsylvania 15222 

 Attorneys for Appellant 

 DENNIS J. LEWIS, ESQUIRE (ARGUED) 

 LAURA A. MEADEN, ESQUIRE 

 Cohen & Grigsby 

 625 Liberty Avenue 

 2900 CNG Tower 

 Pittsburgh, Pennsylvania 15222-3115 

 Attorneys for Appellee 
 

*The Honorable Paul H. Roney, United States Circuit Judge for the 

Eleventh Judicial Circuit, sitting by designation. 
 __________________ 

 OPINION OF THE COURT 

 __________________ 

SCIRICA, Circuit Judge. 

 This is an appeal from the bankruptcy court's award, 

pursuant to 11 U.S.C. § 330 (1988),1 of over $3.1 million in fees 

and expenses for accounting services Zolfo, Cooper & Company 

provided during Chapter 11 reorganization proceedings to the 

debtors, Allegheny International, Incorporated, its affiliates, 

and subsidiaries. The debtors were predecessors in interest to 

appellee, Sunbeam-Oster Company. Zolfo Cooper disputes the 

bankruptcy court's disallowance of fees totalling $249,957.87 and 

of expenses totalling $84,852.97. The district court affirmed 

the bankruptcy court, and this appeal followed. We will affirm. 

I. 

 On February 20, 1988, the debtors filed petitions for 

bankruptcy under Chapter 11 of the Bankruptcy Code. On July 12, 

1990, the bankruptcy court confirmed the debtors' disclosure 

statement and plan for reorganization, and in September 1990 the 

plan was consummated. As a result, Sunbeam-Oster Company 

acquired all the assets and liabilities of the debtors. 

 At the outset of the bankruptcy process the debtors 

filed motions for authorization to employ financial and 

 

1. In 1994, Congress made revisions to § 330(a) which apply to 

cases commenced after October 22, 1994. See Bankruptcy Reform 

Act of 1994, Pub. L. No. 103-394, §§ 224, 702, 108 Stat. 4106, 

4130, 4150 (1994). 
bankruptcy advisors. The bankruptcy court authorized Zolfo 

Cooper's employment on February 20, 1988. Zolfo Cooper was one 

of seventeen legal, financial, and accounting firms, each of 

which submitted monthly fee applications to the bankruptcy court 

for review and approval during the bankruptcy proceedings. 

 On December 14, 1989, the bankruptcy court issued the 

first of many opinions regarding fee applications, in this case a 

decision on the fee requests of four law firms. In its opinion, 

the bankruptcy court stated, "With certain exceptions, we find 

the hourly rates requested to be too high. They depart from the 

cost of comparable services in Western Pennsylvania." In re 

Allegheny Int'l, Inc., No. 88-448, slip op. at 4 (Bankr. W.D. Pa. 

Dec. 14, 1989) ("December 14, 1989, Opinion"). The court noted 

its dismay over the behavior of the lawyers who "reinvented the 

wheel several times" and were parties to "greed and personality 

clashes . . . ." Id. at 5. 

 The court turned to consider the "hourly rates in our 

local bankruptcy court marketplace." Id. (quoting In re ShafferGordon Assocs., Inc., 68 B.R. 344, 350 (Bankr. E.D. Pa. 1986)). 

It determined "our experience tells us that the market rate in 

Western Pennsylvania for bankruptcy counsel of high caliber is 

$150 per hour. We routinely observe quality bankruptcy work 

billed at that rate in chapter 11 cases by partners, and lesser 

amounts by associates." Id. at 5-6. 

 The bankruptcy court then stated it recognized the 

difficulty, complexity, and size of this particular case, and 

announced it would therefore "allow rates higher than the 
aforementioned market rates, as listed below in our discussion of 

the appropriate rates for each of the four law firms." Id. at 6. 

The court added the caveat that the maximum rate was not 

unvaryingly warranted as the case also contained many routine 

matters. It explained lower rates were proper due to lack of 

success and because payment was guaranteed. It reasoned that 

bankruptcy practice is national in scope for large cases such as 

this one, but that the New York City rates the law firms 

requested would not alone set the national standard. 

 In orders and memorandum opinions dated August 21, 

1990, and December 20, 1990, the bankruptcy court addressed Zolfo 

Cooper's applications for interim compensation for the periods 

February 20, 1988, to February 28, 1989, and March 1, 1989, to 

September 15, 1990, respectively. On April 30, 1991, the 

bankruptcy court issued an order regarding Zolfo Cooper's 

application for compensation for services from September 16, 

1990, to December 31, 1990, for all previously disallowed fees 

and expenses, and for premium compensation in the amount of $1.1 

million. The bankruptcy court denied this last application in 

its entirety. 

 In the bankruptcy court's memorandum opinion of August 

21, 1990, it incorporated by reference the December 14, 1989, 

opinion described above. The court explained it was capping 

Zolfo Cooper's fees at an hourly rate of $225 per hour in part 

because "almost all of the work done by this applicant was done 

by highly paid personnel; there were virtually no lower paid 

personnel rendering services. Moreover, the court is concerned 
that the services rendered by this applicant may overlap the 

services of the debtor's counsel, investment bankers, and 

accountants. For these reasons, the court limits hourly rates to 

$225." In re Allegheny Int'l, Inc., No. 88-448, slip op. at 2 

(Bankr. W.D. Pa. Aug. 21, 1990) ("August 21, 1990, Opinion"). 

The court also criticized Zolfo Cooper's fee petitions, which it 

asserted "contain numerous listings which are too vague or do not 

specify the parties involved or the subject matter of the service 

. . . . For those listings, the court is unable to determine 

whether such services were actual and necessary services and 

whether the time allotted was reasonable." Id. at 4. 

 Zolfo Cooper filed a motion for reconsideration and a 

request for clarification. The bankruptcy court denied the 

motion for reconsideration on August 16, 1991, and expressly 

reaffirmed its earlier orders and opinions. The August 16, 1991, 

order also incorporated by reference a separate memorandum 

opinion of the same date which stated, "The rates [we] found to 

be the costs of comparable services in non bankruptcy situations 

in Western Pennsylvania may not be the rates which are prevalent 

in other metropolitan areas or which may have become comparable 

nationally in large Chapter 11 cases." In re Allegheny Int'l, 

Inc., No. 88-448, slip op. at 5 (Bankr. W.D. Pa. Aug. 16, 1991) 

("August 16, 1991, Opinion"). The bankruptcy court then stated 

that Japonica Partners, who ultimately took control of the 

debtors through Sunbeam-Oster,2 had voluntarily paid higher rates 

 

2. Japonica Partners held 99.6% of the stock of Sunbeam-Oster. 
to the professionals it hired. The other professionals urged 

these rates upon the bankruptcy court as evidence of comparable 

market rates for their services. The bankruptcy court noted, 

however, that Japonica Partners paid those rates during a hostile 

takeover, and that there were "important differences between the 

two processes and that the professional fees obtained in mergers 

and acquisition and hostile takeover activities are not 

comparable for Chapter 11 cases." Id. at 6.3

 Zolfo Cooper appealed the bankruptcy court's order of 

August 16, 1991, to the district court, which affirmed. This 

appeal followed. 

II. 

 In our review of the bankruptcy court's factual 

findings we, like the district court, review for clear error. 

Resyn Corp. v. United States, 851 F.2d 660, 664 (3d Cir. 1988). 

Our review of legal precepts is plenary. Id. (quoting Universal 

Minerals, Inc. v. C.A. Hughes & Co., 669 F.2d 98, 102 (3d Cir. 

1981)). Since we are in as good a position to review the 

bankruptcy court's decision as the district court was, we will 

review the bankruptcy court's findings by the standards the 

district court would apply. Universal Minerals, 669 F.2d at 102. 

Fee awards are reviewed for an abuse of discretion, which can 

occur "if the judge fails to apply the proper legal standard or 

to follow proper procedures in making the determination, or bases 

 

3. The bankruptcy court's final order pertaining to Zolfo Cooper 

was a clarifying order dated September 5, 1991, which expressly 

reaffirmed its earlier orders. 
an award upon findings of fact that are clearly erroneous." 

Electro-Wire Prods., Inc. v. Sirote & Permutt, P.C. (In re 

Prince), 40 F.3d 356, 359 (11th Cir. 1994) (quoting Hatcher v. 

Miller (In re Red Carpet Corp.), 902 F.2d 883, 890 (11th Cir. 

1990)). 

 Jurisdiction in the bankruptcy court was proper under 

28 U.S.C. § 157(a) (1988). The district court had jurisdiction 

over the appeal from the final order of the bankruptcy court, id.

§ 158(a), and we have jurisdiction over the appeal of the 

district court's judgment under 28 U.S.C. § 158(d). 

III. 

A. 

 Zolfo Cooper contends the bankruptcy court erred in 

setting a cap on the rates charged by four law firms in its 

December 14, 1989, Opinion. The bankruptcy court incorporated 

the December 14, 1989, Opinion in its August 21, 1990, Opinion, 

in setting a maximum rate on Zolfo Cooper's hourly fees. Zolfo 

Cooper contends the bankruptcy court improperly ignored evidence 

of the hourly rate which Zolfo Cooper commands in the national 

market for its services. Instead, Zolfo Cooper asserts, the 

bankruptcy court looked to the local market for professional 

services and applied its own notion of the proper hourly rate. 

 Zolfo Cooper asserts the bankruptcy court's fee 

decisions misapply the law, pointing out that the bankruptcy 

court acknowledged the Allegheny International bankruptcy was 

"national in scope." December 14, 1989, Opinion at 11. Zolfo 

Cooper argues this warranted compensation at higher rates than 
allowed, because "[professionals'] hourly rates are fixed by the 

market in which they customarily practice, not by the 

Court. . . . In [unusually large cases], the Court is free to 

look to a national market in making fee allowances." In re 

Jensen-Farley Pictures, Inc., 47 B.R. 557, 579 (Bankr. D. Utah 

1985). 

 The question of what fees should be awarded to 

professionals hired to assist with a bankruptcy or management of 

a bankrupt estate is governed by 11 U.S.C. § 330, which provides 

in part: 

 (a) After notice to any parties in 

interest and to the United States trustee and 

a hearing, and subject to sections 326, 328, 

and 329 of this title, the court may award to 

a trustee, to an examiner, to a professional 

person employed under section 327 or 1103 of 

this title, or to the debtor's attorney-- 

 (1) reasonable compensation 

for actual, necessary services 

rendered by such trustee, examiner, 

professional person, or attorney, 

as the case may be, and by any 

paraprofessional persons employed 

by such trustee, professional 

person, or attorney, as the case 

may be, based on the nature, the 

extent, and the value of such 

services, the time spent on such 

services, and the cost of 

comparable services other than in a 

case under this title; and 

 (2) reimbursement for actual, 

necessary expenses. 

 Recently we issued a comprehensive opinion interpreting 

this section. In re Busy Beaver Bldg. Ctrs., 19 F.3d 833 (3d 
Cir. 1994). In Busy Beaver, we addressed whether certain 

paralegal expenses were compensable under § 330. We held § 330's 

language, "the court may award" reasonable compensation, "imbues 

the court with discretionary authority," and that the bankruptcy 

court possesses both the power and the duty to review fee 

applications. Id. at 841. 

 We recognized in Busy Beaver that § 330 presents a 

"market-driven approach," id. at 852, in which the cost of 

comparable services is the most important of the listed factors, 

the others being the nature, extent, and value of the services, 

id. at 849. We stated, "We disapprove of any approach that 

allows a court confronted with undisputed, credible, contrary 

evidence of market practices in the record to rely solely on its 

own judgment . . . ." Id. at 848. 

 On the other hand, we also noted that reliance on the 

market is tempered because "the court will, in practical terms, 

act as a surrogate for the estate, reviewing the fee application 

much as a sophisticated non-bankruptcy client would review a 

[professional] bill." Id. And we observed that "certainly a 

bankruptcy judge's experience with fee petitions and his or her 

expert judgment pertaining to appropriate billing practices, 

founded on an understanding of the legal profession, will be the 

starting point for any analysis." Id. at 854. 

 In announcing the market-driven approach, Busy Beaver

cited favorably to In re Patronek, 121 B.R. 728 (Bankr. E.D. Pa. 

1990), which had relied on market information to set fees for 

purposes of § 330. Busy Beaver, 19 F.3d at 854 n.31. In In re 
Patronek, the court stated, "The proper measure of what fee is 

reasonable in any context is ascertainment of what an informed 

client and an informed attorney would agree should be paid for 

certain services. If the marketplace naturally establishes a 

price for a service, then we believe that it is logical to assume 

that this is [the proper figure]." 121 B.R. at 731. 

 But in Busy Beaver we also added that where evidence 

proves a market rate that directly contradicts the court's 

judgment, the market rate must take precedence. 19 F.3d at 854. 

Significantly, however, we held the bankruptcy court may discount 

evidence presented by the fee applicant, since courts "are 

themselves experts on the value of services rendered in a 

bankruptcy proceeding and are not bound by the evidence offered." 

Id. (quoting York Int'l Bldg., Inc. v. Chaney (In re York Int'l 

Bldg., Inc.), 527 F.2d 1061, 1068 (9th Cir. 1975)). We also 

stated, "[T]he court should to the extent practicable make 

findings of fact and provide reasoned explanations in the record 

to facilitate review." Id. at 854. 

 Busy Beaver was decided after the bankruptcy 

proceedings were completed in this case, and therefore the 

bankruptcy court did not have the benefit of its guidance. Yet 

Busy Beaver is controlling even though it was decided after the 

bankruptcy court's opinions. See Gulf Offshore Co. v. Mobil Oil 

Corp., 453 U.S. 473, 486 n.16 (1981) (stating "[a]n appellate 

court must apply the law in effect at the time it renders its 

decision" (citation omitted)); Ziffrin, Inc. v. United States, 

318 U.S. 73, 78 (1943) (noting "[a] change in the law between a 
nisi prius and an appellate decision requires the appellate court 

to apply the changed law"); Hill v. Equitable Trust Co., 851 F.2d 

691, 695 (3d Cir. 1988) (observing "a controversy is to be 

decided on the law as it exists at the time the appellate court 

considers the case, although that law may differ from the one in 

force at the time the trial court decided the matter"), cert. 

denied, 488 U.S. 1008 (1989). 

 In its December 14, 1989, Opinion, the bankruptcy court 

looked to In re Fine Paper Antitrust Litigation, 751 F.2d 562 (3d 

Cir. 1984), in which we had explained that "[t]he value of an 

attorney's time generally is reflected in his normal billing 

rate." Id. at 583 (quoting Lindy Bros. Builders, Inc. v. 

American Radiator & Standard Sanitary Corp., 487 F.2d 161, 167 

(3d Cir. 1973)). The bankruptcy court followed this standard. 

At the final hearing on fee applications, the bankruptcy court 

noted its strong reliance on the market for professional services 

in setting the fee allowances: "[W]e used . . . as best we could 

the actual fees being paid by the debtor for the previous two 

years with some minor modifications as to what they were paying 

the lawyers over that time period or something close to that, so 

as to somehow attempt to get a good picture of what the market 

was for a company of this size and for a company with these kinds 

of problems." J. App. at 1019. 

 Zolfo Cooper argues that "in large bankruptcy cases, 

like Allegheny International, professionals with national 

practices should receive compensation at their normal hourly 

rates, even if that rate is much greater than the local rate." 
Appellant's Br. at 30-31. Zolfo Cooper claims it therefore 

should have gotten the rates it requested. 

 While in Busy Beaver we cited approvingly to cases in 

which out-of-state firms appropriately received higher rates in 

difficult cases, we also observed that "the reasonable hourly 

rate has a cap based on the expected and actual complexity of the 

case, a cap which, while flexible, should stave off clear abuses 

[by fee applicants]." 19 F.3d at 856 n.35. We noted that the 

court should review a fee application to "ensure the applicant 

exercises the same 'billing judgment' as do non-bankruptcy 

[professionals] . . . ." Id. at 856.4

 The bankruptcy court looked to the evidence of market 

rates before it and adjusted the rates according to its 

experience and the nature, extent, and value of the services. 

The court explained what the local bankruptcy rates were and why 

the professionals (including Zolfo Cooper) deserved higher rates 

 

4. The Court of Appeals for the Seventh Circuit made this point 

in Gusman v. Unisys Corp., 986 F.2d 1146, 1150-51 (7th Cir. 

1993). Observing that the lawyer's hourly rate is a starting 

point provided by the market for analysis of a reasonable fee, 

the court stated: 

 A judge who departs from this presumptive 

rate must have some reason other than the 

ability to identify a different average rate 

in the community. A judge might say, for 

example, that the lawyers did not display the 

excellence, or achieve the time savings, 

implied by their higher rates. A judge might 

conclude that the plaintiff did not need topflight counsel in a no-brainer case. 

Id. at 1151. 
than those local rates. It also explained why the applicants did 

not deserve New York rates and why it was exercising its 

discretion to reduce the request.5

 The baseline rule is for firms to receive their 

customary rates. Zolfo Cooper cites to three record items which 

it claims established the rates it customarily charges: (1) its 

affidavit supplied as part of the debtors' motion to retain Zolfo 

Cooper and other professionals; (2) a retention letter from Zolfo 

Cooper to Allegheny International for services to be performed 

before the bankruptcy filing; and (3) evidence of rates paid by 

Sunbeam-Oster to professionals retained by it and Japonica 

Partners (which controls Sunbeam-Oster). J. App. at 14, 32-35, 

692-735. 

 

5. We explicitly countenanced this approach in Busy Beaver, 19 

F.3d at 856 n.35. In Busy Beaver we cited favorably to In re 

Waldoff's, Inc., 132 B.R. 329, 335-36 (Bankr. S.D. Miss. 1991), 

and In re Casull, 139 B.R. 525, 528 (Bankr. D. Colo. 1992). In 

each of those cases, the bankruptcy court refused to award the 

professional its higher out-of-town rates on the basis that the 

professional had failed to show those rates were justified. 

While in this opinion we focus upon the bankruptcy court's 

decisions, we note the proof submitted by Zolfo Cooper was not 

particularly strong. 

 In another appeal treating the fee decisions by the 

bankruptcy court in this case, Fulbright & Jaworski v. SunbeamOster Co. (In re Allegheny Int'l, Inc.), 139 B.R. 336, 341 (W.D. 

Pa. 1992), the district court assessed how the bankruptcy court 

reached its conclusions, and found "that the bankruptcy court 

properly considered the fact that New York market rates are 

higher than those of western Pennsylvania, and adjusted 

[Fulbright & Jaworski's] fee award according to other significant 

factors." Cf. In re Allegheny Int'l (Wells Fargo), 131 B.R. 24, 

31 (W.D. Pa. 1991) (finding the bankruptcy court's reduction of 

fees to New York law firm Paul Weiss erroneous because the sole 

basis for reduction was that Paul Weiss should be subject to the 

cap the court set in its December 14, 1989, opinion). 
 Given this evidence of what Zolfo Cooper typically 

charges, a reduction of those rates, without more, might have 

been error given our admonition in Busy Beaver that "[w]e 

disapprove of any approach that allows a court confronted with 

undisputed, credible, contrary evidence of market practices in 

the record to rely solely on its own judgment . . . ." 19 F.3d 

at 848. But the bankruptcy court did not rely solely on its own 

judgment when it considered, and then reduced, Zolfo Cooper's 

rates, nor did Zolfo Cooper present much evidence of the fees it 

customarily charges. 

 Zolfo Cooper's evidence provides only a range of fees. 

The bankruptcy court found Zolfo Cooper was billing excessively 

in the high end of that range and capped the fees accordingly. 

See Ursic v. Bethlehem Mines, 719 F.2d 670, 677 (3d Cir. 1983) 

(observing that "[r]outine tasks, if performed by senior partners 

in large firms, should not be billed at their usual rates. A 

Michelangelo should not charge Sistine Chapel rates for painting 

a farmer's barn"). The court explained why it was capping the 

rates for Zolfo Cooper below the New York rates it requested, 

observing Zolfo Cooper had duplicated effort, used too many highlevel personnel, and submitted an incomplete fee application.6 

 

6. While the bankruptcy court's opinions did not mention it as a 

basis for decision, we find it instructive to note that several 

of Zolfo Cooper's employees raised their hourly rates 

substantially during the course of the bankruptcy proceeding. 

The increases ranged from 20% to 76%. Mr. LoBiondo charged the 

largest number of hours for Zolfo Cooper, and his rate increase 

was the sharpest, rising 76% over two years from $170 to $300. 

While the record does not provide information to enable us to 

compare these increases with the increases of other 

professionals, we do note that the associate at Fried, Frank, 
The court held there was a blend of complicated and simple 

matters relating to this particular proceeding, and that although 

the case was national in scope, there was no particular reason to 

assume the cost of comparable services should be the rates in New 

York City. Zolfo Cooper bore the burden of proof to demonstrate 

its customary fees were warranted and did not carry it. In re 

Metro Transp. Co., 107 B.R. 50, 53 (E.D. Pa. 1989). 

 We believe the bankruptcy court erred in taking the 

market rate for services in Western Pennsylvania as a starting 

point. This is not the appropriate starting point for the 

determination of the market in which Zolfo Cooper practices. The 

idea that a firm should be restricted to the hourly rate typical 

in the locale of the case "is unduly parochial particularly in 

this age of national and regional law firms working on larger 

more complex bankruptcy cases of more than local import." In re 

Robertson Cos., 123 B.R. 616, 619 (Bankr. D.N.D. 1990). The 

bankruptcy court here should have looked first to Zolfo Cooper's 

customary market (New York) and then made reductions based on the 

other factors.7 But this error does not require reversal because 

the bankruptcy court achieved substantially the same result. 

(..continued) 

Harris, Shriver & Jacobson who billed the majority of the firm's 

hours increased her rate from $160 to $180 per hour over the same 

period. 

7. The rates Zolfo Cooper requested ranged from $125 to $325 for 

its professional staff (before it raised those rates, see supra

note 6). The New York law firms requested rates ranging from $70 

to $335. The bankruptcy court observed that appropriate rates in 

Western Pennsylvania were $150, but ultimately set the top 

billing rate at $225. 
While the bankruptcy court erroneously started with Western 

Pennsylvania as the baseline, it properly raised the hourly rates 

as close to the New York rates as it determined was warranted 

given its findings regarding Zolfo Cooper's improper billing.8 

On the facts of this case there is no substantive difference 

between the two approaches (i.e., the correct method of starting 

with New York rates and lowering them and the incorrect method of 

starting with local rates and raising them). Thus, any potential 

error by the bankruptcy court did not affect Zolfo Cooper's right 

to compensation. When substantial rights are not affected by an 

error, reversal is not appropriate. McQueeney v. Wilmington 

Trust Co., 779 F.2d 916, 923-28 (3d Cir. 1985). 

 The bankruptcy court cut Zolfo Cooper's total 

compensation request approximately twelve percent. When faced 

with a reduction of ten percent in a similar case, we stated that 

"[n]o court, viewing a record of this magnitude from the distance 

inherent in appellate review, could assess the reasonability of a 

reduction as slight as ten percent with flawless precision." 

 

8. The bankruptcy court stated, "[I]t is for the Court to 

determine what a reasonable hourly rate for a certain task is, 

when such a determination is based on our constant exposure to 

the rates requested by other members of the local bankruptcy 

bar." December 14, 1989, Opinion at 6 (citations and quotations 

omitted). This language alone might suggest the bankruptcy court 

did not put sufficient emphasis on the market information that 

was available to it. But the remainder of the bankruptcy court's 

opinions and other language in the opinion just quoted show that 

in fact the court was paying a great deal of attention to 

evidence of market rates. We are satisfied the language quoted 

here was aberrational. 
Daggett v. Kimmelman, 811 F.2d 793, 798 (3d Cir. 1987). We 

conclude the reduction here was not an abuse of discretion. 

B. 

 The bankruptcy court did not specifically rule on Zolfo 

Cooper's fee applications until its August 21, 1990, Opinion. 

This, Zolfo Cooper argues, created reversible error by ignoring 

the command in Busy Beaver that the decision whether to retain 

"nationally renowned [professional firms]," with their "lofty 

fees," should be made "as early as practical, preferably before 

the debtor retains the professional." 19 F.3d at 856 n.35. 

Zolfo Cooper had worked since February 1988, and contends it was 

unfairly prejudiced by the delay. Zolfo Cooper also asserts 11 

U.S.C. § 328(a) (1988)9 applies and that the court could not 

change the terms of employment set forth in Zolfo Cooper's motion 

for retention without a finding under § 328(a) that the terms of 

Zolfo Cooper's retention had proved improvident. 

 

9. Section 328(a) provides in part: 

 The trustee . . . with the court's 

approval, may employ or authorize the 

employment of a professional person . . . on 

any reasonable terms and conditions of 

employment . . . . Notwithstanding such 

terms and conditions, the court may allow 

compensation different from the compensation 

provided under such terms and conditions 

after the conclusion of such employment, if 

such terms and conditions prove to have been 

improvident in light of developments not 

capable of being anticipated at the time of 

the fixing of such terms and conditions. 
 Bankruptcy courts should, as we noted in Busy Beaver, 

make a determination as early as possible regarding acceptable 

rates and the possible ceilings they will set on the 

professional's fees. The failure to do so is not, however, 

reversible error in this case. Zolfo Cooper's claim to money 

from the bankruptcy estate is limited to a claim for reasonable 

fees. 11 U.S.C § 330(a)(1). The fee applicant has the burden of 

proving it has earned the fees it requests, and that the fees are 

reasonable. In re Metro Transp., 107 B.R. at 53. Accordingly, 

Zolfo Cooper cannot claim reliance on a particular amount of 

compensation, and the mere fact of delay in assessing Zolfo 

Cooper's fee request was not an error. 

 It is a separate question whether the bankruptcy court 

could, consistent with § 328(a), reach an independent 

determination of the fees to which Zolfo Cooper was entitled 

without a finding that the rates set out in Zolfo Cooper's 

retention affidavit were improvident. In In re C & P Auto 

Transport, Inc., 94 B.R. 682, 685 n.4 (Bankr. E.D. Cal. 1988), 

the court observed the importance of the precise language of the 

order authorizing the professional's employment: 

 If the order does not expressly and 

unambiguously state specific terms and 

conditions (e.g. specific hourly rates or 

contingency fee arrangements) that are being 

approved pursuant to the first sentence of 

section 328(a), then the terms and conditions 

are merely those that apply in the absence of 

specific agreement. That leaves the court 

free to apply lodestar rates unfettered by 

the strictures of the second sentence of 

section 328(a) . . . . 
We agree with this observation as it establishes a useful and 

appropriate presumption that prevents courts from being bound to 

specific terms unintentionally. There is no reason why the 

burden should be on the court to specify in its order authorizing 

retention of the professional that it rejects specific terms and 

conditions. Instead, the burden should rest on the applicant to 

ensure that the court notes explicitly the terms and conditions 

if the applicant expects them to be established at that early 

point. Further, the bankruptcy court's duty to conduct an 

independent examination of fee applications for services 

rendered, Busy Beaver, 19 F.3d at 841, would be unduly restricted 

if employment authorization orders were routinely construed as 

binding the court to particular terms of employment. 

 In the present case, the bankruptcy court order 

authorizing Zolfo Cooper's retention stated that "debtors in 

possession[] be and hereby are authorized to retain the firm of 

[Zolfo, Cooper & Co.] to perform the services as set forth in the 

foregoing Motion and Affidavit of Frank John Zolfo." In re 

Allegheny Int'l, Inc., No. 88-448 (Bankr. W.D. Pa. Feb. 20, 1988) 

(order authorizing retention of Zolfo Cooper). This language 

only established the nature and range of services. It cannot 

bind the court to particular terms and conditions of 

compensation. 

C. 

 Finally, Zolfo Cooper argues the bankruptcy court erred 

by not properly taking into account its supplemental applications 

for expenses, which it contends corrected any deficiencies in its 
prior applications for reimbursement. Zolfo Cooper incurred 

these expenses before December 1, 1989. 

 The bankruptcy court refused to reimburse Zolfo Cooper 

for these expenses, explaining in its opinion of August 21, 1990, 

that they were insufficiently documented. Zolfo Cooper contends 

it supplemented the documentation three times and requested the 

court review the supplemental documentation. Zolfo Cooper argues 

the bankruptcy court improperly failed to acknowledge or comment 

upon the supplemental documentation. 

 When a bankruptcy court denies compensation to an 

applicant who has attempted to comply in good faith with 

specificity requirements of the bankruptcy rules, the court 

should allow time to supplement the application. The court also 

"should notify the applicant of its particular reasons for 

denying the fees, and . . . allow the professional the occasion 

to defend his or her fee application with legal arguments and/or 

evidence (of market practices, etc.) at a hearing." Busy Beaver, 

19 F.3d at 847. 

 In In re Four Star Terminals, Inc., 42 B.R. 419, 437-38 

(Bankr. D. Alaska 1984), the court denied expense requests that 

were improperly documented but stated the applicant could 

resubmit these expenses with proper documentation in a later 

application. Our statements in Busy Beaver support this 

approach. Absent a lack of good faith on the part of the 

applicant, a court should allow the applicant a chance to cure 

defects in its original expense documentation. See Busy Beaver, 

19 F.3d at 846-47. 
 The bankruptcy court found Zolfo Cooper's initial 

application for expenses grossly inadequate, stating, "None of 

the expenses listed in the petitions are properly documented. 

The applicant has failed to submit itemized expenses. . . . The 

applicant's attempt to bill the estate for large sums, without 

providing adequate details, is incredible."10 August 21, 1990, 

Opinion at 6. The court nevertheless allowed significant 

portions of the expenses requested, including reimbursement for 

travel, photocopying, postage, and telecopying. 

 

10. Zolfo Cooper complains this decision of the bankruptcy court 

was prompted by its December 14, 1989, Opinion in which it 

announced its intention to follow Bankruptcy Rule 2016(a) and 

Local Bankruptcy Rule 9016.1. Zolfo Cooper suggests it was 

unfairly expected to comply with the December 14, 1989, order for 

expenses it had already incurred. This argument fails for two 

reasons. First, Rule 9016.1 of the Local Rules of the United 

States Bankruptcy Court for the Western District of Pennsylvania 

(1989) provides in part: 

 Unless otherwise ordered, no 

compensation or expenses will be allowed to 

any professional for any service rendered in 

any case unless an application for fees and 

expenses is filed which provides the 

following. 

 . . . . 

 6. An itemization of the expenses for 

which reimbursement is requested. 

The bankruptcy court's December 14, 1989, Opinion was thus not 

necessary to put Zolfo Cooper on notice of what was required. 

Second, Zolfo Cooper had eight months after December 14, 1989, 

before the bankruptcy court ruled on its first fee applications. 

This period was clearly sufficient for Zolfo Cooper to supplement 

its application before the bankruptcy court ruled on its 

application. 
 The bankruptcy court denied expenses for meals, support 

staff, and direct expenses, holding they were improperly 

documented and that meals (to the extent they were local meals) 

and support staff expenses were overhead11 and not subject to 

reimbursement. With respect to the direct expenses, the court 

stated it could not determine what they were, and therefore could 

not allow them. 

 The bankruptcy court continued in subsequent rulings to 

disallow these expenses without comment, prompting a letter from 

Zolfo Cooper's counsel dated August 30, 1991, which noted Zolfo 

Cooper had made "considerable efforts to clarify the 

documentation of its expenses," and requested the court clarify 

that it had examined the supporting documentation. J. App. at 

916. Zolfo Cooper stated it was raising the issue "of the Unpaid 

Expenses not to cause the Court to revisit a matter that has 

already been decided, but merely to confirm that it indeed has 

been decided . . . ." Id.

 The bankruptcy court responded "[t]he portion of the 

August 21, 1990 Opinion clearly states that the expenses which 

were not properly documented were disallowed. The Court 

 

11. We note that the bankruptcy court's ruling on this point is 

called into question by our holding in Busy Beaver that not all 

clerical services are necessarily overhead. 19 F.3d at 848. 

Generally, a bankruptcy court should seek to determine if 

nonbankruptcy professionals charge their clients for these 

particular services. Id. at 849. But an applicant must offer 

evidence that the market practice is otherwise. Here, not only 

were these expenses improperly documented in the first instance, 

the bankruptcy court found they were never properly documented. 

Nor is there any indication that Zolfo Cooper presented evidence 

that these expenses are compensated in the nonbankruptcy context. 
continues to disallow the expenses on the basis that they were 

never properly documented as was required by the Court." In re 

Allegheny Int'l, Inc., No. 88-448 (Bankr. W.D. Pa. Sept. 5, 1991) 

("September 5, 1991, Order") (order clarifying denial of 

expenses). Although this statement is rather terse, it came at 

the end of a long fee application process. The bankruptcy court 

is obliged carefully to consider the documentation submitted by 

applicants for fees and expenses, but it is not required to 

provide elaborate findings after each request for 

reconsideration. 

 The bankruptcy court provided a thorough analysis of 

Zolfo Cooper's fee application in its August 21, 1990, Opinion, 

in which it granted most of Zolfo Cooper's requests even though 

it found "[n]one of the expenses listed in the petitions are 

properly documented." August 21, 1990, Opinion at 6. Its 

September 5, 1991, Order might have discussed more explicitly its 

consideration of the supplemental materials, but the context of 

the September 5, 1991, Order makes clear that the court 

considered the materials and found them wanting. The bankruptcy 

court answered the question Zolfo Cooper asked--whether the court 

had reached a decision regarding fees. This comports with the 

proper standard, which requires the court to consider 

supplemental materials where the initial application was in good 

faith. Here, the bankruptcy court considered the supplemental 

materials even though language in its August 21, 1990, Opinion 

suggests Zolfo Cooper's original request might not have met the 

good faith standard. We are satisfied that the bankruptcy court 
properly considered the supplemental documentation submitted by 

Zolfo Cooper. The bankruptcy court made clear it considered the 

documentation insufficient, and we find no error here. 

IV. 

 For the foregoing reasons, we will affirm the district 

court.