Corporate Bankruptcy: Stakeholders Have Mixed Views on Attorneys' Fee Guidelines and Venue Selection for Large Chapter 11 Cases
Published: 2015-09-23T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Since 2010, there have been at least 765 Chapter 11 bankruptcy filings by large companies. The associated fees for bankruptcy professionals, including attorneys, can run into the hundreds of millions of dollars. The size of these fees has raised questions about whether professionals have charged a premium for large bankruptcies and used the venue selection process to file in courts where they believed they would receive higher fees. The USTP, a Department of Justice component, is responsible for, among other things, reviewing whether fees requested by professionals in bankruptcy cases are reasonable and necessary in accordance with the Bankruptcy Code. In 2013, the USTP issued new guidelines governing its review of attorney fee applications in large Chapter 11 cases.
GAO was asked to review the USTP's 2013 guidelines. This report examines (1) the extent to which fee applications observed the 2013 guidelines and bankruptcy stakeholders' opinions regarding the guidelines' key provisions and their effects, and (2) what bankruptcy stakeholders and available research identify as contributing factors and effects of venue selection in large Chapter 11 cases. GAO conducted 57 nongeneralizable interviews with bankruptcy judges, attorneys, and AUSTs in 15 bankruptcy court jurisdictions responsible for large Chapter 11 cases. GAO also reviewed USTP data and court documents on cases subject to the 2013 guidelines, and relevant academic literature on professional fees and venue selection. The USTP generally agreed with GAO's findings.
section_title: What GAO Found
paragraphs: GAO's analysis of U.S. Trustee Program (USTP) data and interviews with bankruptcy stakeholders including Assistant U.S. Trustees (AUST), selected bankruptcy judges, and attorneys indicate that attorneys' fee applications for cases subject to the USTP's 2013 fee guidelines (cases involving assets and liabilities each of $50 million or more) have generally contained the information requested by the guidelines. This information is intended to assist the courts in determining whether requested fees are reasonable and necessary. Specifically, in the data GAO reviewed, the USTP identified no issues in submitted fee applications in 47 of the 94 cases filed since the guidelines went into effect in November 2013. Attorneys resolved almost all of the issues in the other 47 cases by providing an explanation or additional information. Bankruptcy stakeholders had mixed perspectives of the overall value of the guidelines and of their potential effect on the efficiency and transparency of the Chapter 11 bankruptcy process, or the fees awarded. Similarly, opinions regarding the effect of specific provisions of the 2013 guidelines also varied by group. For example, 15 of 18 AUSTs said the provision requesting that attorneys provide budgets was likely to have a positive effect on the fee review process, while 10 of 14 attorneys said it was unlikely to have an effect. For example, stakeholders with a positive view said the budgeting provision encourages early communication in a case, while those with a negative view said that the unpredictability of bankruptcy cases limit the value of a budget.
Bankruptcy attorneys and judges GAO interviewed and academic research identify several factors that contribute to venue selection—the process of choosing where to file. Companies filing for bankruptcy have several options available to them when determining the venue, or court, in which to file their case, including their place of incorporation, principal place of business or assets, or where an affiliate has filed a Chapter 11 case. The most frequently cited factors—prior court rulings, the preferences of lenders, and judge experience—all contribute to overall predictability in a case and can provide some insights into what to expect from a court as a case proceeds through the bankruptcy process. For example, knowing a judge's level of experience with large cases and how a court has ruled on certain matters can help an attorney advise a client about how a court is likely to respond to issues in a specific case. Eight of the 39 attorneys and judges GAO interviewed cited perceived court attitudes on professional fees as a significant factor in venue selection. Approximately 61 percent of large Chapter 11 bankruptcy cases filed since October 2009 were filed in two jurisdictions–the Southern District of New York (SDNY) and the District of Delaware (Delaware). Bankruptcy attorneys and judges and academic research identified both positive and negative effects of the concentration of cases in these two jurisdictions. The positive effect most commonly cited by attorneys and judges was the significant large case experience developed by judges in the SDNY and Delaware. In contrast, the negative effects most commonly cited by attorneys were the difficulty local bankruptcy firms face in maintaining a bankruptcy practice outside of the SDNY and Delaware and the lack of opportunity for courts outside of these jurisdictions to develop precedent and expertise.

section_title: Letter
paragraphs: Since 2010, there have been more than 53,000 Chapter 11 bankruptcy  filings, with approximately 765 by large companies with assets and  liabilities each of $50 million or more. The fees for bankruptcy  professionals associated with large cases, such as attorneys and financial  advisers, can run into the hundreds of millions of dollars, in part because  of the size and complexity of such cases. For example, professional fees  awarded in the 2011 American Airlines Chapter 11 bankruptcy case—the  second-largest airline bankruptcy—totaled more than $375 million. The  size of these fees, particularly during the recent economic recession in  the United States, has raised questions about whether bankruptcy  professionals are charging a premium for representing companies in  financial distress, despite requirements in the Bankruptcy Code that fees  be reasonable, necessary, and market-based. Additionally, concerns  have been raised that bankruptcy professionals may be using the venue  selection process (the process by which a debtor selects where to file) to  file in courts where they believe they will receive higher fees. As a result  of the venue selection process, the majority of large Chapter 11  bankruptcy cases are adjudicated in two jurisdictions—the Southern  District of New York (SDNY) and the District of Delaware (Delaware).
The U.S. Trustee Program (USTP)—a component of the Department of  Justice—seeks to promote the efficiency and protect the integrity of the  federal bankruptcy system by acting as a watchdog for the public interest  and ensuring compliance with applicable laws and procedures. As part of  its oversight and enforcement responsibilities, the USTP reviews whether  requested fee amounts are reasonable and necessary, and comments or  objects as appropriate, though bankruptcy courts have the final authority  to award fees. If the USTP identifies a concern associated with a fee  application it has reviewed, the USTP will generally seek more  information from the professionals (what is known as an inquiry) before  filing an objection, and the answers or information may resolve the  USTP’s need to object. In other instances, the USTP may file an objection  with the court and then reach an agreement with the professional outside  of court that resolves the objection. Ultimately, the court determines  whether to award requested compensation and may reach a different  conclusion than the USTP.
In accordance with amendments to the Bankruptcy Code, in 1996 the  USTP published procedural guidelines for reviewing professional fee  applications in bankruptcy cases. These guidelines focus on ensuring  that fee applications contain information that could assist courts in  determining whether requested fees are reasonable. Among other  things, the information requested by the 1996 guidelines includes detailed  billing information by activity categories, such as activities associated with  employee benefit issues or tax analysis. In 2013, the USTP issued new  guidelines governing its review of attorney fee applications in larger  Chapter 11 bankruptcy cases. According to senior USTP officials, the  USTP began developing these additional guidelines in response to public  concerns regarding the size of fees in large, well-publicized Chapter 11  bankruptcies, such as the Lehman Brothers bankruptcy, where total  professional fees were widely reported to have exceeded $2 billion. The  additional USTP guidelines detail the criteria the USTP uses to review  attorneys’ fee applications and were designed, in part, to improve  transparency and help ensure that fees in large Chapter 11 bankruptcy  cases (defined as those cases involving assets and liabilities each of $50  million or more) are comparable to fees charged outside of bankruptcy.  From November 2013, when the new guidelines went into effect, through  March 2015, 94 Chapter 11 bankruptcy cases met the asset and liability  thresholds and were subject to the guidelines (guidelines cases). Like the  1996 guidelines, the 2013 guidelines focus on the disclosure of  information that the USTP believes will better enable the court to  determine whether requested fees are reasonable. In addition, the 2013  guidelines identify specific information the USTP believes is necessary to  assess attorneys’ fees in large cases, such as electronic billing data,  budgets, and information about rates charged to nonbankruptcy clients.
Approximately 61 percent of the large Chapter 11 bankruptcies filed since  October 2009 have been filed in the SDNY and Delaware, and many of  the companies that filed for bankruptcy in these jurisdictions are  headquartered elsewhere. For example, in 2009, General Motors, a  company headquartered in Detroit, Michigan, filed for Chapter 11  bankruptcy in the SDNY. More recently, the Dallas, Texas-based energy  company Energy Future Holdings filed for Chapter 11 bankruptcy in  Delaware. Academics and lawmakers have raised concerns about the  possible negative effects on the ability of smaller parties, such as  employees and small business creditors, to participate in the bankruptcy  process when a case is filed far from the company’s home jurisdiction.  Companies filing for Chapter 11 bankruptcy have several options  available to them when determining the court, or venue, in which to file  their cases. Specifically, a company may file a Chapter 11 bankruptcy  case in any venue where it is domiciled, which has been interpreted as  the company’s place of incorporation. A company may also file where it  maintains its residence or principal place of business (headquarters) or  assets. Finally, a company may file in a court where an affiliate, such as a  franchise or dealership related to the parent company, already has a  Chapter 11 bankruptcy case pending. For larger companies, each of the  filing options allowed under the Bankruptcy Code may be in a separate  venue. For example, a company headquartered in Los Angeles may be  incorporated in Delaware, maintain its assets in New York, and have  affiliates with pending bankruptcy proceedings in Chicago, allowing the  company to file for bankruptcy in any of these locations.
You requested that we review the USTP’s 2013 guidelines and issues  associated with the bankruptcy venue selection process. Specifically, this  report addresses the following questions:  1.  To what extent have bankruptcy attorneys observed the 2013  guidelines in fee applications, and what are the opinions of bankruptcy  stakeholders, including attorneys, judges, and USTP officials,  regarding the guidelines’ key provisions and their effects?  2.  What do bankruptcy attorneys, judges, and available research identify  as factors that contribute to venue selection and the effects, if any, of  venue selection in large Chapter 11 cases?
To address these questions, we reviewed the Bankruptcy Code and  relevant bankruptcy filings related to professional fees and venue  selection in Chapter 11 bankruptcy cases. We also reviewed the 1996  and 2013 USTP fee guidelines for Chapter 11 bankruptcy cases. We  analyzed USTP data related to Chapter 11 bankruptcy cases filed from  October 2009 through March 2015 to identify USTP offices that had 5 or  more large Chapter 11 cases filed during this time period. We selected  this time period because it enabled us to identify case activity in the years  both before and after the 2013 guidelines went into effect. We used  these findings to select a nongeneralizable sample of bankruptcy  stakeholders to interview from 18 USTP offices and 15 corresponding  U.S. Bankruptcy Courts. While the views expressed in these interviews  do not represent those of all bankruptcy stakeholders, they provide  valuable insights from stakeholders who have experience with large  Chapter 11 bankruptcy cases and the 2013 USTP guidelines. We  conducted 57 semistructured interviews with 18 Assistant U.S. Trustees  (AUST), 25 U.S. Bankruptcy Court judges, and bankruptcy attorneys from  14 law firms that represented debtor companies in 1 or more of the 94  cases subject to the 2013 guidelines. The AUSTs and judges  represented all jurisdictions that had heard 5 or more large Chapter 11  bankruptcy cases since October 2009; however, not all had participated  in a 2013 guidelines case. We asked all stakeholders questions  regarding the 2013 guidelines, but did not ask AUSTs questions related to  venue selection because they do not have a role in that process. We also  conducted interviews with Executive Office for U.S. Trustees (EOUST)  officials, and selected U.S. Trustees (UST), academics, and industry  stakeholders.
To further address the first question, we reviewed data from the USTP’s  Significant Accomplishments Reporting System (SARS) on the USTP’s  objection and inquiry activities related to professional fees in guidelines  cases filed from November 2013 through March 2015. We analyzed the  objections and inquiry data to identify USTP actions related to the new  provisions in the 2013 guidelines. To assess the reliability of these data,  we interviewed officials responsible for entering and maintaining the data  and reviewed internal documentation and guidance associated with data  entry and internal review processes. We determined that the data were  sufficiently reliable for our purposes. We also reviewed information  collected by the EOUST about the 2013 guidelines to determine the  extent to which attorneys filing fee applications in guidelines cases  included information related to the 2013 guidelines’ provisions. Finally, we  reviewed local rules of bankruptcy practice for the 15 jurisdictions in our  scope to determine whether they incorporated provisions of the 2013  guidelines.
To further address the second question, we reviewed relevant academic  literature on the factors that contribute to venue selection and the effects  of the concentration of cases in the SDNY and Delaware. We reviewed  the methodologies of these studies to ensure they were sound and  determined they were sufficiently reliable for our purposes. To identify the  basis for venue selection companies used when filing cases, we reviewed  the bankruptcy filing petition and first day declaration for each of the 94  guidelines cases filed from November 2013 through March 2015.  Additional information about our scope and methodology is provided in  appendix I.
We conducted this performance audit from November 2014 to September  2015 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.
subsections: section_title: Background
subsections: section_title: Role of the U.S. Trustee Program in the U.S. Bankruptcy Process
paragraphs: The USTP is one of several federal agencies involved in the U.S.  bankruptcy system, but is the only executive branch agency responsible  for providing oversight of bankruptcy cases. The agency consists of the  EOUST, which provides general policy and legal guidance, oversees  operations, and handles administrative functions; and 21 USTs who  oversee 93 field office locations and supervise the administration of  federal bankruptcy cases. Each of the field offices is managed by an  AUST, who is responsible for day-to-day oversight of federal bankruptcy  cases. In addition to fee review activity, the USTP also investigates and  civilly prosecutes bankruptcy fraud and abuse; refers suspected criminal  activity to the U.S. Attorney and other law enforcement partners; monitors  and takes action to address the conduct of debtors, creditors, attorneys,  credit counselors, and others; oversees private trustees; and ensures  compliance with applicable laws and regulations in all bankruptcy cases,  from individual consumer filings to large corporate reorganizations.
Six basic types of bankruptcy are provided for under chapters of the  Bankruptcy Code, depending on factors such as whether the debtor is an  individual, corporation, or municipality, and whether the debtor seeks to  reorganize or liquidate existing assets and liabilities. Table 1 shows the  differences between the types of bankruptcy and whether the USTP is  responsible for reviewing professional fee applications for that bankruptcy  type.
Per the Bankruptcy Code, the USTP is responsible for reviewing fee  applications for five types of cases–cases under Chapters 7, 11, 12, 13,  and 15 of the Bankruptcy Code. According to USTP officials, the  USTP’s fee review responsibilities for Chapter 11 bankruptcy cases  compose approximately 5 to 10 percent of the agency’s activities, though  the amount of time varies by office and the type of case. Figure 1  provides an overview of the fee application and review process in Chapter  11 bankruptcy, including cases subject to the 2013 guidelines.
After a bankruptcy petition is filed, attorneys seeking to represent debtors  or others must submit retention applications for approval by the court.  Once their retention is approved, attorneys seeking to be compensated  from the estate (the pool of assets and monies available to pay creditors)  may submit interim fee applications every 120 days, or more often if  permitted by the court. The interim fee application allows attorneys to  receive compensation for their work before the conclusion of the  bankruptcy proceeding. At the conclusion of the case, attorneys submit a  final fee application to the court. Both the USTP and the bankruptcy judge  are responsible for ensuring that fees are reasonable and necessary, and  may review any submitted documentation associated with fees to assist in  that determination. While the USTP has standing to object to requested  fees, the bankruptcy judge is responsible for determining the final fee  amount to be awarded. According to USTP officials, if the USTP  identifies a concern associated with a fee application it has reviewed,  such as staffing inefficiencies including duplication of work or requesting  compensation for first-class travel, the USTP may seek to resolve it by  informally contacting the firm submitting the application through an inquiry  or by filing an objection to the fee application for the bankruptcy court to  consider. Several factors influence how many inquiries and objections are  made by the USTP offices in a given case with regard to professional fee  applications. According to USTP officials, these can include the  complexity of the case, the preferences of the court or USTP, or the  experience of the firm filing the application. For instance, an experienced  firm may be familiar with the USTP’s expectations for fee applications,  reducing the need for the USTP to request additional information.
section_title: Development of the 2013 Guidelines
paragraphs: The goals of the 2013 guidelines are to, among other things, help ensure  attorneys’ fees in bankruptcy cases are comparable to those charged for  nonbankruptcy activities, increase the transparency and efficiency of the  fee application and review process, and increase public confidence in the  integrity of the process. As discussed previously, the USTP established  fee review guidelines in 1996. The 1996 guidelines detailed the type of  information and disclosures that the USTP expects professionals to  include in their fee applications. Like the 1996 guidelines, the 2013  guidelines are policies and procedures for USTP staff to follow when  reviewing fee applications. Unlike the 1996 guidelines, however, the  2013 guidelines apply only to attorneys’ fee applications in Chapter 11  cases where the debtor’s bankruptcy petition lists assets and liabilities  each of $50 million or more. In addition to the provisions detailed in the  1996 guidelines, the 2013 guidelines outline the USTP’s expectations that  attorneys provide the following information in their fee applications:  information about the firm’s blended hourly rates for nonbankruptcy  activities (comparable billing rates); budgets and staffing plans, to include explanations when fees  requested exceed the budget by 10 percent; electronic billing data, generally in the form of LEDES (legal electronic  data exchange standard) data;  client and applicant statements on issues including customary billing  rates, fees, or terms of service; and disclosures regarding rate increases.
According to senior USTP officials, the USTP began to develop the 2013  guidelines in 2010 in an effort to address concerns about the size of  attorneys’ fees in large Chapter 11 cases. The 2013 guidelines were also  intended to update the USTP’s fee review practices to better reflect  advancements in law firm billing practices and technology. To develop the  2013 guidelines, officials created an internal working group and sought  input from bankruptcy stakeholders, such as judges, legal industry  groups, and attorneys. The USTP published drafts of the guidelines on its  public website for public comment in November 2011 and November  2012, and received more than 30 comment letters in response. The  USTP also held a public meeting on June 4, 2012, on the draft guidelines.
Two of the newly proposed provisions—the comparable billing rate  provision and the budgeting and staffing plan provision—were frequently  discussed in the comment letters and during the public meeting.  According to an EOUST official, the comparable billing rate provision  received the most commentary during the public comment period and  meeting and was therefore revised more extensively than other  provisions. For example, the comment letters from the National  Bankruptcy Conference (NBC) and a letter signed by 119 bankruptcy law  firms identified several concerns with the draft guidelines’ proposal  requesting the “highest, lowest, and average hourly rates” charged by  firms for all activities. Among these was the concern that such detailed  information about the highest and lowest rates billed does not accurately  compare with a firm’s “customary compensation charged,” which is the  standard identified by the Bankruptcy Code. The NBC also submitted a  separate comment letter proposing multiple alternatives for the USTP to  consider. Similarly, comment letters from both the NBC and the 119 law  firms expressed concerns regarding the draft budgeting provision,  particularly with regard to the public disclosure of budgets. After  incorporating changes and clarifying provisions based on the public  comments, including allowing redaction of sensitive budgetary information  and removing the requirement to disclose the highest and lowest rates  billed, the USTP published the final guidelines in the Federal Register in  June 2013 and they went into effect in November 2013.
section_title: Attorneys Generally Observed the 2013 Guidelines; Opinions Regarding Their Effects Vary by Stakeholder Group
paragraphs: Our analysis of USTP data and interviews with bankruptcy stakeholders  (AUSTs, judges, and attorneys) indicate that attorneys’ fee applications  for guidelines cases have generally contained the information requested  by the 2013 guidelines. Bankruptcy stakeholders we interviewed had  mixed perspectives on the overall value of the guidelines and on their  potential effect on the efficiency and transparency of the Chapter 11  bankruptcy process, or the fees awarded. Similarly, opinions regarding  the effect of specific provisions of the 2013 guidelines—including  provisions on electronic billing, budgeting and staffing plans, and  comparable billing rates—also varied by group.
subsections: section_title: Attorneys Generally Observed the 2013 Guidelines
paragraphs: Analysis of USTP data and interviews with bankruptcy stakeholders  indicate that attorneys’ fee applications for guidelines cases (those cases  with assets and liabilities each of $50 million or more) have generally  contained the information requested by the 2013 guidelines. For the 94  guidelines cases filed from November 2013 through March 2015, our  analysis of USTP data found that the USTP did not make any inquiries or  objections related to the guidelines for fee applications in half (47) of the  cases. For the other 47 cases, the USTP identified issues in submitted  fee applications that were associated with the guidelines, almost all of  which were related to three provisions: (1) budgeting and staffing plans,  (2) comparable billing data, and (3) electronic billing records. Specifically,  in 36 guidelines cases, the USTP made 98 inquiries and objections, 90 of  which were related to one or more of these three provisions in the 2013  guidelines. For example, in one fee application, a firm requested an  hourly rate that was higher than the comparable rate it charged in  nonbankruptcy activities and exceeded its budget in certain project  categories. Because the firm did not provide any explanation in its original  fee application, the USTP informally raised the issues with the firm, which  then provided an explanation in supplementary information filed with the  USTP and the court. In total, attorneys were able to resolve 92 of the 98  inquiries and objections to the satisfaction of the USTP. Almost all were  resolved by the attorney providing an oral or written explanation or by  filing supplementary information. An internal spreadsheet maintained by  the EOUST to provide additional oversight of the 2013 guidelines’  implementation noted compliance issues in 11 other guidelines cases.  Attorneys in 10 of these 11 cases also addressed the USTP’s concerns  by providing supplemental information or agreeing to do so in future  cases.
Bankruptcy stakeholders we interviewed who had participated in at least  1 guidelines case also reported that fee applications filed by attorneys in  those cases generally contained information requested by the 2013  guidelines. Of the 57 bankruptcy stakeholders we interviewed, 38 had  participated in at least 1 guidelines case. Of these 38, 29 reported that  fee applications filed by attorneys in the case or cases they were involved  in had at least partially observed the 2013 guidelines. Two judges we  interviewed stated that in the fee applications they reviewed for guidelines  cases they presided over, attorneys did not observe the guidelines’  provisions. Seven stakeholders could not comment on whether fee  applications in the guidelines cases they participated in had observed the  guidelines. As discussed earlier in this report, the 2013 guidelines are  not law, and accordingly, are not binding on courts, debtors, or attorneys.  Of the 25 judges we interviewed, 6 noted they were likely to use some,  but not all, of the 2013 guidelines’ provisions when reviewing fee  applications. For example, 1 judge stated that she would not require  attorneys to provide budgets or staffing plans in their fee applications, but  does expect that other provisions of the guidelines, such as electronic  billing data, will make her review of fee applications easier. Another 9  judges said they did not intend to use the guidelines when reviewing fee  applications. Specifically, 6 of these judges noted that their fee reviews  would instead be guided by their courts’ local rules. As 1 judge explained,  his court’s local rules already require all the information he needs to  review fee applications.
Our analysis of the local rules for the 15 jurisdictions in our scope shows  that 1 jurisdiction, the District of Nevada, generally incorporates USTP fee  guidelines, while 14 jurisdictions do not. EOUST officials reported that  as of December 2014, another 14 bankruptcy courts outside the scope of  our report have at least partially adopted the 2013 guidelines. However,  whether or not a jurisdiction has adopted the guidelines or a judge has  chosen to use them to inform his or her own fee review does not preclude  the USTP from implementing the guidelines’ provisions and commenting  or objecting to fee applications, as the USTP deems appropriate. As the  EOUST Director explained, the 2013 guidelines communicate to  professionals and the general public the criteria used by the USTP in the  review of fee applications and the USTP’s expectations of professionals.  According to the USTP’s implementing guidance provided to staff, in most  cases, the agency should not object to an attorney’s fee application  based on noncompliance with the 2013 guidelines, and should instead  reference the relevant provision in the Bankruptcy Code. However, the  USTP can reference the provisions of the guidelines when reaching out to  attorneys through an informal inquiry. Further, despite the reluctance of  some judges to use the 2013 guidelines in their own review of fee  applications, all 14 attorneys said that they included the information  requested by the guidelines in relevant fee applications they submitted.  Specifically, 5 of the attorneys noted that they try to maintain a good  relationship with the USTP, and there is no reason not to comply with the  2013 guidelines.
section_title: Opinions Regarding the 2013 Guidelines Vary by Stakeholder Group
subsections: section_title: Overall Opinion of the 2013 Guidelines
paragraphs: Bankruptcy stakeholders’ perspectives on the overall value of the 2013  guidelines varied according to stakeholder group. Fourteen of 18 AUSTs,  who oversee day-to-day activities associated with implementing the 2013  guidelines, viewed the guidelines positively, noting, for example, that the  additional information requested by the guidelines will allow them to more  easily determine whether fees are reasonable. The remaining 4 AUSTs  stated it was too early for them to have an opinion about the guidelines  overall.
In contrast, of the 14 attorneys we interviewed, 6 held negative, 6 held  neutral opinions of the guidelines, and 2 expressed a positive opinion of  the guidelines. The six attorneys with negative opinions of the guidelines  commented that the 2013 guidelines impose significant additional work  for them to prepare fee applications without providing a commensurate  benefit to the bankruptcy process. One attorney with a neutral opinion  explained that while he was not sure whether the guidelines would be  able to accomplish their objectives, complying with them had not required  much additional work. One attorney with a positive opinion said the 2013  guidelines are generally straightforward and easy to follow.
Judges’ opinions regarding the overall value of the guidelines were also  mixed. Of the 25 judges we interviewed, 12 stated that their overall  opinion of the guidelines was positive, 7 stated that their overall opinion  was negative, 3 stated it was neutral, and 3 stated that it was too early to  have an opinion. Of the 12 judges who expressed a positive opinion of  the guidelines, 4 noted that the guidelines will be useful in reviewing fee  applications. In contrast, 5 of the 7 judges who had a negative opinion of  the guidelines commented that they believed the guidelines were  unnecessary. As one of these judge said, the new provisions do not  address the issues that create problems with professional fees.  Specifically, he explained that the guidelines do not prevent cases from  “going off the rails,” or experiencing unexpected setbacks, which is when  problems with professional fees can arise. Figure 2 shows the opinions of  each stakeholder group.
Bankruptcy stakeholders also had mixed opinions, which varied by  stakeholder group, regarding the effect of the guidelines on transparency,  efficiency, or fees. Specifically, 15 of 18 AUSTs reported that they  thought the guidelines were likely to have a positive effect on  transparency, efficiency, or fees. In contrast, 9 of the 14 attorneys we  interviewed said the guidelines were unlikely to have an effect on  transparency, efficiency, or fees, in part because they believed the  process that existed before the 2013 guidelines was already very  transparent. Four of 14 attorneys stated that they believed the guidelines  would increase transparency, but 3 of the 4 noted that the guidelines  would not improve the efficiency of cases or reduce the fees awarded.  For example, 1 attorney explained that the best way to reduce fees in  bankruptcy is to improve efficiency to reduce the overall time a case takes  to complete, and he was not sure whether the 2013 guidelines would be  able to do so. The judges were split in their opinions—11 of 25 responded  that the guidelines were likely to have a positive effect on transparency,  efficiency, or fees, and 10 of 25 responded that they were not likely to  have an effect. For example, 1 judge said the 2013 guidelines would  improve efficiency and transparency, making it easier for her to review  and analyze fee applications. In contrast, another judge said she did not  believe the guidelines would have an effect on the status quo, because  attorneys already bill at market rates.
section_title: Effect of Selected Provisions of the 2013 Guidelines
paragraphs: The effects or potential effects of three provisions of the 2013  guidelines—(1) electronic billing records, (2) comparable billing rate  information, and (3) budgeting and staffing plans—were discussed most  frequently by bankruptcy stakeholders during our interviews. Similar to  the overall opinions of the guidelines, perspectives on the effects of these  three provisions varied by stakeholder group.  1.  Electronic billing records: This provision was developed to bring the  USTP’s procedures into line with modern nonbankruptcy billing  technology and practice. The electronic billing records provision was  cited by 22 of 43 AUSTs and judges as a provision likely to have a  positive effect on the fee review process, in part because it will make  the fee review process easier or more efficient. Only 2 attorneys  mentioned the electronic billing record provision, and they noted that it  was unlikely to have an effect.  2.  Comparable billing rate information: This provision was developed to  provide specific information about rates, in an effort to increase  transparency and improve comparability between rates charged for  bankruptcy and nonbankruptcy activities. The comparable billing rate  information was cited by 20 of 57 bankruptcy stakeholders we  interviewed as a provision likely to have an effect on the fee review  process, with 8 of these stakeholders noting that this provision was  likely to have a positive effect by increasing transparency. In contrast,  19 of 39 attorneys and judges reported that the comparable billing  rate provision was unlikely to have an effect on the fee review  process. For example, 5 judges and attorneys explained that the  comparable billing information is unnecessary because rates charged  in bankruptcy are already comparable to rates charged for  nonbankruptcy activities, while another 6 said that trying to compare  rates charged in bankruptcy with nonbankruptcy rates is “comparing  apples to oranges” and is not a meaningful way to determine  reasonable fees. See figure 3 for a breakdown of responses by  stakeholder group.  3.  Budgeting and staffing plans: This provision was developed to  encourage firms to apply standard management and planning tools to  bankruptcy cases, as is done in other types of cases, in an effort to  increase transparency. The budget and staffing plan provision of the  2013 guidelines was cited by 26 of the 57 bankruptcy stakeholders we  interviewed as a provision likely to have a positive effect on the fee  review process. For example, stakeholders noted that the primary  benefit of the budgeting and staffing provision is that it encourages  attorneys to communicate, early in the case, information about the  potential costs. In contrast, 16 of the 20 attorneys and judges who  noted that the budgeting provision is unlikely to have an effect  explained that bankruptcy cases are unpredictable, a fact that limits  the value of a budget. See figure 4 for a breakdown of responses by  stakeholder group.
section_title: Bankruptcy Attorneys, Judges, and Academic Research Identify Contributing Factors and Effects of Venue Selection
paragraphs: Bankruptcy attorneys and judges we interviewed, and academic research  we reviewed, identified several factors that contribute to venue  selection. The most frequently cited factors—including prior court  rulings, the preferences of lenders, and judge experience—all contribute  to overall predictability in a case and can provide some insights into what  to expect from a court as a case proceeds through the bankruptcy  process. Bankruptcy attorneys and judges we interviewed and  academic research we reviewed also identified both positive and negative  effects of the concentration of cases in the SDNY and Delaware.
subsections: section_title: Bankruptcy Attorneys and Judges Identified Several Factors that Contribute to Venue Selection
paragraphs: Bankruptcy attorneys and judges identified several factors that contribute  to venue selection, or why a case may be filed in one court versus  another. As discussed previously, companies filing for bankruptcy have  several options available to them when determining the court, or venue, in  which to file their case, including their place of incorporation, principal  place of business or assets, or where an affiliate has filed a Chapter 11  bankruptcy case. The factors cited most frequently by the 39 attorneys  and judges we interviewed as significant to venue selection include prior  court rulings, the preferences of lenders, and judge experience. While  no two cases are exactly alike, these factors were frequently discussed  as important because of how they contribute to predictability in a case.  For example, knowing a judge’s level of experience with large cases and  how a court has ruled on certain matters can help an attorney advise a  client about how a court is likely to respond to issues in a specific case.  Attorneys and judges also mentioned other factors that can contribute to  venue selection, such as perceived court attitudes on professional fees,  convenience or proximity of the parties involved in a case to the court,  and court administrative capacity, though the majority said that  professional fees and court administrative capacity were either minor  factors or not a factor in venue selection. See figure 5 for the frequency  with which the various factors were cited.
Thirty-three of the 39 attorneys and judges we interviewed cited prior  local or circuit court rulings as a significant factor when selecting the  venue in which to file a large Chapter 11 bankruptcy case, in part  because understanding prior court rulings allows attorneys to better  predict and advise clients on the possible outcomes of a case. For  example, 1 attorney explained the importance of prior court rulings, noting  that attorneys look at district and circuit court opinions to determine what  is favorable for their particular client and what will matter for the particular  case. Specifically, 6 of the 33 attorneys and judges stated that it is the  attorney’s responsibility to act in the best interest of his or her client, and  understanding prior court rulings and how they relate to venue selection is  part of that. Two of these attorneys further commented that filing in a  court without taking into account prior rulings could harm a company’s  ability to successfully emerge from bankruptcy and could be considered  malpractice.
subsections: section_title: Lender Preference
paragraphs: Twenty of the 39 attorneys and judges cited the preferences of lenders as  a significant factor. As 3 attorneys we interviewed explained, lenders who  provide financing to a company in distress may incorporate clauses in  their financing agreements requiring the company to file in a certain  jurisdiction. Nine of the 20 attorneys and judges noted that lenders  incorporate such clauses because they prefer the predictability offered by  certain courts. For example, 1 attorney stated that lenders may prefer the  certainty of providing debtor financing in courts that have done hundreds  of similar financing arrangements so that they know what motions are  likely to be approved. According to 4 attorneys and judges we  interviewed, other reasons that lenders may prefer certain jurisdictions  can include the proximity of the court to their business operations.
section_title: Judge Experience
paragraphs: Sixteen of the 39 attorneys and judges cited judge experience as a  significant factor in venue selection. Of these, 6 attorneys and judges  stated that judge experience plays a key role in providing predictability in  a case. As 1 judge explained, speaking from experience as a bankruptcy  attorney, judge experience is very much a factor in venue selection and  attorneys consider the competence and experience of judges on Chapter  11 matters when advising their clients. However, 6 other attorneys and  judges said that in their opinion, all bankruptcy court judges are capable  of handling large cases.
section_title: Professional Fees
paragraphs: Eight of the 39 attorneys and judges we interviewed identified perceived  court attitudes on professional fees as a significant factor in venue  selection. For example, 1 judge said that certain courts have a reputation  for not approving fees over a certain amount and attorneys know which  judges are “hard on fees.” In addition to the 1 attorney and 7 judges who  identified fees as a significant factor, another 3 attorneys and 11 judges  identified fees as a minor factor. In contrast, the majority of attorneys (10  of 14) and 7 of 25 judges said that professional fees were not a factor in  venue selection. One attorney noted that he has tried cases in venues  around the country and has not seen a difference in fees awarded. Five  attorneys and judges said that professional fees may have played a  bigger role in venue selection in the past.
section_title: Other Factors
paragraphs: Twelve of 39 attorneys and judges cited convenience or proximity of the  parties involved to the court as a factor in venue selection. Five attorneys  and judges also discussed the administrative capacity of the court, or the  court’s ability to process large cases, as a significant factor. However, the  majority of respondents (29 of 39) said that administrative capacity was  either a minor factor or not a factor.
section_title: Academic Findings Reflect the Venue Selection Factors Reported by Stakeholders
paragraphs: Academic studies we reviewed on venue selection used various  methodological approaches to identify several of the factors raised by the  stakeholders we interviewed, though the importance of these factors  varied across the studies. For example, four studies, from 2002, 2004,  and 2005, cited judge experience or the perceived expertise of the judge,  or prevailing court rulings, as key factors in venue selection. According  to one academic expert we interviewed, judge expertise was likely a  consideration for General Motors and Chrysler in choosing to file for  bankruptcy in New York because they were more likely to be assigned an  experienced judge in New York than in Detroit, where their headquarters  were located. The 2002 study also identified predictability and speed  (how fast a case moves through the court) as the most prevalent factors,  and lender preference as a less prevalent factor in venue selection. One  study from 2004 suggested that firms with secured lenders exhibited a  strong preference for filing in Delaware. Two studies from 2002 and  2004 cited attitudes towards fees as a factor in venue selection; however,  one noted that fees were not the most prevalent factor. In contrast to  this finding and the results of our interviews, one study we reviewed  identified the perceived scrutiny of professional fees as a key factor in  venue selection. In this study and in subsequent work, the author  contends that attorneys chose to file in venues where they believed their  fee requests would be approved and theorized that some courts may  have relaxed their scrutiny of fees in order to attract more large cases.
section_title: Bankruptcy Attorneys, Judges, and Academic Research Identify Positive and Negative Effects of Venue Selection Outcomes
paragraphs: Bankruptcy attorneys and judges we interviewed and academic research  we reviewed identified both positive and negative effects of the  concentration of cases in the SDNY and Delaware. Of the 94 guidelines  cases filed from November 2013 through March 2015, 64 percent (60 of  94) were filed in the SDNY or Delaware, with the majority filed in  Delaware. Our analysis of data related to these cases found that in 5 of  the 14 guidelines cases filed in the SDNY, and in all of the 46 guidelines  cases filed in Delaware, the venue selected differed from the company’s  headquarters address. See appendix III for a more detailed analysis of  the venue rules used as the basis for selecting the filing location in  guidelines cases.
Thirty-two of the 39 attorneys and judges we spoke with cited at least one  effect of the concentration of cases in the SDNY and Delaware, with 24  identifying positive effects and 29 identifying negative effects. The  positive effect most commonly cited by attorneys (5 of 14) and judges (10  of 25) we interviewed was the significant large case experience  developed by judges in the SDNY and Delaware. For example, 1 judge  noted that the concentration of cases in the SDNY and Delaware has  resulted in experienced judges with vetted, expedited procedures and  processes. Six stakeholders noted that the body of court rulings the  SDNY and Delaware courts have developed is another positive effect. Of  the 18 stakeholders who mentioned one of these two benefits of case  concentration, 8 explained that as a result, the SDNY and Delaware  courts offer a degree of certainty in terms of case outcomes that does not  exist in other courts. For example, 1 attorney said that he always advises  clients on potential case outcomes, and the precedents in the SDNY and  Delaware allow him to provide more predictability for his clients.
Twenty-nine attorneys and judges identified negative effects of case  concentration in the SDNY and Delaware, but they differed in their  opinions of the most significant negative effects. The negative effects  most commonly cited by attorneys (9 of 14) were the difficulty local  bankruptcy firms face in maintaining a bankruptcy practice outside of the  SDNY and Delaware and the lack of opportunity for courts to develop  precedent and expertise outside of these jurisdictions. For example, 1  attorney noted that firms in other parts of the country lose bankruptcy  clients to SDNY and Delaware firms. The negative effect most commonly  cited by judges (12 of 25) was the challenges small creditors face when a  case is filed far from a company’s headquarters location. Four judges  said that moving a case from the company’s home jurisdiction can  disenfranchise small businesses and individuals who may want to  participate in a case but are unable to do so because of the expense of  travelling to a court in another jurisdiction. Additionally, 4 judges and 1  attorney said that the concentration of cases has a negative effect on the  bankruptcy system as a whole. For example, 1 judge noted that when  money is spent hiring local counsel and traveling to distant courts instead  of filing where a company’s assets and employees are located, people  view the system as corrupt.
Similarly, the academic studies we reviewed identified both positive and  negative effects of case concentration in the SDNY and Delaware. As one  academic expert we spoke with noted, there is a divergence in the  academic findings and opinions related to venue. For example, two  empirical studies from 1997 and 2004 suggested that cases filed in  Delaware moved through the bankruptcy system faster than those filed in  other courts. Other studies suggested that cases filed in the SDNY and  Delaware had a higher refiling rate than cases filed in other courts and  that cases filed in a venue outside the company’s headquarters, such as  the SDNY or Delaware, cost more than cases filed in home jurisdictions.  In contrast, one academic expert argued that some cases in Delaware did  not have a higher refiling rate than other courts with a similar caseload,  and more recent work by another academic suggests that cases in the  SDNY and Delaware do not cost more. Additionally, a 2015 study found  that having a case assigned to an experienced judge is a key factor in the  success of a bankruptcy filing and that there is a high correlation between  judge experience and jurisdiction, with highly experienced judges  presiding over most SDNY and Delaware cases. However, as one  expert we interviewed noted, because fewer cases are filed in venues  other than the SDNY and Delaware, it is difficult for judges outside of  those districts to gain experience with large Chapter 11 cases.
section_title: Agency Comments
paragraphs: We provided a draft of this report to the Executive Office for U.S. Trustees  (EOUST) and the Administrative Office of the U.S. Courts (AOUSC) on  August 21, 2015, for review and comment. In its written comments,  reproduced in appendix IV, the EOUST generally agreed with our  findings. We also received technical comments from EOUST and  AOUSC, which we incorporated as appropriate.
We are sending copies of this report to the Senate Committee on the  Judiciary, the Director of the Executive Office for U.S. Trustees, the  Director of the Administrative Office of the U.S. Courts, and other  interested parties. In addition, the report is available at no charge on the  GAO website at http://www.gao.gov.
If you or your staff have any questions about this report, please contact  me at (202) 512-9627 or maurerd@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. GAO staff who made key contributions to this  report are listed in appendix V.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: This report addresses the following questions:  1.  To what extent have bankruptcy attorneys observed the 2013  guidelines in fee applications, and what are the opinions of bankruptcy  stakeholders, including attorneys, judges, and U.S. Trustee Program  (USTP) officials, regarding the guidelines’ key provisions and their  effects?  2.  What do bankruptcy attorneys, judges, and available research identify  as factors that contribute to venue selection and the effects, if any, of  venue selection in large Chapter 11 cases?
To obtain background information and answer both questions, we  reviewed the Bankruptcy Code and relevant bankruptcy filings related to  professional fees in Chapter 11 bankruptcy cases. We also reviewed the  1996 USTP guidelines and the 2013 USTP guidelines on the  compensation of attorneys in large Chapter 11 cases, or those with  assets and liabilities each of $50 million or more. We analyzed USTP  data related to Chapter 11 cases filed from October 2009 through March  2015 to identify the number of large cases filed during this time period in  each USTP office. We selected this time period because it enabled us to  identify case activity in the years both before and after the 2013  guidelines went into effect. According to USTP data, 765 cases with  assets and liabilities each of $50 million or more were filed from October  2009 through March 2015. Of these cases, 94 were filed after the 2013  guidelines went into effect (guidelines cases). To assess the reliability of  these data, we interviewed USTP officials responsible for collecting and  reviewing the information and cross-checked the names of the guidelines  cases against lists of the 20 largest cases filed in 2014 as identified by  the bankruptcy research website New Generations  (BankruptcyData.com). We determined that the data were sufficiently  reliable for our purposes. As discussed in detail later in this appendix, we  used the case information to inform our selection of a nongeneralizable  sample of bankruptcy stakeholders for semistructured interviews. While  the views expressed in these interviews do not represent those of all  bankruptcy stakeholders, they provide valuable insights from  stakeholders who have experience with large Chapter 11 bankruptcy  cases and the 2013 USTP guidelines. We also conducted interviews with  Executive Office for U.S. Trustees (EOUST) officials, U.S. Trustees  (UST), academics, and industry stakeholders. Finally, we reviewed  relevant academic literature on professional fees and venue selection in  Chapter 11 bankruptcy cases. Because fee reduction is not a stated goal  of the 2013 guidelines, we did not attempt to determine whether or not the  guidelines have led to an actual reduction in professional fees awarded in  large Chapter 11 cases.
To further address question 1, we reviewed data from the USTP’s  Significant Accomplishments Reporting System (SARS) on objection and  inquiry activities related to professional fees in guidelines cases filed from  November 2013 through March 2015. We analyzed the objections and  inquiry data, including narrative descriptions, to identify USTP actions  related to the 2013 guidelines provisions. To assess the reliability of these  data, we interviewed officials responsible for entering and maintaining the  data and reviewed internal documentation and guidance associated with  data entry and internal review processes. We determined that the data  were sufficiently reliable for our purposes. We also reviewed information  collected by the EOUST on whether the provisions of the 2013 guidelines  were observed in cases filed from November 2013 through March 2015 to  determine the extent to which attorneys filing fee applications included  information related to the 2013 guidelines’ provisions. To determine  whether selected local court rules incorporated the key provisions of the  2013 guidelines, we reviewed local court rules and guidelines on fee  applications and the compensation of professionals in bankruptcy cases  for the 15 bankruptcy courts in our scope. These courts were selected  because they had 5 or more large Chapter 11 cases filed from fiscal year  2010 through fiscal year 2014. Additional information regarding the  jurisdictions in the scope of this report is provided later in this appendix.
To further address question 2, we reviewed relevant academic literature  on the factors that contribute to venue selection and the effects of the  concentration of cases in the Southern District of New York (SDNY) and  the District of Delaware (Delaware). We also interviewed six academic  experts in the Chapter 11 bankruptcy field to better understand their  research findings. We conducted a literature search of various databases,  such as ProQuest and Academic OneFile, and asked the academic  experts we interviewed to recommend additional studies. From these  sources, we identified 10 studies published between 1997 and 2015 that  were relevant to our question on venue selection. We reviewed the  methodologies of these studies to ensure they were sound and  determined they were sufficiently reliable to identify factors related to  venue selection and the effects of case concentration. To identify the  basis for venue selection companies used when filing cases, we reviewed  bankruptcy filing documents for each of the 94 guidelines cases filed from  November 2013 through March 2015. We also reviewed the first day  declarations for these cases to identify each company’s place of  incorporation and headquarters location. In cases where we were not  able to identify this information, we reviewed Securities and Exchange  Commission filings or filings with state secretary of state offices, as  necessary.
To obtain perspectives from bankruptcy stakeholders on the 2013  guidelines and issues related to venue selection, we conducted 57  semistructured interviews with a nongeneralizable sample of 18 Assistant  U.S. Trustees (AUST), 25 U.S. Bankruptcy Court judges, and bankruptcy  attorneys from 14 law firms. Our process for selecting each group of  stakeholders in our sample is discussed below:  AUSTs: We chose to interview AUSTs because they are responsible for  the day-to-day oversight of federal bankruptcy cases and for reviewing  fee applications. There are 21 UST regions with 93 field offices. Each  field office is managed by an AUST. To determine the scope from which  to select our sample of AUSTs for interviews, we reviewed USTP data on  large Chapter 11 cases (cases with assets and liabilities each of $50  million or more) filed from fiscal year 2010 through fiscal year 2014. From  this, we identified 18 USTP offices that had a total of five or more large  cases during this time period. Of these offices, 12 offices had been  assigned a guidelines case as of October 2014, while 6 offices had not.  We interviewed 18 AUSTs assigned to each of the 18 offices (see table  2). At the time our interviews were conducted, 13 of the 18 AUSTs had  participated in at least one guidelines case.
Judges: Bankruptcy judges have the final authority to award professional  fees and to determine whether or not they are reasonable and necessary,  under the Bankruptcy Code. To select our sample of bankruptcy judges  to interview, we relied on the same selection criteria we used to select  AUSTs. We matched each UST office/city with 5 or more large Chapter  11 cases from fiscal year 2010 through fiscal year 2014 to the  corresponding judicial district for the U.S. Bankruptcy Courts. We  identified 15 judicial districts covering the 18 cities in our AUST sample.  To select individual judges for our interviews, we contacted the Chief  Judge of each of the 15 bankruptcy courts and asked him or her to  identify judges in those courts with experience in our topic areas who  were available to be interviewed. To ensure that we spoke with judges  with a range of experience in guidelines cases, we initially selected two  judges in the each of the courts with 15 or more large Chapter 11 cases  and one judge in each of the remaining courts (see table 2). We  interviewed a total of 25 judges. Of these, 11 judges presided over one or  more cases subject to the guidelines, while 14 judges had not yet been  involved with a guidelines case. With the exception of one judge who had  been appointed to the bench in 2013, all judges interviewed had presided  over at least one case between October 2009 and October 2013 that met  the guidelines thresholds of assets and liabilities each of $50 million or  more.
Bankruptcy attorneys: To select attorneys to interview, we reviewed the  guidelines case data provided by the USTP for all cases subject to the  2013 guidelines in fiscal year 2014. We identified selected guidelines  cases filed in bankruptcy courts in 12 of the 18 cities listed in table 2 and  reviewed the related bankruptcy filing petitions to identify law firms that  represented the debtor in these cases. We selected cases to provide  variation in geographic location and in case size. To ensure that we  included attorneys from firms with substantial experience with large  Chapter 11 cases, we cross-checked the list of firms with those identified  as the top bankruptcy firms in the United States by two bankruptcy  research websites, the University of California Los Angeles’ (UCLA- LoPucki) Bankruptcy Research Database and New Generations  (BankrutpcyData.com). Firms were not excluded if they did not appear  on these lists, but we added several major firms that did not appear on  our original list. See table 3 for a list of the 14 firms from which we  interviewed attorneys. Each of the firms represented companies in at  least one 2013 guidelines case. In 4 of the 14 interviews we conducted,  more than one attorney participated in the interview. However, because  the opinions offered by attorneys in each of these individual interviews did  not conflict or contradict one another, we counted each interview as one  and refer to this group of stakeholders as 14 attorneys throughout this  report.
We asked all three groups about their general opinions of the 2013  guidelines and their opinions regarding the effects or potential effects, if  any, of the 2013 guidelines on efficiency, transparency, or the  professional fees awarded in Chapter 11 cases. We focused on these  three aspects because two of the goals of the 2013 guidelines are to  increase the transparency and efficiency of the fee review process, and,  as discussed earlier in this report, EOUST officials reported that concerns  about professional fees in large cases such as Lehman Brothers provided  the impetus for developing the new guidelines. While we did ask  stakeholders to identify any provisions they believed were likely to have  an effect or to have no effect, we did not specifically ask stakeholders  about their opinions on each provision of the 2013 guidelines. We also  asked all three groups about the extent to which the provisions of the  guidelines were observed by attorneys in fee applications submitted for  guidelines cases.
In addition, we asked judges and attorneys their opinions on the factors  that contribute to venue selection and the effects, if any, of the  concentration of cases in the SDNY and Delaware. Because the AUSTs  do not have a role in venue selection, we did not ask them questions  related to venue selection. We asked attorneys and judges for their  opinion on specific venue selection factors. For example, we asked  attorneys and judges about the degree to which the following factors to  contribute to venue selection: (1) judge experience, (2) court  administrative capacity, (3) prior court rulings, and (4) perceptions of court  attitudes on professional fees. Because of the semistructured nature of  the interviews, stakeholders responded to these factors and also  independently offered additional factors. Additionally, responses may total  more than 100 percent because stakeholders offered both positive and  negative opinions in response to certain questions. The semistructured  interviews were conducted by telephone from February 2015 through May  2015. We then performed a qualitative content analysis of these  interviews to identify common themes and the frequency with which  certain issues were raised. To ensure intercoder reliability, three analysts  jointly developed a coding structure that was then used to independently  code the interviews. This process was reviewed by a GAO methodologist,  and all coding was reviewed by another analyst. Any discrepancies were  discussed and resolved jointly by the analysts responsible for coding the  interviews.
We conducted this performance audit from November 2014 to September  2015 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.
section_title: Appendix II: Executive Office for U.S. Trustees 2013 Fee Guidelines for Attorneys in Larger Chapter 11 Cases: Summary of Material Differences From 1996 Guidelines
section_title: Appendix III: Basis for Venue Selection in Cases Subject to the U.S. Trustee Program’s 2013 Guidelines
paragraphs: From November 2013 through March 2015, 94 Chapter 11 bankruptcy  cases met the U.S. Trustee Program’s 2013 guidelines’ thresholds of  assets and liabilities each of $50 million or more (guidelines cases). A  company may choose the court, or venue, in which to file its case on the  basis of where the company is domiciled, which has been interpreted as  the company’s place of incorporation, or where it maintains its residence  or principal place of business (headquarters) or assets. For example,  one guidelines case involves a telecommunications holding company that  is headquartered in Virginia and maintains its principal assets in three  New York financial institutions. A company may also file in a court where  an affiliate, such as a franchise or dealership related to the parent  company, has already a Chapter 11 bankruptcy case pending (known as  the affiliate filing rule). We reviewed 91 of the 94 guidelines cases and  found that 63 percent (57 of 91) were filed in a venue that differed from  their headquarters location (see table 4 below). To identify the provisions  companies used as the basis for selecting the venue in which to file their  case, we reviewed the initial bankruptcy filing petitions for each of the 91  cases included in our analysis. We also reviewed first day declarations,  and, as necessary, filings with the Securities and Exchange Commission  or state secretary of state offices to identify the place of incorporation and  headquarters location for each guidelines case.
As shown in table 4, 57 of the 91 cases that were filed by companies  through March 2015 filed in venues outside the company’s stated  headquarters location. Of the options available to them under the  Bankruptcy Code, companies in 31 of the 57 cases relied on place of  incorporation as the primary basis to select their filing location (see fig. 6).  All but 2 of these cases were filed in Delaware. Additionally, 8 relied on  the affiliate filing rule, and 3 used principal place of assets as the basis for  venue selection. In 12 cases filed outside of the headquarters location,  data provided by the companies indicated that both place of incorporation  and the affiliate filing rule were the bases for venue selection.
As shown in table 4, 34 of the 91 guidelines cases filed by companies  through March 2014 filed in the same venue as their stated headquarters  location. Our analysis, as shown in figure 7, found that companies in 23 of  the 34 cases relied on principal place of business or residence, and  another 9 relied on both principal place of business or residence and the  affiliate filing rule as the reason for selecting their headquarters venue.
section_title: Appendix IV: Comments from the Department of Justice
section_title: Appendix V: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Adam Hoffman (Assistant  Director), Bethany Benitez, Michele Fejfar, Elizabeth Kowalewski, Monica  Savoy, and Sarah Turpin made significant contributions to this report.  Also contributing to this report were Dominick Dale, Eric Hauswirth, Jean  Orland, Michelle Su, and Wade Tanner.