                                                                                                                           Opinions of the United
1995 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


3-14-1995

Zolfo, Cooper & Co v Sunbeam
Precedential or Non-Precedential:

Docket 94-3271




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          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 Shaffer-

Gordon 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 top-
          flight 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. Sunbeam-
Oster 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 high-

level 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.
