Lipid Sciences, Inc.

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UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re 	No. 08-45683 TD
Chapter 7
LIPID SCIENCES, INC.,
Debtor.
________________________________/
MEMORANDUM RE SECOND FEE APPLICATION BY PATENT COUNSEL
The Law Firm of Kilpatrick Stockton LLC (“Kilpatrick”) filed a
second 	fee 	application 	which 	was 	noticed 	for 	hearing 	on 	August 	6,
2009. 	The Court had serious problems with the application. 	Because
Kilpatrick did not appear at the hearing, the Court explained these
problems to the chapter 7 trustee’s counsel, who did appear. 	Months
later, Kilpatrick filed a supplement to the second fee application.
However, 	the 	supplement 	addressed 	only 	one 	minor 	problem. 	In
addition, 	the 	Court 	has 	noted 	an 	additional 	concern: 	i.e, 	with 	the
scope of the work performed by Kilpatrick. 	Consequently, the Court
reiterates its decision to deny Kilpatrick’s second fee application
without 	prejudice. 	The 	Court’s 	problems 	with 	the 	application 	are
described below.
Signed: January 12, 2010
________________________________________
LESLIE TCHAIKOVSKY
U.S. Bankruptcy Judge
________________________________________
Entered on Docket
January 13, 2010
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
Case: 08-45683 Doc# 98 Filed: 01/12/10 Entered: 01/13/10 11:36:26 Page 1 of 8

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BACKGROUND
The above-captioned chapter 7 case was filed on October 3, 2008.
Lois 	Brady 	(the 	“Trustee”) 	was 	appointed 	as 	the 	chapter 	7 	trustee.
On October 13, 2008, the Trustee filed an application to employ the
Law 	Offices 	of 	Reidun 	Stromsheim 	(the 	“Trustee’s 	counsel”) 	as 	her
bankruptcy counsel. 	The application was granted pursuant to an order
entered on October 30, 2008.
On November 17, 2008, the Trustee filed an application to employ
Kilpatrick as special counsel to provide services in connection with
“an Office Action in U.S. Patent Application No. 12/121,317 entitled
“Novel 	Peptides 	that 	Promote 	Lipid 	Efflux”, 	a 	continuation 	of 	U.S.
Patent 	Application 	No. 	12/021,629 	(the 	“Peptide 	Patent”). 	The
application 	noted 	that 	Kilpatrick 	had 	been 	the 	Debtor’s 	patent
counsel for eight years and had submitted the patent application to
the United States Patent and Trademark Office (the “USPTO”) prior to
the bankruptcy filng. 	It noted that Kilpatrick had received notice
from the USPTO that the application had been reviewed favorably and
that a response to the Office Action was required to be filed before
November 10, 2008 to prevent its abandonment.
The 	employment 	application 	stated 	that 	the 	principals 	of 	the
Debtor 	had 	represented 	to 	the 	Trustee 	that 	the 	Peptide 	Patent 	was
extremely 	valuable. 	It 	stated 	that 	Kilpatrick 	estimated 	that 	the
cost 	of 	the 	legal 	services 	required 	to 	file 	the 	response 	would 	be
about 	$3,000. 	Because 	the 	estate 	had 	no 	money, 	counsel 	for 	the
Debtor had agreed to advance this amount to Kilpatrick.
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The 	application 	was 	supported 	by 	the 	declaration 	of 	John
McDonald, a partner of Kilpatrick. 	The declaration stated that, in
addition 	to 	the 	work 	described 	in 	the 	application, 	Kilpatrick 	had
agreed 	to 	perform 	such 	minimal 	services 	as 	required 	responding 	to
notices of future action in the management of the Debtor’s extensive
patent 	portfolio. 	This 	expanded 	scope 	of 	employment 	was 	not
mentioned 	in 	the 	application. 	The 	order 	approving 	the 	application
was entered on November 24, 2008.
On 	January 	15, 	2009, 	the 	Trustee 	filed 	a 	supplemental
application 	re 	the 	employment 	of 	Kilpatrick. 	The 	supplemental
application 	noted 	that 	applications 	for 	recognition 	of 	the 	Peptide
Patent 	had 	been 	pursued 	in 	a 	number 	of 	other 	countries 	and 	that
action 	was 	required 	to 	preserve 	these 	applications. 	The 	Trustee
stated 	that 	she 	had 	concluded 	that 	it 	was 	to 	the 	benefit 	of 	the
estate to prosecute these other patent applications, at least in some
of the countries. 	She estimated that this additional work would cost
the 	estate 	an 	additional 	$5,000 	in 	attorneys’ 	fees 	plus 	costs 	of
about 	$2,252. 	She 	sought 	an 	amended 	order 	approving 	Kilpatrick’s
employment 	to 	cover 	this 	work. 	An 	order 	granting 	this 	request 	was
entered on March 5, 2009.
On January 15, 2009, Kilpatrick filed a fee application, seeking
allowance of fees totaling $5,872.50 (less $3,000 already received)
and costs of $1,215.55 for the work performed and costs incurred as
of the date of filing of the application. 	The application notes that
some additional work would be required. 	Attached to the application
was an invoice describing in detail the work performed and time spent
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by 	the 	various 	professionals. 	The 	application 	was 	noticed 	for
hearing 	on 	March 	5, 	2009, 	no 	objections 	were 	filed, 	and 	an 	order
granting the application was entered.
On 	July 	17, 	2009, 	Kilpatrick 	filed 	a 	second 	fee 	application.
The 	application 	was 	noticed 	for 	hearing 	on 	August 	6, 	2009. 	The
second 	fee 	application 	sought 	additional 	attorneys’ 	fees 	of
$45,948.69 and additional costs of $27,154.04. 	The application noted
that 	not 	included 	in 	this 	amount 	was 	6.2 	hours 	or 	approximately
$3,689 	in 	fees 	for 	preparation 	of 	the 	second 	fee 	application. 	It
stated that there would be a request for payment of this amount at a
later date.
The 	narrative 	of 	the 	application 	stated 	that 	Kilpatrick 	had
assisted 	the 	Trustee 	with 	the 	prosecution 	and 	maintenance 	of 	the
Debtor’s 	entire 	domestic 	and 	international 	patent 	portfolio,
including 	the 	Elanco 	Sale, 	the 	HDL 	Portfolio, 	and 	the 	Peptide
Program. 	In 	the 	Court’s 	view, 	work 	on 	the 	first 	two 	projects 	was
never authorized. 	Moreover, even if the reference in the declaration
only to the possibility that Kilpatrick would perform work on other
projects 	is 	deemed 	sufficient 	disclosure, 	based 	on 	the 	fees
requested, the work performed hardly appears to have been minimal.
The application noted that the costs included the fees of foreign
patent counsel who provided services to the Trustee and Kilpatrick to
prosecute the foreign patent applications. 	This portion of the costs
in entirely inappropriate. 	Fees may be paid only to court appointed
professionals. 	This requirement may not be circumvented by including
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these 	attorneys’ 	fees 	as 	costs 	in 	the 	fee 	application 	of 	a
professional who was appointed by the Court.
Attached to the application is a series of invoices. 	They are
preceded 	by 	a 	summary 	which 	indicates 	that 	there 	are 	two 	invoices
dated 	November 	12, 	2008, 	one 	invoice 	each 	for 	the 	following 	dates:
December 	9, 	2008, 	January 	12, 	2009, 	February 	12, 	2009, 	March 	10,
2009, April 10, 2009, two invoices dated May 7, 2009, and one invoice
each dated June 9, 2009 and July 7, 2009, respectively. 	However, the
invoices 	attached 	do 	not 	correspond 	to 	this 	summary. 	There 	are
multiple 	invoices 	provided 	bearing 	the 	dates 	noted 	above. 	Many 	of
the invoices bear descriptions of services that are incomprehensible
to the Court. 	Moreover, as noted above, many of the invoices reflect
services beyond the scope of work that was authorized. 	Clearly, the
amounts requested greatly exceed Kilpatrick’s estimates.
Kilpatrick 	did 	not 	appear 	at 	the 	hearing 	on 	its 	second 	fee
application. 	However, the Trustee’s counsel did appear. 	The Court
explained to her in detail the problems it had with the application.
The Trustee’s counsel offered to assist 	Kilpatrick in remedying the
problems.
On December 7, 2009, Kilpatrick filed a supplement to its second
fee 	application. 	The 	supplement 	indicated 	that 	Kilpatrick 	had
reduced 	its 	request 	for 	reimbursement 	of 	costs 	from 	$27,154.04 	to
$10,833.73 	because 	it 	had 	discovered 	that 	$10,238.06 	of 	the 	cost
request was for services rendered prior to the bankruptcy filing. 	It
did not explain the basis for the additional reduction. 	No revised
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invoices 	were 	filed. 	The 	only 	new 	attachments 	to 	the 	application
were resumes for the various Kilpatrick professionals.
On 	December 	30, 	2009, 	the 	Office 	of 	the 	United 	States 	Trustee
(the “UST”) filed an objection to Kilpatrick’s second fee application
and on December 31, 2009 a corrected objection (collectively the “UST
Objection”). 	The UST Objection objected to Kilpatrick’s request to
be reimbursed for costs consisting of payments to foreign counsel.
In 	sum, 	the 	problems 	noted 	at 	the 	August 	6, 	2009 	hearing 	have
not been rectified. 	The format of the invoices makes them impossible
for 	the 	Court 	to 	review. 	Many 	of 	the 	task 	descriptions 	are
incomprehensible. 	Moreover, 	Kilpatrick 	continues 	to 	request
reimbursement of fees paid to foreign counsel.
In addition, it appears that Kilpatrick performed legal services
giving 	rise 	to 	a 	substantial 	portion 	of 	the 	fees 	requested 	on
projects 	that 	were 	not 	identified 	in 	the 	employment 	application.
There is no explanation for how this occurred. 	It is unclear whether
Kilpatrick’s 	services 	have 	provided 	any 	value 	to 	the 	estate
commensurate with the fees and costs being requested.
For 	all 	of 	these 	reasons, 	Kilpatrick’s 	second 	application
remains denied without prejudice. 	The Court will consider an amended
fee application providing invoices in a readable format. 	However, if
Kilpatrick 	is 	to 	be 	paid 	for 	services 	provided 	on 	projects 	not
authorized 	by 	the 	employment 	application, 	the 	Trustee 	must 	file 	an
amended 	employment 	application 	and 	seek 	approval 	nunc 	pro 	tunc,
explaining how these additional services came to be provided without
prior court approval. 	Similarly, if the fees of the foreign counsel
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are to be paid, applications to employ them on a nunc pro tunc basis
will have to be filed.
END OF DOCUMENT
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COURT SERVICE LIST
Lois I. Brady
P.O. Box 12754
Oakland, CA 94604
Reidun Stromsheim
Law Offices of Stromsheim and Assoc.
201 California St. #350
San Francisco, CA 94111
John McDonald
Kirkpatrick Stockton LLP
1100 Peachtree St., Ste. 2800
Atlanta, GA 30309-4530
Case: 08-45683 Doc# 98 Filed: 01/12/10 Entered: 01/13/10 11:36:26 Page 8 of 8