Polaris Networks, Inc.

OCR transcription for search; preserved printed pages are authoritative

ORIGINAL

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For The Northern District Of California

UNITED STATES BANKRUPTCY COURT

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GPO

Entered on Docket
December 20, 2005

GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA

FILED

DEC 1 5 2005

United St nk
fac States Bankruptcy Court
San Jose; California

UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA

In re: Case No. 05-52927-MM

POLARIS NETWORKS, INC.,
Chapter 11
Debtor.

Memorandum Decision and Order on First
Interim Application by Levene, Neale,
Bender, Rankin & Brill LLP for Approval
of Fees and Reimbursement of Expenses

INTRODUCTION

This matter is before the court on the First Interim Application for Approval of Fees and
Reimbursement of Expenses by Levene, Neale, Bender, Rankin & Brill LLP, counsel for the debtor.
Just prior to hearing, the applicant supplemented its application with a request for fees for services
rendered through plan confirmation. All told, the applicant is seeking an award of fees in the amount
of $107,219.00 and reimbursement of costs advanced in the amount of $10,514.65. After a hearing on
December 6, 2005, the court took the application, as supplemented, under advisement. Having

considered the submissions of counsel and their arguments, the court finds as follows:

MEMORANDUM DECISION AND ORDER

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BACKGROUND

During the five years prior to bankruptcy, the debtor used venture capital funding to develop a
piece of networking hardware and associated operating software that is used to route calls and
information for large telecommunications networks. Although the debtor appears to have a valuable
product, buyers have been reluctant to transact business with the debtor due to the debtor’s precarious
financial position. Unable to attract additional venture capital or to sell the company, the debtor filed
a petition for relief under chapter 11 of the Bankruptcy Code on May 13, 2005.

The court approved employment of the applicant as the debtor’s bankruptcy counsel on July 26,
2005, effective as of the petition date. To date, the applicant has assisted the debtor with all aspects of
the administration of the estate. More specifically, the applicant has reviewed claims, arranged for the
debtor to obtain post-petition financing, prepared for the § 341 meeting of creditors, and prepared the
debtor’s plan of reorganization and disclosure statement. Early in the case, the applicant also prepared
motion papers to designate the debtor’s responsible individual. However, the motion raised questions
regarding the debtor’s corporate governance and whether proper authority had been obtained to appoint
the responsible individual. The court issued an order to show cause as to why the case should not be

dismissed to which the applicant prepared a detailed response.

LEGAL DISCUSSION

Section 330 of the Bankruptcy Code mandates that any award of compensation must be
reasonable and can only be allowed for actual, necessary services. 11 U.S.C. § 330 (a)(1)(A). Implicit
in this statutory mandate is the bankruptcy court’s obligation, as a guardian of the estate’s funds, to
review every application by professionals who seek compensation from the bankruptcy estate and to
determine whether the fees requested fall within the parameters of the statute. This duty exists whether
or not there is any opposition to the request. Jn re Busy Beaver Building Centers, Inc., 19 F.3d 833, 841
(3 Cir. 1994); In re Berg, 268 B.R. 250, 257 (D. Montana 2001). In reviewing each application, the
court must consider the nature, extent and value of the professional’s services. If the court determines
that some or all of the legal services provided were not likely to benefit the estate or were not necessary

for the case, the court may award less compensation than requested. In re Riverside-Linden Investment

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Co., 925 F.2d 320, 322-23 (9" Cir. 1991)(court may decline to award attorneys’ fees where the time
expended cannot be justified by a cost-benefit analysis). The burden of proof to show entitlement to all
fees requested from the estate is on the applicant. Berg, 268 B.R. at 257.

Under these standards, and as set forth more fully below, certain time entries are noticeably
deficient. Asa result, a portion of the fees requested must be disallowed.

I. Excessive or Redundant Time

Attorneys have a duty to exercise good billing judgment when they apply for fees. Hensley v.
Eckerhart, 461 U.S. 424, 436 (1983). Hours that are excessive in relation to the task accomplished or
that are spent on unnecessary tasks are not reasonable and should be excluded from fee applications. See
11 U.S.C. § 330(a)(3)(D) and (a)(4)(A). In deciding whether time spent is excessive, the court must
consider factors such as the skill and experience level of the practitioner, as well as the complexity,
importance and nature of the task at hand. Jd. at § 330 (a)(3)(D) and (E).

The following chart reflects two instances where the time spent performing a single task was
billedtwice. Under § 330(a)(4)(A), the court may not allow compensation for unnecessary duplication
of services. Because the duplicative entries are inappropriate, compensation will only be allowed for one

of each of the duplicate entries.

Page Date Atty Services Rendered Hours Amount
not not
allowed allowed
4 5-17-05 RB Conference w/ office attorney TMA re -0.20 $99.00
deadlines and Do’s and don’ts (.2)
4 5-17-05 RB Conference w/ office attorney TMA re
deadlines and do’s and don’ts (.2)
4 5-17-05 TMA | telephone conf. w/ court staff re payment of -0.20 $56.00
petition and documents required to support
petition (.2)
5 5-17-05 TMA | Telephone conf. w/ court staff re payment

of petition and documents required to
supplement petition (.2)

Total -0.40 $155.00

Unnecessary duplication also can occur when multiple professionals participate in intraoffice
conferences. Two of this district’s fee guidelines address these types of entries. Guideline 15 provides

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that a failure to justify time spent in conferences with other professionals or paraprofessionals in the same
firm may result in the disallowance of all fees related to such intraoffice conferences. Similarly,
Guideline 16 indicates that a failure to justify the need for more than one professional from the same firm
at a court hearing or other meeting may result in compensation for only the lower billing attorney’s time.
It is clear from these provisions that compensation at the higher billing attorney’s rate or for more than
one professional’s time should be the exception, not the rule. The following chart reflects duplicative
billing for intraoffice conferences that took place. Absent explanation of why both attorneys’ time is

compensable, the court will only approve the time of the attorney with the lower billing rate.

Page Date Atty Time Entry Hours Amount
Billed
37 06-14-05 | RB Conference with office attorney TMA re -0.20 $99.00
financing motion and notice of claims bar
date (.2)

38 06-14-05 | TMA | Conference with office attorney RB re
financing motion and notice of claims bar
date (.2)

38 06-15-05 | RB Conference with office attorney TMA re -0.20 $99.00
financing motion (.2)

38 06-15-05 | TMA | Conference with office attorney RB re
financing motion (.2)

39 06-17-05 | RB Conference with office attorney TMA re -0.20 $99.00
financing motion and declarations (.2)

39 06-17-05 | TMA | Conference with office attorney RB re
financing motion and declarations (.2)

Total -0.60 $297.00

I. Lack of Benefit to the Estate

To be compensable, services performed must have been reasonably likely to benefit the estate at
the time the services were rendered. In re Mednet, 251 B.R. 103, 108 (9" Cir. BAP 2000). In
determining whether any particular service satisfies this standard, the court must consider the
circumstances and manner in which services were performed and the results achieved. Jd. As the next

table reflects, two attorneys spent just over fourteen hours responding to the court’s order to show cause

MEMORANDUM DECISION AND ORDER

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conceming corporate governance issues. These time entries are problematic because time spent to
correct work that should have been done right the first time around provides no real benefit to the estate
in light of the task accomplished. Additionally, the materials submitted in response to the court’s order
to show cause went far a field and were of little assistance to the court. For these reasons, the time set

forth in the following table is disallowed.

Page Date Atty Time Entry Hours Amount
Billed
15 06-21-05 | RB Analysis of court order to show cause (.2) -0.20 $99.00
16 06-21-05 | TMA | Preparation of opp to courts OSC re -2.00 $560.00
dismissal/conversion (2.0)
16 06-21-05 | TMA | Preparation of memo re corporate -0.70 $196.00
governance under Delaware Corporations
Code (.7)
16 06-21-05 | TMA | Research regarding OSC re dismissal -1.00 $280.00

conversion, Polaris Bylaws and amendment,
and applicable sections of Delaware
Corporations Code (1.0)

16 06-21-05 | RB Research regarding corporation laws and -1.50 $742.50
bylaws for response to OSC and related
emails (1.5)

16 06-22-05 | TMA | Conference w/ office attorney RB re -0.50 $140.00
debtor’s response to court issued OSC re
convert, dismiss or trustee (.5)

16 06-22-05 | RB Conference w/ office attorney TMA re -0.50 $247.50
debtor’s response to court issued OSC re
convert, dismiss or trustee (.5)

16 06-22-05 | RB Analysis of court issued OSC re conversion, -0.20 $99.00
dismissal or trustee (.2)

17 06-22-05 | TMA | Preparation of response to OSC re dismissal -0.70 $196.00
(.7)

17 06-22-05 | RB Analysis of exhibits to response to OSC (.5) -0.50 $247.50

17 06-23-05 | RB Preparation of response to court issued OSC -2.00 $990.00
re convert, dismiss or appoint trustee (2.0)

17 06-23-05 | RB Conference w/ office attorney TMA re -0.20 $99.00
financing and OSC hearings (.2)

17 06-23-05 | TMA | Telephone conference with K. Cocita re -0.10 $28.00

OSC response and hearing thereon (.1)

18 06-23-05 | TMA | Conference w/ office attorney RB re -0,.20 $56.00
financing and OSC hearings (.2)

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Page Date Atty Time Entry Hours Amount
Billed

18 06-23-05 | TMA | Preparation of final version of response to -0.70 $196.00
OSC and Cocita declaration thereon (.7)

18 06-24-05 | RB Preparation for hearing on OSC; analysis of -0.50 $247.50
file re same (.5)

18 06-24-05 | TMA | Appearance at hearing on OSC and motion -1.30 $364.00
to obtain financing (1.3)

18 06-24-05 | RB Conference with client Keith and Max re -0.30 $148.50
case administration and corporate
governance issues (.3)

18 06-24-05 | RB Appearance at hearing on OSC issued by -1.00 $495.00
court (1.0)
Total -14.10 | $5,431.50

III. Ministerial, Clerical or Administrative Time

In Sousa v. Miguel (In re United States Trustee), 32 F.3d 1370, 1374 (9" Cir. 1994), the Ninth
Circuit held that time entries for ministerial, clerical or administrative tasks are part of normal overhead
expenses and, therefore, are non-compensable. /d. at 1374. Under these standards, the following entries
for ministerial or administrative time are disallowed. There are 51 entries where the task performed is
described as “Analysis of summary of ECF activity.” This appears to mean that a lawyer looked at the
docket 51 times. There is no explanation as to why this is a necessary and non-clerical service.
Additionally, 18 of the entries were to review and distribute efiled notices. This appears to be the
functional equivalent of opening the mail and distributing it. Finally, in this day of computerized record-

keeping, time spent separating time entries into project categories is most accurately described as

ministerial.
Page Date Atty Services Rendered Hours Amount
not not
allowed allowed
4 05-16-05 | AEW | Review various efiled notices from court re -0.30 $135.00

341(a), status conference, etc. and prepare
distribution re same (.3)

5 05-17-05 | TMA | Analysis of multiple notices re deadlines in -0.40 $112.00
case re petition, schedules, filing of POS’s
and complaints, IOI, 341(a) etc. (.4)

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Page Date Atty Services Rendered Hours Amount
not not
allowed allowed
6 05-19-05 | AEW | Review additional efiled notice received -0.30 $135.00
from court and prepare distribution re same
and make sure dates are calendared (.3)
7 05-24-05 | TMA | Telephone conf. w/ court staff re obtaining a -0.10 $28.00
telephonic appearance for the chapter 11
status conference (.1)
10 05-27-05 | AEW | Attention to various efiling issues (.2) -0.20 $90.00
12 06-04-05 | RB Analysis of ECF activity (.1) -0.10 $49.50
13 06-07-05 | RB Analysis of summary of ECF activity (.1) -0.10 $49.50
14 06-08-05 | RB Analysis of summary of ECF activity (.1) -0.10 $49.50
15 06-16-05 | RB Analysis of summary of ECF activity (.1) -0.10 $49.50
15 06-20-05 | AEW | Revise and update case filing punch list and -0.20 $90.00
players list (.2)
16 06-21-05 | RB Analysis of summary of ECF activity (.1) -0.10 $49.50
17 06-22-05 | AEW | Review various efiled notices and prepare -0.20 $90.00
distribution re same (.2)
17 06-22-05 | RB Analysis of summary of ECF activity (.1) -0.10 $49.50
17 06-23-05 | RB Analysis of summary of ECF activity (.1) -0.10 $49.50
18 06-24-05 | RB Analysis of summary of ECF activity (.1) -0.10 $49.50
18 06-25-05 | RB Analysis of summary of ECF activity (.1) -0.10 $49.50
18 06-27-05 | AEW | Review various efiled notices and prepare -0.20 $90.00
distribution re same (.2)
18 06-28-05 | TMA | Analysis of correspondence from M. -0.10 $28.00
Turqueza re address and update service lists
accordingly (.1)
19 06-29-05 | AEW | Review various notices from efiling and -0.20 $90.00
prepare distribution re same (.2)
19 06-29-05 | RB Analysis of summary of ECF activity (.1) -0.10 $49.50
19 06-30-05 | RB Analysis of ECF activity (.1) -0.10 $49.50
19 07-02-05 | RB Analysis of summary of ECF activity (.1) -0.10 $49.50
21 07-13-05 | RB Analysis of summary of ECF activity (.1) -0.10 $49.50
21 07-13-05 | AEW | Review various efiled notices and orders -0.20 $90.00
and prepare distribution re same (.2)
21 07-14-05 | RB Analysis of summary of ECF activity (.1) -0.10 $49.50
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Page Date Atty Services Rendered Hours Amount
not not
allowed allowed

21 07-14-05 | AEW | Review various notices received by efile -0.20 $90.00
and prepare distribution re same (.2)

21 07-15-05 | RB Analysis of summary of ECF activity (.1) -0.10 $49.50

21 07-15-05 | AEW | Review efiled notices and prepare -0.20 $90.00
distribution re same (.2)

22 07-15-05 | TMA | Analysis of ECF report of activity (.1) -0.10 $28.00

22 07-15-05 | AEW | Review efiled proofs of claim and prepare -0.20 $90.00
distribution re same (.2)

22 07-16-05 | RB Analysis of summary of ECF activity (.1) -0.10 $49.50

22 07-18-05 | RB Analysis of summary of ECF activity (.1) -0.10 $49.50

22 07-18-05 | AEW | Review various efiled notices and prepare -0.20 $90.00
distribution re same (.2)

22 07-19-05 | RB Analysis of summary of ECF activity (.1) -0.10 $49.50

22 07-21-05 | AEW | Review various court notices and prepare -0.20 $90.00
distribution re same (.2)

23 07-22-05 | RB Analysis of summary of ECF activity (.1) -0.10 $49.50

23 07-23-05 | RB Analysis of summary of ECF activity (.1) -0.10 $49.50

23 07-26-05 | AEW | Review various efilings and prepare -0.20 $90.00
distribution re same (.2)

23 07-26-05 | AEW | Review various efiled docs and prepare -0.20 $90.00
distribution re same (.2)

23 07-27-05 | RB Analysis of summary of ECF activity (.1) -0.10 $49.50

24 07-28-05 | RB Analysis of summary of ECF activity (.1) -0.10 $49.50

24 07-28-05 | TMA | Analysis of ECF summary (.1) -0.10 $28.00

24 07-29-05 | RB Analysis of summary of ECF activity (.1) -0.10 $49.50

24 07-29-05 | AEW | Review various efiled notices and prepare -0.20 $90.00
distribution re same (.2)

24 07-29-05 | TMA | Analysis of ECF summary of activity (.1) -0.10 $28.00

24 07-30-05 | RB Analysis of summary of ECF activity (.1) -0.10 $49.50

25 08-09-05 | RB Analysis of summary of ECF activity (.1) -0.10 $49.50

25 08-12-05 | RB Analysis of summary of ECF activity (.1) -0.10 $49.50

25 08-22-05 | AEW | Review court notices and prepare -0.20 $90.00
distribution re same (.2)

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Page Date Atty Services Rendered Hours Amount
not not
allowed allowed
25 08-24-05 | RB Analysis of summary of ECF activity (.1) -0.10 $49.50
25 08-25-05 | RB Analysis of summary of ECF activity (.1) -0.10 $49.50
25 08-26-05 | RB Analysis of ECF activity (.1) -0.10 $49.50
25 08-27-05 | RB Analysis of summary of ECF activity (.1) -0.10 $49.50
26 09-02-05 | RB Analysis of summary of ECF activity (.1) -0.10 $49.50
26 09-03-05 | RB Analysis of summary of ECF activity (.1) -0.10 $49.50
26 09-10-05 | RB Analysis of summary of ECF activity (.1) -0.10 $49.50
26 09-13-05 | AEW | Review various efiled notices and prepare -0.20 $90.00
distribution to TMA re same (.2)
27 09-14-05 | RB Analysis of summary of ECF activity (.1) -0.10 $49.50
27 09-17-05 | RB Analysis of summary of ECF activity (.1) -0.10 $49.50
27 09-20-05 | RB Analysis of summary of ECF activity (.1) -0.10 $49.50
27 09-21-05 | RB Analysis of summary of ECF activity (.1) -0.10 $49.50
27 09-22-05 | RB Analysis of summary of ECF activity (.1) -0.10 $49.50
27 09-27-05 | RB Analysis of summary of ECF activity (.1) -0.10 $49.50
28 09-28-05 | RB Analysis of summary of ECF activity (.1) -0.10 $49.50
28 10-10-05 | TMA | Analysis of ECF summary (.1) -0.10 $28.00
28 10-11-05 | TMA | Revise service lists re amended Storm -0.10 $28.00
Ventures addresses (.1)
28 10-14-05 | RB Analysis of summary of ECF activity (.1) -0.10 $49.50
29 10-18-05 | TMA | Analysis of ECF summary (.1) -0.10 $28.00
29 10-27-05 | RB Analysis of summary of ECF activity (.1) -0.10 $49.50
29 10-28-05 | TMA | Analysis of ECF summary (.1) -0.10 $49.50
34 06-28-05 | TMA | Research regarding procedures for filing -0.10 $28.00
and e filing employment application (.1)
42 07-15-05 | TMA | Analysis of entered order re: designation of -0.10 $28.00
responsible person (.1)
48 09-16-05 | TMA | Efile documents re disclosure statement (.3) -0.30 $84.00
52 08-08-05 | TMA | Analysis of ECF notice of completion of -0.10 $28.00
341(a) meeting (.1)
53 07-18-05 | TMA | Analysis of ECF summary of activity (.1) -0.10 $28.00
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Caq

Page Date Atty Services Rendered Hours Amount
not not
allowed allowed
53 10-13-05 | AEW | Review various efiled notices and prepare -0.20 $90.00
distribution re same (.2)
2 11-02-05 | TMA | Analysis of ECF summary of activity (.1) -0.10 $28.00
Supp
3 11-17-05 | TMA | Analysis of ECF summary (.1) -0.10 $28.00
Supp
5 11-16-05 | RB Analysis of time entries and billings and -1.00 $495.00
Supp resort where categorized incorrectly (1.0)
Total -11.40 | $5,011.50

IV. Expenses

As a final note, one item of expense amounting to $22.00 for estimated outgoing telecopier
expense is inappropriate. While incoming telecopier expenses are allowed at 20 cents per page, our fee
guidelines do not allow recovery for outgoing charges unless the actual cost is documented. As a result,

the costs requested will be reduced by $22.00.

Good cause appearing, IT IS ORDERED:

The First Interim Application for Compensation and Reimbursement of Expenses by Counsel for
debtor, as supplemented, is allowed in the total amount of $96,324.00 for fees and $10,492.65 in costs,
for a total of $106,816.65. After application of $2,867.81, the remaining retainer on hand, the applicant

is entitled to receive $103,948.84 in new money.

DATED: (Wee _ / g J00S 7 ™
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Ca

Case No. 05-52927

COURT SERVICE LIST
Ron Bender Polaris Networks, Inc.
Todd M. Arnold 6810 Santa Teresa Boulevard

LEVENE, NEALE, BENDER, RANKIN & San Jose, CA 95119
BRILL, LLP

1801 Avenue of the Stars, Suite 1120

Los Angeles, CA 90067

Office of the United States Trustee
280 South First Street, Suite 268
San Jose, CA 95113

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MEMORANDUM DECISION AND ORDER

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