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Legal auditing firms, also known as “professional fee consultants” or “fee examiners,” traditionally offer their services to large corporations, particularly insurance companies. Primarily, these firms review the bills of outside counsel and recommend what, if any, charges appear too high for the services performed. Recently, a few U.S. Trustees (USTs) have sought to hire legal auditing firms to assist them with review of fee applications in certain large Chapter 11 cases. These USTs have sought to charge the expense of hiring these legal auditing firms (which are sometimes based on either an hourly fee or a percentage of the total gross fees sought by all professionals in the case) to the estate. Among the numerous questions this raises are: (1) Is such practice appropriate at all and, if so, (2) who should bear the expense? As an initial matter, it is not clear that the UST has the authority to delegate his or her statutory duties to a fee examiner. One of the many duties imposed on the UST under 28 U.S.C. � 586 is to review fee applications and file objections to such applications when appropriate. Even assuming a UST may delegate his or her duties to a legal auditing firm, or that the use of a legal auditing firm is not viewed as rising to the level of a “delegation,” the question of who must bear the expense remains. All Chapter 11 debtors pay quarterly fees to the UST, and these fees are directly related in amount to the size of the bankruptcy case. See28 U.S.C. � 1930(a)(6). These fees are deposited into the U.S. Trustee System Fund (the “fund”) pursuant to 28 U.S.C. � 589a(b)(5). The fund, in turn, is the source from which the UST receives its operating funds (the fund was created by amendments to the U.S. Code in 1986 to provide self-funding for the U.S. Trustee System). Sec. 589a(a) indicates how the money in the fund is to be used. Specifically, � 589a(a) authorizes the expenditure of the fund by a U.S. Trustee for: � salaries and related benefits; � travel and transportation; � rental of space; � communication, utilities and miscellaneous computer charges; � security investigations and audits; � supplies, books and other materials for legal research; � furniture and equipment; � miscellaneous services, including those obtained by contract; and � printing. If a U.S. Trustee is permitted to retain the services of a legal auditing firm at all, it appears that those services must be paid out of the fund. However, USTs seeking to employ legal auditing firms have sought to have the fee of such firms paid by the debtor’s estate. There does not appear to be any legal authority to impose such costs on a debtor’s estate. Sec. 327(a)’s provision for the retention of professional persons is expressly limited to debtors and does not extend to the UST. Similarly, � 1104(c) permits the appointment of an examiner “to conduct�an examination of the debtor.” However, a legal auditing firm’s evaluation of fee applications of the estates’ professionals in order to aid the UST in performing his or her statutory duties is not an investigation of the debtor. The imposition of a legal auditing firm’s fee on a debtor’s estate may also violate � 1930(e), which prohibits bankruptcy clerks from collecting fees beyond those described in � 1930. One UST has successfully argued for the appointment of a fee examiner by arguing that (1) the ultimate duty to review fee applications is that of the court, and (2) that under � 586(a)(3), the review of fee applications by the UST is purely discretionary. That UST argued that since its obligation to review fee applications is discretionary by virtue of � 586(a)(3), and that since it is the ultimate responsibility of the court to review fee applications, the appointment of a fee auditor to assist the court in the performance of its duties was necessary and, by extension, since the court — as opposed to the UST — was appointing the fee auditor, the cost of such fee auditor should be borne by the estate. An objection to such a motion would likely focus on � 586, which provides in relevant part that “each United States trustee…shall supervise the administration of cases and trustees in cases under chapter 7, 11, 12, or 13 of title 11 by, whenever the United States trustee considers it to be appropriate — … reviewing, … applications filed for compensation and reimbursement under � 330 of title 11.” It is difficult to envision a situation where, if the court feels that it is having difficulty complying with its duty to review fee applications, the UST, witnessing such situation, would not, as a part of his or her duties to supervise the administration of the case, “consider it to be appropriate” and thus have a duty to review the fee applications of professionals under 28 U.S.C. � 586. Once the UST undertakes such review, she would be performing her duties as UST to review fee applications and make suggestion to the court for the reduction/disallowance of fees. A fee auditor would provide the identical services. Therefore, the involvement of a legal auditing firm would be either (i) purely duplicative or, if the work of the fee examiner is substituted for that of the UST, (ii) for the benefit of the UST rather than the court. It could be argued that this is nothing more than an attempt to charge the estate again for services the estate is already paying for with its quarterly fees. It may be permissible for a UST to employ a legal auditing firm to assist with certain duties if the assistance does not rise to the level of delegation. However, it is highly questionable whether, as a matter of law, the expense of doing so may be taxed to the debtor’s estate. In any event, the normative question of whether there is any practical need for a legal auditing firm should always be asked in the absence of some particular cause. This is particularly so in the multiparty context of bankruptcy, in which professionals on opposing sides, the UST and the court already act as checks and balances. Jonathan Friedland and Steve Kotarba are bankruptcy, restructuring and workout attorneys based in the Chicago office of Kirkland & Ellis.

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