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Who Pays for Telephonic Court Hearings (and What Is Reasonable)

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After 9/11, I wrote a column extolling the benefits of telephonic hearings. Although I have not conducted a scientific survey on the matter, personal experience and communications with colleagues suggests that the practice is growing rapidly. More and more courts are equipped with teleconference speaker systems, and more and more judges are willing to permit telephonic participation by just about anyone who requests it.

Though individual case-by-case ethical and professional judgments must be made about the need for a personal appearance, when telephonic alternatives are provided, there are many cases where the professional's participation is in a monitoring capacity or is sufficiently modest in substance that a telephonic alternative is very welcome. It serves client interests by greatly reducing travel time and expense, as well as the cost of out-of-town accommodations (especially when the travel would be long-distance) and it enhances our sense of personal and family security when we can reduce the number of out-of-town trips we have to make.2

To make the teleconference hearing work, a few basic rules of practice and etiquette have emerged. Someone has to make the call-in arrangements, usually by (a) booking a commercial conference call service to arrange a call-in number at a designated time, and (b) distributing the call-in information to the participants and the court. Persons on the phone ordinarily have to use their handsets or mute their microphones when they are not speaking, and need to be especially attentive to what is occurring in the court to know when it is appropriate to speak or not. Speaker/participants must also identify themselves each time they speak. These practices are familiar to most professionals. They are about the same for court hearings as they are for private client conference calls and other conference call meetings.

As teleconferencing has grown for hearings, especially in the bankruptcy context, there are apparently no hard-and-fast rules on the question of who pays and what is reasonable. How does that usually work? The practice seems to vary from court to court. In some cases, the court instructs debtor's counsel to set up a call-in reservation with a commercial service, so the cost is borne by the estate. In other cases, the party with the first request for telephonic participation is directed to make the arrangements. There, assuming that party is not the debtor, the cost may be borne by the client of the requesting counsel. That is what would happen if the lawyer booked or subscribed to a commercial service call-in and then recorded the cost as an expense to the client. The question of whether the cost of a telephonic hearing should be borne by an estate or in some allocable manner by all the participants is likely answered best on a case-by-case basis. It may depend on whether the hearing is of an emergency nature, or whether it is a monthly omnibus hearing. It may depend on the party on whose behalf it is arranged. Is it a debtor motion or motions, or is it a creditor request for relief? It may depend further on whether it is a two-party controversy or a proceeding involving multiple parties. Because parties are always free to come to the courthouse without being charged for it (aside from the time and travel expense), it can be argued that an estate should almost never have to bear the cost of a teleconference. On the other hand, if the estate bears the expense, there is a kind of fairness involved because (in most cases) the creditors collectively are the real bearers of the burden. Because it is a convenience offered by the courts, it can also be argued that the court itself on limited budget should almost never have to bear the cost.

While there is not likely to be agreement to any uniform set of rules governing who pays, it is clear that no matter who pays there is a problem for someone if the expenses are not reasonable. If the expenses are subject to court review and approval, as they might be if procured by a debtor or a committee, the bankruptcy court itself would be expected to review the telephone charges for reasonableness. Bankruptcy courts typically restrict expense reimbursement to real cost recovery, and tend to disapprove any expense reimbursement that appears to contain a profit component on the theory that profit should be built into the professional fee. If the expenses are incurred by counsel for a creditor, a client is going to review the bills and may also have reason to question charges that appear to be well "above-market."

I was prompted to address this subject, and in particular the reasonableness of the teleconference arrangements and fees, when I was confronted with information about a practice in at least one bankruptcy court that I am convinced is inappropriate. As background, it is useful to consider "going rates" for teleconference services. We researched teleconference service charges covering some 15 different service providers. The rates for these services, involving typical features such as a common call-in number at a reserved time, range from 9 cents per participant per minute (for toll-free calls) to about 39 cents per participant per minute (for operator-assisted calls). (One service we researched charges as much as 75 cents per participant per minute for an operator-assisted call.) The cheapest rates appear to be for the rapidly growing "reservationless" conference call services. Under this system (to which my firm subscribes), a permanent toll-free conference call number is assigned to each firm professional (each person gets his or her own number) with permanent access codes for host and participants. To activate the call, one merely gives the call-in information to the participants and tells them when to call. The service used by my firm charges 10-15 cents per minute per port (each port being a phone that can have more than the participant present) for toll-free calls. The price rises to 11-19 cents for calls requiring operator assistance.

Excluding the outlying 75 cents-per-minute service, the range of 9-39 cents equates to a difference of about $18 an hour per participant between the low and high rates. Thus, if there are many participants, the money could add up and be material, whether the cost is borne by an estate, creditor or other party in interest. Presumably, if the party setting up the call has done the market research and has justification for using an operator (which always comes at a higher rate), a court (or client) is likely to give deference to the reasonableness of the rate.

Now, let's turn to the practice that I believe is inappropriate.

I have not performed any survey and cannot say whether or not the practice is widespread.3 However, here is precisely what occurred. The court in question permitted a telephonic hearing (as apparently it does routinely). In order to participate in the hearing, counsel were directed to a specific court-designated commercial conference call service. The conference call service then required as a condition of participation that counsel complete an application form (including basic information verifying that the lawyer had authority to appear at the hearing) and pay a non-refundable fee of $40, regardless of the length of the hearing. Only upon receiving the application and proof of payment would the service provide the call-in information.

These requirements were inconvenient as compared to the arrangements necessary to schedule conference calls through most commercial services. Time was needed to fill out an application form by hand (thus, some lawyer fee time was required). Because counsel was unwilling to provide a personal credit card number for the charges (and did not have a firm card on file with the service), the firm had to issue a check (requiring more time and paperwork by both lawyer and secretary), and the check had to be faxed and overnighted to the service. Contrast this to most commercial conference call services, which can be booked in a three-minute call by a secretary, at most, and do not require advance payment or billable time by a lawyer.

The hearing involved status conferences in numerous adversary proceedings, so the number of participants could have been quite high. The amount of time any one participant had to be on the phone was a function of when the participant's case was called. If it was called first, the participant was off within five minutes. If it was called last, the participant was likely on the call for more than an hour. Regardless of the length of participation—that is, regardless of how long the phone service was used by any participant—the court-designated service still received that $40 fee from every single participant.

One could argue that a system in which a court directs any party who wishes to participate telephonically to engage only one approved service that charges a common fee (in this case, $40) to every participant is fairer than the aforementioned alternatives because the cost is shared all the way around by the participants and not borne by the estate as a whole or any one party. The sharing or allocation of the expense does not make it reasonable, however. Additionally, as indicated in my preliminary comments, I believe the practice of a judicial restriction to a single commercial service is inappropriate (whether the expense is reasonable or not).

However, the impropriety of the court's restriction to a single commercial service is amplified where, as here, the cost of the service appears to be significantly above market. Let's do the math. The $40 fee for the service required by the court in the example above covers the first 90 minutes, and then another $40 is required for each 90-minute segment thereafter. That works out to about 44 cents a minute (higher than all the researched alternatives, except one), but only if all 90 minutes of a segment is used. If your case was the first one called, and you were off the call in 5 minutes, then you paid the equivalent of $8 a minute. If the call lasted 30 minutes, then the rate equated to $1.33 per minute. Compare that with the commercial alternatives that were not available in that case. At 10 cents per minute, available under my firm's subscription to a "reservationless" conference call system, $40 would buy you hearing time of nearly 6 hours, 40 minutes! (Another way of looking at it is that a 90-minute hearing would cost $9 per participant under the reservationless subscription, vs. $40 under the service required by the court.) Or consider, for a five-minute call, the reservationless charge is $0.50 vs. $40 for the commercial service required by the court.

Courts prefer operator-assisted calls, and for good reason. An operator can oversee the call-in process, and then connect the entire phone bank to the court, for broadcast on the court's speaker system, when the court is ready. So there is some argument for higher operator-assisted rates for this service. But the supervision and coordination with the court could also be handled by a designated lawyer (such as a lawyer with a subscription service, or otherwise arranging the call-in) or by a court clerk who can call in to the central number and then arrange for transfer to the court speaker system.

Some people argue that private operators at higher rates are necessary for courts to ensure that only properly authorized persons are on a teleconferenced court hearing. Certainly, in the $40-per-participant example, one could not participate unless one knew the precise case number and could state that they were representing a party in interest. I simply do not agree with it. Court hearings are open to the public, and members of the public who attend do not need to register or otherwise identify themselves to the court. Persons who wish to be heard or make appearances are required to make representations, but they could make them as easily to the court on the record of the teleconference as they could to an operator in advance.

Even in the $40-per-participant example, with numerous adversary proceedings and the potential for at least as many telephonic appearances, it does not seem terribly difficult for appearances to be made on a case-by-case basis (they have to be made as such in any event so the court knows who is speaking when), and the value added from having an operator verify those identities in advance does not seem to be worth the cost or have any countervailing policy justification.

Finally, there is the basic question of the propriety of a court directing the use of a specific service, apart from the cost. It is one thing for a court to require that a teleconference hearing have certain features that can be supplied by any number of commercial services, and then permit the responsible party to make the selection. It is quite another thing for the court to require one specific service with no alternatives available, especially where, as here, that service is significantly more expensive and inconvenient than any alternative.

Bankruptcy courts should not be in the business of promoting commercial conference call services, whether the costs are reasonable or not. If the court requires certain features to assure clarity, security, control or other reasons, the court can set forth its requirements while still permitting a party in interest to make the call arrangements. The court could even suggest services that it knows to have the appropriate capabilities.

I do not mean to suggest that any bankruptcy court has acted deliberately to do anything inappropriate with respect to teleconferencing services. The practice discussed herein may well have developed from the best of intentions, and the issues discussed herein inadvertently overlooked. If I've got it wrong, or if I've missed some essential countervailing policies or justifications, I'm sure someone will let me know. In the meantime, if these observations ring true, the ABI Journal will again have served as an effective medium of communicating with the bankruptcy community and fostering positive changes for the practice of bankruptcy generally.


Footnotes

1 This article expresses the author's opinions, and his views should not be attributed to either his firm or the American Bankruptcy Institute. Special thanks are due to Gerald Willey, a bankruptcy assistant in the New York office of Mayer, Brown, Rowe & Maw, who assisted with the research on telephone conference call services and charges. Return to article

2 Teleconference hearings can also be convenient for professionals where travel is not an issue, in some cases permitting juggling of multiple appearances in the same day, or otherwise managing competing responsibilities. Return to article

3 My source(s) and the identity of the court(s) involved will be kept confidential for obvious reasons. Return to article

Journal Date: 
Thursday, May 1, 2003

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