Is the Cost of Computerized Research a Recoverable Litigation Expense under Federal Fee-Shifting Statutes, or a Part of Overhead? Circuit Split

In re McKenzie, 2011 Bankr. LEXIS 5265 (Bankr. E.D. Tenn. Oct. 5, 2011):

GKH correctly states that the Sixth Circuit Court of Appeals has not definitively ruled on whether computerized research should be considered part of attorney's fees or whether that expense should be allowed as a litigation expense that may be in addition to an award of attorney's fees. See Auto Alliance International, Inc. v. United States Custom Service, 155 F. App'x. 226 (6th Cir. 2005). GKH cites a Second Circuit case which stands for the proposition that such expenses are part of the overhead included in the hourly rate used in the calculation of the attorney fee and, therefore, should not be separately allowed. Evergreen Pipeline Contruction Co. v. Merritt Meridian Constuction Corp., 95 F.3d 153 (2d Cir. 1996) (Case involved Rule 11 sanctions and the award of fees was within the discretion of the court). In reviewing the state of the law on whether computerized research charges are included in attorney's fees or allowable as separate litigation expenses, the court finds that there is a split in the Circuits on this issue when courts address federal fee shifting statutes. See, Degussa Admixtures, Inc. v. Burnett, No. 1:05cv705, 2007 U.S. Dist. LEXIS 25091, 2007 WL 1041188, at *3 (W.D. Mich. Apr. 4, 2007). The Sixth Circuit in In re Boddy acknowledged that analysis of attorney's fees in bankruptcy is based on the formula used in other federal fee shifting statutes, but the court did not address whether the same analysis should be used for expenses when the Bankruptcy Code expressly allows for the reimbursement of expenses. The Eleventh Circuit Court of Appeals has found that the express language of section 330 permits courts to allow the reimbursement of expenses, including computerized research, without having to analyze whether those expenses should be considered overhead and included in the award of attorney's fees. Stroock & Stroock & Lavan v. Hillsborough Holdings Corp., 127 F.3d 1398, 1401 (11th Cir. 1997). For that reason, the court finds the fee shifting cases addressing the scope of the term attorney fees are not directly applicable to the reimbursement [*10] of expenses allowed under section 330 of the Bankruptcy Code.

Even if an analysis were required of whether attorney's fees should include the cost of computerized research, the court notes that the prevailing view is to allow such expenses to be reimbursed. Even the Second Circuit has now allowed computerized research charges in fee shifting cases where the attorneys regularly charge their other clients for computerized research expenses. Arbor Hill Concerned Citizens Neighborhood Association v. County of Albany, 369 F.3d 91 (2d Cir. 2004). The court stated, "We agree that the use of online research services likely reduces the number of hours required for an attorney's manual search, thereby lowering the lodestar, and that in the context of a fee-shifting provision, the charges for such online research may properly be included in a fee award." Id. at 98.

Based on the forgoing analysis, this court holds that computerized research is an appropriate expense to be reimbursed provided that (1) it reflects the expenses actually incurred by the applicant, (2) the applicant customarily charges its clients separately for such research, and (3) the amount of the charges are reasonable.

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