ORANGE COUNTY IN BANKRUPTCY : Bankruptcy Judge Issues Guidelines, Warns Lawyers to Keep Fees in Line : Courts: John E. Ryan said he wants to ensure that Orange County’s complex case won’t provide a taxpayer-funded ‘training ground’ for attorneys.

U.S. Bankruptcy Court Judge John E. Ryan on Friday warned lawyers in Orange County’s increasingly complex bond pool bankruptcy case not to expect excessive fees at a time when county employees are being laid off and public services are being slashed.

“The county is going through dramatic days,” Ryan said. “It is not going to be said that the only group that benefited from this (bankruptcy) are the attorneys.

During a Friday hearing in bankruptcy court, Ryan outlined fee guidelines that he said are designed to reward professionals and safeguard taxpayers. They included judicious use of lawyers in the courtroom and of outside professionals, limited ancillary expenses and computerized tracking of payment requests.

He also prohibited law firms from charging clients for time spent educating junior staff on bankruptcy law, or seeking reimbursement for costs associated with replacing staff members who leave a firm before the case is over.

“This isn’t going to be an attorney training ground,” Ryan said.

The guidelines are meant for lawyers, accountants and other professionals hired by the official court committee that represents cities, school systems and special districts with funds trapped in the ill-fated bond pool. (The Board of Supervisors already has set aside $14 million to cover its own fees.)

It’s uncertain how much those professionals eventually will charge the investor committee, but the proposed settlement agreement now before pool investors includes a $15-million fund to pay legal and professional fees. That $15 million would be drawn from money now trapped in the bankrupt pool--a prospect that has upset some pool investors.

“This scares us to death,” said David Anderson, an attorney for the Special District Risk Management Authority, a Sacramento-based agency that deals with insurance matters for local governments. “It’s as close to a blank check that can be conceived of.”

Other attorneys objected to the $15-million fund because their clients disagree with the official creditor committee’s goals.

“We chafe at being forced to pay for things we oppose,” said John Poppin, an attorney who represents Huntington Beach, which has been critical of the investor committee’s actions. Poppin also argued that the county should be forced to pay pool investors’ legal fees because the county, not investors, ran the ill-fated pool.

Ryan allowed dissident pool investors, including Huntington Beach and the Special District Risk Management Authority, to opt out of the $15-million fund. But he also reserved the right to “tax” dissident investors later on if he feels they’ve benefited financially from work done by other parties’ attorneys.

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Ryan said legal bills in the complex county bankruptcy case must pass a three-step test: legal work must be completed, it must be necessary and bills must be reasonable. And, Ryan cautioned law firms to be conservative when it comes to billing procedures.

The judge directed law firms not to send a number of attorneys to a court hearing when a single lawyer might suffice. And he advised lawyers to make judicious use of outside professionals, including investment bankers.

Ryan also directed lawyers to follow guidelines in the U.S. Trustee’s 14-page “billing guidelines.”

The guide tells which fees and expenses are allowed and what generally isn’t--reimbursement for first-class travel, overtime fees or meals purchased for local professional and support staff.

Ryan also recommended that the pool investors’ committee enter all payment requests into a computer so interested parties can track expenses. “We are in the computer age, so I read,” Ryan said. “It would be very easy to provide a disk to those who want it.”

Fees are of obvious importance to attorneys and professionals who have been working for the pool committee since December, but who have yet to be paid.

In typical corporate bankruptcy cases, the debtor must pay attorney and professional fees accumulated by creditors. But the county’s bankruptcy filings is “a unique situation,” said Lee Bogdanoff, one of the county’s attorneys, because regulations don’t spell out who’s responsible for professional payments when a government entity enters bankruptcy.

Absent guidelines, the county and the investors committee have agreed to each pay their own bills. But that arrangement has angered some pool investors who argue that the county should pay fees because it operated the bankrupt fund.

Ryan plans to hold a fee and expense hearing soon to determine appropriate payments for services rendered by law firms since the bankruptcy case was filed in December. Fee requests filed after that hearing will be paid immediately if other parties don’t raise objections.

Ryan also directed Orange County, which is paying its own legal bills in the pool bankruptcy case--as well as the county’s own bankruptcy case--to “think of a procedure” which would subject its legal fees to court scrutiny.