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* Weinstein, Eisen & Weiss v. Gill (In re Cooper Commons, LLC), 512 F.3d. 533 (9th Cir. Jan. 2008) (Noonan, J.)
Chapter 11 trustee's negotiations with a post-petition lender did not entitle former counsel for the debtor-in-possession to payment of costs and fees where counsel waived its right to surcharge the estate. Before the appointment of the chapter 11 trustee, the debtor operated as a debtor in possession and was represented by the appellant law firm. Upon the commencement of the case, the law firm negotiated post-petition financing which explicitly waived the firm's right to surcharge the cash collateral to pay the firm's costs and fees. When the court appointed a chapter 11 trustee, the trustee negotiated further post-petition financing (from the same lender) which allowed the trustee to set aside an administrative fund with which to pay its own attorneys' fees and other administrative claimants. Over objections of the debtor's counsel, the court approved the trustee's request to pay its attorneys' fees from the administrative fund. The firm brought this appeal claiming that "the future of bankruptcy law is at stake." How can the court allow the trustee pay its attorneys without first paying the debtor-in-possession's attorneys, cried the firm? It's easy, explained the Ninth Circuit. The trustee bargained for its administrative fund; the firm did not (and actually waived that right). The establishment of the administrative fund by the chapter 11 trustee did not require the application of section 506(c), said the Ninth Circuit, and, in light of the lender's consent to the trustee's administrative fund, "there was no need for S 506(c) as a statutory hook."
* Miller Buckfire & Co., L.L.C. v. Citation Corp. (In re Citation Corp.), 493 F.3d 1313 (11th Cir. July 2007) (Black, J.)
Lodestar analysis is appropriate for reviewing the reasonableness of a fixed fee arrangement. An investment bank, retained by the estate pursuant to section 330, sought approval of a fixed $3.5 million restructuring fee which had been contemplated in a pre-petition engagement letter with the debtor. The bankruptcy court, considering several factors -- one of which was the lodestar rate -- approved the investment bank's fee in an amount well below its requested $3.5 million fixed fee. The district court reversed the fee award, noting that the bankruptcy court was not free to transform a fixed rate agreement into an hourly rate contract. On appeal, the Eleventh Circuit reversed the district court, concluding that professionals retained under section 330 were subject to the court's review for reasonableness. Accordingly, the bankruptcy court's use of the lodestar method was one way, though not the only way, to ensure that every unit of the investment bank's work was valuable to the completion of the chapter 11 case. The case was nonetheless remanded to the bankruptcy court to determine whether the investment bank violated Bankruptcy Rule 2014 by failing to disclose potential conflicts of interest.
