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* Freewwweb, LLC v. Official Committee of Unsecured Creditors (In re Smartworld Techs., LLC), 383 B.R. 869 (S.D.N.Y. Mar. 2008) (Cedarbaum, J.)
The bankruptcy court's fee reduction was improper in light of section 328(a)'s high standard of events "not capable of being anticipated." The bankruptcy court approved the debtor's retention of special counsel under section 328 (on a contingency basis) to handle litigation with the purchaser of the debtor's principal assets. After years of failed attempts at an amicable settlement, and even one appeal all the way to the Second Circuit, the Committee stepped in as a plan proponent and proposed a plan which included a settlement that was approved by the bankruptcy court. When the debtor's special counsel filed its application for compensation, the bankruptcy court reduced the fee award, citing a few unanticipated circumstances warranting such a reduction under section 328(a). Those circumstances were:
(1) the extreme antagonism, animosity, and demonstrable lack of cooperation between the debtor and the Committee that developed over the course of the litigation; (2) the firm's unwillingness to ignore the debtor's officers and majority shareholders, who may have been in breach of their fiduciary duties; and (3) the length of the litigation.
The district court reversed, finding each of these circumstances to have been capable of anticipation at the time of the bankruptcy court's initial approval under section 328. The district court further explained the extremely high bar for finding a circumstance to be truly incapable of anticipation, noting a distinction between "unanticipated events" and "events not capable of anticipation." In this particular case, the district court found all events to have been capable of anticipation. The district court then made its own calculation, based on the approved contingency arrangement, and remanded the matter with an instruction to award the fees as calculated by the district court.
* In re Northwest Airlines Corp., 382 B.R. 632 (Bankr. S.D.N.Y. Feb 2008) (Morris, J.)
Be specific: Failure to specify before-the-fact the circumstances under which special fees were to be paid meant that the court could deny those fees after-the-fact. Two financial advisors submitted final fee applications requesting monthly fees for the final interim period, reimbursements of their expenses, and additional "completion fees." The requests for completion fees drew several objections, which lead to a hearing. In denying the completion fees, the court first noted that the terms for paying the completion fees were not defined anywhere in the engagement letters, retention applications, or retention orders. The court further noted that the retention orders discussed only a right to request a completion fee, but said nothing about the advisors' rights to receive the fee.14 Most importantly, the advisors' retention applications or orders failed to specify the standards under which the special fees were to be awarded. Under those circumstances, the court concluded that it did not pre-approve these special completion fees. For that reason, the court treated the requests as fee enhancements and analyzed them under section 330. The court granted the advisors' fixed monthly rate and expenses (under section 328) but denied the completion fees (under section 330), finding that the success in this case could not be linked to either of the two financial advisors.
14. The court noted that a right to make a request is often accompanied by a right to reject that request.
