2008 Chapter 11 Open Forum: Year In Review

• In re Rennie Petroleum Corp., 384 B.R. 412 (Bankr. E.D. Va. Feb. 2008)
• (Huenekens, J.) Attention, Estate Professionals: Apply early, or suffer the consequences. On the same day of its initial filing, the debtor sought court approval for the retention of its legal counsel and financial advisor. Only after a section 363 sale did the debtor seek retroactive approval of another professional (Mr. Martin), who began rendering services for the debtor within weeks of the petition date. Mr. Martin and the debtor never quite came to an agreement about Mr. Martin's role in the case. The debtor contemplated hiring him as the CFO, as a consultant, and even as an investment banker (although another investment bank was eventually hired to assist in a section 363 sale). Even after an evidentiary hearing on this motion (during which no written agreement was produced), the court was still unclear about Mr. Martin's responsibilities to the estate. In sustaining the objections to the debtor's motion for retroactive approval, the court held that the debtor failed to explain satisfactorily why it had not sought prior approval. The court further denied the debtor's alternative request for compensation of Mr. Martin's "substantial contribution" under 503(b)(4), holding that Mr. Martin did not fall into any of the six categories described in that provision.
• In re Tubular Technologies, L.L.C., 372 B.R. 820 (Bankr. D.S.C. July 2007) (Waites, J.)

Using estate funds to pay post-confirmation litigation costs was in the estate's best interest.

The bankruptcy court approved the employment (on a contingency basis) of special litigation counsel under section 327(e) to pursue malpractice claims against the debtor's former counsel. Over an objection from an administrative claim holder, the court granted the liquidating trustee's motion to advance estate funds as necessary costs of litigation. The court characterized the motion as a request to use estate property under section 363(b)(1) and applied the appropriate standards (the trustee had filed the motion as one to incur debt under section 364). Said the court, the trustee could show a "good business reason" for using estate funds to advance the costs of the malpractice action because the likelihood of recovery from the litigation outweighed the cost to the estate. Without a recovery from the litigation, noted the court, the estate would have been administratively insolvent.

F. Trustees and Examiners

* In re Sgaverdea, 377 B.R. 308 (Bankr. D.N.M. Oct. 2007) (McFeeley, J.)

Post-confirmation calculation of the UST fees included all gross disbursements, including those made in the ordinary course of business. The debtor and U.S. Trustee (UST) disputed the proper calculation of the quarterly UST fee under 28 U.S.C. S 1930(a)(6). The UST contended that the fee should be calculated based on all disbursements made by the debtor every quarter. The debtor, on the other hand, argued that such a calculation was overly burdensome for individual and small business debtors in the post-confirmation context. The debtor in this case operated several gas stations and convenience stores. He argued that, in his line of business, he earned one dollar for every 91 cents paid out. Counting his ordinary business expenses as a "disbursement" would be too burdensome, argued the debtor, because his profit margin was already so low. Instead, the debtor advocated for the court to count only those