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within twelve months after the termination of the Debtors' contract with PW, PW receives a fee, regardless of whether PW had anything to do with the consummated transaction.
Issue: Whether the court should approve the Retention Application in light of the Tail Period.
Holding: The Retention Application is approved.
Rule: After quoting § 327 of the Bankruptcy Code, the court noted that it has "broad discretion in determining whether to grant approval of the [Retention] Application. Š this Court focuses on whether the proposed terms are reasonable." The court then held that "there is a presumption of unreasonableness in any proposed retention by a professional who requires a tail period in addition to the other requested categories of compensation- such as, for example, a monthly fee in a fixed amount."
Reasoning: At the hearing on the Retention Application, H. Malcolm Lovett, Jr. ("Lovett"), the Debtors' Chief Restructuring Officer was the only witness in support of the Retention Application. In a nutshell, Lovett testified that the contract with PW was heavily negotiated after the Debtors interviewed a number of other firms. Additionally, Lovett said that he tried to negotiate the Tail Period out of the contract but was unable to do so. Overall, although Lovett was not enamored with the Tail Period, he believed that the contract as a whole was reasonable and, for this reason, agreed to it and agreed to request approval from this court of its terms. The court said that the following reasons were why it believed that the Debtors overcame the presumption of unreasonableness and, consequently, that the Retention Application should be approved: "First, Lovett has years of experience as a chief restructuring officer. Second, he interviewed seven different investment banks. Third, the monthly fees of these investment banks ranged from $ 25,000.00 per month to $ 100,000.00 per month; and [PW's] monthly fee was the lowest. Fourth, [PW] has substantial experience dealing with entities engaged in the energy and petrochemical business. Fifth, [PW] has significant experience dealing with debtors. Finally, Lovett testified that the Debtors preferred the overall structure of the [PW] engagement. In sum, Lovett's extensive negotiations, [PW's] overall fee structure, and the unique experience that [PW] brings to this case overcomes the presumption of unreasonableness created by the Tail Period." The court also remarked that the Retention Application sought to hire PW pursuant to §§ 327 and 330 instead of pursuant to § 328 of the Bankruptcy Code. This seemed to matter to the court because the court did not have the "heightened concern that it would otherwise have about opening the door for a professional to receive a fee when its services did not provide a tangible, identifiable, material benefit to the estate. In the case at bar, if [PW] ever seeks a fee based upon the Tail Period, this Court may still close the door on such a fee if the Court concludes that the services rendered by [PW] failed to provide a tangible, identifiable, material benefit to the Debtors' estates. This, the Court could not do if the [Retention] Application had been submitted and approved pursuant to § 328." For these reasons, the court granted the Retention Application.
Facts: The SCO Group, Inc. and its affiliates ("SCO") filed chapter 11 bankruptcy cases in September 2007. The bankruptcies were filed due to litigation (the "Litigation") over rights to the UNIX operating systems, which SCO's predecessor bought from Novell in 1995. UNIX became one of the most successful operating systems in the world. Novell and SCO remain in a fight over the ownership of UNIX's copyrights. Additionally, SCO is in a fight with IBM over whether IBM breached its UNIX source code licenses. SCO is also in litigation with Red Hat, Inc., AutoZone, Inc., and one party in India. Since filing the bankruptcies, SCO's financial situation has worsened substantially: there has been a 50% reduction in the debtors' assets and they are no longer able to maintain business operations. Moreover, the debtors have been in bankruptcy for 22 months, without much success in moving the ball forward. Ultimately, SCO does not intend on filing a plan of reorganization. Instead, they intend on selling substantially all of their assets and subsequently seeking a dismissal of the bankruptcies. With that backdrop, the court had before it three motions filed by the UST, Novell and IBM to convert the
©2010 Leif M. Clark
