RECENT CHAPTER 11 BANKRUPTCY OPINIONS (2014)

Issues: Whether debtor's attorney is entitled to premium for fees and whether fees are allowable when incurred to defend fee application..

Holding: (1) Bankruptcy court did not abuse its discretion in authorizing a 20% premium in attorney fees awarded to one law firm that represented Chapter 11 debtor and a 10% premium to another for their unusually successful fraudulent transfer litigation against the debtor's parent corporation. The $7 billion judgment in the fraudulent transfer litigation resulted in a reorganization plan that paid creditors' claims in full, fees charged by one of the firms were below market, and the other firm, which served as local counsel, played an integral role in the fraudulent transfer litigation. The factors used to adjust lodestar attorney fee award in a bankruptcy case are as follows: (1) time and labor required; (2) novelty and difficulty of the questions; (3) skill requisite to perform the legal service properly; (4) preclusion of other employment by the attorney due to acceptance of the case; (5) customary fee; (6) whether the fee is fixed or contingent; (7) time limitations imposed by client or other circumstances; (8) amount involved and results obtained; (9) experience, reputation, and ability of the attorneys; (10) undesirability of the case; (11) nature and length of the professional relationship with the client; and (12) awards in similar cases. The three exceptions are: (i) the hourly rate used for the lodestar does not adequately measure the attorneys' "true market value"; (ii) the attorneys' performance included an "extraordinary outlay of expenses and the litigation is exceptionally protracted"; (iii) the attorneys' performance involved an "exceptional delay in the payment of fees. ." See Perdue v. Kenny A. ex rel. Winn, 559 U.S. 542, 554-56, 130 S.Ct. 1662, 176 L.Ed.2d 494 (2010). (2) In federal court, the "American Rule" prohibits awards of counsel fees to a prevailing party absent statutory authority, contractual authorization, or special circumstances. Section 330 governing compensation of all professionals whose fees are paid by the bankruptcy estate does not authorize compensation for the costs counsel or professionals bear to defend their fee applications. Nevertheless, where appropriate, bankruptcy courts should not hesitate to implement the exception to the American Rule that allows fee shifting where an adverse party has acted in bad faith, vexatiously, wantonly, or for oppressive reasons.

©2014 William L. Norton III