good morning your honors and may it please the court my name is melissa hayward i have the distinct privilege today to be here not just as an advocate on behalf of a client but also as the client this case involves a bankruptcy matter where my firm represented multiple entities in that attempt to try to reorganize them i have devoted my career to being a bankruptcy attorney who attempts to restructure small business like to joke that bankruptcy is actually one of the most sophisticated practices of law that there actually is and i think this case tends to support that because if your honour's look to the issues that my firm handled in this case you urgency we had very expensive litigation matters with respect to the republic adversary proceeding linder liability type claims tax disputes regarding business personal property taxes real estate issue businesses that manufacture metal type products one of the things i enjoy most about being a bankruptcy practitioner is that i get to learn about all of these different industries and my firm is a boutique i started at locke lord and as a th year associate left loch lord to start my law firm as a bankruptcy boutique dedicated to trying to help small struggling businesses in this case we had three entities that were operating in ibiza and one entity that owned the real estate all of those entities were jointly administered in this case the issue here that makes this case different from several other cases that comerica has argued about is that claim comarca was the proverbial gorilla in the room co merica had secured claims against the three operating entities but it also had a guarantee a claim against the real estate in it and as a result of that guarantee claim against the real estate entity everything that was done in the case generally speaking was done for the global reorganization attempts of an enterprise and the evidence that was submitted and by evidence i refer to my two hour testimony on the stand and the evidence that was submitted at the hearing on my firm speedy application was uncontroverted in that two hours worth of testimony i through line by line to some degree explaining how the various tasks that my firm under took on behalf of this enterprise benefited all of the debtors yes yes yes your honor he four entities as the client in the engagement letter now the bankruptcy court took issue with the fact that the engagement letter was not submitted as an exhibit as part of my employment application in the case but i would respect application not as part of the original employment not going in that's correct that's correct well typically most in my experience in gauge letters are not actually attached to employment applications in a bankruptcy case bankruptcies are very much mother may i everything we do we go in front of the court we ask for permission and you know that could you have submitted when the case was still in chapter eleven could you have submitted interim fee applications that would have then been you know the operating entity said financing while i was in chapter eleven the operating entities were factoring their invoices which means that they were selling their invoices for a discount in obtaining money so that they could then continue to i want the banks still giving them some financing during it was financing it's not it's expensive financing for a struggling business there was not enough funds in the bankruptcy case to pay my firm at any point need hiring even while they were in chapter eleven and so my firm effectively five minutes to this attempted reorganization and i have done that in many cases and this one has been the most painful for me obviously for obvious reasons but my firm didn't receive any the problem i have is i maybe have a decent argument that the bankruptcy court should have found that your services would have reason expected to benefit even the real estate company but you know it had months and months of hearings in was involved in all these rulings and it's just hard for us to say given that the deference we all the bankruptcy court in the experience it had living with this case it's hard for us to say that it it abused its discretion in making that finding even if maybe you're right maybe the bankruptcy court could have gone your way but that doesn't quite get you where you need to be with with us to to reverse your i respectfully disagree i think that the bankruptcy court did not consider the evidence and rendered a decision that did not and i'm going to give your honour's an example the bankruptcy court allocated no portion of my fees to issues dealing with bailey the operating in a d s tax dispute with the business personal property taxes the business part dallas county had assessed the valuation of baileys massive the quick within this facility at some i think it was seventy eight million dollars that tax claim takes priority over secured claim so to the extent that bailey had to pay that tax claim at this high assessed value that would have decreased the amount of money available to comit i could because there would have been a secured claim higher than that so when we went in and litigated with dallas county over the valuation of the business personal property taxes and received a four million dollars decrease in that valuation every dollar that was saved and having to pay taxes was then paid to come bailey shelter had guaranteed the comerica that now the bankruptcy court allocated zero feet in dealing with this personal with the operating companies where my understanding is they weren't paying rent to shelter they rent your capital and they were well they were paying they were they were they and they were paying they were paying the mortgage so that was that so there was consideration going to offset that it was rent but it was really just of passed through to pay the mortgage on bailey shelters property and also that's where the funds would have come to pay the real estate taxes and all of these other things so again these these debtors were not inseparable they were one enterprise and i don't stand here today saying to this court that every single case fees should be shared equally and all debtors should be liable what i am saying is that in this particular case more what you have is a business where the separate entities cannot be separated and where if one business fails all of the related energies fail that in this instance the work that my firm did on behalf of trying to reorganize this entire enterprise was likely to benefit each and every  dealing with for example republic litigation dealing with stay emotions dealing with the business personal property does and the problem is from a practical standpoint as a bankruptcy practitioner and your honour's can see him there and the year that this matter was in bankruptcy my firm incurred almost three hundred and eighty thousand dollars in fees and my rate is i think in this case was three one hundred and seventy five dollars an hour and i was the partner on the file so that a lot of work goes into these cases and a lot of that work as the tropicana court has even recognized  as all four capitalized term and that throughout the representation that the debtors capital d would be liable for my feet and really just to be fair the you could have been more explicit making it joins sure your honor we can is reasonable whether your hourly rate is reasonable i mean it's it's all within the discretion of the bankruptcy courts equitable powers to see what's a reasonable fee for the work performed that's correct that's correct by looking at the evidence i mean yes i'm going to get ten thousand dollars an hour in that b day i would like to focus on the public policy argument here which forget whether or not the engagement letter gave joints are a liability forget that let's look to the issue of what is compensation under thirty which is what was it reasonably likely to benefit the estate and i submit to this court that if the answer is yes then joint and several liability in an underlying engagement letter is irrelevant the issue is was the work my firm did reasonably likely to benefit way to some degree yes i would say that to some degree you don't necessarily need an engagement letter because you're seeking employment by court order so an engagement letter is typically something that we enter into to say here's the retainer you're going to pay here's what we're going to do here's how we get paid up until the point that we file the case at that point then we are subject to the game of mother may i were we asked the court to approve our fees as reasonable so yes there is an engagement letter that occurs pre partition but for all intents and purposes that engagement letter is really more so to set out the expectations of the party protect the attorney in the law from preposition and then the engagement letter always specifically says that going forward fees are subject to approval by the court but at the end of the day what we're really looking to is what is reasonable and in this case and the tropicana case which was at the time we argued one of the only cases we could find on point on this very issue the tropicana case itself acknowledges that individual debtor entities can held liable for fees even when they're not directly involved in those matters the tropicana court specifically acknowledged the enterprise status and how difficult it was to parse out issues when you're representing an enterprise like this same thing for example with the energy case the energy partners case your honour's there were seventy affiliates that filed as part of this t x you bankruptcy filing and even in the court's opinion talking about how fees get allocated the court took those seventy subsidiaries and said ok we've got three primary on so i want you to allocate your fees amongst these three different primary ones it's impossible at in most cases to do keep your fees on a debtor by debtor case just because of the way in the nature of a bankruptcy practice now that's not to say that in categorizing fees for example the rip the republic litigation cash collateral that in categorizing fees by these more narrowed categories that you can say ok this inured to the benefit of debtor in particular but just because it in years to the benefit of one debtor in particular and this is also i think where the bankruptcy court erred the bankruptcy court goes through this equal benefit analysis but that's nowhere in the coat and that's nowhere in the case law if the work was done was done to reasonably benefit the restructuring of the enterprise than those fees should be allocated against all of the debtors and this is the prime example of a case where if this  not happening it's going to stifle firms like mine from undertaking this very sophisticated practice of law in the hopes that we don't become hourly contingency lawyers with that i'll yield my distinct and different legal entities the appellant seeks to be compensated under a theory that was not disclosed to the bankruptcy court in creditors as required by rule two thousand and fourteen of the bankruptcy rules and not approved by the bankruptcy  bailey shelters legitimate unsecured creditors the bankruptcy court found it to be unreasonable for bail a shelter to pay for litigation it wasn't a party to and or otherwise charged bailey shelter for work performed for distinct and different legal entities in fact the bankruptcy court found quote the record clearly reflects the h in a services did not benefit each that are equally today i'd like to touch on four main points st i'd like to examine the highly factual inquiry performed by the bankruptcy court and demonstrate that nothing on the record really would reflect that the bankruptcy courts ruling was clearly erroneous next i'd like next i'd like to turn to this court's warner decision and the case law supporting the bankruptcy these allocation  of the factual background is very important there were four operating debtors and bailey shelter bailey shelter with nearly a landlord it had no operations no employees and seek to gain very little from the bankruptcy case i like to touch on something that was discussed earlier the litigate the litigation related to personal property taxes to be clear bailey's shelter had no personal and no personal property taxes the litigant i understand her to be arguing is that there's an indirect benefit to sheltering because if the operating entities you know paid less taxes succeeded on some of this litigation against republic they would have been financially solvent which would amend they paid comerica your client and the real estate company want to be on the hook for this guarantee so why why isn't that something that could reasonably benefited if it had succeeded reasonably benefited the real estate company that argument was expressly made to the bankruptcy court below and expressly rejected and so to the extent and that that has already been presented  bankruptcy court named in its deference it we should defer to the bankruptcy court in its ruling as to whether there was an indirect benefit to the bailey shelter estate do you agree that it can be an indirect benefit i think on the facts of this case there there was no indirect benefit established by the wreck like why none for to start i think generally speaking the argument made below was that there was some enterprise theory of liability such that you know was one for all in all for  concept how about the other how bally shelter in particular was going to benefit from most of the work performed i think the republic business credit litigation is a great example of that and there are three operating doubters were the plaintiffs in that litigation and if they had received if they had been highly successful there there's no requirement that bailey shelter would have seen any of that money in fact they could have been consumed by operations or what have you there's the link was not made that this was necessarily going to benefit bailey shelter too speculative too speculative exactly next i'd like to turn to the engagement letter  honor i don't know i just i represent the the secured creditor that's our quest question too and i think you had asked earlier if engagement letters are typically attached to employment applications and i know the appellate disagrees with me but in my experience that is typically the case and if you look to the boomerang to case cited in our pleadings you can see it's a delaware bankruptcy court dealing with an issue related to engagement letters because engagement others particularly for other professionals so say a financial advisor or someone like that it's very important and they often try and put things that maybe would not be necessarily approved by the bankruptcy code so for example in the boomerang to case and there's also you know obviously even though it's arco is applicable to us you agree us state you creditors agree to pay our fees in defense of a few application obviously that's foreclosed by this court and then the supreme court the starker decision even though the contract counterparty and the debtor or whomever agreed to a bankruptcy courts routinely strike rd party releases that what would otherwise violate this court's this court's precedent and other aspects of engagement letters that under the bankruptcy code just can't be approved so again then gave that letter was not approved by the bankruptcy court rd tamera filed a reservation of right early on in this case alerting parties to this issue effectively saying we think bailey shelter is different there creditor body is different there really aren't very many and secured creditors other than a and if this had been disclosed presumably come erica would have objected but we never had the opportunity to object to this so called joint stop or liability next thing gauge what letter whatever it's worth incorporate section the bankruptcy code into a compensation arrangement there's no man and there's no mention of joint and several liability importantly courts in texas have found that the texas supreme court in fac and here again we submit that there's that there is no room for state law and section three hundred and thirty eight clearly allows the bankruptcy court to do what it should do what it did which is say i don't think the argument made in front of me however one or is not the only analysis here and i think judge jolly is concurrence on the warner opinion certainly supports obviously the other factors and three hundred and thirty dollars continue to apply there continues to be a reasonable amount  so not only did the bankruptcy court fight the correct law but it continued to apply the statute a statute that's an ambiguous and grants the bankruptcy court why discretion next i'd like to turn to consolidation is the bankruptcy concept that combines assets and liabilities of multiple debtors here this case was jointly administered and ministry of consolidation and this is from this court footnote number six it states administrate of consolidation is merely a procedural device used to deal efficiently with multiple states however substantive consolidation affects the substantive rights of party and therefore a subject analysis that requires the bankruptcy court to give notice to parties to get get multiple parties the opportunity to object and importantly requires intense it factual determinations that it's in the best interests of the creditors of the estate holdings bankruptcy case which is cited in our pleading and is widely known to be very complex millions of dollars in fees hundreds of lawyers that kirkland and alice in that case i think outside of the case there with she entered it in term compensation order the interim compensation order contemplated parties putting fees into different bucket effectively some for certain debtors some for others because at this time the case filed there were very different creditor bodies and very different things happening i mean when you have when you have different legal entities presumably you're going to have different different issues with them different what is need to be entered different things to need to be negotiated for example here bailey shelter didn't have any cash collateral it never needed a cash cloud order entered but for these three somewhat related it i guess  debtors it's bankruptcy case would have been very different there and so in many of the energy future holdings case there was an allocation method approved early in the case one of the things that judge saatchi found important was that it wasn't just the lawyers who were determining what the collective or joint benefit or single benefit was it was that the lawyer number of people at kirkland and ellis were going back and forth reviewing bills and then in house counsel at the debtors was reviewing it so they got so there was a back and forth with counsel saying you know what i don't think this is this is going to benefit this estate there was an objective process between multiple lawyers the  be paid on a case by case basis and not on a consolidated basis ok well then i am in life there are any further questions and i just like to know that we don't believe and ambiguous statute like has been and found here by the supreme court that there is any room for public policy but i'm happy to address any other questions the court again i want to tie this back to was the serve were the services reasonably likely to benefit the estate cash collateral allowed the bally operating companies to operate and generate revenue that revenue was utilized to pay down claim to the tune of fifteen thousand dollars a month that revenue was utilized to pay bailey shelters mortgage to the tune of i think it was another ten thousand  these issues directly benefited bailey shelter and i heard your honor's question about whether this was an indirect benefit i would respectfully submit to this court that the evidence presented to the court during two hours of testimony showed that this court the bankruptcy court misapprehended the effect of the evidence by finding that it was not reasonably likely to benefit bailey shelter by engaging in a sale process of the operating companies surplus equipment through an auction the work that my firm did on that by selling that equipment at auction the money was then used to pay comair by paying homeric a it reduced bailey shelters content didn't guarantee obligation dollar for dollar that is a direct benefit i would respectfully submit so the issue that the bankruptcy court held my firm to a higher standard by saying we didn't explain how every single dollar benefited bailey shelter well i think if your honour's look to the record in the testimony we did it because i stood on the stairs sat on the stand for two hours explaining how everything was related in this instance so here we provided a material direct benefit x to bailey shelter so those fees that were incurred in trying to reorganize this decades old business we're all reasonably likely to benefit bailey shelter because by ensuring the survival of the enterprise we ensured the survival of bailey shelter and the facts the record in this case is clear the trustee even had to sell everything as one big enterprise because they could not be separated if bailey operating company died than bailey shelter necessarily died if bailey shelter necessarily died than the operating company necessarily died they were consolidation because we represent all four of the entities so what this issue comes down to is not the reasonableness of my fees nobody has said that mr hayward your fees at your firm you overbilled the file you overstuff the file my fees were reasonable the court found they were reasonable the issue here is the allocation of those fees among my separate clients and i represented four clients no need to submit that we consolidate because i already have claims against them and seven of consolidation allows other creditors of other states to get to assets that otherwise they would not have recourse to that's not the issue here the substantive consolidation argument is respectfully a red herring because here i don't need to suddenly consolidation i have a direct claim i represented all four of these entities and so the issue here is not whether the fees were sought to do that then that would have been an issue that could have been litigated in the case absolutely i mean there's a pretty substantial test for subset of consolidation and the issue here though is not so much that they needed to be substantively consolidated is that how are my firms fees for all four clients allocated amongst them and under state law it is typically joint and several the and here even if you don't accept the joint and several liability which judge king i recognize that you are a little  to the republic with a geisha right that doesn't mean that it didn't benefit bailey shelter and even the tropicana next of much less direct sure that i would argue that that one is much more of an indirect benefit to bally shelter more so than for example the selling auctioning off equipment dealing with the tax protests dealing with cash collateral issues with commerically that actually put money in the pocket that would be much more of a direct benefit to bailey shelter and the court didn't the bankruptcy court didn't even grant my firm those fees the republic litigation would have ensured the survival of bailey the operating entity that litigation is still ongoing would have rendered those debtor solvent and allowed them to pay his debt so that bailey shelter would not have had to thank you your honors