IN THE UNITED STATES BANKRUPTCY COURT 

FOR THE EASTERN DISTRICT OF VIRGINIA 

Richmond Division 

In re: 

LECLAIRR YAN PLLC, 

Debtor. 

Lynn L. Tavenner, as Chapter 7 Trustee, 

Plaintiff, 

V. 

ULX Partners, LLC, UnitedLex Corporation, and 

ULX Managers, LLC 

Defendants. 

Lynn L. Tavenner, as Chapter 7 Trustee, 

Plaintiff, 

V. 

CVC Capital Partners, Daniel Reed, Nicholas 

Hinton, Josh Rosenfeld, P. Douglas Benson 

Defendants. 

Kathryn R. Montgomery, AUST (VSB No. 42380) 

Shannon Pecoraro, Esq. (VSB No. 46864) 

Jason B. Shorter, Esq. (VSB No. 80929) 

Office of the United States Trustee 

701 East Broad Street, Suite 4304 

Richmond, VA 23219 

Telephone: (804) 771-2310 

Facsimile: (704) 771-2330 

Chapter 7 

Case no. 19-34574 (K.RH) 

Adv. Pros. 20-03142 (KRH) and 

21-03095 (KRH)

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SUPPLEMENTAL OBJECTION OF THE UNITED STATES TRUSTEE TO 

TRUSTEE'S MOTION AND MEMORANDUM OF LAW FOR ENTRY OF AN ORDER 

(I) APPROVING (A) JUDICIALLY MEDIATED SETTLEMENT AND (B)

COMPENSATION TO COUNSEL INCLUDING AN IMPROVIDENT PAYMENT 

UNDER SECTION 328(A); AND (II) GRANTING RELATED RELIEF 

John P. Fitzgerald, III, Acting United States Trustee for Region Four (the "United States 

Trustee"), by and through the undersigned counsel, files this Objection to the Chapter 7 Trustee's 

Motion and Memorandum of Law for Entry of an Order (I) Approving (A) Judicially Mediated 

Settlement and (B) Compensation to Counsel Including an Improvident Payment Under Section 

328(a); and (11) Granting Related Relief(Main 0kt. 1328 and Dkt. 211) (the "9019 Motion"). 1 

The United States Trustee asks that the Court strike the Improvident Payment term from the 

Settlement Agreement and 9019 Motion and approve the remainder of the Settlement Agreement and 

9019 Motion and grantsuch other and further reliefas the Court deems appropriate. In support 

hereof, the United States Trustee respectfully states as follows:

2

INTRODUCTION 

The $21 million dollar settlement appears to be an excellent result, and the United States 

Trustee does not object to, or question the Chapter 7 trustee's business judgment as to the amount 

of the settlement or the mutual releases contained therein. But there is one tem1 of the settlement 

as currently structured thatisinconsistent with the BankruptcyCode and to which the United States 

Trustee does strongly object. Under the terms of the settlement as presented, up to $10.5 million 

dollars-50% of the settlement proceeds-would be paid to the Chapter 7 trustee's counsel, Quinn 

1 

"MainDkt." refersto the docket in the main Bankruptcy Case. "Dkt." refers to the docket in the United Lex 

Adversary Proceeding, while "Reed Dkt." refers to the docket in the Reed Adversary Proceeding {both as defined herein 

and, collectively, the "Adversary Proceedings"). 

2 Capitalized terms not defined herein shall have the meaning ascribed to them in the 9019 Motion. 

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Emanuel ("Quinn"), despite this Court's previous Order approving Quinn's 35% contingency fee 

for litigation matters. 

To date, Quinn has received $5,777,138.00 in fees on its retention in the LeClairRyan 

banlrruptcy case. Foley & Larder, LLP ("Foley''), the predecessor firm where nvo lawyers for the 

Chapter 7 Tmstee previously practiced, has received $2,102,086.00 in fees representing the 

Chapter 7 Tmstee in the case. Should Quinn be compensated at its Com1-approved 35% 

contingency fee for this settlement, it would be entitled an additional $7.35 million dollars in fees. 

However. this settlement contains an additional term that would provide Quinn up to an additional 

$3.15 million dollars over and above the $7.35 million dollar contingency fee-i11 a case that

settled before trial. 

The justification for the additional payment to Qu.inn-te1med the "Improvident Payment" -

is that the 

-- as inc01porated by the Federal Rules of Banlm1ptcy Procedure. The 

Chapter 7 Trnstee, through counsel, argues in the 9019 Motion that 

could not have anticipated it when it agreed to 

represent the Chapter 7 Trnstee on a 35% contingency fee basis. As a consequence, the Chapter 7 

Tmstee fut1her argues that Quinn's lawyers had to work longer and harder than they envisioned 

when they entered into an attorney-client relationship with the Chapter 7 Trnstee and thus should 

receive an additional $3.15 million dollars more in fees from the proceeds of this settlement. 

To be clear, the United States Tmstee is not asserting that Qttillll is not entitled to its 35% 

contingency fee from this settlement nor does the United States Tmstee 

. To the contrary, the Chapter 7 

Tmstee's 

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-

This Court approved Quinn's retention onJ1me 28,2021, and in tbattime, Quinn 

has takeuno cases to trial and has received $5,533,500.00 in fees. Quinn has and continues to reap 

the rewards of its fee arrangement. Just because the ULX litigation has taken longer and required 

more effort than the other matters settled in the LeClairRyan bankmptcy case does not mean that 

Quinn struck a bad deal with the Chapter 7 Trustee and should receive an additional $3.15 million 

dollars from the estate. 

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During the May 25, 2022, sealed portion of the hearing before this Comi, there was a 

discussion regarding whether the Improvident Payment 

As set forth in more depth below, the United States Tmstee objects to the 9019 Motion to 

the extent that it provides for the Improvident Payment for the following reasons: 

• Tue Settlement May Be Approved Without Awarding the Improvident Payment

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• The Improvident Payment Must Analyzed Under the Standards of§ 328(a) of the

Bankruptcy Code, Not Bankruptcy Rule 9019

• The Chapter 7 Trustee and Quinn Have Not Established that the Improvident

Payment ls Warranted Under§ 328(a) of the Bankruptcy Code

• Even if the Requirements of§ 328(a) Were Met, There is Insufficient Evidence as

to the Appropriate Amount of the Improvident Payment

• 

• The Improvident Payment Provision of the Settlement Agreement Is Outside the 

Scope of the FAO Procedures 

JURISDICTION 

1. This Court has jurisdiction of this proceeding pursuant to 28 U.S.C. §§ 157 and

1334, and the delegation made by the United States District Court by Order dated August 15, 1984. 

2. The United States Trustee files this Objection in furtherance of his duties and

responsibilities pursuant to 28 U.S.C. § 586 and 11 U.S.C. § 307. 

FACTUAL BACKGROUND 

3. On September 3, 2019 (the "Petition Date"), the Debtor filed for relief under

Chapter 11 of Title 11 of the United States Code, 11 U.S.C. §§ 101-1532 (as thereafter amended, 

the "Bankruptcy Code") in the United States Bankruptcy Court for the Eastern District of Virginia, 

Richmond Division (the "Bankruptcy Court"). 

4. On October 4, 2019, the Debtor's Chapter 11 case was converted to a case under

Chapter 7 of the Bankruptcy Code. (Main Dkt. 140). Lynn L. Tavenner was appointed Chapter 7 

Trustee (the "Chapter 7 Trustee"). 

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Special Counsel Retention Applications and Fees Awarded to Date 

5. On October 4, 2019, this Court entered an Order approving the retention of

Tavenner & Beran PLC to represent the Chapter 7 Trustee on an hourly basis. (Main Dkt. 142 

(retention application), 152 (order)). 

6. On February 10, 2020, the Court entered an Order approving the retention of the

law firm of Foley as special counsel, pursuant to § 327(e) of the Bankruptcy Code, to represent 

the Chapter 7 Trustee in litigation matters. The Court ordered that Foley be compensated on an 

hourly basis for legal services performed during the "Investigative Phase," and that, pursuant to§ 

328(a), Foley be compensated on a 30% contingency fee basis for legal services performed during 

the "Litigation Phase." (Main Dkt. 300 (retention application), 342 (order)). 

7. Subsequently, on May 18, 2021, the primary Foley lawyers handling the

representation of the Chapter 7 Trustee, Erika L. Morabito and Brittany Nelson, moved their 

practice to the law firm of Quinn. 

8. On June 7, 2021, the Chapter 7 Trustee filed an application to retain Quinn as her

special counsel to replace Foley to investigate and pursue various causes of action. (Main Dkt. 

908 (retention application), 937 (order)). 3 More specifically, the Chapter 7 Trustee was seeking 

to retain Quinn on a contingency fee basis on certain matters (the "Contingency Matters"):4

3 As to the prior representation by Foley, the Quinn retention application noted that "Quinn Emanuel and Foley 

understand the necessity to, and have agreed to, coordinate with each other to transition the designated matters to 

Quinn Emanuel. Said transition shall result in no additional cost to the Estate." Main Dkt. 908 at ifl 7. Moreover, 

the two firms acknowledged that to the extent that Foley was entitled to any renumeration for services rendered in 

connection with Contingency Matters, the compensation to be awarded (together with the fees provided Foley) 

would not exceed the 35% contingency fee. Main Dkt. 908 at ,r20. 

4 The Contingency Matters include the following: 

a. Investigation of the Estate's chums and causes of action (collectively the "Claims" and each a

"Claim") against certain individuals, entities, and/or former attorneys of the Debtor and/or those

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9. The Chapter 7 Trustee also sought to retain Quinn on an hourly basis in connection

with other related matters that may have required legal services, "including but not limited to, 

proceedings to enforce a judgment including with respect to liens, probate proceedings, disputes 

with the Debtor's insurance company regarding coverage, and/or preparation for, and attendance 

at, omnibus hearings before the Bankruptcy Court if said attendance is not solely related to pursuit 

of one or more claims" (the "Non-Contingency Matters"). Main Dkt. 908 at 115.5

10. As to Contingency Matters, the retention application contemplated a contingency

fee of 35% - 5% higher than what the Chapter 7 Trustee had previously agreed to with Foley (the 

''Contingency Fee"). Main Dkt. 908at119. The Contingency Fee was to be calculated based on: 

any recovery of funds actually received by the Estate with respect to a particular 

Id. 

Claim, whether such recovery of funds actually received by the Estate is by way of 

settlement, judgment, compromise or otherwise (including from proceeds of 

insurance) after deduction of the amount of costs and expenses ( other than the 

Trustee's own fee and any fees charged by the Trustee's law firm and/or any other 

professional employed by the Trustee except as otherwise provided in the 

Engagement Letter) paid by the Trustee (or by Quinn Emanuel on behalf of the 

Trustee, to the extent Quinn Emanuel agrees to do so as a convenience) in 

connection with such Claim. 

acting in concern with them, including but not limited to ULX Partners, LLC and UnitedLex 

Corporation, and possibly others; 

b. Determining responsible parties;

c. Preparing, filing, and/or prosecuting one or more lawsuits;

d. Settlement procedures and negotiations;

e. Prosecution of claim(s) until settlement, award, or judgment is obtained; and

f. If judgment is obtained in the Trustee's favor, opposing an opposing party's motion for new

trial (if any);

g. Negotiations regarding possible settlement with any Defendant.

Main Dkt. 908 at 114. 

5 The Engagement Letter attached to the Quinn retention application further provided: 

This Agreement does not cover other related matters that may arise and may require legal services 

(for example, disputes with the Debtor's insurance company regarding coverage or preparation 

for, and attendance at, omnibus hearings before the Bankruptcy Court if said is attendance is not 

solely related to pursuit of one of more Claims). 

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11. The Quinn retention application further emphasized that "[f]or Contingency

Matters, in no event will the total amount paid by the Estate to any and all special counsel exceed 

the Fee for each such matter." Main Dkt. 908 at ,i 20. 

12. For Non-Contingency Matters, Quinn would charge its standard hourly rates,

subject to a I 0% discount. Id. The Engagement Letter attached to the Quinn retention application 

listed the 2021 hourly billing rates for the engagement to range between $1660.50 (for senior 

partners) to $441.00 (for first-year law clerks), taking into account the 10% discount. Main Dkt. 

908, Exhibit 1, Section ( d). 

13. On June 28, 2021, the Court entered the Order authorizing the retention and

employment of Quinn in the various litigation matters pursuant to §§ 327(a), 327(e), and 328(a) 

of the Bankruptcy Code. Main Dkt. 937. As set forth in the retention application, the retention 

order approved the dual fee structure described above whereby Quinn would bill the estate (a) on 

a 3 5% contingency fee basis for the Contingency Matters and (b) on an hourly basis for the NonContingency Matters. 

14. As for the hourly rates awarded for the Non-Contingency Matters, the Order

expressly provided that "Quinn Emanuel and the Trustee shall mutually agree in writing before 

any services are provided for Non-Contingency Matters." Id. at i! 4 (emphasis added). Moreover, 

the order emphasized that "[a]pproval of Quinn Emmanuel's fees shall be subject to further order 

of the Court." Id. at ,i 6. 

15. Between 2020 and 2021, Foley filed a total of four interim fee application seeking

both hourly and contingency fees, and was awarded a total of $2,203,634.00 (including expenses), 

as set forth below: 

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Date MainDkt. Hourly/Investigative Contingency Expenses 

No. 

6/24/21 931 146,957.00 960,429.00 34,577.00 

2/10/21 779 163,266.00 75,254.00 30,528.00 

10/16/20 657 433,213.00 41,040.00 26,658.00 

8/5/20 587 271,222.00 10,705.00 9,785.00 

Total 1,014,658.00 1,087,428.00 101,548.00 

16. Between 2021 and 2022, Quinn also filed three interim fee applications seeking

both hourly and contingency fees, and was awarded a total of $5,932.521.00 (including 

expenses), as set forth below: 

Date Hourly/Investigative Contingency Expenses 

4/12/22 12826 66,354.00 200,550.00 98,341.00 

12/22/21 1168 93,541.00 4,527,600.00 29,096.00 

10/13/21 1075 83,743.00 805,350.00 27,946.00 

Total 243,638.00 5,533,500.00 155,383,.00 

17. On March 15. 2022, Quinn filed a Supplement to its third interim fee application

seeking additional fees (the "Supplemental Third Interim Fee Application"). Main Db. 1249. 

More specifically, in addition to the fees and costs sought in its third interim fee application, Quinn 

sought an additional $24,150.17 in hourly fees and $6,942.27 in costs arising from the Mediation 

(as defined herein) and pleadings that the Chapter 7 Tmstee intended to file with the Court related 

to the Mediation. As set forth in more detail in the Supplemental Third Inte1im Fee Application: 

The Additional Fees and Additional Costs were incurred in connection with a 

mediation held on March 5 and March 6. and pleadings that the Tmstee prepared 

6 A fee application (Main 0kt. 1245) and a suppleme111al fee request (Main D1'1. 1249} were filed. TI1e fee app 

sought S48.063.00 in fees. l11e supplemeut

al fee application sought S24.150.00 in fees. for a total of $72.213 .00. 

Following discussion with the United States Tmstee. Quinn reduced the amount sought by $5.859.00. l11e total 

approYed by this Court was $66.354.00. 

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and intended on filing with this Court on Friday, March 11, 2022. These pleadings 

were also related to this Court's March 7, 8, and 10 orders [Dkt. Nos 177. 178, and 

183] in [this Adversary Proceeding] .... Prior to filing the pleadings referenced 

herein (which included a motion, exhibits, and several declarations related thereto), 

and pursuant to Bankruptcy Rule 7037 and Local Rule 26, the parties held a meet 

and confer on the afternoon of March 11, 2022 (the "Meet and Confer"). As part 

of the Meet and Confer, counsel for the Trustee explained the contents of her 

motion and the relief being requested therein. Shortly after the Meet and Confer, 

the parties were able to reach a resolution regarding the relief sought in the motion, 

thereby eliminating the Trustees need to file said motion. The Additional Fees and 

Additional Costs being sought ... will be reimbursed to the Estate by Greenberg 

Traurig and/or United Lex Corporation. 

Id. at ii 4. 

18. Notably, in the Supplemental Third Interim Fee Application, Quinn notes that while

the firm had incurred $69,416.30 of fees that it could seek as additional hourly fees, it was only 

seeking $24,150.17 on an hourly basis in conjunction with the supplement, while reserving the 

right "to seek the remainder of these fees from the Estate in future fee applications as Contingent 

Fees sought" in connection with the UnitedLex Adversary Proceeding (as defined herein).7 

19. No objections were filed to the Supplemental Third Interim Fee Application, and

on April 12, 2022, the Court entered an Order approving Quinn's third interim fee application 

approving Quinn's fees and expenses, including the supplemental fees requested. Main Dkt. 1282. 

FA O Procedures 

20. On May 14, 2020, the Chapter 7 Trustee filed a Motion for an Order Establishing

Procedures Regarding the Prosecution of Actions Involving Former Attorneys and Certain Others 

and Memorandum in Support Thereof (the "F AO Procedures Motion") (Main Dkt. 457). The FAO 

Procedures Motion was approved by Order of this Court (Main Dkt. 533), as 

7 For purposes of full disclosure, the Supplemental Third Interim Fee App lication did note, however, that "nothing 

herein shall prevent the Trustee from seeking additional fees and costs on behalf of the Estate for additional matters 

not raised in the Meet and Confer." 

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amended/supplemented by additional Orders ofthis Court (Main Dkt. 929 and 982) (collectively, 

the "FAO Order"). 

21. The F AO Order established procedures for matters involving, among others, former

attorneys of the Debtor, persons receiving transfers for the benefit of former attorneys, ULX 

Partners, UnitedLex Corporation, and various insurance companies. Main Dkt. 457 at ,r 9. 

22. Among other things, the F AO Order established a mediation process for all matters

covered by the FAO Order. Main Dkt. 533. 

Adversary Proceedings and Mediation Process 

23. On October 26, 2020, the Chapter 7 Trustee filed the current adversary proceeding

against ULX Partners, LLC and UnitedLex Corporation (as amended, the "UnitedLex Adversary 

Proceeding"). ULX Partners, LLC, UnitedLex Corporation and ULX Manager, LLC, shall be 

referred to collectively as the "ULX Defendants." 

24. On September 2, 2021, the Chapter 7 Trustee filed a separate adversary proceeding

(No. 21-03095-KRH) (the "Reed Adversary Proceeding") against CVC Capital Partners as well as 

UnitedLex Corporation's Chief Executive Officers, Daniel Reed, its Chief Financial Officer, 

Nicholas Hinton, as well as Josh Rosenfeld and P. Douglas Benton (collectively the "Reed 

Defendants"). The ULX Defendants and the Reed Defendants shall be referred to collectively as 

the "Defendants." The UnitedLex Adversary Proceeding and Reed Adversary Proceeding shall be 

referred to collectively as the "Adversary Proceedings." 

25. After the Court granted a motion to amend the complaint in the

UnitedLexAdversary Proceeding, a two-week trial in that adversary proceeding was scheduled to 

begin on April 14, 2022. Dkt. 144. 

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26. On January 28, 2022, the ULX Defendants filed a Motion for Summary Judgment

(Dkt. 133) (the "Motion for Summary Judgment") and associated documents, seeking to dismiss 

certain claims. The Chapter 7 Trustee opposed the Motion for Summary Judgment. Dkt. 152. 

27. On February 4, 2022, at the joint request of the Chapter 7 Trustee and the ULX

Defendants, the Court entered an Order in the United Lex Adversary Proceeding (the "Mediation 

Order") appointing the Honorable Frank J. Santoro, the Chief Judge of the United States 

Bankruptcy Court for the Eastern District of Virginia, as the judicial mediator (the "Mediator"), to 

conduct a mediation (the "Mediation") among the Chapter 7 Trustee, the ULX Defendants, Mr. 

Reed and Mr. Hinton in their individual capacities, and insurance carriers for the Defendants. Dkt. 

142. 

28. The Mediation Order expressly provided that "[a]ny resolution that is reached will

be subject to Court approval after notice and opportunity for hearing in accordance with the Federal 

Rules of Bankruptcy Procedure and the Local Bankruptcy Rules." Dkt. 142 at iJ8. 

29. On February 11, 2022, the Chapter 7 Trustee filed a Motion for Leave to Amend

the First Amended Complaint (Dkt. 147) (the "Second Motion to Amend") and to place the 

associated documents under seal. The Second Motion to Amend sought to add an additional count 

against United Lex Corporation and ULX Manager LLC. The ULX Defendants opposed the 

Motion to Amend (Dkt. 168). The Second Motion to Amend was held in abeyance pending the 

Mediation and the now pending 9019 Motion. 

30. Between March 5 and April 13, 2022, the parties engaged in the Mediation in an

effort to resolve the Adversary Proceedings. 

31. On March 8, 2022, the Mediator entered the "Order Directing Defendants to

Produce Insurance-Related Information" (Dkt. 177) (the "March 8 Insurance Order") and the 

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"Order Directing the Exchange of Information Between the Defendants, Nicholas Hinton, Daniel 

Reed, the Insurance Companies and the Chapter 7 Trustee" (Dkt. 178). 

3 2. On March 9, 2022, the Bankn1ptcy C om1 entered an order that the trial in this matter 

be continued lmtil May 17, 2022. and also continued other pending motions in the case. Dkt. 184. 

33. On March 18, 2022, the ULX Defendants and Reed and Hinton produced

approximately 5,000 pages of documents pursuant to the March 8 Insurance Order. Dkt. 211 at ,i 

30. Following various conferences, additional documents were produced on March 24 and March

28, 2022 (the "Supplemental Production"). Id. at ,i 31. 

34. 

Settlement Agreement 

35. On April 13, 2022 .. after continued negotiations and sharing of infomiation, a global

and comprehensive proposal was made by the Mediator to resolve all of the pending claims in the 

Adversary Proceedings. Id. at ,i 35. 

36. The hearing on the Second Motion to Amend was scheduled for April 19, 2022:

however, right before the scheduled hearing, the pa11ies involved in the Adversary Proceedings 

agreed to the Mediator's proposal (the "Settlement Agreement"). Id. at ,i 36. 

37. At the April 19. 2022, hearing before this Comt the parties annmmced that a 

collective Settlement Agreement had been reached in the Adversary Proceedings; and the material 

te1ms of the Settlement Agreement were set forth on the record with the participation of counsel 

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for the Chapter 7 Trustee and counsel for the Defendants, including special insurance counsel for 

ULX Partners. 

38. On May 11, 2022, the ULX Defendants filed a Motion to Seal. (Main Dkt. 1325

and Dkt. 207), seeking to file under seal the Settlement Agreement, the 9019 Motion, the transcript 

of the April 19, 2022, hearing, and various other documents related to the Adversary Proceedings 

(the "Motion to Seal"). The Motion to Seal further sought that the hearing concerning the Motion 

to Seal and the 9019 Motion be held in camera.

39. The United States Trustee filed an objection to the Motion to Seal. Dkt. 215. A

hearing on the Motion to Seal was held on May 25, 2022. The Court granted the Motion to Seal 

on an interim basis, with final decision deferred until June 8, 2022, to be heard on the same date 

as the 9019 Motion. 

40. On May 18, 2022, the Chapter 7 Trustee filed the 9019 Motion. (Dkt. 211).

41. The 9019 Motion seeks the entry of an order (a) approving the Settlement

Agreement; (b) authorizing the effectiveness of the Settlement Agreement on behalf of the Estate; 

( c) approving the Contingency Fee payment to Quinn; and ( d) approving the Improvident Payment

to Quinn. Id. at� 2. 

42. The key terms of the Settlement Agreement, as summarized in the 9019 Motion,

are as follows: (a) Continental Casualty Company (a CNA entity) shall pay the estate the sum of 

$5,000,000.00; (b) Columbia Casualty Company (also a CNA entity) shall pay the estate the sum 

of $7,250,000.00; ( c) Travelers Casualty and Surety Company of America shall pay the estate the 

sum of $500,000.00; (d) the ULX Defendants, CVC, Mr. Reed, Mr. Hinton and other defendants 

named in the Adversary Proceedings shall pay the estate the sum of $8,250,000.00, which sum 

would be paid in three separate installments; (f) various consensual releases amongst parties to the 

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Settlement Agreement; and (g) ULX Partners, LLC agreed to waive the ULX Partners' Proofs of 

Claim. Id. at ,-r 37. 

43. Notably, the Settlement Agreement also seeks approval of a payment to Quinn of

its Contingency Fee of 35% of the total amount of the payments that the estate is to receive -­

$21,000,000.00 (the "Total Settlement Payment"). Id. In addition, the 9019 Motion seeks 

authority for the Chapter 7 Trustee to pay Quinn the Improvident Payment in an amount not to 

exceed $3,150,000.00 based on the assertion that "the terms of the Quinn Retention Order have 

proven to be improvident in view of circumstances in this matter." Id.

LEGAL ARGUMENT 

I. The Settlement May Be Approved Without Awarding the Improvident Payment

The United States Trustee does not object to the Chapter 7 Trustee settling the Adversary

Proceedings which have spanned almost over a two-year period and have been extremely 

contentious and agrees that the Total Settlement Payment of $21 million is an overall good result 

for the estate. The United States Trustee also does not contest the payment of the 35% Contingency 

Fee to be paid to Quinn, as previously approved by the Court under § 328(a) upon the firm's 

retention. The United States Trustee does contest, however, that under the terms of the Settlement 

Agreement, Quinn stands to receive 50% of the Total Settlement Payment - a 15% increase of its 

agreed-upon Contingency Fee. 

Disallowing the Improvident Payment would not be fatal to this settlement. Under the 

express terms of the 9019 Motion, the settlement can be approved even if this Court does not 

approve the Improvident Payment: 

Further, just like in TRU, the Bankruptcy Court here may exercise its own 

gatekeeper role of determining whether the Improvident Payment is warranted and 

reasonable. Thus, pursuant to section 105 of the Bankruptcy Code and Bankruptcy 

Rule 9019, the Bankruptcy Court should approve the Settlement Agreement, 

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regardless of whether the Improvident Payment separately qualifies as a payment 

under section 328(a) of the Bankruptcy Code. 

(9019 Motion, Para. 63.) 

As the 9019 Motion specifically provides that approval of the Improvident Payment is not 

necessary for approval of the Settlement Agreement, for the reasons set forth below, this Court 

should disallow the Improvident Payment and approve the Total Settlement Payment to the estate 

and compensate Quinn according to the terms upon which this Court previously approved its 

employment. 

II. The Improvident Payment Must Analyzed Under the Standards of § 328(a) of the

Bankruptcy Code, Not Bankruptcy Rule 9019

The United States Trustee does not dispute the Rule 9019 standard that applies to the approval 

of settlement agreements as articulated by the Chapter 7 Trustee. In evaluating whether to approve 

a settlement under Bankruptcy Rule 9019, the Court should consider: ( 1) the probability of success 

in the litigation; (2) the complexity expense and likely duration of the litigation; (3) all other factors 

relevant to making a full and fair assessment of the wisdom of the proposed compromise, including 

potential difficulties in collection, if any; and ( 4) whether the proposed compromise is fair and 

equitable to the debtor, its creditors, and other parties in interest. Fotner v. Hotel Street Capital, 

LLC. 2021 WL 1022585, *3 (E.D. Va. Feb. 5, 2021) (citing In re Austin, 186 B.R. 397, 400) 

(Bankr. E.D. Va. 1995)). See also 9019 Motion at 142. 

The Improvident Payment, however, must be analyzed under the more stringent standard 

articulated in Bankruptcy Code § 328(a). Bankruptcy Rules, such as Rule 9019, shall not abridge, 

enlarge, or modify any substantive right. 28 U.S.C. § 2075. Moreover, the "general language of 

a [Bankruptcy Code] statutory provision, although broad enough to include it, will not be held to 

apply to a matter specifically dealt with in another part of the same enactment." RadLAX Gateway 

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Hotel, LLC v. Amalgamated Bank, 132 S. Ct. 2065, 2071 (2012) (holding that general 

authorizations in the Bankruptcy Code cannot be used to avoid specific statutory provisions). This 

rule "is particularly true where ... Congress has enacted a comprehensive scheme and has 

deliberately targeted specific problems with specific solutions." Id. (internal quotation and citation 

omitted); see also In re Keren Ltd. P 'ship, 189 F.3d 86 (2d Cir. 1999). The strict requirements 

imposed by§ 328(a) must be the standard upon which the Improvident Payment is reviewed-not 

the factors used to review Rule 9019 settlements. The plain meaning of the Bankruptcy Code's 

text is clear and determinative. Where Congress has enacted § 328(a) to govern administrative 

expense paid to professionals from the bankruptcy estate, the broader "fair and equitable" standard 

governing Rule 9019 settlements should not apply. See In re Lehman Bros. Holdings, Inc., 508 

B.R. 283, 289 (S.D.N.Y. 2014). For the reasons set forth in greater detail below, neither the 

Chapter 7 Trustee nor Quinn has met the requirements of§ 328(a); accordingly, the Improvident 

Payment should not be awarded. 

Even if the Court were to review the Improvident Payment under the Bankruptcy Rule 

9019 standard - which it should not - the Court should deny that any additional fee be paid to 

Quinn. In the case of In re Hale-Halsell Co., the court denied a settlement agreement with respect 

to a request for a fee enhancement under the standard of Rule 9019. In re Hale-Halsell Co., 391 

B.R 459 (Bankr. N.D. Okla. 2008). In that case, Hale Halsell Company filed a Chapter 11

proceeding. A committee of unsecured creditors was appointed, and it employed two law firms. 

At the end of the case, one of the committee's law finns filed a final fee application seeking a 

blended hourly rate of $325.00 per hour, rather than the $275.00 hourly rate that it had agreed to 

in the original retention application. The firm argued that the request for the fee enhancement was 

warranted because (a) the bankruptcy case was more complex than originally anticipated and (b) 

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while it was originally determined that most of the work could be performed by more junior 

attorneys, it was later determined that the services to be performed required attorneys at a more 

senior level. Ultimately, a settlement was reached whereby parties agreed to an enhancement fee 

of $25,000.00, rather than the $52,320.00 originally sought; and the firm sought court approval of 

the proposed compromise. 

Despite there being no objections to the settlement, the court in Hale-Halsell Co.

considered the standards for approval of a compromise generally applicable to motions seeking 

the approval of settlements pursuant to Bankruptcy Rule 9019. In considering the "likelihood of 

success on the merits," the court noted that the complexity of the case, the claim that the firm 

expected the case to be handled by less experienced and less expensive attorneys, and the 

substantial return to unsecured creditors were foreseeable at the time; accordingly, the likelihood 

of the firm prevailing on the "improvident" standard of§ 328(a) was not likely. Id. at 467. As to 

the "whether the settlement promotes the integrity of the judicial system," the court noted: 

This Court is troubled by the prospect of a system that allows the compensation 

arrangements to be changed after the fact, absent the most exception of 

circumstances. Bankruptcy is designed to be a transparent process, where creditors 

and the public can easily view and understand what is going on in any particular 

case. Fee arrangements between professionals and a bankruptcy estate are to be 

equally transparent. This transparency is clouded, if not made completely opaque, 

if fee arrangements can be routinely adjusted after the fact. The Committee and the 

Court had the right to rely upon [the firm's] representation that its blended rate 

would not exceed $275 per hour, and the public had the right to rely upon the 

Court's retention order to that effect. Modifying that order on the facts of this case 

would not promote the integrity of the bankruptcy system. 

Id. at 469. Finally, as to the "interests of the creditors" factor, the court stated that the interests of 

creditors in bankruptcy center upon maximum recovery; accordingly, if the fee enhancement was 

not paid, there would be more money paid to creditors. Id. Moreover, the court noted that the 

creditors had a right to rely upon the representation made by the firm as it sought employment in 

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the case, just as they had the right to rely upon the order of the cotut that approved the firm's 

retention. 

Ultimately. in denying the motion seeking the approval of the compromise on the fee 

enhancement. the cotut concluded: 

This Court is well aware of and agrees with the principle that compromises are to 

be favored in bankruptcy cases. However, the principle is not without its 

exceptions. The compromise presently before the Cotut fails to meet the standards 

contained in §328(a). It nms contrary to the representations made by [the fnm] in 

its employment application and the order of the Court that authorized said 

employment. As such, it should not be approved. 

Id. at 470. Similarly. here, even if the Court were to review the Settlement Agreement - and in 

pa11icular the Improvident Payment - under the standards for approval of a settlement pursuant to 

Rule 9019. the factors weigh against its approval. 

ill. The Chapter 7 Trustee and Quinn Have Not Established that the Improvident 

Payment Is \Varranted Under§ 328(a) of the Bankruptcy Code 

The 9019 Motion characterizes the Improvident Payment as "being directed by the 

Mediator and being a material and integral pa1t of the Settlement." The 9019 Motion further argues 

that Quinn is entitled to the hnprovident Payment pursuant to § 328(a). While making broad 

arguments about Quinn having to spend a substantial amOlmt of time that it could not have 

anticipated to deal with and the nnanticipated developments resulting 

therefrom, the justifications provided for the Improvident Payment, an increase of the Contingency 

Fee by over 15%, falls shol1 of meeting the high hurdles of§ 328(a). 

Section 328(a) provides that "the court may allow compensation different from the 

compensation provided 1mder such tem1s and conditions after the conclusion of such employment. 

[only] if such terms and conditions prove to have been improvident in light of developments not 

capable of being anticipated at the time of the fixing of such tenns and conditions." 11 U.S.C. § 

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328(a). Section 328(a) operates to limit risk against being paid less than agreed when in hindsight 

the amount appears excessive. However, it also applies with equal force to limit the risk that 

professionals will seek to be paid more than they agreed to accept when they obtain a better result 

than anticipated. See 3 Collier On Bankruptcy 328.03[4][b], at 328-30 (2020) ("Section 328(a) 

thus operates as a two-way ratchet: it may preclude reduction of compensation that in hindsight 

appears excessive, but it also may preclude an increase of compensation that in hindsight appears 

inadequate. Section 328(a) ultimately provides a device whereby a debtor and its professionals 

may allocate risk and reward on an ex ante basis and generally have that allocation respected ex 

post."). 

"[I]f the terms of their compensation are approved as part of their retention under§ 328(a), 

professionals largely lock in how they will be paid, with no later second-guessing as to 

reasonableness unless such terms prove to have been improvident in the light of developments not 

capable of being anticipated when they were fixed by the retention order." In re Frontier 

Commc 'ns Co,p., 623 B.R. 358, 362 (Bankr. S.D.N.Y. 2020). Varying compensation after 

approval under§ 328(a) presents a "high hurdle" as the standard requires "show[ing] not merely 

that a compensation adjustment is appropriate considering subsequent developments that were 

previously unforeseen or unanticipated by the parties; instead, the movant is tasked with the 

weightier burden of proving that the subsequent developments were incapable of being 

anticipated at the time the engagement was approved." In re ASARCO, L.L.C. (ASARCO), 702 

F.3d 250,258 (5th Cir. 2012) (emphasis added); but see In re Janata, 395 B.R. 496,498 (Bankr.

S.D. Fla. 2008) (holding that considering the remarkable results achieved by counsel in this "highly

bizarre" case, where the estate ultimately realized sufficient funds to pay all general unsecured 

creditors, as well as a residue capable of satisfying in part the claims of various subordinated 

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creditors, a fee enhancement of $30,000 was warranted). There is no mention in the 9019 Motion 

of potential payout to general unsecured creditors. 

The burden of proof to establish any new compensation terms rests with the applicant. In 

ASARCO, the Fifth Circuit rejected the investment banker's "proffered excuse that it had no way 

- and, therefore, could not have anticipated - the full extent of ASARCO' s internal disarray ... "

ASARCO, 702 F.3d at 265. In a complex case, a professional is generally capable of anticipating 

that "plans for a quick pit-stop reorganization" could be slowed by such factors of which it is 

aware, as well as "other foreseeable problems-such as inadequate leadership, management, 

internal controls, and reporting systems-that it had not yet discovered. Id. at 264; In re Smart 

World Technologies, LLC, 552 F.3d 228, 235 (2d Cir. 2009) ("[T]he prospect of prolonged 

litigation always exists, and was clearly anticipated by the parties, who made [the attorneys'] 

contingent fee a function of the length of the litigation."). 

To show entitlement to an enhancement, an applicant must produce "specific evidence" 

that an award based on its approved rates does not fairly compensate the applicant for the work 

done. In re Manoa Fin. Co., 853 F.2d 687, 688 (9th Cir. 1988); In re Brous, 370 B. R. 563, 570 

(Bankr. S. D.N.Y. 2007) (quotation omitted) ('"The party advocating such a departure bears the 

burden of establishing that an adjustment is necessary to the calculation of a reasonable fee."'). 

As one court has stated: 

The requirement of "improvidence in light of developments not capable of being 

anticipated at the time" makes it difficult, as a practical matter, for a court to vary 

the compensation even when it thinks that it was improvident at the outset. Whether 

development were capable of being anticipated is fertile ground for debate in 

virtually every case. 

In re Yablon, 136 B.R. 88, 92 (Bankr. S.D.N.Y. 1992). 

In the 9019 Motion, the Chapter 7 Trustee states that it is not until after the Mediation 

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commenced-

. As a result of this, the Chapter 7 Trnstee argues that "the 

unanticipated circumstance 

as well as the unanticipated developments resulting therefrom, were not capable of anticipating by 

either the Tmstee or Quinn Emanuel." Id.·at ,r 58. What the Chapter 7 Tmstee and Quinn appear 

to argue is required 

Quillll to spend more time than it could have anticipated and that the Adversa1y Proceedings could 

have been settled much earlier . Id at 159. That, 

however, simply does not rise to the "improvident" standard of not capable of being anticipated. 

As set f01th above, and with some limited exceptions for matters falling under hourly 

compensation, Quinn was retained to represent the Chapter 7 Tmstee in various matters., including 

the Adversary Proceedings, on a 35% contingency basis. Notably, the 35% Contingency Fee was 

a flat percentage that would apply regardless of whether the Adversaiy Proceedings had settled 

immediately after the Rule 26 initial disclosures were made or whether the case proceeded to a full 

and prolonged trial. Accordingly, the Chapter 7 Trustee and Quinn's assertions that an 

unanticipated amount of time was spent dealing with the case as a result of 

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-Quinn would be paid an additional 15% over and above the previously

ordered Contingency Fee agreement - for a total of 50% of the Total Settlement Payment - for its 

work. Quinn should not be entitled to such a windfall 1mderthe terms of the Settlement Agreement 

as nothing in the Bankruptcy Code would allow such fee enhancement. If the Adversary 

Proceedings had been settled for the same Total Settlement Payment within months of their 

commencement, Quinn would have earned the Contingency Fee of 35%; and an argmnent that 

Quinn's fee should be reduced because otherwise Quinn would receive a windfall would have had 

no merit because settlement is always a possibility even in the early weeks of a case. Alternatively, 

if the parties had engaged in lengthy discovery disputes (albeit with no patty failing to disclose 

relevant infonnation), lengthy and contested litigation pre-trial motions, 1msuccessful mediation, 

and ultimately fully litigating the Adversary Proceedings to trial, with post-trial motions, all 

resulting in the same Total Settlement Payment after prolonged and extensive litigation, ruider the 

pre-approved retention agreement, Quinn v,rould receive the same Contingency Fee of 35%. Any 

argument for a fee enhancement would fail. Employment and a pre-approved compensation 

strncture pursuant to § 328 provides fee certainty on both sides of the coin for the benefit of 

professionals as well as other parties in interest. 

Adversary proceedings can get litigious; and some are more contested and prolonged than 

others. That is simply the nature of litigation; and discove1y disputes are common in many 

adversaries. Said differently, the reasons that the 9019 Motion offers as to why Quinn is entitled 

to a significant increase in their fees could have been anticipated, the pa11ies should not "Monday 

morning quarter back" the previously approved fee agreement to the detriment of the estate, and 

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the hnprovident Payment is not and should not be an integral part of the Settlement Agreement. 

The 9019 Motion cites to some cases that are distinguishable. ill the case of In re Home

Exp., I11c., 213 B.R. 162 (Bank:r. N.D. Cal. 1997), the court adjusted the fees previously ag1:eed 

upon pursuant to§ 328(a). In adjusting: the professionals' fees, the court rejected arguments that 

the fees were improvident in light of the fact that (a) the debtor's reorganization took longer than 

originally anticipated and (b) the difficulties with reclamation claimants and other trade creditors 

proved more nettlesome to resolve than could have reasonable been expected. Id. at 167. The 

court held that ''the only real smprise that might justify a fee adjustment for the professionals under 

§ 328(a) centers on a pervasive managerial vacmnn." Id. ("The managerial vacuum not only left

the professionals stranded in this case with no leadership or direction, but also required them to 

attempt to fill the void."). ill In re Westem Monetary Co11sulta11ts, Jue., 143 B.R. 780 (Bankr. D. 

Colo. 1992), an accountant sought fees of$ 18,651.75, notwithstanding a cap on fees in the order 

granting: its retention application. The bankruptcy cow1 had adjusted the debtor's accorn1tant's fees 

upward because the accounting finn had to reconstruct manually many files that had been lost 

when the debtor's computer was removed. The accountant requested additional fees; and the 

bankruptcy court's approval of such fees was appealed by the debtor. The accmmting firm filed a 

motion for sanctions lmder Rule 11 and 28 U.S.C. § 1927 alleging that the appeal was filed to 

frustrate the fnm's collection effo1ts. The district comt afflfllled the lower court, finding that the 

bankruptcy court's approval of the acco1mtant's increased fees lmder the§ 328(a) "improvident'' 

standard was not clearly erroneous and awarded additional sanctions under Rule 11. -

. Fmthennore, the additional fees sought in these cases were very modest 

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compared to the Improvident Payment sought in this case. 

The 9019 Motion also draws the Court's attention to the settlement reached in the Toys R 

Us case which provided for, among other things, a substantial contribution payment to counsel of 

an ad hoc group of creditors (notably, the same counsel who is representing the Chapter 7 Trustee 

in this case). In that case, as the Rule 9019 Motion points out, Judge Phillips overruled the United 

States Trustee's objection and found that the substantial contribution payment of $2 million dollars 

was an integral and material part of the settlement agreement and should thus be approved pursuant 

to§§ 105, 363, and Rule 9019. See TRU August 7, 2018 Transcript at p. 221. Alternatively, the 

Court found that based on the motions, the declarations, the pleadings filed as well as the 

arguments and all evidence submitted in court, the vendor fee payment met the standards of § 

503(b)(3)(D) and (4), "due to the substantial and concrete contributions that the ad hoc vendor 

group and vendor committee members have made towards reaching a settlement that is beneficial 

to the debtor's estates and their creditors." 

As set forth in his objection to the settlement in Toys R Us, the United States Trustee 

objected to, among other things, the substantial contribution payment and argued, in pertinent part, 

that "sections 330(a) and 503(b) contain none of the evidence-avoidance privileges or presumption 

of Bankruptcy Rule 9019(a)." Toys R Us, Inc. et al, No. 17034665 (Dkt. 3979). His position 

remains unchanged today- Rule 9019 is not and cannot be a run-around for more specific sections 

of the Bankruptcy Code. Accordingly, the United States Trustee respectfully disagrees with Judge 

Phillips's decision that the substantial contribution payment could be approved under§§ 105, 363 

and Rule 9019 and further would argue that that order is not binding on this Court. Second, as the 

Chapter 7 Trustee herselfrecognizes in footnote 9 of the 9019 Motion, the standard that applies to 

a substantial contribution is governed by § 503 - not under§ 328(a). Accordingly, the proposed 

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comparison is tantamount to the proverbial "comparing apples to oranges." Thus, reliance on the 

Toys R Us settlement does not provide strong support for the Chapter 7 Trustee's position. 

IV. Even if the Requirements of§ 328(a) Were Met, There is Insufficient Evidence as to

the Appropriate Amount of the Improvident Payment

Should this Court find that Quinn's 35% Contingency Fee is improvident in light of

developments not capable of being anticipated-a finding with which the United States Trustee 

strongly disagrees-the Court must then determine the amount of the Improvident Payment to be 

paid to Quinn over and above its 35% Contingency Fee on the appropriate settlement figure. 

A. The Improvident Payment Improperly Provides for Fees-on-Fees

The Improvident Payment as structured pursuant to the tern.1s of the Settlement Agreement 

and 9019 Motion provides Quinn with an improper windfall. The Total Settlement Payment to the 

estate is $21 million dollars. From that amount, based on its retention application, Quinn would 

be entitled to receive the Contingency Fee calculated as "any recovery of funds actually received 

by the Estate with respect to a particular Claim ... after deduction of the amount of costs and 

expenses (other than the Trustee's own fee and any fees charged by the Trustee's law firm and/or 

any other professional employed by the Trustee except as otherwise provided in the Engagement 

Letter)". See supra at ,r 19. 

As proposed in the 9019 Motion, without providing for a deduction of any "costs and 

expenses," Quinn would earn a Contingency Fee of $7.35 million dollars, which is 35% of the 

Total Settlement Payment, without subtracting any amount first for payment of the Improvident 

Payment. In essence, what is proposed is to pay fees-on-fees. Quinn should not receive a 35% 

Contingency Fee on the Improvident Payment. At a minimum, the amount to the Improvident 

Payment should be subtracted from the Total Settlement Payment so that the 35% percent 

Contingency Fee is calculated based on the Total Settlement Payment minus the Improvident 

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Payment awarded.9

B. There Is Insufficient Evidence for the Court to Make a Determination of the

Amount of Any Improvident Payment Award

The United States Trustee agrees that fees approved under§ 328(a) need not be reviewed 

for reasonableness under§ 330; instead, the contract governs. In re ASARCO, L.L.C. (ASARCO), 

702 F.3d 250,268 (5th Cir. 2012) ("In disputes governed by§ 328(a), the contractual arrangement 

is supreme, and we shall enforce the contract as written.") But here, the 9019 Motion contemplates 

that Quinn will receive the§ 328(a) Contingency Fee-a fee which the United States Trustee does 

not dispute (as it stands alone)-plus an Improvident Payment, the amount of which this Court must 

determine. To the extent this Court determines that the standards under § 328(a) have been met, 

this Court must also have facts to employ a methodology to detennine the appropriate amount of 

an improvident fee under this provision. Here, such facts are absent from the record. 

In the Fourth Circuit, the methodology for determining an appropriate fee are the Johnson 

factors, which are: (1) the time and labor expended; (2) the novelty and difficulty of the questions 

raised; (3) the skill required to properly perform the legal services rendered; ( 4) the attorney's 

opportunity costs in pressing the instant litigation; (5) the customary fee for like work; (6) the 

attorney's expectations at the outset of the litigation; (7) the time limitations imposed by the client 

or circumstances; (8) the amount in controversy and the results obtained; (9) the experience, 

reputation and ability of the attorney; (10) the undesirability of the case within the legal community 

in which the suit arose; (11) the nature and length of the professional relationship between attorney 

and client; and (12) attorneys' fees awards in similar cases. Johnson v. Georgia Highway Express, 

9To illustrate, if the Court were to award an Improvident Payment of $3,150,000.00, the calculation of the 

contingency fee would be as follows: ($21,000,000.00 minus $3, 150.000.00 = $17,850,000.00) multiplied by 35% 

= $6,247,500.00. Total payment to Quinn would be $6,247,500.00 + $3,150,000.00 = $9,397,500.00. 

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Inc., 488 F.2d 714 (5th Cir. 1974). There is insufficient evidence upon which this Court can apply 

the Johnson factors to determine the proper amount of any Improvident Payment. Quinn has not 

filed a fee application under Bankruptcy Rule 2016(a). In order to determine the appropriate 

amount of the Improvident Payment, the Court should have the benefit of a fee application or at 

least time records and an explanation of what additional services Quinn provided that it would not 

have otherwise been required to provide as part of its Contingency Fee representation. Without a 

factual basis, this Court cannot determine the appropriate amount of the hnprovident Payment, and 

as such, should not award an Improvident Payment. 

C. The Chapter 7 Trustee and Quinn Have Failed to Demonstrate How Quinn

Would Be Entitled to the Improvident Payment on an Hourly Basis.

In further support of the request for approval of an Improvident Payment, the 9019 Motion 

provides that "[a]bsent approval of the Settlement Agreement, Quinn Emanuel would otherwise 

seek compensation on an hourly basis by the Estate in an amount that would exceed $3, 150,000." 

Supra at ,r 54. It is unclear, for several reasons, how that alternate argument would allow Quinn 

to prevail on its request for a fee enhancement. First, the hourly rate structure only applies to a 

limited category of services; and it is not clear that any of the work for which Quinn is now seeking 

an increased fee fits into any of those categories. Second, as for the hourly rates awarded for the 

Non-Contingency Matters, the Quinn retention order expressly provide� that "Quinn Emanuel and 

the Trustee shall mutually agree in writing before any services are provided for Non-Contingency 

Matters." See supra at ,r 4 (Emphasis added). Upon infonnation and belief, it does not appear that 

Quinn received any pre-approval by the Chapter 7 Trustee for the work it now tries to fit into the 

Non-Contingency Matters category. To that end, if that were the case, it is not clear why Quinn 

would not simply have filed an appropriate fee application for those hourly fees, subject to§ 330. 

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Even more imp01tantly, it bears emphasis that Quinn has filed fee applications already for 

hourly work ooder the Non-Contingency Matters. fu March of 2022, just a couple of months ago, 

it sought and was awarded additional hourly fees for time spent on the Mediation. Moreover, as 

to any amounts of hourly work related to the Mediation, as set fmth above at Paragraph 17, Quinn 

ah·eady :filed a supplemental fee application indicating that it bad incurred $69.416.30 of fees that 

it could seek as additional hourly fees, and noting that it was only seeking $24,150.17 on an hourly 

basis in conjunction with the supplement, while reserving the right "to seek the remainder of these 

fees from the Estate in future fee applications as Contingent Fees." Dkt. 1249, pg, 2, fn 2 

( emphasis added). 

V. 

-

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VI. The Improvident Payment Provision of the Settlement Agreement Is Outside the

Scope of the F AO Procedures

At the May 25, 2022, hearing, this Com1 inquired why the FAO ProcedlU'es do not govern 

this settlement. (FAO procedures fmmd at Main Dk.'1. 533 and 929 (as amended)). The United 

States Trustee's position is that Rule 9019 and the FAO Procedures do g:ovem the settlement as it 

relates to the $21 million dollar Total Settlement Payment and the mutual releases, but do not 

govern as it relates to the hnprovident Payment. This position is set forth in the United States 

T mstee' s Opposition to the Motion to Seal,, incorporated herein by reference. (Dkt. 215 at Sections 

Band C, pages 11-15). fu sum, the United States Tmstee asserts that the FAO Procedures were 

put in place for judicial economy and to prese1ve resources of the estate as well as defendants. The 

procedures allowed for more expeditious resolution of the numerous actions asserted by the 

Chapter 7 Tmstee against various parties by including confidentiality pro:visions, but with certain 

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terms to allow the Chapter 7 Trustee to still comply with her fiduciary duties. In no way did the 

F AO Procedures include such confidentiality provisions or considerations for increased fees or 

payment of an enhancement to counsel for the Chapter 7 Trustee. In fact, to allow the request and 

any alleged justification for increased fees over and above those on the public record to her own 

counsel under any fonn of seal puts the Chapter 7 Trustee in a very precarious position with those 

she is duty-bound to serve. The Chapter 7 Trustee owes a duty to all creditors in the case, not just 

those few who receive notice under the F AO Procedures. In essence, it is the inclusion of the 

Improvident Payment in this Settlement Agreement that puts it beyond the scope of the previously 

approved F AO Procedures. 

CONCLUSION 

WHEREFORE, the United States Trustee requests that the Court strike the Improvident 

Payment term from the Settlement Agreement and the 9019 Motion and approve the remainder of 

the Settlement Agreement and the 9019 Motion and grant such other and further relief as the Court 

deems appropriate. 

Dated: June 3, 2022 

33 

Respectfully Submitted, 

JOHN P. FITZGERALD, III 

Acting United States Trustee Region 4 

By: ls/Kathryn R. Montgomerv 

Kathryn R. Montgomery (VSB 42380) 

Assistant United States Trustee 

Office of the United States Trustee 

701 E. Broad St., Ste. 4304 

Richmond, VA 23219 

Ph: (804) 771-2310 

Fax: (804) 771-2330 

Kathryn.Montgomery@usdoj.gov 

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CERTIFICATE OF SERVICE 

I hereby certify that on June 3, 2022, I caused a copy of the foregoing pleading to be served 

by email on the Chapter 7 Trustee, her counsel, and counsel for the parties in the Adversary 

Proceedings. 

34 

Isl Kathryn R. Montgomery 

Kathryn R. Montgomery, Esq. 

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