Source: https://bclpgrid.com/author/mduedall/page/2/
Timestamp: 2019-04-24 15:08:28+00:00

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We all remember The Devil and Daniel Webster – the Devil comes to collect a seven year old debt (secured by Jabez Stone’s soul), only to be foiled by the great trial lawyer Daniel Webster – thanks to a skilled litigator, the old debt is forgiven!
You Get a Car! You Get a Car! Bankruptcy Court Gives Debtor a Car. Unsecured Creditors Get Nothing.
So, a ruling came out in June that we in The Bankruptcy Cave have been dying to blog about (and not just so we can use the blog title above). Forgive the delay – heavy workloads and summer vacations often preclude timely blog posts. But this one is a doozy, better late than never on this blog post.
On May 16, 2016, in Husky International Electronics, Inc. v. Daniel Lee Ritz, Jr., Case No. 15-145, the Supreme Court held that the term “actual fraud” in § 523(a)(2)(A) of the Bankruptcy Code encompasses fraudulent conveyance schemes, even if the scheme does not involve a false representation to the creditor. In reversing the judgment of the Fifth Circuit, the Supreme Court’s ruling settled a split among the circuits regarding whether “actual fraud” under § 523(a)(2)(A) requires a misrepresentation or misleading omission to the creditor. Compare In re Ritz, 787 F.3d 312 (5th Cir. 2015) with McClellan v. Cantrell, 217 F.3d 890 (7th Cir. 2000), and Sauer V. Lawson, 791 F.3d 214 (1st Cir. 2015).
ASARCO’s Revenge: Do Estate Professionals Now Have to Charge the Same Fees to an Estate or Committee that They Would Charge a Similar Client in an Out-of-Court Matter?
But what about a more circuitous way around ASARCO? That is, a pre-petition fee structure of X, and a post-petition fee structure that charges more? The post-petition fee structure is not geared toward preventing fee disputes, but rather, simply compensates the professional more for all the problems of representing a company (or committee) in bankruptcy: delays in getting paid, holdbacks that seemingly last forever, risk of non-payment, and, of course, the risk of fee dispute. You readers, and we at the Bankruptcy Cave, know all too well that while representing an estate fiduciary is a wonderful experience, the months (years?) of nail-biting as to whether or how much you will be paid is a serious problem.
But do we instead have ASARCO’s revenge? That is, if New Gulf Resources rejects an upcharge in the event of a fee challenge, do ASARCO/New Gulf Resources extend to prevent an overall, generalized, non-specific increase in rates or a higher fee structure simply due to the fact of bankruptcy? We are about to see this play out in the In re SunEdison bankruptcy case.
The U.S. Trustee’s objection has some appeal, we must say. If New Gulf Resources rejects an upcharge solely for fee objections, then how can an upcharge for any reason (or for no reason) be permissible simply due to the debtor filing for bankruptcy? At the same time, the U.S. Trustee’s approach concerns us greatly.
There are ample reasons to charge an estate fiduciary more than you would charge in the pre-petition period, or in an out-of-court workout, due to the added risks to estate professionals in bankruptcy./ Some of those are described above – the lack of a bankruptcy filing means you get paid on a schedule you and your client work out, not a schedule dictated by Section 331 and your local practice. Holdbacks are not customary outside bankruptcy. Hearings are not required to be paid. Clients will sometimes do you a solid and pay before year end, while courts move at their own pace. In addition, rather than having to satisfy the complaints and queries of many creditors, interested parties, or the Court (as you must in bankruptcy), outside of bankruptcy you only have to satisfy the client (and perhaps a lender that must approve expenditures) of the value and good purpose behind your services. And finally, assisting the client in a workout could lead to future work from that client, meriting a discount or alternative fee arrangement.
Inside bankruptcy, however, the debtor or committee will rarely be a future customer – a modern, hell-bent for leather, 363 sale case almost always mean your client is gone for good once the case is over. This is not the stuff that warrants discounts, and so we fully understand the position of debtor’s counsel in In re SunEdison.
This is a serious issue, and a potentially slippery slope. The position of the U.S. Trustee in In re SunEdison is a few dangerous steps away from arguing that the debtor (or committee) is entitled to “most favored nation” pricing from your law firm or advisory firm. Section 330 of the Bankruptcy Code requires bankruptcy fees to be commensurate with non-bankruptcy fees. But “commensurate” does not mean “identical,” by any means.
We will be watching this unfold, real time, in In re SunEdison, and then get back to you. In the meantime, if you sign up a distressed client, and offer it a discount, alternative fee, or other financial accommodation, expect the Office of the U.S. Trustee to argue that such structure must carry through a bankruptcy case as well, despite the enhanced payment risks and ongoing payment delay that in-court engagements entail.
/ Baker Botts v. ASARCO, 135 S. Ct. 2158 (2015).
/ 11 U.S.C. § 330(a).
/ ASARCO, 135 S. Ct. at 2164-65.
/ See, e.g., In re Boomerang Tube, Inc., Case No. 15–11247, 2016 WL 385933 *4 (Bankr. D. Del. Jan. 29, 2016) (holding, committee professionals cannot include 328 terms in an engagement agreement that side-step ASARCO); In re Samson Resources Corp., Case No. 15-11934 (CSS), letter opinion dated Feb. 8, 2016, at Docket No. 641 (holding, debtor professionals can’t do this either).
/ In re New Gulf Resources, LLC, Case No. 15-12566, letter opinion dated March 16, 2016, at Docket No. 395 (acknowledging “creative approach” but rejecting “Fee Premium” upcharge in retention agreement) (Bankr. D. Del. Mar. 16, 2016); id. at Order dated March 21, 2016, at Docket No. 408 (Bankr. D. Del. Mar. 21, 2016) (order denying same).
/ In re New Gulf Resources, LLC, Case No. 15-12566, letter opinion dated March 16, 2016, at Docket No. 395.
/ In re SunEdison, Inc., Case No. 16-10992, Reservation of Rights by United States Trustee, at Docket No. 196 (Bankr. S.D.N.Y. May 5, 2016).
/ But see, e.g., Burgess v. Klenske (In re Manoa Fin. Co., Inc.), 853 F.2d 687, 690 (9th Cir. 1988) (“Congress did not intend to authorize higher compensation than attorneys would receive for comparable non-bankruptcy services”).

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