Opinion ID: 166589
Heading Depth: 2
Heading Rank: 2

Heading: The Bankruptcy Court's Power to Determine Comparative Fees

Text: 31 Houlihan further argues that the court erred in imposing an improper effective hourly rate because it (1) ignored evidence of Houlihan's prior effective hourly rates charged in bankruptcy cases and (2) compared Houlihan's services to other financial professionals involved in the case. 32 If a bankruptcy court determines a proposed fee is unreasonable, it may award compensation that is less than the amount of compensation that is requested. 11 U.S.C. § 330(a)(2). In determining the new amount, the bankruptcy court looks to the factors in 11 U.S.C. § 330(a). Ordinarily, the statute requires bankruptcy courts to look at the customary compensation charged by comparably skilled practitioners in cases other than cases under this title. 11 U.S.C. § 330(a)(1)(E). 33 Despite its protests, Houlihan eventually provided the bankruptcy court with fees from prior bankruptcy proceedings in which it was required to keep time records. The bankruptcy court used this evidence to calculate Houlihan's effective hourly rate in prior bankruptcy proceedings as $262 to $3,271 an hour, with an average rate of $1,371 an hour. Houlihan argues that because the effective hourly rate requested in this case was only $751 an hour, 44% less than its average in other bankruptcy proceedings, the requested fee was reasonable on an hourly basis. 34 However, the $1,371 an hour average rate determined by the court and relied upon by Houlihan as a point of comparison includes success or transaction fees. The bankruptcy court also calculated the effective hourly rate for Houlihan's prior engagements excluding transaction fees and derived an average blended hourly rate of $409 an hour. Additionally, the bankruptcy court examined a subset of six cases where no transaction fee was awarded and derived an average fee of $356. On appeal, Houlihan argues that the bankruptcy court's calculation of Houlihan's effective hourly rate from six prior engagements is flawed because it fails to account for the absence of a transaction fee in those cases. Houlihan argues, in this engagement, Houlihan Lokey not only had the right to seek a transaction fee, but it was specifically contemplated that Houlihan Lokey would be seeking such an incentive fee. To the contrary, in the six engagements referred to by the Bankruptcy court, a success or transaction fee was not available to Houlihan Lokey, and thus not part of the available compensation package. (Appellant's Br. at 41, n. 4.) 35 In light of the record, Houlihan's argument is puzzling. According to Richard Chesley, Houlihan's general counsel, chief legal officer and a senior vice president in the financial restructuring group, Houlihan chose not to seek a transaction fee in this case. This makes the present case more analogous to the six non-transaction fee cases used by the bankruptcy court to calculate Houlihan's effective hourly rate, not less. The theoretical availability of a transaction fee in this case is an insufficient basis to distinguish the prior six cases for the obvious reason that the transaction fee was not actually requested. Additionally, the rate imposed by the bankruptcy court ($353.32 an hour) 7 was within the range established by Houlihan's evidence ($262 to $1,371 an hour), not far from the average in all cases excluding transaction fees ($409 an hour), and was right at the average rate charged in other non-transaction fee cases ($356 an hour). Finally, and most importantly, there is nothing in the statute that requires the bankruptcy court to award success or transaction fees or to account for them in the calculation of a reasonable fee. In light of this, we cannot say the bankruptcy court impermissibly ignored Houlihan's proffered evidence of its prior bankruptcy case rates. 36 Additionally, the bankruptcy court looked to the other financial advisors in the case who were working for the unsecured creditors. Specifically, the bankruptcy court looked at the rates charged by other financial firms in the case, namely, InteCap, Policano, ABS LLC, and DSI. 8 In any event, the court was apparently placed in this position because Houlihan was unable to provide the court any useful information concerning hourly rates Houlihan charged for other financial work outside of Chapter 11 proceedings. 37 In its brief, Houlihan goes to great pains to distinguish the quality and nature of its work from all of the other financial advisors present in the case in an apparent effort to demonstrate that its employees were of an entirely superior class and should not be compared with the other financial advisors. 9 The principal distinction Houlihan attempts to create comes from its routine request for monthly, as opposed to hourly, fees and that the functions performed by each were not identical. 10 38 Houlihan's efforts are unconvincing primarily because the statute only requires comparably skilled practitioners, 11 U.S.C. § 330(a)(1)(E), not identically skilled or functionally equivalent ones. The professionals the bankruptcy court used as comparisons to Houlihan were also financial advisers, who Houlihan concedes are highly competent and qualified. (Appellant's Br. at 46.) 11 Moreover, the bankruptcy court focused on the educational background and professional experience of all financial advisors in this case. To the extent Houlihan provided more services than the other financial professionals it was compensated by receiving more hours of billable time. Thus, because the statute only requires looking at the comparable skill of the financial advisers and not exact functional equivalence, it was proper for the court to compare all financial advisors. 39 Houlihan attempts to distinguish the other financial advisors based on the fact they charge hourly rates, as opposed to Houlihan's method of monthly billing, and that the other advisors were not employed for the entire duration of the proceedings. Both arguments fail. As we have already pointed out, Houlihan's differentiation in this case between monthly and hourly billing methods is untenable and does not insulate it from comparison to other firms. Moreover, the difference in the amount of time spent on the case between Houlihan and the other financial advisors is reflected in the total amount of money received, not the rate at which the advisor bills. Finally, even if we were to assume Houlihan was more skilled than the other financial advisors in this case, we note the bankruptcy court awarded Houlihan's employees a fee at the high end of the pay scale for comparable financial advisors. (Appellant's App. at 11 n. 17.) Houlihan, however, has provided no legitimate basis for concluding it is a categorically superior financial firm.