A recent Delaware Business Court Insider story, “Judge Denies Request for $2.4M Fee Increase in Fisker Bankruptcy,” reports that a federal bankruptcy judge has rejected a $2.4 million fee enhancement requesting by two law firms and a financial adviser in the bankruptcy of Fisker Automotive, a maker of plug-in hybrid electric cars.  The fee enhancement, which would have raised compensation for the professional services firms by more than 53 percent, was turned down by U.S. Bankruptcy Judge Kevin Gross of the District of Delaware, who said that tight deadlines and complexity of the work would not have been unexpected.

According to a table in Gross’ opinion captioned In re FAH Liquidating, Brown Rudnick asked for $1.7 million in fees over the more than $3.3 million already paid; Saul Ewing asked the court for a fee enhancement of $172,000 over $303,000 paid, and Emerald Capital Advisors Corp. had asked for a fee enhancement of $572,000 over the $997,000 already paid.

Brown Rudnick, Saul Ewing and Emerald pointed to a series of reasons for the fee enhancement request, among them the initial low expectations of return for unsecured creditors.  The professional services firms also conducted their own marketing research that resulted in finding the eventual purchaser of Fisker, and secured financing for the deal.  Those moves, according to the professional services firms, resulted in a higher purchase price at the February 2014 auction.

“The professionals assert that they created an exceptional result, namely, the substantial increase in sale proceeds,” Gross said.  “Finally, the professionals indicated that they obtained these results in a very compressed timeframe of barely 60 days.”  The unsecured creditors committee told the court that a fee enhancement was appropriate since the professional services firms were facing the risk of nonpayment as the Fisker bankruptcy estate might become administratively insolvent.

The U.S. trustee objected to the fee enhancement, Gross said, arguing the results achieved on behalf of unsecured creditors of Fisker—a recovery of 40 cents on the dollar—was neither rare nor exceptional.  “The [U.S. trustee] argues that the professionals were simply performing the job that they were hired to do,” Gross wrote.

Gross found the professional services firms were not entitled to the fee enhancement under Section 328(a) of the Bankruptcy Code.  He focused on the compressed timeframe that was cited by the professional services firms as a reason for the fee enhancement.

“There is nothing in the record to support a fee enhancement under Section 328,” Gross concluded.  There is no evidence that the amount of work required was unexpected.  Rather, the professionals were involved in the case prior to their appointment.  The timing of the auctions and the abbreviated timeframe of the case were expected from the outset, and the professionals did not ask for any extensions of time despite invitations to do so from the court.”

“The cases which the court has discussed demonstrate that the vast majority of cases which approve an enhancement provide a full recovery for creditors, and some even provide additional returns to equity,” he wrote.  “While the case at bar did achieve a better-than-expected outcome, it is a far cry from a full recovery.”