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Category: USTP

USTP Opposes Chapter 11 Fees for MTE Service Providers

August 20, 2021

A recent Law 360 story by Jeff Montgomery, “US Trustee Opposes Ch. 11 Fees For MTE Service Providers”, reports that the Office of the U.S. Trustee opposed a $2 million fee award for the ad hoc committee of service providers in MTE Holdings LLC's contentious Chapter 11 in Delaware, arguing that the committee failed to show how it benefited the estate.  Several other participants in MTE's case, including MTE itself, had also opposed the request, asserting that the committee failed to show that its efforts were for the benefit of any constituency "other than its own members."

No official committee of unsecured creditors was formed in the case, with the ad hoc group asserting rights under liens.  An insufficient number of creditors agreed to serve in a traditional unsecured creditor capacity, the trustee observed.  The debtors waded through complex disputes, the trustee wrote, including a push for the appointments of a Chapter 11 trustee and a new board, chief restructuring officer and other key figures, as well as the appointment of a mediator.

"There is nothing in the mediator motion, or in the ad hoc committee's motion for substantial contribution, that indicates that the ad hoc committee played a role in negotiating the appointment of a mediator," the trustee objection said, adding separately that "Creditors are presumed to act in their own interest until they satisfy the court that their efforts have transcended self-protection."  Committee members failed to show they acted beyond self-interest, the trustee wrote, or filed motions that duplicated those of the other groups in the case.

"Importantly, the motion fails to present any evidence that the ad hoc committee's actions permitted the reorganization to proceed with a minimum of litigation, keeping costs low and hastening the reorganization by, for example, ensuring that key parties were satisfied with the direction of the case," the trustee wrote.  MTE's own objection went further, arguing that "voicing support for work already done by other creditors or constituencies hardly rises to the lofty level of 'substantial contribution.'"

The committee presented a different picture in its motion, which included a request for more than $1 million in fees for its counsel from Potter Anderson & Corroon LLP.  "With no official committee of unsecured creditors appointed in these cases, the ad hoc committee stepped in and led the charge on behalf of all statutory lienholders," the group's motion said.  Its actions were said to have "ultimately resulted in the filing of a plan of reorganization, which benefited all interested parties and the debtors' estates."  A decision on the motion is pending.

Bankruptcy Court Denies Professional Fees to Law Firm

July 30, 2021

A recent Law 360 story by Rose Krebs, “Ashby & Geddes’ Appeal in Del. Bankruptcy Fee Row Tossed,” reports that a Delaware federal judge denied Ashby & Geddes PA's bid to force a lender to fund a roughly $980,000 carve-out reserve to pay professional fees in the now-closed bankruptcy case of life sciences company NeuroproteXeon Inc.  In a memorandum opinion, U.S. District Court Judge Maryellen Noreika said that she does not have jurisdiction to decide a cross-appeal mounted by Ashby & Geddes, former counsel to NeuroproteXeon in its Delaware bankruptcy case, related to a dispute over whether the lender should have been required to fund the carve-out for professional fees.

The judge rejected Ashby & Geddes' contention that she should weigh in on an August order issued by U.S. Bankruptcy Court Judge Mary F. Walrath, which the firm contended did not direct debtor-in-possession lender JMB Capital Partners Lending LLC to fund the carve-out as it should have per a financing agreement.  "As the [August] order cannot be considered final, and interlocutory review is not warranted, the court lacks jurisdiction over the cross-appeal, and it will be dismissed," the opinion said.

The firm incurred roughly $400,000 in fees while serving as the debtors' counsel during the bankruptcy case, according to court filings.  NeuroproteXeon, a pharmaceutical company that also develops medical devices and life sciences technologies, and its affiliates filed for Chapter 11 in late 2019 amid a liquidity crisis and with plans to sell its assets.  The debtors' had little unsecured debt and owed a $250,000 bridge loan that JMB provided to help the company fund operations as it prepared for bankruptcy, according to court filings.

JMB also provided up to $5 million in post-petition financing to fund operations during the Chapter 11 case, according to court filings.  Under a final DIP order, the lender was granted first-priority liens on the debtors' assets, subject to the terms of a carve-out being set aside to pay U.S. Trustee fees and professional fees, according to the opinion.  In January 2020, JMB notified the debtors of a default on the DIP agreement because a stalking horse bidder had not been selected by a required date, the opinion said.  As of that time, "the aggregate amount set forth in the budget for allowed professional fees plus budgeted U.S. Trustee fees" and other fees was about $980,000, an amount JMB did not contest, the ruling said.

NRA Agrees To Pay Creditors’ Chapter 11 Fees

May 15, 2021

A recent Law 360 story by Vince Sullivan, “NRA Reaches Deal To Pay Creditors’ Ch. 11 Fees” reports that days after the National Rifle Association's Chapter 11 case was dismissed, the organization told a Texas bankruptcy judge that it had reached an agreement with the official committee of unsecured creditors to handle payments of professional fees.  During a status conference requested by the committee, its attorney Louis Strubeck Jr. of Norton Rose Fulbright said the committee had pending fee applications in the case and would likely have at least a further request for payment of professional fees, which are typically paid for by the debtor in a Chapter 11 case.

Since the case was dismissed via an order from U.S. Bankruptcy Judge Harlin D. Hale, Strubeck said he wanted to present the situation to the court to be sure it was being handled properly.  "We wanted to make sure there was full transparency around this," Strubeck said.  "We didn't want to agree to anything that wasn't going to be discussed with the court to make sure we weren't doing something differently."  After the dismissal order came down, Strubeck said he engaged in discussions with Patrick J. Neligan Jr. of Nelligan LLP, the NRA's bankruptcy counsel, to figure out how to move forward.

At the hearing, Nelligan said he was of the legal opinion that once the Chapter 11 dismissal order was issued, the bankruptcy court relinquished its jurisdiction over the parties and restored them to their prebankruptcy circumstances.  That means, he said, that the NRA would treat any invoices from the committee's professionals incurred before the dismissal as it would treat any other unsecured obligation.

"The impact of a dismissal ... is that as we put the entities into their prebankruptcy positions, we need to go forward with payment of the unsecured creditors on their prep claims," Nelligan said.  "The NRA is preparing to make those payments.  Out of an abundance of caution we have not gone forward with those payments until this status conference."  Any disputes among the parties about any invoices will be resolved as they normally would as if the bankruptcy had never occurred, Nelligan said.

The dismissal also restores the parties to their prebankruptcy standing with regard to the litigation in which the NRA is involved, Nelligan said.  As he understands it, the case brought by the New York attorney general seeking to dissolve the organization will continue uninterrupted in New York state court, he said.  The NRA's litigation against its former media consulting firm Ackerman McQueen will also resume in Texas state court, he said.

Attorneys for NRA board member Phillip Journey — whose motion seeking the appointment of an examiner in the Chapter 11 case was denied — said their client is considering whether to appeal the denial of his motion, or whether to pursue an administrative expense claim against the NRA for the fees incurred in litigating the examiner and dismissal motions.

Ackerman McQueen attorneys also said they were exploring whether the dismissal of the Chapter 11 case for a lack of good faith in making the bankruptcy filing could give rise to the shifting of legal fees.  After taking some time to consider the issues, Judge Hale said he wouldn't be altering his dismissal order to retain jurisdiction over the fee issues, saying he trusted the parties and their counsel to resolve any disputes professionally and amicably.

Client Says It Doesn’t Owe Attorney Fees in Patent Action

May 9, 2021

A recent Law 360 story by Diana Novak Jones, “UCANN Says It Doesn’t Owe Atty Fees After Patent Suit,” reports that United Cannabis Corp. is fighting CBD company Pure Hemp Collective's bid for $300,000 in attorney fees after United Cannabis dropped a patent infringement suit against the company, arguing it has no liability because Pure Hemp willingly dropped its claims as well.  United Cannabis, or UCANN, was suing Pure Hemp for infringement on a patent covering a liquid formula for a tincture containing 95% CBD when it entered bankruptcy, but dropped the suit after its Chapter 11 petition was dismissed earlier this year.  Pure Hemp dismissed its counterclaims at the same time, according to court records.

But in April, Pure Hemp asked the judge in the patent suit to award it about $300,000 in attorney fees, arguing in part that UCANN got its patent by misleading the U.S. Patent and Trademark Office, according to court filings.  UCANN pushed back, arguing there's no evidence it misled anyone and Pure Hemp has already dismissed the claims it's trying to use to get the fees.  "Pure Hemp's motion raises several disputed issues of fact as to materiality, knowledge, and intent," UCANN told the court.  "By dismissing its inequitable conduct counterclaims, Pure Hemp waived its right to have these factual disputes adjudicated."

The dispute between UCANN and Pure Hemp, which began in 2018, was closely watched in the cannabis industry as it presented one of the earliest opportunities to see how a federal court handled cannabis patent claims.  UCANN accused Pure Hemp of infringing its patent on the liquid cannabinoids, while Pure Hemp brought counterclaims accusing UCANN of suing to enforce a patent it knew was invalid.  In 2019, UCANN scored a major win when U.S. District Judge William Martinez denied Pure Hemp's motion for summary judgment, holding that liquid cannabinoid formulations were UCANN's creation and did not occur in nature.

In March of last year, the parties agreed to reduce the suit to questions of the patent's validity and enforceability, with Pure Hemp agreeing to pay $4,420 in royalties if UCANN prevailed.  But the next month, UCANN filed its Chapter 11 petition, halting the patent litigation.  The U.S. Trustee and the bankruptcy judge had questions about whether UCANN belonged in bankruptcy court given its connections to cannabis, and ultimately the company's petition was dismissed.  Not long after the dismissal, which UCANN didn't appeal, it told the judge overseeing its suit against Pure Hemp that the parties were dropping their respective claims.

But two weeks later, Pure Hemp filed its motion for fees, court records show. The motion remained sealed, but Pure Hemp's counsel James Gourley of Carstens & Cahoon LLP told Law360 his client alleges that UCANN misled the patent office by copying and pasting text from another product in the paperwork for the patent UCANN was suing over.

NALFA: Hourly Rates Above National Averages in Large Chapter 11 Cases

May 6, 2021

A recent The American Lawyer story by Dan Roe, “Kirkland and Weil’s Fees in Chapter 11 Work Highlight Big Law Allure to Bankruptcy,” reports that even as the number of commercial Chapter 11 bankruptcies has dropped in recent months, large bankruptcies have continued to churn out big fee packages for some law firms—one reason why firms are continuing to invest and hire in their bankruptcy practices.  For instance, a glance at law firm fees in two cases—the Chapter 11 bankruptcy of Sears, filed October 2018, and the May 2020 J.C. Penney bankruptcy—reveal the cases have totaled more than $150 million for law firms since they beganMost of the money has gone to Am Law 200 firms, with some partners billing for more than $1,500 per hour.

Representing Sears Holdings Corp., Weil, Gotshal & Manges emerged as the biggest fee-earner in the Southern District of New York bankruptcy case, with more than $80 million in fees and expenses paid through the end of February 2021. Its partners billed between $1,695 and $1,200 per hour, while associates charged $1,100 to $595.  Akin Gump Strauss Hauer & Feld also made out big on the Sears bankruptcy.  Representing the bankruptcy’s unsecured creditors, the law firm received $48 million in total compensation through the end of February 2021 with a blended rate of $853 per hour.

Paul, Weiss, Rifkind, Wharton & Garrison, representing Sears, received almost $20 million, although most of it was completed before last year.  Its attorneys averaged $790 per hour, with partners topping out at $1,650.  And Wachtell, Lipton, Rosen & Katz did $873,000 worth of work representing Sears, with a blended rate of $1,287 and partners billing up to $1,500.  Meanwhile, the J.C. Penney bankruptcy has generated more than $28 million in fee revenue for law firmsRepresenting J.C. Penney, Kirkland & Ellis took most of the spoils with two massive fee applications totaling $20.9 million, with a blended attorney rate of approximately $1,000.

Cooley and Cole Schotz represented the creditor committee, with the former firm taking home $4.2 million in fee revenue with a blended rate of $970 average billing rate.  Cole Schotz earned $2.1 million for work it performed in the second half of the year, maintaining a $643 average hourly rate per attorney.  Katten Muchin Rosenman put in 1,318 professional hours to earn $1.1 million in fee revenue while representing J.C. Penney, averaging $960 per attorney per hour, while Quinn Emanuel Urquhart & Sullivan, representing the store’s subsidiaries, cleared $827,000 for its work in the second half of 2020, averaging just over $1,000 for its hourly rate.

The J.C. Penney restructuring also benefitted smaller-sized firms such as the New York law firm Herrick Feinstein, whose attorneys billed around $500 per hour for $1.5 million in fees.  The opportunity for large fee awards in Chapter 11 work continues to drive a flurry of bankruptcy partner hires.  In the last week, Willkie Farr & Gallagher added a three-partner bankruptcy group from Morrison & Foerster who represent creditor committees in high-profile cases and Sidley Austin hired Tom Califano, previously global co-chair and U.S. chair of DLA Piper’s restructuring group.  Last month, Kirkland brought on Christine Okike from Skadden, Arps, Slate, Meagher & Flom.

"Our analysis, from our most recent litigation hourly rate survey, shows that all these Chapter 11 bankruptcy rates are well above the approximate national averages," said Terry Jesse, Executive Director of NALFA.  "In fact, hourly rates in large Chapter 11 bankruptcies, may be one of the highest rate-charging practice areas, " Jesse wondered.

For more on NALFA's national averages, visit NALFA Releases 2020 Average Hourly Rates in Litigation.