A recent Bloomberg Law story by James Nani, “DOJ Balks at J&J Unit’s Plan to Hire Katyal at $2500 an Hour” reports that the Department of Justice’s bankruptcy watchdog is opposing a bankrupt Johnson & Johnson unit’s proposal to retain former acting solicitor general Neal Katyal at nearly $2,500 an hour to work on its Chapter 11 case.

LTL Management LLC, which was created by the healthcare giant to house and limit its liability from its talc products, is proposing to retain Katyal, a partner at Hogan Lovells US LLP, at a rate as high as $2,465 an hour, the US Trustee said in its objection.   Hogan Lovells’ hourly rates for its partners are “significantly higher” than the rates of the seven other law firms LTL Management has retained, the US Trustee said.  LTL hasn’t shown the rates are reasonable or in the best interest of the bankruptcy estate, the Trustee said.   Katyal would act as special appellate litigation counsel for LTL, according to LTL’s application to hire Katyal.

Earlier this month, the U.S. Court of Appeals for the Third Circuit agreed to hear several appeals by asbestos victims who are trying to end LTL’s bankruptcy.  The Third Circuit’s review will include the New Jersey bankruptcy court’s decision earlier this year denying tort claimants’ motion to dismiss the Chapter 11 case.  The tort claimants argue LTL’s bankruptcy—which would address lawsuits from its talc product users who allege they developed cancer—was filed in bad faith.

LTL told the bankruptcy court it needs experienced counsel in connection with the appeals. Hogan Lovells “provides exceptional appellate litigation services,” LTL said.  In light of the appeal’s complexity and “anticipated intensity,” hiring Hogan Lovells is “appropriate and warranted,” LTL said.  The US Trustee argued that law firms LTL has already retained, such as Jones Day and Skadden Arps Slate Meager & Flom LLP, have helped the company and are familiar with the case.  But their hourly rates are lower, it added.

A recent Reuters story by Maria Chutchian, “Supreme Court to Determine Constitutionality of Bankruptcy Fee Increases,” reports that the U.S. Supreme Court said it will review a dispute over a recent increase in fees that Chapter 11 debtors are required to pay the federal government.  The issue, which stems from a 2017 law that hiked the government fees that most large companies in bankruptcy must pay, has divided top appellate courts across the country.

The law's imposition of higher fees in most, but not all, U.S. bankruptcy courts has caused uncertainty over the legal status of around $324 million in fees imposed under the law, according to the U.S. Trustee, which serves as the U.S. Department of Justice’s bankruptcy watchdog.

The underlying lawsuit was brought by Alfred Siegel, the trustee who oversaw Circuit City’s liquidation process.  He argued that the 2017 law violated the U.S. Constitution’s Bankruptcy Clause, which requires bankruptcy laws to be uniform, because it hiked fees for Chapter 11 debtors in most states but failed to do the same for Alabama and North Carolina.  Those two states use a different government entity, known as the Bankruptcy Administrator program, to perform similar duties as the U.S. Trustee in large corporate bankruptcies.

The law was eventually amended to include Alabama and North Carolina, but Siegel argued in his September petition to the Supreme Court that companies that filed for Chapter 11 in those two states were still permitted to go several months without being subject to the same fee increases that were imposed in the other states.  The government argued in its response that the constitution’s bankruptcy clause gives Congress flexibility in creating new statutes that govern bankruptcy court administration.

The law has been challenged in several districts with conflicting outcomes.  The 4th U.S. Circuit Court of Appeal, which ruled in Siegel's case, and the 5th Circuit have upheld the law while the 2nd and 10th Circuits have deemed it unconstitutional.  Though they oppose each other’s interpretation of the law, the U.S. Trustee and Siegel both asked the Supreme Court to weigh in on the case.

A recent Reuters story by Marla Chutchian, “Government Asks Supreme Court to Review $324M Bankruptcy Fee Fight,” reports that the U.S. Department of Justice’s bankruptcy watchdog is urging the U.S. Supreme Court to take up a dispute over bankruptcy fees Chapter 11 debtors are required to pay the government that has divided top appellate courts across the country.

Solicitor General Elizabeth Prelogar said in a brief on behalf of the U.S. Trustee program that the high court should review the matter to resolve confusion over the fees created by the conflicting rulings.  She also argued the court should find that a 2017 law increasing government fees that many Chapter 11 debtors must pay complies with the U.S. Constitution’s Bankruptcy Clause, which requires bankruptcy laws to be uniform.  The law's imposition of higher fees in most, but not all, U.S. bankruptcy courts has caused uncertainty about the legal status of around $324 million in fees imposed under the 2017 law, according to the U.S. Trustee.

The dispute stems from a lawsuit filed by Alfred Siegel, the trustee who oversaw Circuit City's liquidation process.  He claims the law violated the uniformity requirement by increasing U.S. Trustee fees for Chapter 11 debtors in most states but failed to do the same for two states that use a different government entity, known as the Bankruptcy Administrator program, to perform similar duties in overseeing large corporate bankruptcies.

Siegel argued in a September petition to the Supreme Court that the alleged disparity forced the Circuit City liquidating trust to pay substantially higher fees than it had in prior years, while Chapter 11 debtors in North Carolina and Alabama, the states with the alternative program, went several months without being subject to the same fee increases.  North Carolina and Alabama opted in 1986 for the Administrator program.

While the U.S. Trustee opposes Siegel’s view of the law, it agrees that the Supreme Court should review the case.  The law has been challenged in several districts with conflicting outcomes – the 4th and 5th U.S. Circuit Courts of Appeal have upheld the law while the 2nd and 10th Circuits have deemed it unconstitutional.

The government argued that the constitution’s uniformity requirement does not restrict Congress’s ability to amend U.S. Trustee fees.  Additionally, it said, the bankruptcy clause gives Congress flexibility in creating new statutes that govern bankruptcy court administration.  “There is no basis for concluding that any of those administrative variations are unconstitutional,” the government said in Wednesday’s filing.

The case is Alfred Siegel v. John Fitzgerald III, U.S. Supreme Court, No. 21-441.

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.

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.

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