A recent NLJ story, “Fee Enhancement Limits Don’t Extend to Bankruptcy, Fifth Circuit Rules,” reports that a recent appellate holding that bankruptcy cases aren’t governed by a U.S. Supreme Court ruling limiting district courts’ fee enhancement power will help lawyers seek bonus fees when they get good results for creditors, according to practitioners who reviewed the opinion.  The U.S. Court of Appeals for the Fifth Circuit on Aug. 10 affirmed a Northern District of Texas Bankruptcy Judge Russell Nelms April 2011 award of a $1 million fee enhancement to turnaround consulting firm CRG Partners Group. 

CRG sought $5.98 million in attorney fees, plus a $1 million fee enhancement recommended by the debtors’ board of directors.  That April, the bankruptcy court awarded CRG the fee enhancement but certified its order for direct appeal to the Fifth Circuit.  The U.S. trustee argued that the Supreme Court’s 2010 ruling in Perdue v. Kenny A. sharply curtailed the bankruptcy court’s discretion to grant fee enhancements. 

Circuit Judge Jennifer Walker Elrod wrote the opinion (pdf) in CRG Partners Group LLC v. Neary.  Elrod analyzed numerous Fifth Circuit rulings and concluded that “we have consistently held that bankruptcy courts have broad discretion to adjust the lodestar upwards or downwards when awarding reasonable compensation to professionals employed by the estate.”  While the courts’ “discretion is far from limitless,” she wrote, upward adjustments are permissible in rare and exceptional circumstances when “the applicants had provided superior services that produced outstanding results – that are supported by detailed findings from the bankruptcy court and specific evidence in the record.”

Additionally, because bankruptcy courts have the discretion to enhance fees for professionals’ superior performance, “we affirm fee awards that would have been proscribed under Perdue,” she wrote.  Bankruptcy cases are unlike section 1988 cases, in which taxpayers foot the bill for any fee enhancements, she added.  “The Debtors are the only party whose bottom-line was reduced by the enhancement and, because their own board of directors recommended paying the enhancement, we can hardly compare the Debtors’ situation to that of the non-consenting taxpayers.”