Although the Supreme Court barred attorneys from receiving compensation for defending fee applications, Chief Bankruptcy Judge Carla E. Craig of Brooklyn, N.Y., ruled that a receiver’s counsel can be paid for defending the receiver’s compensation request.
A receiver had been appointed in state court before the debtor filed a chapter 11 petition. The receiver turned the property over to the debtor after filing and later filed a claim for about $81,000.
The property was sold for enough to pay all secured, unsecured and priority creditors in full, leaving a surplus of almost $1.4 million for the individual who was the owner of the debtor corporation. The plan initially provided no payment for the receiver’s fees.
The receiver withdrew his objection to confirmation when the debtor agreed to an escrow covering the disputed fee request. Extensive discovery ensued, followed by an eight-day trial. Judge Craig granted the receiver’s fee request for about $72,500.
One week later, the receiver filed a motion seeking some $356,000 to cover his attorneys’ fees. The motion required Judge Craig to decide whether defense of a receiver’s fees is compensable in the wake of the Supreme Court’s 2015 decision in Baker Botts LLP v. ASARCO LLC, where the high court held that defense of a debtor’s attorneys’ fee application is not compensable under Section 330(a) because the services did not benefit the estate.
In an opinion on April 27, Judge Craig distinguished her case from Baker Botts, principally because the receiver’s attorneys’ fee application was not made under Section 330(a).
Rather, the receiver himself was entitled to “reasonable compensation for services rendered and cost and expenses” by virtue of Section 543(c)(2). In turn, receiver’s counsel were entitled to “reasonable compensation for professional services rendered” under Section 503(b)(4) because a receiver’s expenses are allowable under Section 503(b)(3)(e).
Contrasted with Baker Botts, Judge Craig said that the outcome in her case was governed by Section 503(b), not Section 330(a). In addition, the receiver’s attorneys were not seeking compensation arising from a dispute with the lawyers’ own client.
Even if she were wrong and Baker Botts ordinarily would be applicable to a receiver’s attorneys’ fees, Judge Craig laid out the facts for an exception in her case. Because creditors were paid in full, paying fee-defense costs would not prejudice creditors. The only party to benefit from denial of the receiver’s fees would be the debtor’s owner.
Judge Craig reduced the fee request by about $122,000 on account of the usual sins of lumping and inadequate descriptions. The ultimate fee award for the receiver’s attorneys worked out to $234,000, or some $185 an hour.