Three opinions were handed down this week that merit attention from anyone who might ever confront similar issues.
In the wake of the reorganization of battery maker Valence Technologies Inc., the Fifth Circuit wrote a primer on May 4 describing how not to draft retention agreements containing success fees for financial advisors and investment bankers. For drafting tips when the objective is to grant or deny a success fee should a creditor swap debt for new equity, note the vigorous dissent by Circuit Judge Priscilla R. Owen.
Bankruptcy Judge Shelley C. Chapman of Manhattan dealt a blow to oil and gas gathering companies on May 3 when she held that their contracts did not include valid covenants running with the land or equitable servitudes. Heretofore, gathering companies thought they had bankruptcy-proof agreements that would prohibit drillers from doing business with anyone else, even in chapter 11. When the case arrives in the Second Circuit, it remains to been seen whether the appeals court judges tackle the issue or certify questions for the Texas Supreme Court to decide legal issues not directly addressed by that state’s highest court.
Confirming a “fee-only” chapter 13 plan, Bankruptcy Judge Robert D. Berger of Kansas City, Kan., wrote a comprehensive opinion on May 3 making bankruptcy relief available for consumers when “the only reason they elect chapter 13 is because they do not have the ability to pay up front for representation in chapter 7.”
Although bankruptcy courts are split on fee-only plans, he said that three circuits have not barred them categorically from paying nothing more than the debtor’s counsel, the chapter 13 trustee’s commission, and the filing fee. Citing authorities on both sides of the question, Judge Berger parted company with some courts requiring a debtor to show “special circumstances” if the plan pays just the debtor’s lawyer. Instead, he only required a showing of good faith under the “totality of the circumstances” because special circumstances “is not required by the Code.”
The Supreme Court’s Lamie decision in 2004 effectively compels lawyers to collect their fees in full before filing chapter 7 petitions. Judge Berger’s opinion puts bankruptcy within reach for consumers who desperately need relief but cannot scrape together enough cash to pay a lawyer up front.