A representative of asbestosis claimants with “future” claims and his or her counsel cannot be compensated for fees and expenses incurred in seeking appointment, according to Bankruptcy Judge Laurie Selber Silverstein of Delaware.
Judge Silverstein said that the services provided no benefit to the estate. Rather, pursuing appointment furthered the representative’s “professional career” and provided the law firm with a “lucrative engagement.”
The chapter 11 filing by Imerys Talc America Inc. was designed to deal with existing and future asbestosis claims.
The company worked out an agreement for a Delaware lawyer to represent individuals whose claims would arise in the future and for his firm to serve as his counsel. Two weeks after filing, the debtor filed a motion to approve the engagement.
The U.S. Trustee filed an objection along with a motion to appoint a legal representative. The U.S. Trustee did not propose anyone in particular nor recommend a specific process for selection. Rather, the U.S. Trustee wanted the court to permit other nominations.
Ultimately, Judge Silverstein approved the debtor’ selection and authorized the engagement of the future claims representative’s counsel. In the process, the representative and his counsel incurred about $232,500 in fees and expenses.
Along with hearings on the allowance of interim fee applications, Judge Silverstein approved the representative’s and his counsel’s fees and expenses incurred after appointment. She set aside consideration of the fee request for work in connection with pursing the engagement. She disallowed compensation for pursuit of the appointment in a November 20 opinion.
Whether a representative may be compensated for seeking appointment was an issue of first impression, Judge Silverstein said. She analogized the request to one by a creditors’ committee member for fees and expenses incurred in attending the committee’s formation meeting and to counsel in “pitching” the committee.
Unlike questions involving committees or other professionals, Judge Silverstein said that the Bankruptcy Code does not provide a process for selecting a representative or measuring compensation. She said that “compensating his professionals fits naturally into the sections of the Bankruptcy Code by which other professionals are compensated.”
Judge Silverstein took guidance from Baker Botts LLP v. Asarco LLC, 576 U.S. 121 (2015), where the Supreme Court held that the cost of defending a debtor’s counsel fees is not compensable. She noted how the Supreme Court focused on the lack of benefit to the estate and the absence of “disinterested service.” Defense of a fee award benefitted the firm, not the estate.
Applying Asarco, Judge Silverstein found “no basis” to award compensation for pursuing appointment. The work, she said, benefitted the representative and his firm, not the estate or holders of future claims.
Like a creditor who pursues appointment to a committee or attorneys who “pitch” a committee, Judge Silverstein said that “a future claimants’ representative must bear the cost associated with getting the job.”
After denying compensation for work in pursuit of appointment, Judge Silverstein ended her opinion with an outline for selecting the future claimants’ representative in new cases. She said that the appointment process “should not be so cumbersome, litigious or expensive that the process itself dissuades capable candidates or becomes a barrier to entry.”
Observations
The future representative and his counsel participated in important litigation regarding the process for selecting a representative. Significantly, Judge Silverstein decided that a debtor has the right to propose the person to serve as the representative. In that sense, the representative played a significant role in developing Delaware law with regard to the appointment of future claims representatives.
However, the representative in a sense was a volunteer in participating in the litigation before appointment. Judge Silverstein may have been able to reach the same result by holding that the representative did not have standing to participate in the dispute over the process.
The litigation had two features: (1) deciding the process, and (2) determining whether the recommended individual had the requisite qualifications. In the future, a court might consider whether time spent in persuading the court to overrule objections to the qualifications of the proposed representative is compensable, while advocating a process is not.
After all, a debtor’s counsel can be compensated for fending off objections to counsel’s disinterestedness. Perhaps the same rule should apply to a representative. On the other hand, a proposed representative could rely on debtor’s counsel to oppose objections to the fitness of the person selected to serve.
A representative of asbestosis claimants with “future” claims and his or her counsel cannot be compensated for fees and expenses incurred in seeking appointment, according to Bankruptcy Judge Laurie Selber Silverstein of Delaware.
Judge Silverstein said that the services provided no benefit to the estate. Rather, pursuing appointment furthered the representative’s “professional career” and provided the law firm with a “lucrative engagement.”
The chapter 11 filing by Imerys Talc America Inc. was designed to deal with existing and future asbestosis claims.
The company worked out an agreement for a Delaware lawyer to represent individuals whose claims would arise in the future and for his firm to serve as his counsel. Two weeks after filing, the debtor filed a motion to approve the engagement.
The U.S. Trustee filed an objection along with a motion to appoint a legal representative. The U.S. Trustee did not propose anyone in particular nor recommend a specific process for selection. Rather, the U.S. Trustee wanted the court to permit other nominations.
Ultimately, Judge Silverstein approved the debtor’ selection and authorized the engagement of the future claims representative’s counsel. In the process, the representative and his counsel incurred about $232,500 in fees and expenses.