%1

In East Coast Miner LLC v. Nixon Peabody LLP (In re Licking River Mining LLC),[1] the Sixth Circuit Court of Appeals recently upheld a bankruptcy court determination (affirmed by the district court) that a carve-out for professionals’ fees in a cash-collateral order was enforceable notwithstanding the conversion of the case from chapter 11 to chapter 7.

A recent decision by the U.S. Bankruptcy Court for the District of Utah[1] is a cautionary tale for senior-level employees that are considering leaving their employment and taking employees and business to a competitor. It is also a primer for an employer who has to pursue its claim against the departing employee in bankruptcy court.

Earlier this year, the U.S. Court of Appeals for the Fourth Circuit considered whether the Bankruptcy Code bars a creditor from asserting an unsecured claim for attorneys’ fees incurred post-petition but provided for in a pre-petition contract. The Fourth Circuit reversed the lower court’s ruling and joined other federal circuit courts in holding that such claims may be allowed in bankruptcy.

The Ethics and Professional Compensation Committee has had a busy and productive 2019. As evidenced by our steadily increasing membership, the committee is a valuable resource for insolvency professionals interested in keeping abreast of current and important issues involving ethics and professional compensation in the bankruptcy field. These are some of the highlights from this year:

Newsletters

This is Part 2 of an article about the Lorick case,[1] concerning the disposition of the proceeds of the bankruptcy sale of a valuable property in Brighton Beach, Brooklyn, in which Wells Fargo was an oversecured creditor. Part 1[2] of this article laid out the factual background and discussed which expenses the court permitted Wells Fargo to add to its claim.

Surcharges

A recent decision by Judge Isicoff is a reminder that both (1) fee agreements in bankruptcy court are governed by state rules of professional responsibility, and (2) attorneys must read those rules carefully when drafting agreements.

In In re Miami Beverly LLC, a creditor of a chapter 11 debtor had been litigating in state court with the debtor before the petition date.[1] After the petition was filed, the creditor’s law firm filed a proof of claim on the creditor’s behalf, as well as a charging lien.

A debtor’s attorney may be compensated or reimbursed from the estate if his fees or costs constitute an administrative expense under § 503(a). Fees and costs in a chapter 13 generally constitute an administrative expense if they are either necessary expenses to preserve the estate or are “reasonable compensation.”[1] Debtor’s attorneys can file a detailed application to show the services rendered and expenses advanced. The bankruptcy court reviews the fee application to grant priority to the compensation deemed reasonable.

In Law Solutions Chicago LLC v. United States Trustee (In re Banks),[1] the Fifth Circuit upheld multiple sanctions against a national consumer bankruptcy law firm for misleading and neglecting clients. The district and bankruptcy court opinions thoroughly illustrate the complexities and pitfalls operating a high-volume, multi-jurisdictional law firm, and serve as a cautionary tale for debtors who search the internet for bankruptcy advice.