532 B.R. 814
D. Colo.2015Background
- Adam Aircraft filed Chapter 7 in February 2008; Morgan Stanley led secured unsecured creditors group.
- Asset sale yielded $10 million; Trustee paid Morgan Stanley $5,826,837.30 from proceeds.
- Trustee sought special counsel Allen & Vellone under §327; firm approved and billed at hourly rates.
- Trustee negotiated a Modified Contingency Fee: 75% of hourly rates plus 15% of 'gross amount recovered' defined as total recovery before expenses.
- Adversary proceeding against Morgan Stanley settled in 2012; Trustee claimed substantial estate benefit; fee application filed July 2012; bankruptcy court initially approved contingent portion; first appeal remanded for §330/Johnson analysis.
- On remand (2014), bankruptcy court applied §330 and Johnson factors, awarding hourly $73,086.37 and a $464,999.58 contingency plus $10,145.82 costs; judgment affirmed on appeal.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a contingency fee can be based on liability reduction. | Adam argues liability reduction is not recoverable. | Adam Aircraft and Vellone contend it's a valid measure of benefit in lender-liability cases. | Yes, permissible if reasonably determinable. |
| Whether basing fee on cash saved for the estate is permissible. | Fee should reflect actual cash recovery only. | Savings to the estate are legitimate benefits. | Permissible; not limited to cash influx. |
| Do Colorado contingent-fee rules govern or constrain a bankruptcy court’s §330 analysis? | Colorado rules should apply. | Federal bankruptcy law governs; state rules are not controlling. | Federal law governs; Colorado rules do not bar the arrangement. |
| Was the hybrid hourly-plus-contingent fee properly evaluated under §330 and Johnson factors? | The court erred by not analyzing §330/Johnson factors adequately. | Remand addressed factors; fees found reasonable. | Yes; on remand the factors supported reasonableness and final award. |
Key Cases Cited
- In re Market Center East Retail Property, Inc., 730 F.3d 1239 (10th Cir. 2013) (requires §330 factors and clarifies contingent fee limits after §328 approval)
- Market Center East Retail Property, Inc., v. 469 B.R. 44, 469 B.R. 44 (10th Cir. BAP 2012) (illustrates balancing §330 factors; contemplates contingent fee principles in bankruptcy)
- In re 5900 Associates, Inc., 468 F.3d 326 (6th Cir. 2006) (fees in bankruptcy governed by federal law; state rules often inapplicable)
- Johnson v. Georgia Highway Express, Inc., 488 F.2d 714 (5th Cir. 1974) (factors for determining reasonable attorney’s fees)