Davis v. Elliot Management Corp. (In re Lehman Bros. Holdings Inc.), 508 B.R. 283

Background

Lehman Brothers Holdings filed Chapter 11 in 2008; professional fees in the case totaled about $1.8 billion. The dispute concerns roughly $26 million billed to represent individual members of the official unsecured creditors’ committee.
The confirmed Chapter 11 Plan included §6.7, which treated the Individual Members’ reasonable professional fees as “Administrative Expense Claims” payable in full by the debtors.
The U.S. Trustee objected that the Bankruptcy Code does not permit administrative-expense treatment for committee members’ professionals and that §6.7 unlawfully circumvents §503(b).
The bankruptcy court upheld §6.7 as permissible under §1123(b)(6) and declined to decide whether the fees could alternatively be paid under §503(b)(3)(D) and §503(b)(4) as compensation for a "substantial contribution."
On appeal, the district court vacated the bankruptcy court’s decision, holding §6.7 inconsistent with §503(b) but remanding to allow the bankruptcy court to determine whether the Individual Members qualify for reimbursement under §503(b)(3)(D) and §503(b)(4).

Issues

Issue	UST's Argument	Appellees' Argument	Held
Whether a plan may designate committee members’ professionals’ post-petition fees as administrative expenses payable in full	§503(b) is the exclusive source of administrative-expense priority and excludes professional fees for official committee members; §6.7 is inconsistent with §503(b)	§1123(b)(6) permits flexible plan provisions; §6.7 is a permissible "plan payment" distinct from §503(b) administrative expenses	§6.7 is invalid: plan cannot recharacterize and bypass §503(b)’s exclusion of committee-member professional fees
Whether Congress intended to bar all reimbursement to committee members who made a substantial contribution	BAPCPA’s amendment bars reimbursement to official committee members	BAPCPA only removed per se entitlement; members who make a substantial contribution may still recover under §503(b)(3)(D) and §503(b)(4)	Membership alone does not bar recovery; if members independently make a "substantial contribution," they may seek reimbursement under §503(b)(3)(D) and §503(b)(4)
Whether permissive plan payments outside of §503(b) are allowable for post-petition professional fees	Such plan payments would undermine the Code’s comprehensive scheme and could circumvent protections like the absolute-priority rule	Plan payments are consensual, approved by creditors and court as reasonable, and thus distinct from automatic administrative expenses	Plan cannot be used as a backdoor to grant administrative-expense treatment excluded by statute; permissive plan-payment argument rejected
Remedy: action on remand	N/A	Bankruptcy court previously declined to rule on substantial-contribution issue	District court vacated the confirmation ruling re §6.7 and remanded for determination whether Individual Members made a substantial contribution under §503(b)(3)(D) and §503(b)(4)

Key Cases Cited

In re Lehman Bros. Holdings Inc., 487 B.R. 181 (Bankr. S.D.N.Y. 2013) (bankruptcy court ruling upholding Plan §6.7)
RadLAX Gateway Hotel, LLC v. Amalgamated Bank, 132 S. Ct. 2065 (U.S. 2012) (general Code authorizations cannot be used to evade specific statutory provisions)
In re Smart World Techs., LLC, 423 F.3d 166 (2d Cir. 2005) (limitations on bankruptcy-court authority to exceed statutory bounds)
In re DBSD N. Am., Inc., 634 F.3d 79 (2d Cir. 2011) (reversing plan treatment that effectively gifted property in violation of absolute-priority rule)
Trustees of Amalgamated Ins. Fund v. McFarlin’s, Inc., 789 F.2d 98 (2d Cir. 1986) (policy rationale for priority given to administrative expenses)
Kucana v. Holder, 558 U.S. 233 (U.S. 2010) (presumption that differing statutory language reflects deliberate congressional choice)
In re Adelphia Commc’ns Corp., 441 B.R. 6 (Bankr. S.D.N.Y. 2010) (bankruptcy-court decision supporting permissive plan payments; relied on by appellees but rejected by district court)