603 B.R. 300
Bankr. N.D. Tex.2019Background
- Chapter 11 Trustee (the Trustee) filed a Final Application seeking $453,699.63 in fees for services from May 14, 2018 to Feb 15, 2019 and $436.84 in expenses; total disbursements by Trustee were $14,348,321.00.
- Highland objected to the Final Application on multiple grounds: (1) reasonableness of fees (including pursuit of a failed First Amended Plan that triggered a $2.5M break‑up fee to Oaktree), (2) inclusion of certain disbursements in the §326(a) commission calculation (payments to the Reorganized Debtor and to Trustee’s professionals), (3) aggregate compensation under §326(c) because a Chapter 7 trustee previously received $34,905.30, and (4) alleged conflicts/duplication involving special counsel Winstead and general counsel Forshey & Prostok.
- Court evaluated fee reasonableness under §330 (and §326 limits) using statutory factors and Fifth Circuit precedents; concluded Trustee’s time (1,250.3 hours), skill, novelty, results (estate preserved; plan confirmed), and effective hourly rate (after §326 cap) were reasonable.
- Court rejected Highland’s challenge that the Trustee should be penalized for pursuing the First Amended Plan and for the Oaktree break‑up fee, applying the prospective standard from Woerner (assessing reasonableness at time services rendered).
- Court upheld inclusion of (a) $5M+ disbursement to the Reorganized Debtor and (b) disbursements to Trustee’s professionals in the §326(a) calculation, but sustained Highland’s §326(c) objection and reduced the Trustee’s award by $34,905.30 (amount previously paid to Chapter 7 trustee).
- Final award: granted in part — $419,231.17 total ($418,794.33 fees and $436.84 expenses); Reorganized Debtor ordered to pay per Plan.
Issues
| Issue | Highland's Argument | Trustee's Argument | Held |
|---|---|---|---|
| Reasonableness of Trustee's fees under §330 (and §326 cap) | Trustee sought fees despite plan failure and Oaktree break‑up fee; such efforts provided no estate benefit | Services were necessary, complex, time‑consuming, and reasonable when rendered; §326 limits produce lower effective hourly rate | Fees reasonable under §330; pursuit of First Amended Plan was reasonable at the time; no reduction for plan denial |
| Inclusion of disbursement to Reorganized Debtor in §326(a) base | Such a disbursement is to the “debtor” and should be excluded per England | Reorganized Debtor is a new entity/successor; funds were moneys disbursed and appropriately included | Inclusion was proper; England inapposite; treating reorganized entity as debtor would be absurd here |
| Inclusion of disbursements to Trustee’s professionals in §326(a) base | Trustee’s professionals are not "parties in interest" and should be excluded (relying on Testaverde) | Professionals hold administrative expense claims and are parties in interest; inclusion proper | Court rejects Testaverde view; professionals are parties in interest; inclusion upheld |
| §326(c) aggregate cap where Chapter 7 trustee previously received fees | Previously awarded $34,905.30 to Chapter 7 trustee must be aggregated and deducted from Trustee’s allowable compensation | Cases converted from Chapter 7 to 11 still constitute the same overall case; §326(c) applies | Sustained: Trustee’s award reduced by $34,905.30 under §326(c) |
Key Cases Cited
- In re First Colonial Corp., 544 F.2d 1291 (5th Cir. 1977) (factors for fee reasonableness)
- Johnson v. Ga. Highway Express, Inc., 488 F.2d 714 (5th Cir. 1974) (factors relevant to attorney fee determinations)
- Barron & Newburger, P.C. v. Tex. Skyline, Ltd. (In re Woerner), 783 F.3d 266 (5th Cir. 2015) (prospective standard: assess reasonableness at time services rendered)
- Pritchard v. United States Trustee (In re England), 153 F.3d 232 (5th Cir. 1998) (interpreting "moneys disbursed" in §326(a))
- In re North American Oil & Gas, Inc., 130 B.R. 473 (Bankr. W.D. Tex. 1990) (including disbursements to liquidating agent/reorganized entity in §326(a) base)
- In re Marvel Entm't Grp., Inc., 140 F.3d 463 (3d Cir. 1998) (standards for disqualification and addressing potential conflicts)
- In re AGE Ref., Inc., 447 B.R. 786 (Bankr. W.D. Tex. 2011) (court discretion on potential conflicts and retention challenges)