447 B.R. 786
Bankr. W.D. Tex.2011Background
- Debtor AGE Refining, Inc. operates a small San Antonio refinery with two processing facilities and significant jet fuel contracts, employing about 80 people.
- Refinery faced cash-flow issues in 2009, leading to restructuring efforts with JPMorgan Chase and Chase Capital; post-petition financing restored letters of credit to secure crude supply.
- In mid-2010, lenders and related parties agreed to appoint a chapter 11 trustee, Eric Moeller, to replace management and pursue estate litigation as needed.
- Creditors' Committee investigated related-party transactions; by fall 2010 the Committee decided to pursue litigation and sought trustee authorization to hire special counsel.
- Trustee proposed to retain Langley & Banack (general counsel) and Martin & Drought (special counsel) on a blended fee arrangement: 85% hourly rate plus a 6% contingent fee, split 50/50 between firms.
- Glen Gonzalez, a party to be sued and a party in interest, objected to the two-firm arrangement, asserting conflicts, lack of necessity, and improper fee-sharing.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the trustee may employ two firms under sections 327/328 on special terms | Gonzalez argues retention violates 327/328 and risks conflicts and duplicative work. | Trustee contends dual retention is efficient, justified by prior work, and within statutory discretion for special purposes. | Approved: two firms retained on special terms for estate-litigation. |
| Whether the proposed fee-sharing arrangement violates 504(a) | Gonzalez asserts fee-splitting violates 504(a) prohibition on sharing compensation among professionals. | Arrangement allocates separate 3% contingency to each firm; no cross-sharing; not a true fee-sharing scheme. | Not a prohibited fee-sharing arrangement; complies with 504(a). |
| Whether Martin & Drought hold or represent an adverse interest affecting disinterestedness | Martin & Drought previously represented the creditors' committee; potential conflict with trustee's, or estate's, interests. | No adverse personal interest; interests align with trustee in pursuing estate assets; not disqualified under §327(a). | Martin & Drought are disinterested for the limited purposes; retention approved. |
| Whether the common interest doctrine protects privilege for coordinated litigation | If counsel for the Committee and Trustee share documents, privileges could be waived. | Common interest doctrine permits shared information where litigation goals are identical and cooperation is purposeful. | Common interest doctrine applies; privilege protection preserved. |
Key Cases Cited
- In re West Delta Oil Co., 432 F.3d 347 (5th Cir. 2005) (defines 'adverse interest' and analyzes disinterestedness under §327)
- In re AroChem Corp., 176 F.3d 610 (2d Cir. 1999) (adverse-interest and disinterestedness standards for trustees' counsel)
- In re RPC Corp., 114 B.R. 116 (M.D.N.C. 1990) (dual representation and permissible scope of trustee's litigation retention)
- In re Fondiller, 15 B.R. 890 (9th Cir. BAP 1981) (principles on fiduciary duties and retention in bankruptcy)
- In re Marvel Entm't Group., Inc., 140 F.3d 463 (3d Cir. 1998) (appearance of conflicts and third-party counsel in bankruptcy)
- Matter of Barron, 325 F.3d 690 (5th Cir. 2003) (limits on revisiting fee arrangements and related concepts in retention)
- In re Contractor Tech., Ltd., 2006 WL 1492250 (S.D. Tex. 2006) (conflict and disinterestedness framework under §327)
- In re Coho Energy, Inc., 395 F.3d 198 (5th Cir. 2004) (contingent-fee implications under §330 and §328 interplay)
- In re Louisiana World Exposition, 858 F.2d 233 (5th Cir. 1988) (standard for evaluating fiduciary conflicts (cited in context))