456 B.R. 195
Bankr. S.D.N.Y.2011Background
- Borders Group, Inc. and affiliates filed Chapter 11 on February 16, 2011.
- Mercer (US) Inc. was retained as compensation consultant; F & P provided outside counsel for Mercer.
- Mercer sought interim fees of $97,226.58 and expenses of $17,402.02; $16,496.35 of which were F & P fees.
- U.S. Trustee objected to reimbursement of outside counsel fees not retained under §327(a).
- Engagement Letter and Retention Order allowed reimbursement for certain outside counsel fees; court approved some Mercer/F&P expenses but disallowed others as to scope and reasonableness.
- Court held that outside legal fees may be reimbursed where work is for Mercer’s retention/fee applications and not for estate work, subject to reasonableness.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether outside legal fees can be reimbursed if the attorney was not retained under §327(a). | Mercer contends fees are reimbursable under the engagement terms. | UST argues no reimbursement unless counsel is retained under §327(a). | Reimbursement allowed for certain retention-related outside counsel fees; §327(a) not required. |
| Which F&P fees related to Mercer’s retention/fee applications are reimbursable. | F&P work on retention and fee applications is reimbursable. | Some F&P work is estate-unrelated and not reimbursable. | Fees for retention and fee-application related work reimbursable; some categories denied. |
| Whether certain time entries (time records review, overhead, bar-date claims) are reimbursable. | Some time entries were necessary for Mercer’s engagement. | Such entries are overhead or unrelated to Mercer’s work; not reimbursable. | Reviewing time records denied; miscellaneous entries denied as overhead. |
Key Cases Cited
- Crafts Retail Holding Corp., 378 B.R. 44 (Bankr.E.D.N.Y. 2007) (outside counsel not retained cannot be reimbursed; retention process protections)
- Geneva Steel Co., 258 B.R. 799 (Bankr.D. Utah 2001) (reimbursement allowed for retained professional's outside counsel in specific circumstances)
- American Preferred Prescription, Inc., 218 B.R. 680 (Bankr.E.D.N.Y. 1998) (accountant not retained may reimburse counsel for defense of retention disputes)
- Blockbuster, Inc., In re Blockbuster, Inc., No. 10-14997 (BRL) (Bankr.S.D.N.Y. 2010) (engagement letters allowing outside counsel reimbursement at retention stage controversial)
- Sbarro, Inc., In re Sbarro, Inc., No. 11-11527 (SCC) (Bankr.S.D.N.Y. 2011) (reimbursement of outside counsel for retained professional may be appropriate in certain contexts)
- Lamie v. U.S. Trustee, 540 U.S. 526 (Supreme Court 2004) (§330(a)(1) entitlement limits; not authorizing debtors' attorneys absent §327 retention)
- In re Computer Learning Centers, Inc., 285 B.R. 191 (Bankr.E.D.Va. 2002) (denied reimbursement for outside counsel time not tied to estate services)
- In re Midland Capital Corp., 82 B.R. 233 (Bankr.S.D.N.Y. 1988) (per se rule against subcontracting to non-retained counsel; emphasis on retention)
- In re Northeast Dairy Cooperative Fed'n, Inc., 74 B.R. 149 (Bankr.N.D.N.Y. 1987) ( harsh consequences for lack of court-approved retention)