478 B.R. 173
Bankr. S.D.N.Y.2012Background
- Debtors filed Chapter 13 on March 30, 2012, and their counsel filed a 2016(b) statement detailing a $3500 flat fee with specified included services.
- American Express objected to plan confirmation on grounds including disposable income, expenses, and alleged misstatements in schedules I & J.
- Genova & Malin sought court approval to represent Debtors regarding American Express’ objection under Bankruptcy Code section 327(e), with a $2500 retainer paid and hourly rates disclosed.
- American Express argued section 327(e) is inapplicable to Chapter 13 debtors, and that special counsel fees would dry up estate value for creditors.
- The court held a hearing on September 13, 2012 and granted the application to employ special counsel, with fees to be reviewed under section 330.
- The court acknowledged that fees can be reviewed for reasonableness; retainer and future fees would be subject to 330(a)(4)(B) review, and 2016(b) disclosures were required.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a Chapter 13 debtor may employ special counsel. | Debtors have standing to hire special counsel for non-bankruptcy actions. | Section 327(e) does not apply to Chapter 13 debtors; concerns about estate funds and creditors. | Yes; Chapter 13 debtors may retain special counsel for necessary actions. |
| Whether the fees and retainer for special counsel must be disclosed and reviewed under 330. | Fees are reasonable and subject to court review for reasonableness under 330. | Fees may be excessive and undermine creditors if not properly reviewed. | Fees are subject to 330 review for reasonableness. |
| Whether use of Section 327(e) is appropriate in a Chapter 13 case for objecting to confirmation. | Chapter 13 debtors may use services needed to protect the estate’s interests. | Concerns that defense costs should be borne by the estate and not undermine creditors. | Not dispositive; standard analysis under 330 applies to reasonableness of fees. |
Key Cases Cited
- Olick v. Parker & Parsley Petroleum Co., 145 F.3d 513 (2d Cir. 1998) (Chapter 13 debtors may litigate causes of action and control progress of case)
- In re Goines, 465 B.R. 704 (Bankr. N.D. Ga. 2012) (trustee term used to include Chapter 13 debtor with non-bankruptcy actions)
- In re Berg, 356 B.R. 378 (Bankr. E.D. Pa. 2006) (disclose compensation and post-petition payments from estate under 330(a)(4)(B))
- In re Bowker, 245 B.R. 192 (Bankr. D.N.J. 2000) (debtor may engage special counsel with fees paid from estate; subject to review)
- In re Smith, 331 B.R. 622 (Bankr. M.D. Pa. 2005) (reasonableness and scope of flat-fee arrangements and exclusions)