487 B.R. 181
Bankr. S.D.N.Y.2013Background
- Lehman Brothers bankruptcy cases involved over $1.8 billion in fees and expenses for estate professionals.
- Historically uncontested fee reviews were common; this matter is a contested challenge by the UST.
- Section 6.7 of Lehman’s Plan provides for consensual payment of fees to individual committee members and indenture trustees.
- The UST argues Section 503(b) governs administrative expenses and precludes plan-based reimbursement.
- The Court analyzes whether plan language can authorize such payments without violating the Bankruptcy Code, and if Section 1129(a)(4) reasonableness review applies.
- The Court ultimately allows the plan provision to authorize the payments, subject to reasonableness and further proceedings if needed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Plan §6.7 authorizes payment of fees outside §503(b) | UST argues §503(b) controls; plan lacks consistency | Applicants contend §1129(a)(4) and §1123(b)(6) permit plan-based payment | Yes; plan provision permissible if reasonable and not inconsistent with Code |
| Whether §503(b) precludes plan-based reimbursement | UST asserts §503(b) is exclusive pathway | Plan structure can create additional rights not listed in §503(b) | No; §503(b) not exclusive pathway when plan provides reasonable reimbursement under §1129(a)(4) |
| Role of Adelphia precedent for plan-based reimbursements | UST distinguishes Ad hoc committees | Adelphia supports plan-based reimbursement independent of §503(b) | Adelphia supports plan-based reimbursement under §1129(a)(4) if reasonable |
| Impact of plan voting and consensual nature on enforceability | Plan approvals do not cure statutory limits | Creditor consensus validates plan and payments | Creditor consensus and plan terms support enforceability |
| Scope of §1129(a)(4) review for reasonableness | Reasonableness review under §503(b) applies | Reasonableness under §1129(a)(4) governs plan-based payments | Reasonableness to be evaluated under §1129(a)(4); unresolved issues to be determined later |
Key Cases Cited
- In re Adelphia Communications Corp., 441 B.R. 6 (S.D.N.Y. 2010) (plan-based reimbursement permissible when reasonable, not inconsistent with Code; §1129(a)(4) review)
- United States v. Energy Res. Co., Inc., 495 U.S. 545 (U.S. 1990) (courts have broad equity powers to modify creditor-debtor relations and approve plans)
- Pepper v. Litton, 308 U.S. 295 (U.S. 1939) (early articulation of plan flexibility and judicial confirmation)