In re Quigley Co.
2013 WL 5769883
Bankr. S.D.N.Y.2013Background
- Quigley Company (debtor) filed Chapter 11 to address massive asbestos claims and to obtain releases for Pfizer, its sole shareholder, which entered into large claimant settlements tied to confirmation. The case produced multiple amended plans; the Fourth Plan was denied confirmation for lack of good faith and financial deficiencies; a later Fifth Plan was confirmed.
- Major professionals (Schulte Roth & Zabel for debtor, Caplin & Drysdale for the Official Committee, Togut Segal & Segal for the Legal Representative) submitted final fee applications totaling millions; the U.S. Trustee (UST) objected principally to fees for work on the unconfirmed Fourth Plan and for alleged excessive or vague plan-related billing.
- The UST argued fees for plan work that produced an unconfirmable plan (or work that should have been obviously futile) are not compensable under 11 U.S.C. § 330; she also relied on a statistical comparison showing large increases in plan-related billing after the initial plan filing to argue excessiveness.
- The firms had previously submitted numerous interim fee applications over nine years; most time entries and rates were detailed and previously accepted, and Schulte and Togut certified compliance with local fee guidelines; Caplin lacked one required certification.
- The Court applied the § 330 lodestar framework, emphasizing that fees are allowed for services that were reasonable and beneficial at the time rendered (not judged solely by hindsight), but that fees for services that were plainly futile or for plans unconfirmable on their face can be disallowed.
Issues
| Issue | UST's Argument | Applicants' Argument | Held |
|---|---|---|---|
| Are fees for work on a plan that later failed (Fourth Plan) compensable? | Fees should be denied because the Fourth Plan was not proposed in good faith and counsel should have known it was unconfirmable, so plan-related work did not benefit the estate. | Counsel argued the Fourth Plan presented litigable factual issues (good faith, voting) requiring trial; services were reasonable and necessary at the time. | Denied UST objection: Court held plan-related work was not plainly futile; work was reasonable and beneficial at the time; fees allowed for Schulte and Togut (Caplin subject to certification compliance). |
| Statistical increase in plan-related billing after the initial plan | Large post-filing increases show unreasonable, unjustified billing; propose large percentage reductions. | The initial plan was an incomplete placeholder; substantial post-filing work (negotiations, discovery, revisions, confirmation prep) justified increased billing. | Overruled: Court found the statistical comparison misleading and the post-filing work was substantial and necessary. |
| Use of numerous "transitory" timekeepers (many billed <6 hours) | Time by many short-billed attorneys indicates inefficient staffing; disallow their fees. | These timekeepers handled discrete specialized tasks and nonrecurring matters; minimal learning curve; presumption of reasonable staffing. | Overruled: Court accepted explanation and allowed the time. |
| Caplin-specific billing vagueness, docket-review and fees for defending interim fee objection | UST identified vague entries, docket-review on inactive days, review-of-billing time and sought large reductions and denial of overhead billing; also sought to limit fees defending interim fee objection. | Caplin explained docket-review practice, paralegal responsibilities, and limited time spent on privilege redaction; argued many objections were vague. | Partially sustained: Court disallowed limited amounts (approx. $6,500 for some docket-review entries; $1,200 for Tobin docket-review; ~$7,200 for other vague entries; disallowed 50% of certain vague items; reduced defense-fee request by $2,000). Caplin must supply required Certification for final allowance; overall award reduced by $20,600. |
Key Cases Cited
- In re Quigley Co., 437 B.R. 102 (Bankr. S.D.N.Y. 2010) (denial of confirmation of Fourth Plan for lack of good faith and related financial defects)
- In re Ahead Commc’ns Sys., Inc., 395 B.R. 512 (D. Conn. 2008) (district court reversed allowance of plan-preparation fees where plan was unconfirmable on its face)
- Rubner & Kutner v. U.S. Trustee (In re Lederman Enters., Inc.), 997 F.2d 1321 (10th Cir. 1993) (fees may be denied where counsel should have known reorganization was hopeless)
- Pennsylvania v. Delaware Valley Citizens’ Council for Clean Air, 478 U.S. 546 (1986) (strong presumption that lodestar is reasonable)
- Ames Dep’t Stores v. NLRB (In re Ames Dep’t Stores, Inc.), 76 F.3d 66 (2d Cir. 1996) (reasonableness judged by what a reasonable lawyer would have done in the same circumstances)