516 B.R. 254
S.D.N.Y.2014Background
- Tribeca Market and related debtor filed Chapter 11; a three‑member Official Committee of Unsecured Creditors (GMDC, Okey, NYCC) was appointed; Pick & Zabicki LLP (P & Z) was retained as committee counsel over GMDC’s objection.
- P & Z represented the Committee from May 2011 until a Chapter 11 trustee was appointed in July 2012; P & Z sought final fees of about $124,803 for work through July 30, 2012.
- GMDC objected to P & Z’s fee application, alleging that P & Z excluded GMDC from committee deliberations (no in‑person/telephonic committee meetings with notice to GMDC after P & Z’s retention), drafted one‑sided bylaws, retained professionals without proper input, proposed an inequitable plan, and had undisclosed representations creating conflicts.
- At confirmation, the Bankruptcy Court scrutinized these complaints, took P & Z’s fee application for further submission, and asked for declarations about meetings and notice; thereafter it reduced P & Z’s fees by 40%, citing failure to convene committee meetings with advance notice to GMDC and concerns about the quality of representation.
- P & Z appealed; GMDC cross‑appealed arguing fees should be further reduced or denied entirely because of fiduciary breaches and nondisclosure. The district court affirmed the 40% reduction as within the Bankruptcy Court’s discretion but remanded to correct an arithmetic error (the court had not accounted for a prior voluntary $2,412 reduction).
Issues
| Issue | Plaintiff's Argument (P & Z) | Defendant's Argument (GMDC) | Held |
|---|---|---|---|
| Whether Section 1103 or bylaws required a certain number of committee meetings | Section 1103 requires only one meeting; P & Z met that requirement and need not have convened additional meetings | P & Z repeatedly excluded GMDC from deliberations and failed to give notice of meetings, undermining representation | Court: §1103 does not mandate a number of meetings; but given filings made on the Committee’s behalf, failing to convene meetings with notice raised serious questions about representation and supported fee reduction |
| Whether the 40% across‑the‑board reduction was arbitrary or an improper use of lodestar/hindsight | Reduction was arbitrary, improperly based on hindsight and on qualitative assessment rather than lodestar math | Reduction was a permissible exercise of discretion to account for deficient representation and lack of solicitation of all members' interests | Court: Reduction was within §330 discretion; courts may use percentage cuts and consider qualitative factors (not improper hindsight) |
| Whether P & Z’s undisclosed/related representations required forfeiture or further reduction of fees | Any later representations occurred after trustee appointment; P & Z disclosed when required; no authority mandates automatic forfeiture | Nondisclosures and conflicts warranted denial or greater reduction of fees | Court: Rule 2014 disclosure obligations are important, but record showed no prejudicial undisclosed conflict; court had discretion and did not abuse it by awarding reduced fees rather than denying all compensation |
| Whether remand or correction of arithmetic is required | P & Z sought correction of the fee calculation | GMDC did not dispute arithmetic error | Held: Affirmed substance of reduction but vacated and remanded for limited purpose of correcting an arithmetic error (failure to account for prior voluntary $2,412 reduction) |
Key Cases Cited
- In re Bayshore Wire Prods. Corp., 209 F.3d 100 (2d Cir. 2000) (standard of review for bankruptcy appeals; abuse of discretion review for fee awards)
- McDonald v. Pension Plan of NYSA‑ILA Pension Trust Fund, 450 F.3d 91 (2d Cir. 2006) (approving percentage deductions as practical means to trim fee applications)
- Pennsylvania v. Delaware Valley Citizens’ Council for Clean Air, 478 U.S. 546 (U.S. 1986) (discussion of lodestar and role of quality of performance in fee adjustments)
- In re Iannochino, 242 F.3d 36 (1st Cir. 2001) (bankruptcy court’s duty to consider quality and value of professional services)
- In re JLM, Inc., 210 B.R. 19 (2d Cir. B.A.P. 1997) (bankruptcy courts enjoy wide discretion in determining reasonable fee awards)