627 B.R. 644
Bankr. S.D. Miss.2021Background
- On-Site Fuel was the subject of an involuntary Chapter 7; Capitala/Harbert filed large secured proofs of claim asserting a lien on substantially all assets.
- The chapter 7 trustee employed Liston & Deas (L&D) as special counsel under a Joint Venture (JV) Agreement providing a hybrid fee: reduced hourly rates plus a contingent fee (27.5% if funds available; 40% if not) to be split with co-counsel MMS.
- L&D prosecuted an adversary seeking equitable subordination of Capitala/Harbert’s claims; the Trustee settled, subordinating those claims as to the Estate Funds (making cash available to other creditors).
- L&D sought approval of fees: $58,740 (reduced hourly at $150/hr for 391.6 hours), $97,953.81 as a contingent ("reverse contingent") fee based on estate funds saved, and $10,121.90 in expenses.
- The U.S. Trustee objected, arguing (1) “sums recovered” in the JV Agreement did not include amounts merely saved (no new money), and (2) reverse contingent fees are improper; the Trustee and L&D supported the fee request.
- The bankruptcy court held that the JV Agreement encompassed savings of estate funds, rejected a per se ban on reverse contingent fees, found the blended fee reasonable under § 330 and Johnson factors, and approved total fees of $156,693.81 plus expenses.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether "sums recovered" in the JV Agreement can include amounts saved (i.e., Estate Funds freed by subordination) | L&D/Trustee: ordinary meaning of "recover" includes restoring or saving estate funds; parties understood contingency to apply to such savings | UST: "sums recovered" means new money paid into the estate; contingency should not be based on liability reduction | Court: "sums recovered" reasonably includes savings/restoration of estate funds here; contingency may be based on funds saved |
| Whether reverse (savings-based) contingent fees are per se invalid | L&D/Trustee: permitted if amount saved is reasonably determinable and client informed; ABA opinion and analogous precedent support | UST: reverse contingent fees improper or at least suspect in bankruptcy absence of clear contract language | Court: rejects per se invalidity; approves reverse contingency where reasonable determinability and informed consent exist |
| Whether the requested fees are reasonable under § 330, lodestar, and Johnson factors | L&D/Trustee: hours, reduced hourly rate, and contingent component are reasonable and necessary; blended arrangement fair given risk | UST: did not contest hours/rate but opposed contingent component and quantum meruit recovery | Court: hours reasonable, lodestar at reduced rate $58,740; blended total $156,693.81 is reasonable when measured against market rates and § 330/Johnson factors |
| Whether expenses ($10,121.90) are recoverable | L&D: actual deposition/postage expenses incurred and necessary | UST: did not contest reasonableness | Court: expenses approved and reimbursable |
Key Cases Cited
- In re Mobile Steel Co., 563 F.2d 692 (5th Cir. 1977) (sets forth three-part test for equitable subordination)
- Adam v. Weinman (In re Adam Aircraft Indus., Inc.), 532 B.R. 814 (D. Colo. 2015) (upheld contingency fee based on savings to estate from subordination; influential precedent)
- Perdue v. Kenny ex rel. Winn, 559 U.S. 542 (2010) (endorses lodestar approach as central to fee reasonableness analysis)
- Barron & Newburger (In re Woerner), 783 F.3d 266 (5th Cir. 2015) (adopts prospective test for whether services were necessary/beneficial under § 330)
- CRG Partners Grp., LLC v. Neary (In re Pilgrim's Pride Corp.), 690 F.3d 650 (5th Cir. 2012) (discusses lodestar and Johnson factors in bankruptcy fee awards)
- Johnson v. Georgia Highway Express, Inc., 488 F.2d 714 (5th Cir. 1974) (establishes twelve-factor reasonableness test used in fee assessments)
- In re Market Ctr. E. Retail Prop., Inc., 730 F.3d 1239 (10th Cir. 2013) (addresses approach to fee awards and the limits of BAP precedent)