927 F.3d 763
3rd Cir.2019Background
- SS Body Armor (Debtor) faced consolidated class/derivative suits after CEO David Brooks’s financial crimes; Debtor initially proposed a global settlement that indemnified Brooks for SOX §304 liability.
- Cohen objected; Second Circuit vacated the EDNY approval because the indemnification violated SOX §304, preserving the SOX claim and leaving CLM (counsel for Cohen) entitled to seek fees for that work.
- Debtor filed Chapter 11 in Delaware; a Recovery Trustee and a later, larger Second Settlement distributed restrained Brooks assets (about $142M total; $70M received by Debtor recently).
- CLM sought attorneys’ fees for preserving the SOX §304 claim: it billed ~1,502 hours and claimed $549,472.61 in lodestar, requesting $1.86M (lodestar × 3.38) and at times sought a $25M reserve.
- Bankruptcy Court approved a conditional fee award but set only a $5M reserve from settlement funds; CLM appealed the reserve and moved for a stay of distributions pending appeal. The District Court denied CLM’s emergency stay motion; CLM appealed to the Third Circuit.
Issues
| Issue | Plaintiff's Argument (CLM) | Defendant's Argument (Debtor/Recovery Trustee) | Held |
|---|---|---|---|
| Appellate jurisdiction over denial of emergency stay | District Court’s denial is final under 28 U.S.C. §158(d)(1) or is an injunctive order under §1292(a)(1) | Denial not a final appealable order; technical posture precludes §158(d) review | Court: §158(d)(1) jurisdiction exists—district order was functionally final given imminent distributions that would moot the underlying appeal (affirmed) |
| Whether a stay of distributions was warranted pending appeal of the fee-reserve | Entitled to stay because $5M reserve is inadequate; risk of irreparable harm and likelihood of success on the fee-appeal | $5M reserve is adequate; CLM unlikely to succeed on appeal; granting stay would harm thousands of creditors and impede plan distribution | Court: Denial of stay affirmed—CLM failed on the critical first factor (likelihood of success); $5M reserve sufficient at this stage |
Key Cases Cited
- In re Revel AC, Inc., 802 F.3d 558 (3d Cir. 2015) (stay-denial appealable where denial likely moots underlying appeal due to imminent, irreversible consequences)
- Nken v. Holder, 556 U.S. 418 (2009) (four-factor test for stay: likelihood of success, irreparable harm, harm to others, public interest)
- In re Cendant Corp. PRIDES Litig., 243 F.3d 722 (3d Cir. 2001) (discussion of lodestar and percentage-of-recovery methods for attorneys’ fees)