502 B.R. 673 | Bankr. S.D.N.Y. | 2013
Chapter 11
POST-TRIAL MEMORANDUM DECISION ON (I) MOTION OF UNITED STATES TRUSTEE FOR VACATUR OF RETENTION ORDERS AND DISGORGEMENT OF PROFESSIONAL FEES AND (II) JOIN-DERS THERETO
TABLE OF CONTENTS
BACKGROUND: THE GSC BANKRUPTCY CASES... 683
I. The Commencement of the Cases and the Auction.. .683
II. The Appointment of the Chapter 11 Trustee... 685
III. The Trustee’s Plan of Reorganization, the Black Diamond Plan of Reorganization, and the Confirmation Stipulation ...686
A. The Confirmation Stipulation... 687
B. The Controverted “Effective Date”.. .688
A. Section 2.7: The Administrative Fund...689
B. Section 2.8: The Replacement of the Liquidating Trustee... 692
BACKGROUND: THE RETENTION OF THE PROFESSIONALS
AND THE ENSUING CONTROVERSY. ..693
I.The Retention of Capstone and Capstone’s Disclosures with Respect to Mr. Manzo and R JM... 693
A. Mr. Manzo’s Relationship with Capstone ...693
B. The Three Ordway Declarations ...695
1. The First Ordway Declaration... 695
2. The September 23, 2010 Meeting. . .696
3. The First Supplemental Ordway Declaration ... 697
4. The Second Supplemental Ordway Declaration... 698
II. The Capstone Performance Fee Motion. . .700
III. The U.S. Trustee Vacatur and Disgorgement Motion.. .703
IV. The Ill-Fated Rule 9019 Settlement Motions... 707
A. The Capstone Rule 9019 Settlement. . .708
B. The Kaye Scholer Rule 9019 Settlement. . .709
C. The Manzo Parties’ Rule 9019 Settlement. . .710
D. The Supplemental Statement of the U.S. Trustee.. .711
V. The Preliminary Kaye Scholer Rule 9019 Settlement Ruling.. .714
VI. The Rule 9011 Sanctions Motions ...715
A. The Motions Seeking Sanctions Against Capstone.. .715
B. The Motion Seeking Sanctions Against Kaye Scholer.. .717
VII. The Final Fee Application Requests. . .719
VIII. The Trial Proceedings... 720
A. Kaye Scholer Settles with the U.S. Trustee... 721
B. The Manzo Parties Settle with the U.S. Trustee... 721
C. The Trial... 722
DISCUSSION.. .724
I. Governing Law.. .724
A. Section 327 of the Bankruptcy Code and Federal Rule of Bankruptcy Procedure 2014...724
B. Section 504 of the Bankruptcy Code and Federal Rule of Bankruptcy Procedure 2016...730
C. The Interplay Between Section 504(b) and Rule 2016(a)... 733
II. Findings of Fact and Conclusions of Law with Respect to Capstone.. .736
A. The Capstone/Manzo Arrangement Does Not Violate Section 504 but Capstone’s Failure to Disclose it Violates Rule 2016...736
B. Capstone’s Final Fee Application ...740
1. Governing Law.. .741
2. The Reasonableness of Capstone’s Fees and Expenses... 743
a. Fees Requested for Services Rendered by Capstone Professionals Other Than Mr. Manzo.. .744
b. Fees Requested for Services Rendered by RJM Through Mr. Manzo... 746
c. Capstone’s Expenses.. .748
d. Summary of Section 330 Reductions to Capstone’s Fees and Expenses... 749
3. Remedies for the Violation of Rules 2014 and 2016.. .749
D. The Rule 9011 Sanctions Motions ...758
III. Findings of Fact and Conclusions of Law with Respect to RJM I and Mr. Man-zo. . .754
IV. Findings of Fact and Conclusions of Law with Respect to Kaye Scholer.. .757
A. Kaye Scholer’s Final Fee Application. . .758
B. The Rule 9011 Sanctions Motion. . .759
CONCLUSION.. .760
Almost twenty years ago, Judge Tina Brozman wrote these words as she undertook the task of rendering a decision in Leslie Fay: “Rarely am I faced with a motion as troubling as this one....”
The basic facts are these. Capstone Advisory Group, LLC (“Capstone”) was retained as financial advisor by debtor GSC Group, Inc. and certain of its direct and indirect debtor subsidiaries and affiliates (collectively, “GSC” or the “Debtors”). The Capstone engagement was led by Mr. Robert J. Manzo (“Mr. Manzo”). Capstone made a disclosure to the Court that Mr. Manzo was an employee of Capstone. This was false. Mr. Manzo was an independent contractor pursuant to a consulting agreement between him and Capstone, a fact that Capstone purposefully did not disclose. In addition, Capstone also stated (i) that it had no agreement with any other entity to share with such entity any compensation received by Capstone in connection with the Debtors’ cases and (ii) that Mr. Manzo, through a sole member LLC vehicle, worked exclusively for Capstone. As to the former statement, Capstone purposefully did not disclose the existence of its agreement with Mr. Manzo based on its conclusion that the agreement did not violate section 504 of the Bankruptcy Code. As to the latter statement, while true when initially disclosed, it subsequently became
“Who knew what when” with respect to the foregoing basic facts is the subject of conflicting testimony and narratives presented by Mr. Manzo, Capstone co-founder Edwin Ordway,
1.What is the scope and meaning of section 504 of the Bankruptcy Code?
2. What is the obligation of a retained professional to disclose its utilization and payment of an independent contractor under Rules 2014 and 2016 of the Federal Rules of Bankruptcy Procedure and section 327 of the Bankruptcy Code?
3. What are the appropriate remedies and sanctions for mistakes and misconduct in connection with fulfilling one’s obligations under Rules 2014 and 2016 of the Federal Rules of Bankruptcy Procedure and section 327 of the Bankruptcy Code?
BACKGROUND: THE GSC BANKRUPTCY CASES
I. The Commencement of the Cases and the Auction
On August 31, 2010 (the “Petition Date”), the Debtors filed voluntary petitions for relief under chapter 11 of the “Bankruptcy Code”.
Prior to the Petition Date, GSC had provided debt-focused investment management of alternative assets. GSC had been engaged in contentious negotiations with its creditors, including Black Diamond Capital Management, L.L.C. (“BDCM,” and, together with its affiliates, “Black Diamond”), its largest creditor. During that time, the Debtors had solicited a stalking horse bid from Black Diamond for the sale of their assets. Black Diamond submitted a $5 million bid shortly before the Petition Date, which the Debtors rejected as well below market value and refused to pursue it as part of their bankruptcy filing. Thus, the Debtors and Black Diamond were in conflict on a number of issues at the time of the chapter 11 filing.
The Debtors filed their bankruptcy petitions with the intention of selling their assets under section 363 of the Bankruptcy Code in an expedited fashion so as not to erode their value. After the Petition Date, parties in interest indeed contested just about everything, including issues related to first-day relief, cash collateral, procedures for the anticipated auction of the Debtors’ assets, and other issues related to the auction. Moreover, in addition to disputes among the Debtors, the secured creditors, investors, insurers, and other interested parties, there also were contentious disputes within the lender group between Black Diamond, on the one hand, and a group of the Debtors’ secured lenders referred to as the “Non-Controlling Lenders,” on the other hand. No official committee of unsecured creditors was appointed by the U.S. Trustee.
The postpetition sale process concluded in an auction (the “Auction”) that lasted three days and resulted in substantial value to the Debtors’ estates beyond any party’s expectations. The offers for the assets increased from $5 million (Black Diamond’s initial offer) to a final bid of $235.7 million (consisting of $5 million in cash, $6.7 million in notes, and a credit bid that was valued at $224 million). The asset purchase agreement (the “APA”) was executed by the Debtors and by GSC Acquisition Partners, LLP (“GSCAP”). In December 2010, GSCAP signed a letter agreement providing that the assets alloca-ble to the credit bid and to the cash bid would both be assigned to and assumed by one purchaser, GSC Acquisition Holdings, LLC (“GSCAH”). GSCAH, referred to by the parties as the “Designated Purchaser,” is a Black Diamond affiliate which, at closing, would be jointly owned by two Black Diamond entities, BDCM and Black Diamond Commercial Finance, L.L.C.
The hearing to approve the sale to GSCAP was originally scheduled to be held on December 6, 2010. It never commenced, as the Non-Controlling Lenders requested, and the Court granted, an adjournment to allow discovery regarding an amendment to the APA signed on December 3, 2010.
On January 5, 2011, in light of its concerns about the conduct of GSC’s management, the Court issued a bench ruling in which it found cause under section 1104(a)(2) of the Bankruptcy Code for the immediate appointment of a chapter 11 trustee and directed such appointment. In his ruling, Chief Judge Gonzalez stated that “the efforts of debtors’ professionals throughout the process, of which this Court does not find fault, cannot address the underlying issue of a lack of confidence in the Debtors’ controlling management.”
Thereafter, on January 7, 2011, the U.S. Trustee, by and through its counsel, filed a Notice of Appointment of the Honorable James L. Garrity, Jr. (Ret.) as the chapter 11 trustee, which appointment was approved by the Court. After his appointment, Mr. Garrity (the “Chapter 11 Trustee”) assumed control of the Debtors’ businesses, which he continued to manage and operate in the ordinary course. The Chapter 11 Trustee also retained his own counsel, Shearman & Sterling LLP (“Shearman”), and began a comprehensive review and analysis of the events leading up to his appointment.
On June 8, 2011, after months of arduous negotiation, the Chapter 11 Trustee filed a motion seeking authorization to sell substantially all of the Debtors’ assets to GSCAH (the “Trustee Sale”).
III. The Trustee’s Plan of Reorganization, the Black Diamond Plan of Reorganization, and the Confirmation Stipulation
Shortly after the closing of the Trustee Sale, on August 23, 2011, the Chapter 11 Trustee filed a plan of reorganization (the “Trustee Plan”) and a related disclosure statement (the “Trustee Disclosure Statement”), which documents were amended on October 4, 2011.
The very next day, Black Diamond filed its own plan (the “Black Diamond Plan”),
BDCM has filed the BDCM Plan because BDCM believes that the BDCM Plan should preserve more of the Debtors’ value than does the Trustee’s Plan, and will provide more attractive treatment for general unsecured claims than does the Trustee’s Plan. The Trustee’s Plan contemplates the wind-down and liquidation of the Debtors, with most of the Debtors’ assets to be placed in, and distributions made from, a liquidating trust. The BDCM Plan, by contrast, would preserve the Debtors as reorganized going forward entities with ongoing administration, and no liquidating trust.22
A. The Confirmation Stipulation
On December 14, 2011, the Court held a hearing on the Disqualification Motion and the Designation Motion; prior to the issuance of any ruling on the motions, the parties reached a settlement that was memorialized in a stipulation dated December 16, 2011 (the “Confirmation Stipulation”)
Of particular significance to the instant dispute is Paragraph 12 of the Confirmation Stipulation, which provided as follows:
Black Diamond hereby waives any rights to object to any fees and expenses of the Trustee, Shearman & Sterling LLP, Capstone Advisory Group, LLC, Ernst & Young LLP, Togut Segal & Segal LLP, Epiq Bankruptcy Solutions, LLC and any other retained professional of the Trustee or the Debtors whose retention requires court approval; provided that Black Diamond may object to allowance of such fees and expenses in*688 curred after July 26, 2011 (“Post-Closing Amounts”), but only to the extent that allowed Post-Closing Amounts would exceed $8 million in the aggregate if such objections were sustained.
Stipulation, ¶ 12 (emphasis in original).
On December 30, 2011, Black Diamond filed amended versions of the Black Diamond Disclosure Statement and Black Diamond Plan.
Prior to the confirmation hearing, on January 30, 2012, Capstone filed the motion that set the stage for the controversy now before the Court — the motion seeking a “performance fee” in the amount of $3.25 million (the “Performance Fee Motion”) based on Capstone’s significant contributions to the success of the Debtors’ cases, and, in particular, the highly successful sale of the Debtors’ assets.
On February 14, 2012, the Court held a hearing at which it confirmed the Black Diamond Plan. Three days later, the Court entered a confirmation order which provided that the Court “retain[ed] exclusive jurisdiction over all matters arising out of, or related to, these chapter 11 cases and the [Black Diamond] Plan pursuant to Article XI of the [Black Diamond] Plan.”
B. The Controverted “Effective Date”
Continuing with the pattern of contentiousness in these cases, even the occurrence of the Effective Date was marred by controversy. On March 9, 2012, counsel for Black Diamond
On March 12, 2012, however, the parties appeared for a first hearing before this Court
Given the pending Performance Fee Motion filed by Capstone, the Court asked counsel for Black Diamond whether Black Diamond had any concern with Mr. Manzo, through RJM I, assuming the role of Liquidating Trustee, in light of the fact that Black Diamond had objected to the Performance Fee Motion and was also the largest beneficiary of the Liquidating Trust. Counsel for Black Diamond indicated that it had no objection to Mr. Man-zo (through RJM I) serving as Liquidating Trustee, and that the Liquidating Trust would simply reserve for the potential administrative claim.
IY. The Liquidating Trust Agreement
A. Section 2.7: The Administrative Fund
Yet more controversy surrounds the completion and execution of the Liquidating Trust Agreement itself. Section 5.1 of the Black Diamond Plan provides that the Liquidating Trust shall be formed on the Effective Date pursuant to the Liquidating Trust Agreement. A draft of the Liquidating Trust Agreement was attached as Exhibit B to the Plan Supplement filed on January 27, 2012 (the “Draft Liquidating Trust Agreement”).
Administrative Fund. On the Effective Date, the Liquidating Trustee shall establish an administrative fund (the “Administrative Fund”). The initial amount of the Administrative Fund shall be $[_], to be funded from the Residual Estate Assets. The Liquidating Trustee shall pay all costs and expenses related to carrying out its obligations under the Plan and this Liquidating Trust Agreement from the Administrative Fund and, in the Liquidating Trustee’s discre*690 tion, may add additional amounts to the Administrative Fund to prosecute the Causes of Action or for administration and other miscellaneous needs of the Liquidating Trust without further notice or motion in accordance with the terms of this Liquidating Trust Agreement.
Section 2.7 of Draft Liquidating Trust Agreement (emphasis added).
Testimony at trial revealed that there were very few changes made to the agreement between the draft agreement annexed to the Plan Supplement and the final version executed on or about March 15, 2012, the day prior to the “second” Effective Date. As Section 2.7 contained a blank number for the initial amount of the Administrative Fund, the parties needed to agree on a number ($1,000,000) to be inserted prior to execution. The execution version of the Liquidating Trust Agreement, however, contained one other material change to Section 2.7, indicated in bold in the text below. Section 2.7 of the execution version of the Liquidating Trust Agreement
Administrative Fund. On the Effective Date, the Liquidating Trustee shall establish an administrative fund (the “Administrative Fund”). The initial amount of the Administrative Fund shall be $1,000,000, to be funded from the Residual Estate Assets. The Liquidating Trustee shall pay all costs and expenses related to carrying out its obligations under the Plan and this Liquidating Trust Agreement from the Administrative Fund and, in the Liquidating Trustee’s discretion and upon the prior consent of Beneficiaries who held a majority of the total amount of Allowed General Unsecured Claims entitled to distributions of Trust Units under the Plan, may add additional amounts to the Administrative Fund to prosecute the Causes of Action or for administration and other miscellaneous needs of the Liquidating Trust without further notice or motion in accordance with the terms of this Liquidating Trust Agreement.
Liquidating Trust Agreement, Section 2.7 (emphasis added).
Testimony was given at trial by Andrew Tenzer,
Mr. Tenzer testified that it was not until August 14, 2012 that it came to his attention for the first time that the Consent Provision was included in section 2.7 of the Liquidating Trust Agreement.
B. Section 2.8: The Replacement of the Liquidating Trustee
The Liquidating Trust Agreement contains several provisions regarding the removal and replacement of the Liquidating Trustee. Section 2.8 provides as follows:
Replacement of the Liquidating Trustee.
(a) The Liquidating Trustee may resign at any time upon 30 days’ written notice identifying and appointing a successor Liquidating Trustee delivered to the Bankruptcy Court, the U.S. Trustee and the Beneficiaries.
(b) The Liquidating Trustee may be removed for gross negligence or willful misconduct by the Bankruptcy Court upon application and after notice and a hearing, which application may be brought by the U.S. Trustee or any Beneficiary. In the event any such application for the removal of the Liquidating Trustee is granted by the Bankruptcy Court, the Beneficiaries may, by majority vote, designate a person to serve as successor Liquidating Trustee. If the Beneficiaries fail to designate a person to serve as successor Liquidating Trustee, the Bankruptcy Court shall appoint a successor Liquidating Trustee upon recommendation from the U.S. Trustee.51
Similarly, Sections 2.1 and 10.3 of the Liquidating Trust Agreement both contain a provision that “.... [t]he Liquidating Trustee may also be removed by the Bankruptcy Court for gross negligence or willful misconduct upon motion by any Beneficiary or the U.S. Trustee.”
The Liquidating Trust Agreement also provides that Mr. Manzo, through RJM I,
BACKGROUND: THE RETENTION OF THE PROFESSIONALS AND THE ENSUING CONTROVERSY
I. The Retention of Capstone and Capstone’s Disclosures with Respect to Mr. Manzo and RJM
The Capstone Retention Application asserted that Capstone’s employment by the Debtors was necessary and should be approved because Capstone is “a premier advisory firm, with vast experience in the fields of restructuring and providing financial operational guidance to companies in distressed situations.”
The Capstone Retention Order, signed on October 7, 2010,
IT IS HEREBY ORDERED THAT:
8. No success fee or bonus is being requested at this time or approved in connection with this Order; provided, however, that Capstone retains the right to seek approval of a success fee upon proper application pursuant to sections 380 and 331 of the Bankruptcy Code at any point in these chapter 11 cases and nothing in this Order is intended to prejudice such rights.
Capstone Retention Order, ¶ 8.
A. Mr. Manzo’s Relationship with Capstone
Mr. Manzo is known as one of the leading financial advisers in the area of restructuring. Beginning in 1990, Mr. Man-zo was a principal of his own firm, Policano and Manzo, LLC, which was purchased by FTI Consulting in 2000. While at his own firm and after it was purchased by FTI Consulting, Mr. Manzo worked with, among others, Mr. Ordway and Christopher J. Kearns, who together formed Capstone in February 2004.
At the time Mr. Manzo began working at Capstone, he was engaged as an independent contractor through RJM and the terms of his engagement were set forth in an agreement dated February 4, 2006 (the “Capstone/Manzo Agreement”)
The parties intent [sic] that an independent contractor-employee relationship will be created by this arrangement. Contractor is not to be considered an employee of Capstone for any purpose, and the Contractor is not entitled to any of the benefits that Capstone provides for Capstone’s employees. Contractor shall perform services under the direct supervision of Capstone’s managers, Ed Ordway and Chris Kearns (the “Managers”).
Capstone/Manzo Agreement, ¶ 1.
The structure of the fee arrangement in the Capstone/Manzo Agreement at the time of the Petition Date provided that Mr. Manzo, through RJM, would receive:
• a fixed monthly payment in the amount of $125,000.00;
• 80 percent of the fees that Mr. Man-zo generated from his work on the GSC cases, calculated by multiplying the hours Mr. Manzo billed times his hourly rate;
• the greater of two incentive payments, including: (a) an incentive payment calculated based upon the growth in Capstone’s total billable staff hours in financial restructuring matters, capped at $2.5 million annually, or (b) an incentive payment called the “Net Revenue Incentive Payment” that essentially represented 15.5 percent of the revenues generated on engagements for which Mr. Manzo was actively involved in managing, as well as engagements that Mr. Manzo was instrumental in obtaining for Capstone;64 and
• 50 percent of any special or success bonus payment that Capstone and/or Mr. Manzo, through RJM, received as provided for in the Capstone/Man-zo Agreement dated as of December 26, 2006, including bonuses in the*695 Refco case, as well as at least 50 percent of other bonuses received from (i) all other assignments in which Mr. Manzo is or was actively involved in managing and (ii) engagements that Mr. Manzo was instrumental in obtaining for Capstone.
On or about November 22, 2010, between the time of the Auction in October 2010 and the appointment of the Chapter 11 Trustee in January 2011, Capstone and RJM amended the Capstone/Manzo Agreement (the “November 2010 Amendment”).
Mr. Manzo was the lead person on the Capstone engagement for GSC.
B. The Three Ordway Declarations
1. The First Ordway Declaration
The Debtors, by Kaye Scholer, filed three declarations (collectively, the “Ord-way Declarations”) signed by Mr. Ordway in support of the Capstone Retention Application. Mr. Ordway’s first declaration, dated August 31, 2010 (the “First Ordway Declaration”), was filed together with the Capstone Retention Application.
• [0]ther than in connection with these cases, neither Capstone, nor any of its principals, employees, contractors, agents, or affiliates have any connection with the Debtors, their*696 creditors, the U.S. Trustee, or any other party with an actual or potential interest in these chapter 11 cases or their respective attorneys or accountants, except as set forth herein;
• In connection with the preparation of this Declaration, Capstone conducted a review of the parties identified by the Debtors as being potential parties in interest. Based on the results of that review, Capstone has determined that it does not have any connection with any such parties on matters related to these proceedings and does not have any adverse interest to the estates, except as set forth in Schedule 1; and
• Capstone is involved in numerous cases, proceedings and transactions involving many different professionals, including Kaye Scholer LLP, the Debtors’ bankruptcy counsel, and other attorneys, accountants and fi- ' nancial consultants, some of which may represent claimants and parties-in-interest in the Debtors’ chapter 11 cases and/or are unsecured creditors. In addition, Capstone has in the past, and may in the future, be working with or against other professionals involved in these cases in matters wholly unrelated to these cases. Based on our current knowledge of the professionals involved, and to the best of my knowledge, none of these business relationships constitute interests materially adverse to the Debtors’ estates or their creditors herein in matters upon which Capstone is to be employed, and none are in connection with these cases.70
With respect to fee sharing, Mr. Ordway represented that to the best of his knowledge: (a) no commitments had been made or received by Capstone with respect to compensation or payment in connection with the Debtors’ cases other than in accordance with applicable provisions of the Bankruptcy Code and the Bankruptcy Rules, and (b) Capstone had no agreement with any other entity to share with such entity any compensation received by Capstone in connection with these chapter 11 cases.
2. The September 23, 2010 Meeting
After a hearing held before Judge Gonzalez on September 23, 2010, Ms. Andrea Schwartz, counsel for the U.S. Trustee, met with (i) Mr. Manzo, on behalf of Capstone, and (ii) Messrs. Tyler Nürnberg and Matthew Micheli of Kaye Scholer, on behalf of the Debtors, to discuss issues concerning the Capstone Retention Application (the “September 23 Meeting”).
—do we retain any contractors
—Capstone has to disclose
—include in conflict search
—mark-up on fees75
Both Mr. Nürnberg and Mr. Micheli recalled that Mr. Manzo responded that Capstone had not retained any contractors to assist with the engagement and that he specifically noted his familiarity with contractor issues because of his experience in the Refco bankruptcy case.
Mr. Manzo testified at trial that he has no recollection of any discussion or questions at the September 23 Meeting regarding independent contractors. He testified that, had he been asked about contractors, he would have said he did not know and he would have to check with Capstone as to what their employment practices are with the rest of the people at Capstone.
3. The First Supplemental Ordway Declaration
After the September 23 Meeting, Kaye Scholer prepared a supplemental declaration of Mr. Ordway (the “First Supplemental Declaration”) to file in further support of the Capstone Retention Application. The First Supplemental Declaration was filed on October 4, 2010, by Kaye Scholer.
On the evening of October 5, 2010, Mr. Nurnberg and Mr. Micheli spoke with Ms. Schwartz regarding Capstone.
Late that evening, Mr. Micheli sent an email to Mr. Manzo and two other members of the Capstone team, Bob Butler and Ron Zaidman, attaching a blacklined copy of a third declaration of Mr. Ordway (the “Second Supplemental Ordway Declaration”) and asking specifically that Mr. Manzo review paragraph 15 (“Paragraph 15”) to “make sure that [he (Mr. Manzo) was] comfortable with the language [Kaye Scholer] added.”
It is my understanding that Robert Manzo, a professional staffed on this engagement, is the sole member of RJM, LLC. Mr. Manzo, through RJM, LLC, is an employee of, and works exclusively for, Capstone. No business is conducted by RJM, LLC except as described herein with respect to its employment by Capstone. None of the other Capstone employees staffed on this engagement has a similar employment structure.84
The next morning, the Second Supplemental Ordway Declaration
Mr. Ordway testified that Capstone did not disclose its independent contractor relationship with Mr. Manzo in the Debtors’ eases or in other cases because Capstone had determined that disclosure was not necessary.
Pursuant to the Performance Fee Motion filed on January 30, 2012, Capstone sought a fee of $3.25 million (the “Performance Fee”) to be paid in addition to fees and expenses awarded by the Court in connection with Capstone’s interim fee applications. The Performance Fee Motion describes Capstone’s “remarkable accomplishments” in the Debtors’ cases, including, but not limited to, the $275.4 million “Capstone-engineered auction” and asserts that, consistent with applicable precedent regarding bankruptcy court-awarded performance fees of 1% to 2%, the requested Performance Fee is appropriate. The motion also points to the Capstone Engagement Letter and the Capstone Retention Order as each specifically permitting Capstone to apply for a performance fee. Annexed as Exhibit A to the Performance Fee Motion was a letter, dated November 3, 2010, from Alfred C. Eckert III, Chief Executive Officer, and Peter R. Frank, Senior Managing Director, on behalf of GSC to Mr. Manzo at Capstone (the “Eckert/Frank Letter”) acknowledging Manzo and his firm’s “superb job” and leaving it to Capstone “through appropriate channels in the bankruptcy case to obtain your appropriate reward for this extraordinary result.”
On February 23, 2012, after confirmation of the Black Diamond Plan,
On March 16, 2012, Capstone filed a motion pursuant to section 105(a) of the Bankruptcy Code and Bankruptcy Rule 9019 for order approving a settlement agreement between Capstone and the Chapter 11 Trustee regarding the Performance Fee Motion (the “Performance Fee 9019 Motion”).
At the April 25, 2012 hearing, the U.S. Trustee criticized Capstone’s use of Bankruptcy Rule 9019, asserting that “it’s absolutely clear that this is an improperly, procedurally improper motion,” and described the motion as “an attempt to fit something else into a 9019 motion,” which motion can only be brought by the trustee.
On May 3, 2012, Capstone filed its amended Performance Fee Motion (the “Amended Performance Fee Motion”) pursuant to which it amended its original Performance Fee Motion to seek a performance fee of $2.75 million pursuant to the terms and conditions of the settlement agreement it had reached with the Chapter 11 Trustee.
On June 8, 2012, counsel for Black Diamond and GSCAH filed a letter with the Court to bring to the Court’s attention a legal issue that, in the words of counsel, “may materially affect” the hearing scheduled on the Amended Performance Fee Motion.
Capstone responded with a letter stating that it had not violated section 504 of the Bankruptcy Code.
In response to the letters received, the Court adjourned the hearing on the Amended Performance Fee Motion and held status conferences with the parties on June 11 and 13, 2012, at which the parties discussed, among other things, discovery and scheduling.
Notwithstanding the U.S. Trustee’s position, during a conference on October 12, 2012, the Court directed all parties, including the U.S. Trustee, to participate in confidential settlement discussions to be su
111. The U.S. Trustee Vacatur and Disgorgement Motion
On January 4, 2013, the U.S. Trustee filed its Motion for an Order: (I) Pursuant to Fed.R.Civ.P. 60(b)(6) and 60(d)(3), Made Applicable by Fed. R. Bankr.P. 9024, Vacating the Court’s Orders Authorizing the Debtors to Retain Kaye Scholer LLP and Capstone Advisory Group, LLC and Directing Disgorgement of All Compensation Received from the Estates or, in the Alternative, (II) Pursuant to 11 U.S.C. Sec. 327, 328(c), 329, 330(a)(5), 504(a) and 105(a), Fed. R. Bankr.P.2014, 2016 and 2017, LBR 2014-1 and 2016-1, Administrative Order M-389 and UST Fee Guidelines b(l)(ii) and b(l)(iii), Disallowing the Pending Compensation Requests of Kaye Scholer LLP and Capstone Advisory Group, LLC and Directing Disgorgement of all Compensation Paid from the Estates and (III) Removing RJM1 as Liquidating Trustee and Directing Disgorgement of All Compensation Paid from the Liquidating Trust (the “U.S. Trustee Motion”).
The U.S. Trustee Motion alleges that Kaye Scholer and Capstone made specific material misrepresentations to the Court regarding (i) Mr. Manzo’s status as an employee of Capstone when in fact he was an independent contractor and (ii) Capstone’s lack of any fee sharing when it fact it had a fee sharing agreement with Mr. Manzo. The U.S. Trustee argues that these professionals knew or should have known the correct information, yet they failed to disclose it to the Court. Consequently, the U.S. Trustee asks that the Court (i) vacate the Capstone and Kaye Scholer retention orders, (ii) order the disgorgement of all compensation received by these firms from the Debtors’ estates and deny any pending compensation requests, and (iii) immediately remove Mr. Manzo as Liquidating Trustee.
On January 11, 2013, joinders to the U.S. Trustee Motion were filed by (i) Black Diamond and GSCAH (the “Black Diamond Joinder”)
The Libassi Joinder, while joining in the U.S. Trustee Motion’s allegations and requests for relief, also makes additional allegations with respect to purported post-Effective Date wrongdoing on the part of Mr. Manzo in his capacity as Liquidating Trustee. The Libassi Joinder alleges that Mr. Manzo engaged in self-dealing at the expense of the Liquidating Trust by taking an active role in advancing Capstone’s fee application and Performance Fee Motion while also serving as a fiduciary of the Liquidating Trust. The Libassi Parties assert that Capstone’s fee application and the Performance Fee Motion are self-interested transactions that required full and complete disclosure to the Liquidating Trust in light of Mr. Manzo’s potential interest in those filings. Further, the Li-bassi Parties argue that Mr. Manzo should be removed as Liquidating Trustee because of (i) his failure to correct “numerous” false disclosures to the Court made in Capstone’s retention documents and fee submissions and (ii) his failure to disclose his relationship with Kaye Scholer and Mr. Solow.
The Libassi Parties also allege that Mr. Manzo breached his duties as Liquidating Trustee during the post-Effective Date period by breaching the budget provisions of the Liquidating Trust Agreement. Specifically, they claim that Mr. Manzo spent in excess of $1 million in fees and expenses in his management of the Liquidating Trust without seeking approval from the Trust’s beneficiaries to exceed that threshold, as is required under the Liquidating Trust Agreement. Accordingly, the Libassi Parties request that the Court remove RJM I as Liquidating Trustee “as a result of (i) Manzo’s breaches of trust, (ii) his lack of full disclosure at the time of his engagement as Liquidating Trustee, and (iii) his resulting conflicts of interest.”
On January 28, 2013, objections to the U.S. Trustee Motion and the Joinders (collectively, the “Objections”) were filed by (i) Kaye Scholer, together with the Declaration of Aaron Rubinstein in support of its objection,
In its objection, Kaye Scholer clearly concedes that
Mistakes were made: The disclosures in connection with the Capstone retention application and the Kaye Scholer retention application were not adequate. Disclosures that should have been made were not made and some that were made were inaccurate. But any errors attributable to Kaye Scholer were not intentional.122
The central focus of the objection of the Manzo Parties, in addition to incorporating certain of Kaye Scholer’s arguments, is that Mr. Manzo “was not trying to hide anything from anyone about the nature of his consultancy arrangement with Capstone.”
In its objection to the U.S. Trustee Motion, Capstone steadfastly maintains that it did not violate section 504 of the Bankruptcy Code, and, because there was no improper sharing of fees, “[tjhere was no requirement for any disclosure regarding the structure of Mr. Manzo’s relationship with Capstone because such a relationship does not implicate the Section 504 prohibitions.”
On February 7, 2013, responses to the Objections were filed by (i) the Libassi Parties, together with the Declaration of Keith Sambur in support of their response,
The Libassi Parties filed a response to the objections of Capstone and the Manzo Parties, reiterating their position that Mr. Manzo should be removed as Liquidating Trustee because he breached his responsibilities as a fiduciary, giving rise to irreconcilable conflicts with the interests of the beneficiaries.
IV. The Ill-Fated Rule 9019 Settlement Motions
With more than a full year of fighting over fees behind them, the parties prepared to commence the Trial on the U.S. Trustee Motion and the Joinders on February 11, 2013. Literally on the eve of the Trial, on February 10, 2013, the U.S. Trustee filed a notice of adjournment of hearing on the U.S. Trustee Motion, rescheduling the Trial for February 13, 2013. On February 11, 2013, the U.S. Trustee filed a motion pursuant to Bankruptcy Code section 105(a) and Bankruptcy Rule 9019 for approval of settlement agreements between (i) the U.S. Trustee and Capstone and (ii) the U.S. Trustee and the Manzo Parties (the “Capstone/Manzo 9019 Motion”).
Each of the three settlement agreements was entered into by and among (i) the U.S. Trustee by (a) Tracy Hope Davis, the United States Trustee for Region 2 and (b) Ramona D. Elliott, Deputy Director/General Counsel for the Executive Office for United States Trustees and on behalf of the United States Trustees for Regions 1 through 21 and (ii) the professional (Capstone, the Manzo Parties, or Kaye Scholer, respectively). By including the United States Trustees for all regions, the Office of the United States Trustee entered into and sought this Court’s approval of what it has referred to as a “national” settlement agreement.
The lynchpin of the three proposed settlements was the all-encompassing release that the settlements would afford Capstone, the Manzo Parties, and Kaye Scholer. For example, a condition to Capstone’s obligations under the UST/Capstone Settlement
A. The Capstone Rule 9019 Settlement
The UST/Capstone Settlement was comprised of (i) a monetary component, (ii) a compliance and monitoring component, (iii) the resignation of Capstone from rendering further professional services to the Liquidating Trustee, and (iv) a third-party release condition, as described above.
With respect to the monetary component of the UST/Capstone Settlement, Capstone agreed to remit $1 million to the Debtors’ estates by (i) withdrawing its request for fees that it has incurred, but has not yet received, in the Debtors’ cases, which aggregate $365,507.73 and (ii) dis
With respect to the compliance and monitoring component of the UST/Capstone Settlement, Capstone agreed to the appointment of an independent monitor who, at Capstone’s expense, would: (i) review Capstone’s internal policies and procedures relating to retention applications in bankruptcy cases, including with respect to disclosures, fee applications, and conflict reviews; (ii) make recommendations for improvements to such policies and procedures; (iii) approve such policies and procedures; and (iv) ensure compliance going forward for a period of two years.
Capstone also agreed to resign from rendering professional services to RJM I as the Liquidating Trustee and to provide, at its cost, reasonable assistance to help its successors familiarize themselves with the matter during the sixty (60) day period following its resignation. Finally, Capstone would retain fees previously paid for services rendered to the Liquidating Trust and would be paid for services rendered through February 4, 2013.
B. The Kaye Scholer Rule 9019 Settlement
The UST/KS Settlement was comprised of (i) a monetary component, (ii) a policies and procedures component, and (iii) a third-party release condition, as described above. With respect to the monetary component, Kaye Scholer agreed to remit to the Debtors’ estates the sum of $1.5 million by (i) withdrawing its request for fees that it has incurred, but has not yet received, in the Debtors’ cases, which aggregate $352,005.52 and (ii) disgorging the sum of $1,147,994.48 that was approved on an interim basis and already has been paid to Kaye Scholer.
The “policies and procedures” component of the UST/KS Settlement required Kaye Scholer to: (i) retain, at its own expense, an independent “Policies and Procedures Expert;” (ii) review its internal policies and procedures relating to court-approved retention applications in bankruptcy cases for the purpose of determining whether to make improvements to such policies and procedures; (iii) undertake to improve, if necessary, such policies and procedures in order to ensure compliance with disclosure requirements in any retention as counsel in future bankruptcy cases; and (iv) complete any improved policies and procedures within 120 days after the Court’s entry of the final order approving the UST/KS Settlement.
The UST/Manzo Settlement was comprised of (i) the resignation of RJM I as Liquidating Trustee; (ii) a monetary component; (iii) a conflicts and disclosure protocol component; and (iv) a third-party release condition, as described above. By the UST/Manzo Settlement, RJM I agreed to resign as Liquidating Trustee in the bankruptcy cases, effective as of February 28, 2013 (or such earlier date as a successor trustee was appointed), without admitting fault or liability of any kind. RJM I also agreed to provide, at its own cost, reasonable assistance to help its successors familiarize themselves with the matter during the sixty (60) day period following its resignation. Following its resignation as Liquidating Trustee, neither RJM I (nor any other Manzo Party) would have any further liability in the Debtors’ cases or to the Liquidating Trust (except to provide reasonable assistance to the successor trustee for sixty days).
Pursuant to the monetary component of the UST/Manzo Settlement, RJM I agreed to forgo (i) payment of $175,000 of the $398,500 in Liquidating Trustee fees incurred through January 31, 2013 that were accrued but unpaid, (ii) payment of all fees incurred from February 1, 2013 through its resignation date, and (iii) reimbursement of attorneys’ fees and expenses incurred by it as a result of the Debtors’ bankruptcy cases and the U.S. Trustee Motion. RJM I would be paid, prior to its resignation, the remaining $223,500 in fees incurred prior to January 31, 2013.
With respect to the conflicts and disclosure protocol component of the UST/Man-zo Settlement, the Manzo Parties (and any other limited liability company or similar entity formed or controlled by Mr. Manzo) agreed to comply with the conflicts checking and disclosure procedures adopted by Capstone’s independent monitor appointed pursuant to the UST/Capstone Settlement in every bankruptcy case in which they are retained by Capstone.
On March 12, 2013, a Notice of First Amendment to Settlement Agreement Among UST and Manzo Parties was filed by the U.S. Trustee, annexing an amendment to the UST/Manzo Settlement.
D. The Supplemental Statement of the U.S. Trustee
The parties held a conference with the Court which resulted in the entry of a scheduling order, dated February 15, 2013,
On February 27, 2013, the U.S. Trustee filed a supplemental statement in support of the Capstone/Manzo 9019 Motion and the KS 9019 Motion (the “Supplemental Statement”).
Although it is uncertain whether the law requires court approval of the Settlement Agreements, the law certainly does not prohibit court approval. The United States Trustee recognizes that neither Rule 9019 nor any other provision of the Bankruptcy Code or Bankruptcy Rules explicitly sets forth procedural requirements or standards for the approval of a settlement between the United States Trustee and an estate professional. In the face of this textual uncertainty, and out of an abundance of caution, the United States Trustee has chosen to err on the side of greater transparency and inclusiveness by requesting approval under the same procedures and standards that typically apply in a Rule 9019 settlement.
Supplemental Statement at p. 2 (emphasis in original).
The Supplemental Statement went on to state:
Even if this Court concludes that the United States Trustee’s citation of Rule 9019 was inapposite, no party has been prejudiced as a result. To the contrary, because Rule 9019 does not affect the Court’s substantive power to approve settlements, the only practical consequence of proceeding under Rule 9019 was to provide all creditors with notice and an opportunity to be heard — procedural rights that nonparties to a non-estate settlement typically do not enjoy. As a result, any objections to alleged procedural defects in the [Capstone/Manzo 9019 Motion and the KS 9019 Motion] do not provide a basis to disapprove the Settlement Agreements.
Supplemental Statement at p. 7.
Regarding the third-party release condition contained in each of the three settlement agreements, the U.S. Trustee, remarkably, stated as follows:
*712 The Settlement Agreements do not resolve any claims of the bankruptcy estate or affect any rights of non-settling third parties. Although some of the relief provided by the Settlement Agreements is monetary and is paid to the estates, the claims brought and released are the United States Trustee’s civil enforcement claims ensuring compliance with the Bankruptcy Code and Rules. Moreover, the releases in the Settlement Agreements expressly state that only the United States Trustee is releasing claims and that the releases are not binding on any other party.153
Supplemental Statement at pp. 7-8. The Supplemental Statement did not provide any insight into the standards that should be applicable to evaluate the terms of the settlements, nor did it in any way address the fact that the proposed settlements were indeed conditioned on the release of the claims of non-settling third parties, in the form of an order precluding the assertion of any such claims.
On March 1, 2013, Kaye Scholer filed a joinder to the KS 9019 Motion
Capstone and the Manzo Parties echoed Kaye Scholer’s statement that the settlements achieved with the U.S. Trustee reflected a reasonable resolution of the issues raised in the U.S. Trustee Motion. In their joint statement, Capstone and the Manzo Parties argued that, as a threshold matter, the objections of Black Diamond and the Libassi Parties should be overruled or such parties should be held in contempt because Black Diamond and its affiliates
On March 15, 2013, objections to the Capstone/Manzo 9019 Motion and the KS 9019 Motion were filed by Black Diamond and the Libassi Parties.
... Black Diamond shall file and serve a supplemental pleading ... describing additional claims, if any, based upon pre-effective date conduct that Black Diamond would seek to preserve subsequent to approval of the UST/Kaye Scholer Settlement or resolution of the Kaye Scholer final fee application ... [and which] should address why the claims would withstand a motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6), as made applicable by Fed. R. Bankr.P. 7012(b) ... [and] the Libassi Creditors and Black Diamond shall file and serve a supplemental pleading ... describing additional claims, if any, based upon post effective date conduct, against the Man-zo Parties and Capstone ... [which] should address why the claims would withstand a motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6), as made applicable by Fed. R. Bankr.P. 7012(b) ... [and] the U.S. Trustee shall file and serve a statement of position and/or supplement or amendment to [the U.S. Trustee Motion] and/or the Settlement Motions, if any ...
The Modified Scheduling Order further provided that, if Kaye Scholer responded to the pleadings described in the order by April 16, 2013, “the Court may advise the parties on April 19, 2013 at 10:00 AM Eastern Time whether it intends to approve the UST/Kaye Scholer Settlement or the Kaye Scholer final fee application.” The parties filed a number of additional pleadings in April 2013 in accordance with such order.
V. The Preliminary Kaye Scholer Rule 9019 Settlement Ruling
At 10:00 a.m. on April 19, 2013, the final business day before the commencement of the Trial, the Court issued a tentative ruling on the KS 9019 Motion.
Early that evening, without prior notice to the Court, to Capstone, or to the Manzo Parties, and while the motions were sub judice, the U.S. Trustee unilaterally filed a Notice of Withdrawal of both the KS 9019 Motion and the Capstone/Manzo 9019 Motion.
VI. The Rule 9011 Sanctions Motions
Meanwhile, on March 15, 2013, Black Diamond had filed two Motions for Order Pursuant to Bankruptcy Rule 9011. One was filed against Kaye Scholer and Michael Solow, Esq. (the “KS Sanctions Motion”).
A. The Motions Seeking Sanctions Against Capstone
Pursuant to the BD/Capstone Sanctions Motion, Black Diamond alleges that Cap
The Libassi Parties also filed a motion for sanctions under Bankruptcy Rule 9011 against Capstone (the “Libassi/Cap-stone Sanctions Motion,” and, together with the BD/Capstone Sanctions Motion, the “Capstone Sanctions Motions”),
On March 29, 2018, Capstone filed objections to the Capstone Sanctions Motions.
In its objection to the Libassi/Capstone Sanctions Motion, Capstone asserts that
On April 5, 2013, Black Diamond and the Libassi Parties filed their replies.
In response to the objection filed by Capstone, the Libassi Parties assert that the Libassi/Capstone Sanctions Motion is in fact a motion and not a joinder which incorporates by reference the arguments made in the BD/Capstone Sanctions Motion. The Libassi Parties further assert that the change from a “joinder and motion” to a “motion” was a purely stylistic and non-substantive revision, which did not violate the safe harbor provision of Rule 9011.
B. The Motion Seeking Sanctions Against Kaye Scholer
Pursuant to the KS Sanctions Motion, Black Diamond alleges that Kaye Scholer knowingly filed multiple false declarations and certifications in support of the retention and interim fee applications of Kaye Scholer. Black Diamond alleges that Kaye Scholer, and specifically Kaye Scho-ler partner Michael Solow, Esq., were aware of the independent contractor relationship between Mr. Manzo and Capstone, yet they went ahead with the filing of (i) the Ordway Declarations and (ii) certifications executed in support of Capstone’s fee applications, each of which contained affirmatively false statements — in particular, the repeated and false statement that Capstone “ha[d] no agreement with any other entity to share with such entity any compensation received by Capstone in connection with these chapter 11 cases.” Black Diamond asserts that if Kaye Scholer and/or Mr. Solow had been forthcoming with their knowledge regarding the contractor relationship between Mr. Manzo and Capstone, the U.S. Trustee Motion and related litigation could have been avoided. Accordingly, because it
On March 29, 2013, Kaye Scholer filed its objection to the KS Sanctions Motion.
A reply was filed by Black Diamond on April 5, 2013.
VII. The Final Fee Application Requests
Pursuant to Section B.3 of the Black Diamond Plan, the Chapter 11 Trustee and professionals requesting compensation for services rendered in connection with the Debtors’ cases were required to file applications for allowance of final compensation and reimbursement of expenses on or before the 60th day following the Effective Date. Accordingly, professionals retained in the Debtors’ cases filed their final fee applications in May 2012; the hearing on such applications has been adjourned numerous times. This decision will address the fee applications filed by Capstone and Kaye Scholer (together, the “Final Fee Applications”).
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On March 15, 2013, after the 9019 Motions had been filed and prior to the Trial, the U.S. Trustee and RJM I each filed a statement regarding the Final Fee Applications.
Thomas Libassi also filed an objection to the Capstone Final Fee Application,
On March 27, 2013, the Chapter 11 Trustee filed a statement regarding the Final Fee Applications (the “Trustee Statement”),
VIII. The Trial Proceedings
The Trial was held on April 22, 23, 24, 30, and May 1, 2013. Closing arguments were held on May 14, 2013, after which the parties submitted extensive post-trial briefing.
At the outset of the Trial, the U.S. Trustee announced that it had reached a settlement with Kaye Scholer that the parties intended to implement without seeking court approval (the “KS Settlement”). The KS Settlement provided, among other things, that (i) the U.S. Trustee would dismiss its motion against Kaye Scholer with prejudice; (ii) Kaye Scholer would pay a monetary settlement amount of $1.5 million through a combination of disgorgement and disallowance of fees; and (iii) Kaye Scholer would undertake an extensive review of its policies and procedures relating to retention applications in bankruptcy cases.
B. The Manzo Parties Settle with the U.S. Trustee
One more settlement emerged on the first day of Trial when the U.S. Trustee announced that it had reached an agreement with the Manzo Parties that the parties intended to implement without seeking court approval (the “Manzo Parties’ Settlement”). The Manzo Parties’ Settlement provided, among other things, that (i) RJM I would resign as Liquidating Trustee, effective as of the date a successor trustee is appointed by the Court,
After the announcement of the KS Settlement, the Trial commenced with argument regarding the withdrawal of the Capstone/Manzo 9019 Motion, which had been withdrawn by the filing of the U.S. Trustee’s Notice of Withdrawal on the last business day before Trial, while the motion was sub judice. Counsel for Capstone, who had not been told of the Notice of Withdrawal prior to its filing, argued that such withdrawal was in breach of Capstone’s agreement with the U.S. Trustee and in violation of Bankruptcy Rule 7041. The Court agreed and stated that Capstone’s rights on these arguments were reserved to the extent possible.
The Court next heard argument on the scope of the fee objection waiver in the Confirmation Stipulation. Capstone argued that the waiver contained in Paragraph 12 of the Confirmation Stipulation, which provides that “Black Diamond hereby waives any rights to object to any fees and expenses” of retained professional of the Debtors and the Chapter 11 Trustee,
Second, Capstone argued that the waiver contained in Paragraph 12 of the Confirmation Stipulation should apply with equal force to Mr. Libassi because Black Diamond is paying his legal fees.
After hearing these preliminary matters and the parties’ opening arguments, the Court heard live testimony from Mr. Ord-way, Mr. Manzo, Mr. Nürnberg, Mr. Micheli, Mr. Tenzer, and Mr. Garrity. Mr. Ordway testified at length about Mr. Man-zo’s relationship with Capstone and how Capstone elected not to disclose the independent contractor relationship with Mr. Manzo because of its belief that the parties’ arrangement is not inconsistent with the Bankruptcy Code.
The Trial proceeded with lengthy testimony by Mr. Manzo on many matters including, among others: (i) the September 28 Meeting and his lack of recollection of any questions posed to him regarding independent contractors being used by Capstone; (ii) the absence of any review by Mr. Manzo of Paragraph 15 of the Second Supplemental Ordway Declaration and its statement that “Mr. Manzo, through RJM, LLC, is an employee of, and works exclusively for, Capstone;” (iii) the Capstone/Manzo Agreement and its various amendments; (iv) Mr. Manzo’s timekeeping methodology; and (v) the insertion of the Consent Provision in the Liquidating Trust Agreement without his knowledge and the actions he took upon learning of such provision. Following Mr. Manzo’s testimony, both Mr. Nürnberg and Mr. Micheli gave testimony regarding the limited topic of the September 23 Meeting and their individual recollections of Mr. Manzo’s response to Ms. Schwartz’s question about contractors — that Mr. Man-zo had stated that Capstone had not retained any contractors to assist with the GSC engagement and had specifically noted his sensitivity regarding contractor issues because of his experience in the Refco bankruptcy case. Their testimony on this issue was nearly identical and dramatically contradicted Mr. Manzo’s testimony. regarding the September 28 Meeting.
The Court next heard testimony from Mr. Garrity, the Chapter 11 Trustee, who stated that he was not aware of the Capstone/Manzo Agreement (i) at the time he was involved in selecting Mr. Manzo as Liquidating Trustee nor (ii) at the time he engaged in settlement discussions with Mr. Manzo and Capstone regarding the Performance Fee Application, but, as a fiduciary, that was information he would have liked to have known.
DISCUSSION
I. Governing Law
A. Section 327 of the Bankruptcy Code and Federal Rule of Bankruptcy Procedure 2014
Section 327 of the Bankruptcy Code governs a trustee’s or debtor in possession’s
Federal Rule of Bankruptcy Procedure 2014 dictates the manner in which the debtor in possession requests the employment of a professional person under section 327. Bankruptcy Rule 2014(a) requires, in pertinent part, that an order approving the employment of attorneys and other professional persons be made only on application and be accompanied by a “verified statement” of the person to be employed. The application and the verified statement must each include “the person’s connections with the debtor, creditors, any other party in interest, their respective attorneys and accountants, the United States trustee, or any person employed in the office of the United States trustee.” See Fed. R. Bankr.P.2014(a). Bankruptcy Rule 2014(b) makes clear that only a person or entity that is a partner, member, or associate of a partnership or corporation hired as attorneys or accountants can perform services or be employed by the debtor without the necessity of a separate application and order. See Fed. R. Bankr.P.2014(b).
The purpose of Rule 2014 “is to provide the court (and the United States Trustee) with information necessary to determine whether the professional’s employment meets the broad tests of being in the best interest of the estate.... ” In re Source Enters, Inc., et al., 2008 WL 850229 at *8, 2008 Bankr.LEXIS 940 at *24 (Bankr.S.D.N.Y. March 27, 2008) (citing 9 Collier on Bankruptcy ¶ 2014.03 (15th ed. rev. 2007)). One of the policies behind the rule is to ensure that all professionals have run a “conflicts check” and made the resulting appropriate disclosures to the court, which enable the court to determine whether each professional has any adverse interest. See, e.g., In re Bennett Funding Group, Inc., 226 B.R. 331, 335 (Bankr.N.D.N.Y.1998) (observing that “[t]he question of ‘whether a professional [in this case, the Trustee] has “either a
A professional’s duty to disclose is “self-policing.”
All facts that bear on the disinterestedness of a professional must be disclosed. “So important is the duty of disclosure that the failure to disclose relevant connections is an independent basis for the disallowance of fees or even disqualification.” Leslie Fay, 175 B.R. at 533. It is the court’s decision as to what facts may be relevant to disclose; this decision “should not be left up to the professional, ‘whose judgment may be clouded by the benefits of the potential employment.’” In re FiberMark, Inc., 2006 WL 723495 at *8, 2006 Bankr.LEXIS 4029 at *26 (Bankr.D.Vt. Mar. 11, 2006) (citation omitted).
Professionals retained under section 327 are paid in accordance with the interim and final compensation procedures delineated in sections 330 and 331 of the Bankruptcy Code. Those procedures contemplate court scrutiny of services for which compensation is sought and the discretion to reduce the allowed amount of fees and reimbursable expenses, based upon the court’s determination of what is reasonable and necessary under the circumstances.
In the last twenty years, there have been two seminal cases in this District involving serious allegations of misconduct in connection with the retention and compensation of professionals in a large chapter 11 case, Leslie Fay and Granite Partners.
In Leslie Fay, Judge Brozman grappled with the request of the U.S. Trustee to
By late September 1993, the audit committee determined that there was no evidence that the targets of the investigation — Leslie Fay’s board and certain members of senior management — were involved in the fraud. Around the same time, questions regarding Weil’s disinterestedness were raised by the U.S. Trustee and the creditors’ committee. In December 1993, at the request of the creditors’ committee and Leslie Fay, an examiner was appointed by Judge Brozman to (i) investigate whether Weil (a) was disinterested or held an adverse interest to the debtors and (b) made adequate disclosure; (ii) determine whether there were viable claims that the audit committee did not identify that could be asserted in connection with the accounting irregularities; and (iii) evaluate whether the audit committee’s report was acceptable in light of Weil’s possible lack of disinterestedness.
The examiner conducted his investigation over the course of the next six months. His report concluded that, while Weil had not represented Leslie Fay pre-petition, it maintained professional and personal relationships with parties that had an interest in the outcome of Weil’s investigation on behalf of the audit committee, none of which had been disclosed to the court. Specifically, while Weil had disclosed that it represented entities that were “claimants of the [d]ebtors in matters totally unrelated to [debtors’ cases,” it did not disclose that it had professional relationships with individual members of the audit committee, that it represented the investment firms in which those audit committee members were partners, or that such firms were involved in and/or had members who acquired ownership of Leslie Fay stock through a June 1991 secondary public offering of 2.1 million shares of Leslie Fay stock, well after the accounting irregularities began. Similarly, the report revealed that Weil did not disclose its representation of BDO Seidman (“BDO”), the outside accounting firm that had certified the debtors’ false financial statements (and a target of the audit committee’s investigation), despite the fact that Weil recognized that the debtors might have claims against BDO.
Based on the failure to disclose these relationships, the examiner determined that Weil had violated the disclosure requirements of Bankruptcy Rule 2014 and was not disinterested when it advised the audit committee in connection with its investigation. However, the examiner also found no evidence that Weil’s potential conflicts had affected its representation of Leslie Fay, instead finding that Weil had
Judge Brozman found that Weil (i) represented interests that were materially adverse to the debtors at the time of its retention and (ii) violated Rule 2014 by not making complete disclosure of its connections, thereby causing actual injury to Leslie Fay. Regarding its relationship with members of the audit committee, Weil did not deny its lack of disinterestedness, but instead asserted that, by the time it was retained as counsel for the debtors, it was clear that no claims existed against such audit committee members. While the Court did not doubt Weil’s belief that no claims existed, it found that, pursuant to Rule 2014, Weil was required to have disclosed its connections to the members. The Court stated that “there is ‘no merit to the ... argument that [a party] did not have to disclose its connections ... because its attorneys did not feel that a conflict existed.’ ... Weil Gotshal had no right to ‘make a unilateral determination regarding the relevance of a connection.’”
In discussing the harm caused to Leslie Fay by Weil’s nondisclosure, the court observed that if Weil had revealed its connections at the time it requested court approval of its retention, its might still have been retained, albeit in a narrower role. As the court stated, “[t]he shame in all of this is that the heavy financial and emotional toll in this matter could have been avoided completely.”
Four years after Leslie Fay, Judge Bernstein put his imprimatur on the issue of disclosure in his Granite Partners decision.
In connection with its application to be retained as the Trustee’s counsel, the law firm of Willkie Farr & Gallagher (“Willk-ie”) disclosed in general terms that it had “client relationships” with various broker-dealers and creditors unrelated to the debtors’ cases but did not specifically disclose that (i) it had represented some of the broker-dealers in unrelated transactions, (ii) it was in the process of bringing in a new partner whose clients included Merrill and other broker-dealers, (iii) it would not sue PWC because (a) PWC was Willkie’s auditor and (b) Willkie did not sue accounting firms because of its representation of the American Institute of Certified Public Accountants, (iv) it would need to obtain conflict waivers from former broker-dealer clients before representing the trustee in an action against any such parties,
During the pendency of the Trustee’s investigation, Willkie expanded its representation of Merrill (opening over 400 new matters) but did not supplement its disclosure with respect to Merrill. In addition, Merrill had refused to sign a conflicts waiver consenting to Willkie’s representation of the trustee, which Willkie also failed to disclose. Id. at 29-30.
The Trustee rendered his final report in April of 1996, concluding that substantial estate claims existed against Merrill, among other broker-dealers. In April 1997, in its final fee application, Willkie first disclosed that Merrill had refused to give Willkie a conflicts waiver.
Judge Bernstein found that Willkie represented adverse interests at the time it undertook representation of the Trustee due to its concurrent relationship with Merrill. Id. at 36. Due to its increased representation of Merrill (and the amount of fees generated by its work for Merrill), no matter how thoroughly or fairly Willkie conducted the investigation on behalf of the Trustee, “the question will always linger whether it held back, or failed to bite the hand that feeds it quite as hard as the circumstances warranted.” Id. at 38. Judge Bernstein observed that the Trustee’s counsel must be above suspicion, as “[b]ankruptcy is concerned as much with appearances as with reality.” Id. The court agreed with the examiner’s conclusion that Willkie’s decision not to disclose its relationship with Merrill was purposeful, commenting that “the nondisclosure was wilful but not evil,” as the facts of the case suggest that Willkie “feared the adverse consequences of full disclosure.” Id. at 39. The court found that Willkie should have (i) disclosed the existence of five open matters with Merrill at the time of its retention application and (ii) made subsequent disclosures regarding its expanding relationship with Merrill, Willkie’s failure to get a conflicts waiver from Merrill, and its position with respect to PWC, observing that:
The trustee broke the cardinal principle of Rule 2014(a). He arrogated to himself a disclosure decision that the Court must make. Rule 2014(a) required, even in the absence of an investigation, that the trustee disclose Willkie Farr’s connections with the debtors’ accountants. Here, the need for disclosure went further. The trustee knew that Price Wa-terhouse was a target of his own investigation. He should have understood the improper perception created by Willkie Farr investigating any accountant in light of its association with the AICPA and its policy of not suing accountants. He nevertheless decided, on his own, that the connection was not a conflict, and the refusal to sue was not an obstacle, and he concluded that he did not have to disclose it. He made a decision that was never his to make in the first place, and reached the wrong conclusion when he did.
Id. at 45.
Taken together, Leslie Fay and Granite Partners stand for the straightforward proposition that it is incumbent upon the professional to make full disclosure, after which it is the role of the court, and not the professional, to make the ultimate determination vis-a-vis the information disclosed and compliance with the Bankruptcy Code and Rules.
Subject to the significant exception set forth in section 504(b), section 504(a) of the Bankruptcy Code prohibits estate-retained professionals and others receiving compensation pursuant to the administrative expense provisions of subsections 503(b)(2) and (503)(b)(4) of the Bankruptcy Code from sharing such compensation with another person.
As is true with many provisions of the Bankruptcy Code and Bankruptcy Rules, section 504 is deeply rooted in the history of bankruptcy administration in this country and in England. While current section 504(a) reflects an absolute prohibition on fee sharing without regard to whether services have been provided by both parties to the sharing agreement, its predecessor Bankruptcy Act provisions permitted sharing with “a person who actually and with the court’s authorization contributed to the services in question.”
Indeed, the history of the enactment of bankruptcy laws in the United States itself reflects widespread concern with the waste and expense generally associated with bankruptcy proceedings, and particularly associated with professional fees. The reprehension of citizens and jurists was perhaps most memorably expressed by Lord Chancellor Eldon in 1801 when he observed that
[T]he abuse of the bankrupt law is a disgrace to the country, and it would be better at once to repeal all the statutes than to suffer them to be applied to such purposes. There is no mercy to the estate; nothing is less thought of than the object of the commission.... they are little more than stock in trade for the commissioners, the assignees, and the solicitor. Instead of solicitors attending to their duty as ministers of the court, for they are so, commissions of bankruptcy are treated as matters of traffic — A taking out the commission, B and C to be his commissioners. They are considered as stock in trade, and calculations are made how many commissioners can be brought into the partnership.
6 Ves. Jr. 1. See also In re Drake, 7 F.Cas. 1046, 1047 (D.N.J.1876) (discussing Lord Eldon’s complaints and referring to the “constant and distasteful struggle on the part of the court to keep down expenses” in bankruptcy cases); Weil v. Neary, 278 U.S. 160, 49 S.Ct. 144, 73 L.Ed. 243 (1929). The more things change, the more they stay the same.
The Second Circuit addressed the prohibition on fee sharing in two leading Bankruptcy Act cases, Arlan’s and Futuronics.
Another classic example of an illicit fee-splitting arrangement was at issue in Fu-turonics, in which general bankruptcy counsel retained another firm as special counsel subject to an undisclosed arrangement pursuant to which special counsel would remit one third of the fees it received to general bankruptcy counsel. See Futuronies I, 5 B.R. 489, aff'd, Futuronics II, 655 F.2d 463. The Bankruptcy Court found that the firms had breached their fiduciary duties both to the debtor and as officers of the court and had violated Federal Rules of Bankruptcy Procedure 215 and 219
On appeal, the District Court affirmed the Bankruptcy Court’s findings but reversed as to its award of fees to the firms, finding that the sanctions imposed were “overly lenient” and that both firms’ requests for compensation should be denied in their entirety in light of the “simply inexcusable” conduct. Id. at 492, 499. The District Court also specifically noted that, despite the serious nature of the breaches of the professionals’ duties, both firms “demonstrated ... a cavalier attitude toward these breaches” and “label[ed] them ‘technical breaches’ at best.” Id. at 499.
In his decision, District Judge Duffy discussed the long-standing public policy reasons behind the prohibition against undisclosed fee sharing and quoted Chief Justice Taft’s 1929 statement that arrangements for division of compensation are contrary to public policy not only because of “actual evil results but their tendency to evil in other cases.”
The Second Circuit affirmed the District Court’s decision.
C. The Interplay Between Section 504(b) and Rule 2016(a)
Subsection (b) of section 504 provides limited exceptions to subsection (a) with respect to professional associations, corporations, and partnerships. One such exception is set forth in section 504(b)(1), which provides that
A member, partner, or regular associate in a professional association, corporation, or partnership may share compensation or reimbursement received under section 503(b)(2) or 504(b)(4) of this title with another member, partner, or regular associate in such association, corporation, or partnership.
11 U.S.C. § 504(b)(1).
The few cases analyzing section 504(b) have looked to the function of the individual in question rather than his or its title or legal relationship to the firm. In Lemonedes v. Balaber-Strauss (In re Coin Phones, Inc.), 226 B.R. 131 (S.D.N.Y.1998)
Courts in the Third Circuit have construed section 504 in a manner consistent with the Lemonedes decision, looking at the function of the professionals in question when deciding whether they constitute “regular associates.” In In re Worldwide Direct, Inc., counsel for the debtors, Hen-nigan Bennett & Dorman (“HBD”), employed temporary attorneys and paralegals to conduct document review and analysis. The post-confirmation liquidating trustee objected to a number of aspects of HBD’s final fee application, including the allowance of fees for these temporary personnel, asserting that because they were not employees of HBD, payment of their fees to HBD constituted fee sharing prohibited under section 504. 316 B.R. 637, 645 (Bankr.D.Del.2004).
Judge Walrath overruled the liquidating trustee’s objection, finding that although the temporary personnel were employees of an employment agency and not of HBD, “they essentially acted like associates of the firm.”
While an individual serving as a “regular associate” of a firm may receive compensation in a bankruptcy case through that firm, Federal Rule of Bankruptcy Procedure 2016(a) nonetheless imposes a duty to disclose the existence of such fee sharing, even if the “details of any agreement” are not required to be disclosed. Rule 2016(a) describes the disclosure required of an entity seeking interim or final compensation for services or reimbursement of expenses and specifically addresses the sharing of fees. It provides, in pertinent part:
(a) Application for compensation or reimbursement. An entity seeking interim or final compensation for services, or reimbursement of necessary expenses, from the estate shall file an application setting forth a detailed statement of (1) the services rendered, time expended and expenses incurred, and (2) the amounts requested. An application for compensation shall include a statement as to what payments have theretofore been made or promised to the applicant for services rendered or to be rendered in any capacity whatsoever in connection with the case, the source of the compensation so paid or promised, whether any compensation previously received has been shared and whether an agreement or understanding exists between the applicant and any other entity for the sharing of compensation received or to be received for ser*736 vices rendered in or in connection with the case, and the particulars of any sharing of compensation or agreement or understanding therefor, except that details of any agreement by the applicant for the sharing of compensation as a member or regular associate of a firm of lawyers or accountants shall not be required....
Fed. R. Bankr.P.2016(a) (emphasis added). No cases interpreting Rule 2016(a) have been cited to the Court.
II. Findings of Fact and Conclusions of Law with Respect to Capstone
A. The Capstone/Manzo Arrangement Does Not Violate Section 504 but Capstone’s Failure to Disclose it Violates Rule 2016
As Mr. Manzo was functionally acting as part of the Capstone firm vis-avis the Debtors, the Court finds that he can be considered a “regular associate” or “member” of Capstone for the purposes of section 504(b) of the Bankruptcy Code. Like the “of counsel” attorney in the Lemonades case, Mr. Manzo held himself out (and was held out by Capstone) as acting on behalf of and affiliated with the firm; there even was a press release announcing that Mr. Manzo had joined Capstone as an Executive Director. The prohibition on fee sharing reflected in section 504 does not preclude this type of professional relationship. As articulated by Judge Walrath in Worldwide Direct, the relationship between Mr. Manzo and Capstone “is much more than the tenuous relationships of the professionals in those cases where courts concluded there was improper fee sharing.”
Thus, while the Court agrees that the Capstone/Manzo arrangement does not run afoul of the letter or spirit of section 504, the Court strongly disagrees with Capstone’s further conclusion that it had no obligation to disclose the existence (if not the details) of the arrangement. Simply put, Capstone’s analysis of the interplay between section 504 and Rule 2016 is incorrect. Putting aside the implicit and untenable suggestion that anyone at Capstone, including Mr. Ordway or Mr. Manzo, affirmatively conducted such a nuanced analysis at the time of its retention, Capstone argues that the language of Rule 2016 “is intended ... to track section 504,” and that Rule 2016 requires a party “to disclose a 504 issue” but says “you don’t have to disclose fee sharing that is not bad fee sharing.”
Capstone’s analysis and reading of Rule 2016 ignore the plain language of several provisions of Rule 2016 and effectively write such provisions out of existence. According to Capstone, the provision of Rule 2016(a) that requires a fee applicant to state “whether an agreement or understanding exists between the applicant and any other entity for the sharing of compensation” would only apply to an agreement that violates section 504 and thus renders the applicant ineligible to be compensated. This is nonsensical.
Capstone’s myriad arguments and excuses as to why it neither disclosed nor needed to disclose the existence of the Capstone/Manzo Agreement are all unavailing:
• Kaye Scholer handled the retention process for Capstone, and Capstone had little involvement;232
• Mr. Ordway thought Mr. Manzo reviewed the RJM disclosure in Paragraph 15 of the Second Supplemental Ordway Declaration;233
• Hundreds of attorneys knew of Mr. Manzo’s contractor relationship with Capstone;234
• No one told Capstone the arrangement needed to be disclosed;235
• Capstone has never disclosed any such arrangement;236 and
• No case says independent contractors need to be disclosed.
As reflected in its multiple pleadings, arguments, and testimony, Capstone’s attitude toward its duty of disclosure falls somewhere on the continuum between
One purpose of the requirement found in Rule 2016 to disclose the existence of fee sharing, even if the “details of any agreement” are not required to be disclosed, is to ensure that no disclosure of connections falls through the cracks. In Worldwide Direct,
Here, Capstone was unable to demonstrate conclusively that it conducted a thorough conflicts search for connections of its own employees to parties in the Debtors’ cases, let alone that it broadened the search to include Mr. Manzo and thereby had a basis to be excused from the requirement that Mr. Manzo be retained separate and apart from the retention of Capstone. The testimony elicited at Trial with respect to whether Mr. Manzo was included in Capstone’s “conflicts check” with respect to the Debtors’ cases or whether Capstone in fact conducted a formal “conflicts check” at all is murky at best. At Trial, Mr. Ordway testified that there are two parts to Capstone’s conflicts process: (i) a search through the firm’s conflicts database for the names of key parties involved
Moreover, even assuming Capstone actually conducted a satisfactory conflicts search in these cases and included Mr. Manzo, Capstone has argued that Mr. Manzo did not have to be retained separately by the Debtors or submit a separate disclosure affidavit because he was “part of’ Capstone’s conflicts process. Capstone points out that, pursuant to the Capstone/Manzo Agreement, Mr. Manzo was made subject to Capstone’s employee handbook, which required Capstone employees to comply with conflicts check procedures. Capstone also attempts to advance other arguments why Mr. Manzo was in fact “covered” by Capstone’s conflicts process, including by arguing that, due to his “exclusive” relationship with Capstone, Mr. Manzo had no clients other than Capstone clients. This argument fails, first because Mr. Manzo took on another engagement during his time with Capstone and, second, because it does not answer the central question of a conflicts search, the question of whether Mr. Manzo himself had any connections to the Debtors’ cases. Additionally, when asked at Trial about his Innkeepers retention and whether he believed he needed to make a separate disclosure on that matter, Mr. Manzo’s response revealed the finger-pointing attitude that has permeated this case; he answered that “Mr. Ordway was aware that I was taking the matter, Capstone was the retained professional in the GSC matter, and in my mind if there were obligations to that regard- then it ought to be by Capstone.”
Accordingly, while the Court finds that Mr. Manzo’s arrangement with Capstone is permissible under section 504(b), the existence of the arrangement was nevertheless required to be disclosed pursuant to Rule 2016. Had that occurred, the Court would have been able inquire as to whether Mr. Manzo had disclosed any connections to parties in interest in the Debtors’ cases, a fact which remains unclear, as the Court was presented with no tangible evidence that Mr. Manzo was incorporated in any conflicts search conducted by Capstone with respect to the Debtors’ cases. Moreover, had disclosure been made pur
One additional observation with respect to Capstone’s inappropriate usurpation of the Court’s role is in order. In March of 2011, Capstone and Mr. Manzo modified the Capstone/Manzo Agreement and their “exclusive” working relationship in order to allow Mr. Manzo to work on non-Capstone engagements, even those “which may directly or indirectly compete with Capstone’s current business activities.”
B. Capstone’s Final Fee Application
The Court now turns to the difficult task of determining the allowable amount of Capstone’s fees and expenses. The determination has three components: (i) the reasonableness of the requested fees and expenses under the standards found in section 330 of the Bankruptcy Code and this Court’s Amended Guidelines for Fees and Disbursements for Professionals in
1. Governing Law
Section 330 of the Bankruptcy Code authorizes a bankruptcy court to award reasonable compensation to a fee applicant based on actual, necessary services rendered, and to reimburse him for his actual, necessary expenses. 11 U.S.C. § 330(a)(1). Section 330 provides that, in determining the amount of reasonable compensation to be awarded, the court shall consider “the nature, the extent, and the value of such services,” taking into account the following:
(A) the time spent on such services;
(B) the rates charged for such services;
(C) whether the services were necessary to the administration of, or beneficial at the time at which the service was rendered toward the completion of, a case under this title;
(D) whether the services were performed within a reasonable amount of time commensurate with the complexity, importance, and nature of the problem, issue, or task addressed;
(E) whether the professional is board certified or otherwise has demonstrated skill and experience in the bankruptcy field; and
(F) whether the compensation is reasonable based on the customary compensation charged by comparably skilled practitioners in non-bankruptcy matters.
See 11 U.S.C. § 330(a)(3); see also In re West End Fin. Advisors, LLC, et al., 2012 WL 25906132012 at *3-4, Bankr.LEXIS 3045 at *8 (Bankr.S.D.N.Y. July 2, 2012), In re Quigley Company, Inc., 500 B.R. 347, 356(Bankr.S.D.N.Y.2013). The Bankruptcy Code imposes upon the court “a supervisory obligation,” not only to approve the employment of professionals, but also to ensure that the fees sought by those professionals in a bankruptcy case are reasonable, and that the services and expenses were necessarily incurred. In re Fibermark, Inc., 349 B.R. 385, 394 (Bankr.D.Vt.2006) (holding that “this Court has an independent judicial responsibility to evaluate the appropriateness of the fees and expenses requested”). “Even in the absence of an objection, the bankruptcy court has an independent duty to review fee applications to protect the estate ‘lest overreaching ... professionals drain it of wealth which by right should inure to the benefit of unsecured creditors.’ ” In re Keene Corp., 205 B.R. 690, 695 (Bankr.S.D.N.Y.1997) (citations omitted).
The fee applicant bears the burden of proof on its claim for compensation.
Detailed guidelines for timekeeping by professionals are set forth in the Amended Guidelines and in the Guidelines for Reviewing Applications for Compensation issued by the U.S. Trustee (the “Fee Guidelines”).
With respect to time records for services rendered, vague descriptions which lack the details necessary to permit the court to assess the reasonableness of the applicant’s work are also not permitted. See, e.g., Cosgrove v. Sears, Roebuck & Co., 1996 WL 99390 at *3, 1996 U.S. Dist. LEXIS 2653 (S.D.N.Y. Mar. 7, 1996) at *7-8 (“[M]any of the descriptions of the work performed are vague, including entries such as ‘review of file,’ ‘review of documents’ and ‘review of [adversary’s] letter.’ There can be no meaningful review of time records where the entries are too vague to determine whether the hours were reasonably expended.”) (citations omitted). Courts have endorsed cutting a professional’s fees by a percentage “as a practical means of trimming fat from a fee application,” particularly to address prob
The Fee Guidelines also address reimbursement for actual, necessary expenses. Courts have found that expenses are “necessary” if they were “required accomplish the proper representation of the client.”
2. The Reasonableness of Capstone’s Fees and Expenses
Pursuant to its Third Interim and Final Fee Application, Capstone requests allowance and payment of $5,947,270.00 in fees and $254,348.40 in expenses for services rendered in these cases from August 31, 2010 through February 16, 2012.
a. Fees Requested for Services Rendered by Capstone Professionals Other Than Mr. Manzo
While Thomas Libassi
Having reviewed all of the Capstone billing records for the second and third interim fee periods,
With respect to the issue of the reasonableness of the fees billed by Capstone professionals other than Mr. Manzo, the Court finds that there are indeed infirmities with respect to approximately $360,000 of the fees requested for the second and third interim periods for Capstone timekeepers other than Mr. Manzo. Based on the Court’s review of the time billing detail for those periods, the Court finds these fees should be reduced by 10 percent on account of the vagueness of such entries, the lumping of time, and the duplication of effort by multiple timekeepers. Accordingly, such fees shall be reduced by $36,000.
b. Fees Requested for Services Rendered by RJM Through Mr. Manzo
With respect to the broader question of the fees requested for time billed by Mr. Manzo, which total approximately $2.6 million over the entire duration of the case, it is necessary to reflect upon the testimony and documentary evidence offered by the parties with respect to Mr. Manzo’s time sheets and his timekeeping methodology. Mr. Manzo testified at some length on this subject, as follows.
Mr. Manzo did not use the Capstone time-keeping system because he does not use a computer. Instead, he maintained handwritten notes of his time entries in a “daytimer” or calendar.
While creating the grid for the prior month, Mr. Manzo testified that he would contemporaneously review the time records of Capstone employees on his team, thus enabling him “to perform the quality control check that needs to be performed when you’re running a case” to ensure the billings of the staff are appropriate billings to the client.
The record at Trial reflects that not only did Mr. Manzo bolster and/or reconstruct his time descriptions using other Capstone timekeepers’ descriptions, he also used time descriptions from Kaye Scholer attorneys with whom he worked on the Debtors’ cases.
Based on the entirety of the record, the Court must conclude that, at best, such timekeeping practices are non-standard and do not reflect best practices for a professional as prominent and highly paid as Mr. Manzo; at worst, such practices reflect an utter failure, by both Mr. Manzo and Capstone, to respect the requirement that accurate detailed time records be kept contemporaneously. Simply put, time records kept in the manner described by Mr. Manzo are unreliable. In addition, dozens of Mr. Manzo’s time-billing entries for the second and third interim periods reflect impermissible “lumped” descriptions of multiple tasks.
It would be well within the Court’s discretion to disallow entirely Capstone’s fee request with respect to services rendered by Mr. Manzo, particularly in light of the troubling lack of credibility of portions of his testimony. However, it is important to recognize that Mr. Manzo indeed performed substantial services which benefited the creditors of the Debtors.
c. Capstone’s Expenses
Capstone’s requested expense reimbursements are also problematic. It would appear that Capstone personnel utilized Capstone’s retention in these cases to charge everything from their daily cups of coffee at Dunkin’ Donuts to lavish meals at the Ritz Carlton, as well as tens of thousands of dollars of travel expenses and hotels. This practice is unfortunately consistent with what Mr. Ordway confirmed was Capstone’s overall approach to billing. When asked at Trial whether, in connection with his review of Capstone’s fee applications in these cases, he recalled exercising any billing discretion and writing off any time, Mr. Ordway testified, “No-I never wrote off any time on GSC.... The time that was incurred looked reason
This is unacceptable. While professionals are certainly entitled to reimbursement for expenses reasonably incurred in connection with a bankruptcy case (e.g., late night meals while working in the office on matters requiring urgent attention), retention as an estate professional is not a license to eat lavish dinners at the expense of creditors.
d. Summary of Section 330 Reductions to Capstone’s Fees and Expenses
The total reductions to Capstone’s second interim fee application and third interim and final fee application pursuant to the standards of section 330 are: (a) $556,000 in fees ($36,000 for timekeepers other than Mr. Manzo and $520,000 for time billed by Mr. Manzo) and (b) $43,400 in expenses.
3. Remedies for the Violation of Rules 2014 and 2016
Before turning to the imposition of a remedy for Capstone’s violation of Rules 2014 and 2016, it is significant to note that, based on the foregoing analysis of the reasonableness of Capstone’s fees and expenses, it emerges that the $1 million Capstone fee reduction contemplated by the failed 9019 settlement with the U.S. Trustee would not have constituted a $1 million monetary sanction. Because the Court has found that Capstone’s fees are to be reduced by $556,000 to approximately $5.4 million on reasonableness grounds, it is $5.4 million that provides the starting number against which additional reductions should be assessed.
Here, the Court’s exercise of its discretion is informed in part by Capstone’s lack of any second thoughts, let alone remorse, at what has here transpired.
Accordingly, in addition to the section 330 reductions detailed above, Capstone shall be required to (a) forego the $367,000 in fees it has not yet been paid and (b) disgorge an additional $600,000 in fees, which taken together reflect an approximately 18 percent reduction of the $5.4 million reduced allowable amount of its
As for the non-monetary relief urged by the U.S. Trustee and Mr. Libassi — the installation of a “monitor” to overhaul Capstone’s internal conflicts checking procedures, among other intrusive measures — the Court declines to order such relief, although it would without question be within the Court’s authority and discretion to do so. Capstone is a professional firm capable of getting its own house in order — how it elects to do so is its business, not Mr. Libassi’s, and not the U.S. Trustee’s. As and when Capstone next seeks to be retained in a case in this District or elsewhere, its conflicts check, retention, and billing practices will come under scrutiny by the case constituents, the U.S. Trustee, and the presiding court, and they will have to pass muster. The Court has no doubt that Capstone is up to the task. The Court is confident that the U.S. Trustee will approach its task at that time as an even-handed party-in-interest working towards the common goal of making the bankruptcy process work with integrity and for the benefit of all stakeholders.
C. The Amended Performance Fee Motion
As discussed at p. 692-93, supra, Capstone had originally included in the Capstone Engagement Letter a provision stating that it “shall be eligible to request a success fee, the amount and conditions of which to be mutually agreed upon and subject to Bankruptcy Court approval.” The letter included no metric or standard pursuant to which a potential Capstone success fee would be sought, nor did the Capstone Retention Application or any other pleading provide any further clarification or detail. No party-in-interest, including the U.S. Trustee, appears to have focused on this portion of Capstone’s retention papers, and no objections were filed. The Capstone Retention Order contained a provision regarding the potential success fee; while no success fee was being approved at that time, the order stated that Capstone retained the right to seek approval of such a fee upon proper application to the Court. Because both the Capstone Engagement Letter and the Capstone Retention Order were lacking in metrics and standards with respect to the award of any potential success fee, the seeds of subsequent controversy were sowed at the time of Capstone’s retention.
Over two years later, and several weeks prior to the confirmation hearing, Capstone filed its Performance Fee Motion, initially requesting a performance fee in the amount of $3.25 million,
While investment bankers retained by debtors often seek pre-approval of a success fee at the outset of a case pursuant to section 328 of the Code, most commonly relying on a measure of the percentage of total prepetition debt being refinanced to demonstrate “reasonableness” of their proposed fee under section 328,
And why exactly was Capstone entitled to a 50 percent bonus? According to the November 3, 2010 Eckert/Frank Letter, signed by Messrs. Eckert and Frank but ghost-written by Mr. Manzo, Mr. Manzo and his firm did a “superb job” in the GSC cases, helping GSC to achieve an “extraordinary result” at the Auction, thereby positioning the company for a sale in an amount that “is well beyond any expectation or valuation done by any party to this situation.” The letter stated that, while Messrs. Eckert and Frank were not completely familiar with the manner in which compensation decisions are made in a chapter 11 case, in the business world outside of bankruptcy, Capstone would be entitled to a bonus. Accordingly, the letter stated that they would leave it to Mr. Manzo and Capstone “through appropriate channels in the bankruptcy case to obtain your appropriate reward for this extraordinary result.”
In the context of the now-withdrawn UST/Capstone Settlement, Capstone had agreed to withdraw the Amended Performance Fee Motion seeking $2.75 million. But it otherwise has never budged on its position that it was entitled to receive this enormous bonus on top of the hourly fees it had billed as a retained professional in these cases. If anything is clear in this case, it is that Capstone is not entitled to a bonus simply for doing its job, let alone having engaged in conduct that fell far short of best practices and violated the Federal Rules of Bankruptcy Procedure. Based on all of the foregoing findings, the Amended Performance Fee Motion is denied.
D. The Rule 9011 Sanctions Motions
Both Black Diamond and the Libassi Parties have filed motions seeking sanctions against Capstone pursuant to Bankruptcy Rule 9011. Pursuant to the Capstone Sanctions Motions, Black Diamond and the Libassi Parties allege that Capstone knowingly filed documents containing false statements regarding the employment of Mr. Manzo by Capstone, which enabled Capstone to be retained and to seek compensation under false pretenses. Capstone objects, arguing that the “complained-of conduct” has been corrected and that sanctions are not appropriate where the party opposing sanctions holds a color-able claim of defense; here, that Capstone’s independent contractor relationship with Mr. Manzo does not violate section 504 of the Bankruptcy Code. Black Diamond and the Libassi Parties, and Capstone, in turn, each ask the Court to award sanctions against the other side and require payment of their legal fees.
Federal Rule of Bankruptcy Procedure 9011(b) provides in relevant part:
Representations to the Court. By presenting to the court (whether by signing, filing, submitting, or later advocating) a petition, pleading, written motion, or other paper, an attorney or unrepresented party is certifying that to the best of the person’s knowledge, information, and belief, formed after an inquiry reasonable under the circumstances—
(3) the allegations and other factual contentions have evidentiary support or, if specifically so identified, are likely to have evidentiary support after a reasonable opportunity for further investigation or discovery; and
(4) the denials of factual contentions are warranted on the evidence or, if specifically so identified, are reasonably based on a lack of information or belief.
Fed. R. Bank. P. 9011(b). The Court may impose sanctions under Bankruptcy Rule 9011(c), if after “notice and a reasonable opportunity to respond,” it determines that Rule 9011(b) has been violated. Fed. R. Bankr.P. 9011(c). The United States Court of Appeals for the Second Circuit, in interpreting Federal Rule 11,
Accordingly, even if the Court were to determine that Rule 9011(b) was violated, in the exercise of its discretion, the Court need not impose a sanction. While the Court agrees with the statement of Black Diamond in its reply that Capstone exhibited a “recalcitrant” attitude regarding the harm it caused by concealing its arrangement with Mr. Manzo,
III. Findings of Fact and Conclusions of Law with Respect to RJM I and Mr. Manzo
As discussed at pages 703-04 supra, the Libassi Parties and Black Diamond assert that Mr. Manzo’s alleged misconduct, both pre-Effective Date and post-Effective Date, mandate his removal as Liquidating Trustee. Although Mr. Manzo has in fact “agreed” to resign as Liquidating Trustee pursuant to his contractual settlement with the U.S. Trustee, it nonetheless falls within the purview of this Court to determine whether his conduct warrants removal for gross negligence or willful misconduct.
The allegations of Black Diamond and the Libassi Parties with respect to Mr. Manzo’s alleged breach of fiduciary duty for ignoring the $1 million budgetary “cap” rank among the most specious of any allegations in this case. Black Diamond — by all accounts the mastermind and instigator of much of the turmoil that beset these cases from the outset — now not only has changed its mind about Mr. Manzo serving as the Liquidating Trustee (despite its pri- or explicit support) but now seeks to hold Mr. Manzo accountable for not having noticed that Black Diamond and/or its counsel stealthily changed the terms of the Liquidating Trust Agreement at the eleventh hour to impose a cap on fees and expenses incurred by the Liquidating Trustee. The uncontroverted testimony regarding the amendment of this key provision reflects that neither Black Diamond nor its counsel ever gave any indication to Mr. Manzo, Mr. Garrity, or the Shearman attorneys that this change was in the offing. Black Diamond’s stunningly sharp tactics are in many ways far more unbecoming than anything done or not done by Mr. Manzo, the Capstone professionals, or Kaye Scholer. Mr. Manzo’s alleged disregard of the $1 million “cap” reflects his ignorance of its existence; his alleged accrual of fees and expenses exceeding such cap does not constitute gross negligence or willful misconduct.
Straining to find another argument that brings the removal of Mr. Manzo within the purview of Section 2.8 of the Liquidating Trust Agreement, the Libassi Parties and Black Diamond argue that Mr. Man-zo’s pre-Effective Date conduct constitutes gross negligence or willful misconduct. This argument is meritless; there is absolutely nothing in the Liquidating Trust Agreement that contemplates removal of the trustee for conduct that occurred before such agreement took effect. Even if the agreement could be so read, Mr. Man-zo’s pre-Effective conduct, while far from exemplary, does not rise to the level of gross negligence or willful misconduct.
Black Diamond and the Libassi Parties, in urging the Court to find gross negligence or willful misconduct, clearly wish to bring the removal of the Liquidating Trustee within the purview of Section 2.8 in order to be able to appoint their own designee as Successor Trustee. This is not to be. Unfortunately, Section 2.8 does not address the circumstances that have arisen here — the existence of “cause” to remove Mr. Manzo which falls short of gross negligence or willful misconduct. Applicable state law provides guidance as to how the Court should deal with this gap in the Liquidating Trust Agreement. New York law permits the court “to suspend or remove a trustee who has violated or threatens to violate [such] trust ... or who for any reason is a person unsuitable to execute the trust.” N.Y. Est. Powers & Trusts Law § 7-2.6(a)(2). The Court finds, based on the totality of the circumstances, that Mr. Manzo is unsuitable to continue to execute the trust in this case. Moreover, in the case of removal of a trustee, if no other provision is made for the appointment of a successor trustee, the court may “appoint a successor trustee and, if there is no acting trustee, to cause the trust to be executed by a receiver or other officer under its direction.” Id. at § 7 — 2.6(a)(3). Alternatively, even if the
Having had the opportunity to make allegations against Mr. Manzo relating to his tenure as Liquidating Trustee
IV. Findings of Fact and Conclusions of Law with Respect to Kaye Scho-ler
As a result of the U.S. Trustee’s last-minute decision to withdraw the U.S. Trustee Motion to the extent it sought relief against Kaye Scholer, only a few issues with respect to Kaye Scholer remain unresolved. To recap briefly, the gravamen of the U.S. Trustee’s allegations with respect to Kaye Scholer were that (i) it had violated its disclosure obligations by failing to disclose that it had previously represented the two LLC entities owned by Mr. Manzo and (ii) it had, in essence, aided and abetted Capstone’s violation of section 504. The U.S. Trustee also took issue with the firm’s failure to disclose that Mr. Solow and Mr. Manzo were good friends, and (erroneously) claimed that Mr. Solow was the actual author of the Eckert/Frank Letter. (He was not; in fact, it was written by Mr. Manzo). There were no allegations of actual harm to the estate or the creditors; there were no allegations that Kaye Scholer would not have been retained had there been disclosure of its prior representation of RJM and RJM I or of the So-low/Manzo friendship;
However, for the reasons outlined by the Court on April 19, 2013,
Ultimately, the parties elected to follow the blueprint laid out in the Court’s preliminary ruling on April 19, 2013. The U.S. Trustee and Kaye Scholer agreed on a contractual settlement that would not be court-approved, and the U.S. Trustee withdrew its motion. Consistent with the blueprint, the Court must address (i) Kaye Scholer’s final fee application, as modified by the agreed disgorgement amount reflected in its settlement with the U.S. Trustee; (ii) Black Diamond’s argument that it is not precluded from maintaining an action against Kaye Scholer for malpractice and breach of fiduciary duty; and (iii) Black Diamond’s motion for Rule 9011 sanctions.
A. Kaye Scholer’s Final Fee Application
In its final fee application, which the Court has now reviewed in detail, Kaye Scholer seeks total compensation in the amount of $5,717,743.69 reflecting $5,431,512.90 in fees and $286,230.79 in expenses.
Indeed, Kaye Scholer ultimately acknowledged that “mistakes were made” by its professionals in these cases. And they were: Mr. Solow failed to recall that he had rendered advice to RJM; he also regretted his submission of a declaration in support of the Performance Fee, admitting that his friendship with Mr. Manzo may have influenced his judgment. In addition, Kaye Scholer fell victim to what can best be described as “big firm-itis” — the particular affliction that befalls big law firms when their partners and associates hand responsibility off to one another.
Accordingly, Kaye Scholer’s final fee application is approved in the reduced amount of $3,931,512.90 in fees and $286,230.79 in expenses and, at least in this Court’s view, the order which shall be entered approving such fees is entitled to preclusive effect in any subsequent litigation that may be brought against Kaye Scholer on causes of action sounding in malpractice or otherwise.
B. The Rule 9011 Sanctions Motion
Finally, Black Diamond’s motion seeking the imposition of Rule 11 sanctions against Kaye Scholer is denied. There is no basis in the record for awarding such sanctions. The Court has no doubt that Kaye Scho-ler’s experience in these cases is itself, to quote Rule 9011(c)(2), “sufficient to deter
CONCLUSION
Despite the enormous changes in the world in which bankruptcy professionals function, this much remains unchanged: professionals must hold themselves to the very highest standards and conduct themselves in a manner that reflects well upon themselves, their firms, and the profession — and that demonstrates, beyond peradventure, that they add value commensurate with the handsome fees they ask to be paid. Professionals must continue to follow the guidance and guidelines outlined by Judge Brozman in Leslie Fay and ensure that they do not take decisions regarding disclosure out of the court’s hands. And they must strive to avoid finding themselves in the position of having to say (or, as in this case, being forced to admit), “in retrospect, we should have disclosed .... ” That being said, it is equally essential to the smooth functioning and integrity of the bankruptcy system that the U.S. Trustee engage with professionals in a constructive and cooperative endeavor to achieve the goals of section 327 and Rule 2014, focusing on form to be sure, but working above all to address matters of substance, and to accommodate the practical changes in the structure of the professional firms that are themselves a vital part of the bankruptcy landscape.
The real culprit in this case was not any particular individual or party; rather, it was complacency. Hopefully, the GSC saga will serve as a reminder to professionals of the need to be painstakingly vigilant and diligent when screening for conflicts, preparing disclosures, and recording time. Hopefully, too, the bankruptcy professional retention process will continue to function at least as well for the next twenty years as it has in the twenty years since Leslie Fay.
The parties shall settle orders consistent with this Decision.
IT IS SO ORDERED.
. In re the Leslie Fay Companies, Inc., et al., 175 B.R. 525, 526 (Bankr.S.D.N.Y.1994) ("Leslie Fay"). The late Judge Brozman served as a Bankruptcy Judge in Southern District of New York from 1985 to 2000; see also In re Granite Partners, L.P., 219 B.R. 22, 26 (Bankr.S.D.N.Y.1998) (Bernstein, J.) ("Granite Partners") ("[t]hese questions are always troubling, and their resolution rarely satisfies everyone involved”).
. These fee requests do not include the amount of fees paid by the Debtors to Capstone (as defined herein) for prepetition services rendered.
. Mr. Manzo, through RJM I (as defined infra) provided services to Schulte Roth & Zabel LLP (“Schulte Roth”), on behalf of its clients Cerberus Series Four Holdings, INK Acquisition LLC, and INK Acquisition II LLC, during the period from September 17, 2011, through October 5, 2011. Mr.'Manzo was retained by Schulte Roth to serve as an expert in the adversary proceeding styled Innkeepers USA Trust v. Cerberus Series Four Holdings (Adv. Pro. No. 11-2557), commenced in this Court. The engagement letter from Mr. Adam Harris of Schulte Roth to Mr. Manzo, dated September 23, 2011, is annexed as Exhibit Y to the Schwartz Declaration (as defined at p. 703, infra). A copy of an invoice issued by RJM I to Schulte Roth indicates that Mr. Manzo sought approximately $76,000.00 for services provided. See Schwartz Declaration, Exhibit Z.
. Discussing Mr. Manzo’s Innkeepers engagement in its post-trial brief, Capstone states that "[s]uch a limited engagement is de mini-mus [sic] and does not affect Manzo’s status as a full-time Capstone Executive Director through the relevant period.” Docket No. 1747 at p. 7n,3.
. Edwin N. Ordway, Jr. is a member and manager of Capstone. He holds the title of "Executive Director.”
. Kaye Scholer LLP ("Kaye Scholer”) served as counsel to the Debtors in these cases.
. The findings of fact and conclusions of law herein shall constitute the Court’s findings of fact and conclusions of law pursuant to Bankruptcy Rule 7052, made applicable to this proceeding pursuant to Bankruptcy Rule 9014. To the extent any finding of fact later shall be determined to be a conclusion of law, it shall be so deemed, and to the extent any conclusion of law later shall be determined to be a finding of fact, it shall be so deemed.
. Additional information regarding the Debtors’ businesses, the circumstances leading to their chapter 11 filing, and the Debtors’ cases can be found in the July 18, 2011 Opinion Authorizing Hearing on the Sale of Assets, Adjourning Consideration of Disclosure Statement, and Approving Sale of Assets, issued by Chief Judge Gonzalez, Docket No. 684 (the "Sale Opinion").
. See Objection of Kaye Scholer LLP to U.S. Trustee Motion and Joinders (each as defined below) [Docket No. 1623], p. 5.
. Docket No. 20.
. Docket No. 22; Ex. 56. As used herein, "Ex.” refers to an exhibit admitted into the record at Trial (as defined below).
. See Sale Opinion at p. 13.
. On or about December 3, 2010, prior to the approval of the sale, Black Diamond and the Debtors signed an amendment to the APA which, among other things, modified the APA to sell additional assets to Black Diamond that were not subject to the Auction and also resolved a dispute regarding earnings to be paid to Black Diamond in connection with the Debtors’ management contracts. See Sale Opinion at p. 14.
. Docket No. 337.
. As will be discussed at p. 699-700, infra, Mr. Eckert and Mr. Frank also submitted a letter, dated November 3, 2010, in support of the Performance Fee Motion. As of the date of the Trial, Mr. Frank was employed by Black Diamond.
. Docket Nos. 341, 346.
. See Jan. 5, 2011 Hr’g. Tr. at 4:19-22 [Docket No. 401].
. Docket No. 548.
. Docket No. 668; see also Sale Opinion, dated July 18, 2011.
. Docket Nos. 747 and 748; Docket Nos. 800 and 802.
. Docket No. 815.
. Docket No. 820, p. 1. Later versions of the Black Diamond Plan subsequently provided for the creation of a liquidating trust. The amended version of Black Diamond Disclosure Statement, dated January 12, 2012 [Docket No. 1109] stated as follows:
The Trustee’s Plan contemplated the wind-down and liquidation of the Debtors, with most of the Debtors' assets to be placed in, and distributions made from, a liquidating*687 trust. The BDCM Plan, by contrast, would both preserve all of the Debtors as reorganized going forward entities with ongoing administration, and deliver all of the benefits as the Trustee’s Plan vis-á-vis liquid assets through the creation of a Liquidating Trust to distribute the proceeds of all assets of the estates that are not related to the going-forward business of the Reorganized Debtors enhanced by additional cash to be provided by BDCM and certain amendments to the Tax Indemnification Agreement that will accelerate cash distributions to Holders of Allowed General Unsecured Claims.
.Docket No. 918. A joinder to the Disqualification Motion was also filed by Thomas J. Libassi, through his counsel, Richard Kibbe & Orbe LLP ("Richards Kibbe") [Docket No. 919]. As stated in his joinder, Mr. Libassi was a senior managing director at GSC from 2000 to 2008 and holds an unsecured non-priority claim for unpaid deferred compensation for $1,264,818.00. On June 20, 2011, Richards Kibbe filed a notice of appearance in the Debtors’ cases on behalf of Black Diamond (see Docket No. 572), but has not, as of the date of this decision, filed a notice of appearance on behalf of Mr. Libassi. On April 24, 2013, Richards Kibbe did file a Verified Statement Pursuant to Bankruptcy Rule 2019(a) stating its appearance on behalf of Seth Katzenstein, Thomas J. Libassi, Nicholas Petrusic, and Philip Raygorodetsky [Docket No. 1394].
. Docket No. 933. The Chapter 11 Trustee’s objection to the Disqualification Motion was later supplemented. See Docket No. 1038.
. Docket No. 971.
. Docket No. 1030. An objection to the Designation Motion was also filed by Mr. Libassi. [Docket No. 1023].
. The Confirmation Stipulation was "so ordered” on December 20, 2011. See Docket No. 1049.
. Docket Nos. 1081 and 1079.
. Docket No. 1107. Further amended versions of the Black Diamond Disclosure Statement and the Black Diamond Plan were filed on January 12, 2012. See Docket Nos. 1109 and 1108. The final amended version of the Black Diamond Plan was filed on February 10, 2012. See Docket No. 1190.
. Docket No. 1146.
. See Findings of Fact and Conclusions of Law, and Order Confirming Black Diamond Capital Management, L.L.C.’s Fourth Amended Joint Chapter 11 Plan for GSC Group, Inc., and its affiliated Debtors [Docket No. 1212],
. Kirkland & Ellis LLP served as counsel for Black Diamond at this time. See Notice of Appearance filed December 6, 2011 [Docket No. 1014],
. Chief Judge Arthur J. Gonzalez presided over the Debtors' cases until his retirement from the bench on March 1, 2012. Effective March 1, 2012, the Debtors’ cases were assigned to this Court.
.See March 12, 2012 Hr'g. Tr. at 16:2-16:5; 17:7-17:9 ([Nash:] "We have no objection to Bob Manzo and his entity being the liquidating trustee. And we had no objection to confirmation because we have a plan on file like most plans that provides that administrative claims will be reserved for ... if Capstone wants a success fee, fair enough, we'll reserve for it; it's either going to be allowed or it isn’t.”). A little over one month later, however, Black Diamond entirely changed its position with respect to Mr. Manzo, stating in an April 30, 2012 letter to Mr. Manzo that it was "very concerned about the impact that the pending Capstone fee application is having and will continue to have on the effective execution of the Liquidating Trustee’s duties” given, among other things, "the obvious conflict of interest.” See Ex. 716, Letter from Mounir Nahas of Black Diamond to Robert Manzo.
. Docket No. 1138. The cover sheet of Exhibit B states that “[t]he attached represents the most current draft of the form of the Liquidating Trust agreement as of the date hereof and remains subject to further negotiation and revision by applicable parties.” The Draft Liquidating Trust Agreement is also Ex. 720.
. Docket No. 1138, Ex. B.
. Ex. 718.
. Mr. Tenzer is a partner at Shearman, which served as counsel to the Chapter 11 Trustee and to the Liquidating Trust. See May 1, 2013 Hr'g. Tr. at 17:1-23. On April 24, 2012, Sherman filed a "Declaration and Disclosure Statement on behalf of RJM1, LLC” which provided, in part, that “Shearman & Sterling represents RJM1, LLC solely in its capacity as liquidating trustee of the Trust, the successor to the Chapter 11 Trustee under the Plan. Shearman & Sterling does not and will not in these cases represent Mr. Manzo in his individual capacity, Capstone, nor any other entity with which RJM1, LLC or the GSC Liquidating Trust may be affiliated. Shearman & Sterling continues to advise the Chapter 11 Trustee in these cases with respect to the allowance of professional fees incurred prior to the effective date of the Plan.” [Docket No. 1395], On January 17, 2013, Willkie Farr & Gallagher LLP filed an amended notice of appearance which stated that it represents RJM, LLC, RJM I, LLC, and Robert J. Manzo. [Docket No. 1611],
.May 1, 2013 Hr’g. Tr. at 19:19-22, 21:7-23:23 (Tenzer); April 30, 2013 Hr'g. Tr. at 283:13-284:25 (Garrity); April 24, 2013 Hr'g. Tr. at 234:12-20 (Manzo).
. Kirkland & Ellis LLP served as counsel for Black Diamond at this time. See fn 32, supra.
. May 1, 2013 Hr'g. Tr. at 19:10-22, 21:7-23 (Tenzer: "[i]t was an issue that had never been discussed, and when I saw it for the first time months later it was different than (a) what I had understood the parties had agreed to and (b) different than I believe the draft of the liquidating trust agreement or the form of liquidating trust agreement that had been filed with the court as part of the plan supplement."); 46:5-11.
. April 30, 2013 Hr’g. Tr. at 283:13-284:25 (Garrity); April 24, 2013 Hr'g. Tr. at 234:12-20 (Manzo).
. See Ex. 721 (March 14, 2012 email from Christopher Langbein at Kirkland & Ellis LLP to 11 parties, including Mr. Tenzer, which attaches the execution version of the Liquidating Trust Agreement states that "[t]he $1 million Administrative Fund provision has been included in the attached version of the Liquidating Trust Agreement. With that, we understand that there are no more changes and the document is final. Please return the executed signature pages."). The version of the Liquidating Trust Agreement attached to this email also contained the Consent Provision in section 2.7. No blackline revealing the insertion of this provision was attached to the email, nor was there any other indication from Black Diamond or its counsel that it had unilaterally made this change. See May 1, 2013 Hr’g. Tr. at 19:1-20:7, 24:9-24 ([Tenzer:] "My understanding was that the only issue in Section 2.7 was filling in the blank dollar amount in the first sentence.” [Q:] "Did anyone at Black Diamond or Kirkland & Ellis tell you that there was an additional change beyond the enassertion [sic] of the $1 million?” [Tenzer:] "No.”).
. May 1, 2013 Hr’g. Tr. 51:21-53:9.
. Id. at 24:21-25:3.
. Id. at 55:19-56:2; 29:13-14.
. Id. at 26:4-23. Mr. Garrity gave similar testimony on this point, stating that would not have signed the agreement had he known of the addition of the Consent Provision, as he "did not believe that it was appropriate that there be a cap” because he "wanted to make sure that there was [sic] sufficient funds in the Liquidating Trust for the Trustee to do whatever needed to be done in the case,” and he
. See Exs. 716,719, 724, and 725.
. See May l, 2013 Hr’g. Tr. at 80:14-16.
. See May 1, 2013 Hr’g. Tr. at 34:14-36:13.
. See Ex. 718 (Liquidating Trust Agmt.) at § 2.8. The Court has been informed that, in connection with the Manzo Parties' Settlement (as defined below), RJM I intends to resign from its role as Liquidating Trustee pursuant to Section 2.8.
. See id. at §§ 2.1, 10.3.
. In addition, the Liquidating Trust Agreement provides that the Court retains exclusive jurisdiction over the Liquidating Trust after the Effective Date including, without limitation, any entity’s obligations under the Liquidating Trust Agreement and any action against the Liquidating Trustee or any professional retained by the Liquidating Trustee. See id. at § 11.10.
. See id. at § 2.4(a), Exhibit 1 (Liquidation Trastee Compensation Schedule).
. The Capstone Retention Application also states that Capstone had been providing restructuring services to the Debtors since February 2009.
. Docket No. 150.
. Deposition Tr. of E. Ordway at 6:2-10; 140:22-141:4 (stating that Mr. Kearns is the other managing member of Capstone).
. April 24, 2013 Hr’g. Tr. at 312:13-318:12.
. Deposition Tr. of E. Ordway at 14:24-15:24.
. Ex. 317.
. Ex. 5.
. The initial Capstone/Manzo Agreement, dated February 4, 2006, was executed by Mr. Ordway and Mr. Nurge on behalf of Capstone, and by Robert Manzo. The subsequent amendments were executed by Mr. Ordway and/or Mr. Kearns on behalf of Capstone and by "RJM, LLC by Robert J. Manzo, Member.”
. See Ex. 31 (Capstone/Manzo Agreement, dated February 19, 2009).
. The Net Revenue Incentive Payment was not capped.
. Ex. 89. The November 2010 Amendment, which extended the agreement through March 31, 2011, provided, inter alia, that Mr. Manzo would receive 60 percent of any success fee earned in the Debtors' cases and Capstone would receive 40 percent, instead of the previous 50/50 split. A non-compete provision was also included.
. Ex. 104. The March 2011 Amendment also provided that (i) Mr. Manzo would be paid 100 percent of his hourly compensation on the GSC matter, instead of 80 percent, effective April 1, 2011; (ii) Mr. Manzo no longer would receive the $125,000.00 monthly payment; (iii) the incentive payment (i.e., the Net Revenue Incentive Payment) would now only include fees generated in Refco, GSC, Chrysler, and "a new assignment from Cerberus;” and (iv) the agreed upon 60-per-cent-Manzo/40-percent-Capstone split of success fees received by either Mr. Manzo or Capstone would survive the expiry of the amendment.
. See Ex. 136 (Deposition Tr. of Robert Man-zo) at 9:8-10:11.
. Id. at 5:17-6:9.
. Ex. 56. At Trial, Mr. Ordway testified that he read the Capstone Retention Application and the supporting declarations thoroughly before they were filed. April 24, 2013 Hr’g. Tr. at 203:10-24; 248:21-249:6; 253:1-5.
. First Ordway Decl. at ¶¶ 3, 4, and 5.
. Id. at 1117.
. Id. at ¶ 13.
. April 23, 2013 Hr’g. Tr. at 39:23-40:7; April 30, 2013 Hr’g. Tr. at 72:3-73:4; 160:12-161:3.
. See Ex. 64.
. Id.
. See April 30, 2013 Hr’g. Tr. at 75:16-76:20 (Numberg); April 30, 2013 Hr'g. Tr. at 164:18-24 (Micheli). In Refco, RJM, in its capacity as Plan Administrator, determined that AP Services, LLP ("Alix"), one of the debtors’ professionals, had not adequately disclosed to the court that (i) Alix had employed an independent contractor ("KordaMentha”) to work for the Refco estate (and had not disclosed whether KordaMentha had any conflicts) and (ii) Alix had a fee sharing agreement with KordaMentha and had "marked up" the fees charged to Refco for KordaMen-tha’s services. Ultimately, Mr. Manzo and Alix reached a settlement whereby Alix agreed to substantially reduce the fees it sought from the Refco estate. See In re Refco, Case No. 05-60006(RDD) (Bankr.S.D.N.Y. Aug. 15, 2007) [Dkt. No. 5728]. Kaye Scholer assisted RJM with drafting an objection to Alix’s fees in Refco.
. See April 30, 2013 Hr'g. Tr. at 164:24-165:7.
. Id. at 165:10-15.
. April 24, 2013 Hr'g. Tr. at 50:13-25; 52:11-19; 54:12-20.
. On October 4, 2010, the Debtors, by Kaye Scholer, filed a Notice of Supplemental Capstone Documents, to which Kaye Scholer annexed: (i) the First Supplemental Ordway Declaration, and (ii) a revised proposed Capstone Retention Order. See Docket No. 142; Ex. 70.
. Kaye Scholer and Mr. Solow maintain that Mr. Solow had no involvement with the Capstone Retention Application or with any pleadings filed in support of it
. See April 30, 2013 Hr'g. Tr. at 178:13-179:4. Both Mr. Nurnberg and Mr. Micheli testified at trial that they learned of the involvement of RJM in the Debtors’ cases at or around the time of the September 23 Meeting. See id. at 88:9-89:16 (Nurnberg) ("I learned of the RJM entity itself several years prior. In connection with the GSC case, I was advised that it was involved either at the September 23 meeting or sometime in the week or so following.”); id. at 174:20-175:10 (Micheli) ("Again, I had learned of the existence of RJM, LLC at or around the time of the September 23 meeting”), id. at 168:14-18 (Miche-li) ("I believe I learned about RJM, LLC from Mr. Manzo, but I don’t recall if it was during this meeting or if it occurred after this meeting at some time before, I think, October 1st....”). No party testified as to exactly how Ms. Schwartz became aware of the existence of RJM. Notwithstanding any knowledge of the existence of RJM, however, Kaye Scholer maintains that the attorneys who worked with Capstone on its retention pleadings, Mr. Nurnberg and Mr. Micheli, had no knowledge of the consulting agreements between RJM and Capstone at that time. At Trial, Mr. Nurnberg testified that, on October 6, 2010, he was not aware of the consulting agreements and, had he been, Kaye Scholer neither would have drafted the Second Supplemental Ordway Declaration in the way it did nor would have allowed the declaration to be signed that way. See April 30, 2013 Hr’g. Tr. at 94:7-94:15.
. Exs. 72 and 74.
. Mr. Numberg testified at Trial that Mr. Micheli and Mr. Kleinman of Kaye Scholer drafted Paragraph 15, and Mr. Nurnberg approved the paragraph (after making a one-word insertion) as being consistent with his understanding at the time. See April 30, 2013 Hr’g. Tr. at 90:24-91:17. In January 2011, the day before Kaye Scholer filed Capstone's first interim fee application [Docket No. 400], Robert Butler, a Capstone Executive Director, asked Mr. Numberg via e-mail if Mr. Manzo was permitted to sign Capstone's interim fee applications "given that Bob is an independent contractor and not an employee of Capstone.” See Ex. 99. Mr. Nurnberg forwarded Mr. Butler's email to Mr. Solow, who advised that he saw no issue so long as Capstone authorized Mr. Manzo to do so. Notwithstanding this information, Kaye Scholer took no action to update Capstone's disclosures in the Ordway Declarations, which only months before had been prepared and filed by Kaye Scholer with the understanding that Capstone had no contractors.
. Ordway Dep. 47:3-19. In its objection to the U.S. Trustee Motion, Capstone attempts to "put this answer in context” by stating that much of the information in Paragraph 15 could only have come from Mr. Manzo. According to Capstone, Mr. Ordway did not speak to Mr. Manzo between receiving the draft from Kaye Scholer and executing it— instead, in stating at his deposition that Mr. Manzo confirmed that Paragraph 15 was accurate, Mr. Ordway "was referring to generally obtaining the substance of the information from Mr. Manzo, not to a specific discussion with Mr. Manzo.” See Objection of Capstone to U.S. Trustee Motion [Docket No. 1631] at p. 15 n.3.
. April 24, 2013 Hr’g. Tr. at 71:21-72:10; 73:24-77:9.
. April 24, 2013 Hr’g. Tr. at 82:11-83:1.
. Ex. 75; Docket No. 148.
. After the email sent by Mr. Micheli late in the evening on October 5, 2010 (Ex. 72), Mr. Manzo was not included on the subsequent email correspondence between Capstone and Kaye Scholer regarding Mr. Ordway’s execution of the Second Supplemental Ordway Declaration prior to the October 6, 2010 hearing. Approximately ten minutes after Mr. Micheli’s email was sent out, Mr. Butler of Capstone forwarded the email to Mr. Ordway and Lisa Hirschman of Capstone, with the following message: "Ed/Lisa — please see below and have Ed execute as discussed with Lisa this evening!.] Thanks.” See Ex. 713.
. April 23, 2013 Hr’g. Tr. at 279:19-25 ([Q:] "Mr. Ordway, was the decision not to disclosure Robert Manzo’s independent contractor status in the GSC cases a mistake?” [Ord-way:] "No.” [Q:] "So Capstone just made a decision not to disclose that, correct?” [Ord-way:] "There was no reason to disclose it.”).
. April 24, 2013 Hr’g. Tr. at 59:22-60:14 (Manzo) ("In my mind I thought about it and absolutely did not believe, as did Capstone, that this was something that was a 504 issue”).
. See Docket No. 1146, Exhibit A. Contrary to the allegation of the U.S. Trustee that Kaye Scholer partner Michael Solow wrote the Eckert/Frank Letter (see U.S. Trustee Motion at pp. 86, 92), the evidence revealed that the Eckert/Frank Letter was in fact written by Mr. Manzo, typed by Mr. Solow’s secretary, and given to Messrs. Eckert and Frank for approval and signature.
. Although the Performance Fee Motion was filed over two weeks prior to the confirmation hearing on the Black Diamond Plan, the objections to such motion were not filed until after the Black Diamond Plan was confirmed. Among the many things on which the parties disagreed as to the Performance Fee Motion were the sources from which the Performance Fee, if approved, would be paid.
. Docket Nos. 1229, 1230, and 1231, respectively. In its objection, the U.S. Trustee requested an evidentiary hearing on the Performance Fee Motion.
. Docket Nos. 1241, 1242, and 1243.
. Docket Nos. 1244 and 1245.
. Docket No. 1310.
. Thomas Libassi, Nicholas Petrusic, Seth Katzenstein, and Philip Raygorodetsky, four of the Former Employees, will be referred to herein as the ‘‘Libassi Parties.” As set forth in the Libassi Joinder filed on January 11, 2013, Mr. Libassi is owed approximately $1.2 million by the Debtors, Mr. Raygorodetsky is owed approximately $320,000 by the Debtors, Mr. Katzenstein is owed approximately $612,000 by the Debtors, and Mr. Petrusic is owed approximately $183,000 by the Debtors. All of the Libassi Parties except Mr. Libassi were at the time of the Trial employed by Black Diamond or one of its affiliates. Per the engagement letter admitted into evidence as Exhibit 930 (the ‘‘Libassi Engagement Letter”), Mr. Libassi retained Richards Kibbe as counsel on November 3, 2011. In the letter, Richards Kibbe states that it represents Black Diamond in the Debtors' cases but that it agrees to represent Mr. Libassi as well. The Libassi Engagement Letter further recites that Black Diamond has agreed to pay Richard Kibbe's legal fees and expenses during the course of its representation of Mr. Libassi in connection with the GSC matter. Nearly identical engagement letters were executed on February 28, 2012 by and among Richards Kibbe and each of the other Libassi Parties. See Exs. 929, 931, and 932.
. Docket Nos. 1376, 1382, and 1383, respectively.
. Docket Nos. 1387, 1388, and 1389, respectively.
. See April 25, 2012 Hr'g. Transcript at 17:2-17:16.
. On May 15, 2012, the Court entered an order denying the Performance Fee 9019 Motion. [Docket No. 1427].
. Docket No. 1412.
. Docket Nos. 1474 and 1483.
. Docket No. 1489.
. Docket Nos. 1491, 1492, and 1493.
. Docket Nos. 1486, 1487, and 1488.
. Docket No. 1481.
. Docket No. 1482.
. At the status conference held on June 13, 2012, the Court asked Mr. Solow whether, at the time that Kaye Scholer assisted in the preparation of and submitted the Second Supplemental Ordway Declaration, he was aware of the existence of the Capstone/Manzo Agreement. He responded, "No. Actually the first time I saw it was this afternoon sitting waiting for court, Your Honor.” See June 13, 2012 Hr’g. Tr. at 38:10-38:19. On October 12, 2012, Mr. Solow subsequently filed a letter with the Court stating that documents produced in connection with the matter have indicated that Mr. Solow was aware of the Capstone/Manzo agreement at the time of the June 13, 2012 status conference and that he had received copies of, reviewed, and commented on drafts of versions of the agreement in prior years. He stated that he had not recalled this at the time of the conference and apologized for his failed memory and resulting misstatements. See Docket No. 1573.
. July 19, 2012 Hr'g. Tr. at 13:7-13:15 [Docket No. 1527],
. The Court entered an order to that effect on November 5, 2012 [Docket No. 1584], The order also noted the Court's request that the parties continue to forbear until November 20, 2012 from filing motions or other papers concerning the matters discussed at the October status conferences, pending the outcome of the supervised settlement discussions.
. See Declaration of Aaron Rubinstein, dated January 28, 2013 [Docket No. 1624] at Ex. JJ.
. Docket No. 1597.
. Docket No. 1598.
. Docket No. 1605.
. Docket No. 1606.
. Id. at ¶ 15.
. Docket Nos. 1623 and 1624.
. Docket Nos. 1629 and 1630.
. Docket Nos. 1631 and 1632.
. Objection of Kaye Scholer to U.S. Trustee Motion and Joinders [Docket No. 1623] at p. 1.
. Docket No. 1629 at p. 6.
. Docket No. 1631 atp. 4.
. Id. at p. 10. Capstone again states in a later footnote that the identification of Mr. Manzo as an employee was erroneous and that RJM "should more accurately been described as a contract counterparty with Capstone,” but that “the remainder of the disclosure accurately described Mr. Manzo's relationship with RJM, LLC and the nature of RJM, LLC’s relationship with Capstone.” Id. at p. 43 n. 11.
. Id. at p. 31.
. Id. at p. 5.
. Docket Nos. 1634 and 1637.
. Docket No. 1635.
. Docket Nos. 1636 and 1638.
. Docket No. 1636 at p. 2.
. Docket No. 1636 at p. 31.
. In their reply, the Libassi Parties also state that “new evidence confirms that Manzo breached his duties as a fiduciary with respect to his treatment of the Kaye Scholer law firm” and that "[e]vidence shows that Manzo made payments to Kaye Scholer at the same time he was soliciting favorable testimony from Michael Solow, Kaye Scholer’s Managing Partner, to support Capstone’s fee application.” Docket No. 1637 at p. 3. At Trial, the Libassi Parties failed to submit any evidence in support of these allegations.
.See Lemonedes v. Balaber-Strauss (In re Coin Phones, Inc.), 226 B.R. 131 (S.D.N.Y.1998), aff'd, 189 F.3d 460 (2d Cir.1999).
. To support this allegation, Black Diamond and GSCAH allege that, because the Capstone/Manzo Agreement in effect as of the Petition Date provided that RJM would receive 80% of the hourly fees Capstone billed the Debtors for Mr. Manzo’s services, the Debtors were subject to a 25% markup of the cost of Mr. Manzo's services until April 1, 2011, when the agreement was amended to provide that Mr. Manzo would receive 100% of the hourly fees Capstone billed the Debtors for Mr. Manzo's services. This argument was not pursued at Trial.
. Docket No. 1645. On February 12, 2013, Black Diamond filed a letter with the Court arguing that the filing of the Capstone/Manzo 9019 Motion did not form a basis to delay the Trial (for the reasons set forth therein) and asking that the Trial proceed on February 13, 2013. [Docket No. 1648],
. Docket No. 1652. The U.S. Trustee wasted little time issuing press releases trumpeting the settlements; alas, in light of subsequent events, a more restrained approach might been appropriate.
. See Position Statement of U.S. Trustee, dated April 8, 2013 [Docket No. 1705] at ¶ 2 (... “the United State Trustee and Ramona D. Elliott, Deputy Director/General Counsel for the Executive Office for United States Trustees and on behalf of the United States Trustees for Regions 1 through 21, reached the national Settlements with Kaye Scholer, Capstone and the Manzo Parties_”).
. The settlement agreement by and among (i) Capstone and (ii) the U.S. Trustee by (a) Tracy Hope Davis, the United States Trustee for Region 2 and (b) Ramona D. Elliott, Deputy Director/General Counsel for the Executive Office for United States Trustees and on behalf of the United States Trustees for Regions 1 through 21 shall be referred to herein as the "UST/Capstone Settlement." See Docket No. 1645, Ex. A.
. UST/Capstone Settlement, pp. 2-3 (emphasis added).
. Docket No. 1652, Ex. A.
. Docket No. 1645, Ex. B.
. While the release in the UST/KS Settlement is nearly identical to that in the UST/Capstone Settlement except that the fees referred to are those of Kaye Scholer instead of Capstone, the release contained in the UST/Manzo Settlement is broader in scope in that it includes both pre-Effective Date and post-Effective Date fees. The UST/Manzo Settlement provides that a condition to the Man-zo Parties’ obligations under the UST/Manzo Settlement is that the Court’s order granting the Capstone/Manzo 9019 Motion "preclude (a) further litigation by any party of the allegations made in the [U.S. Trustee] Motion and joinders thereto insofar as they relate to Capstone and the Manzo Parties; (b) further litigation by any party over RJM I, LLC’s activities as Liquidating Trustee in the [bankruptcy cases]; and (c) further litigation over the Manzo Parties’ fees in the [bankruptcy cases], including pre- and post-effective date fees.” UST/Manzo Settlement, p. 3 (emphasis added).
.In addition, pursuant to the UST/Capstone Settlement, Capstone admitted that the Second Supplemental Ordway Declaration erroneously described Manzo as an employee of Capstone through RJM and should have accurately described RJM as a contract counter-parly of Capstone, with Mr. Manzo as its sole member; therefore, Manzo was an independent contractor of Capstone. Capstone denied all other allegations asserted against it by the U.S. Trustee Motion and the Joinders.
. As discussed infra, by its final fee application, Capstone seeks allowance and payment of a total of $5,947,270.00 in fees and $254,348.40 of out-of-pocket expenses. In addition, by the Amended Performance Fee Motion, Capstone seeks allowance and payment of $2.75 million as a "Performance Fee.” Thus, Capstone’s aggregate request for fees is $8,697,270.00.
. The independent monitor would be selected by both Capstone and the U.S. Trustee, would consult both parties in developing the aforementioned policies and procedures, and would report to the Court in a public filing any instances of Capstone's failure to comply with the policies and procedures approved by the independent monitor.
. As discussed infra, by its final fee application, Kaye Scholer seeks allowance and payment of a total of $5,431,512.90 in fees and $286,230.79 in out-of-pocket expenses.
. The UST/KS Settlement provided that the Policies and Procedures Expert would be selected by Kaye Scholer and the U.S. Trustee to review and approve any revised/improved policies and procedures submitted to him/her by Kaye Scholer. Once finalized, Kaye Scho-ler would not modify its policies and procedures for a period of two years without prior consultation with and approval by the Policies and Procedures Expert. By the UST/KS Settlement, Kaye Scholer further agreed to conduct training sessions within the firm to instruct and educate Kaye Scholer attorneys
. If any of the Manzo Parties is retained by any estate-retained financial advisory firm in a bankruptcy case, the Manzo Parties agreed to either (i) ensure that the financial advisory firm includes the Manzo Parties in its conflicts run and discloses the financial advisory firm's employment, contractor, or other relationship with the Manzo Parties or (ii) prepare a conflicts run and file the proper disclosures with the Bankruptcy Court if the financial advisory firm itself does not prepare such a conflicts check and file such disclosures. The Manzo Parties agreed to review pending bankruptcy cases in which one or more of them is acting as an independent contractor for a retained financial advisory firm and ensure that the financial advisory firm makes any supplemental disclosures as necessary within ninety (90) days of the Bankruptcy Court’s approval of the UST/Manzo Settlement (or that the Manzo Parties themselves make the disclosure).
. Docket No. 1671.
. Docket No. 1651.
. Docket No. 1663.
.Footnote 3 of the Supplemental Statement also stated the following: "Although the effectiveness of the Settlements with the United States Trustee are conditioned upon a court order precluding further litigation by any party of the allegations in the [U.S. Trustee Motion] or over final fee applications, that is not and was not intended to be a release of third-party claims. Rather, it is an express acknowledgement that other parties have joined in the United States Trustee's objections but have not agreed to settle on any terms.” What this sentence means is unclear.
. Docket No. 1665.
. Docket No. 1668.
. Capstone and the Manzo Parties argued that the Libassi Parties should be viewed as “affiliates” of Black Diamond because three of four of them are employed by Black Diamond, and all are acting "in concert" with Black Diamond, who is paying their legal fees.
.Capstone and the Manzo Parties also included a quote from the Court in support of their position in this regard. The Court's statement — that it views Black Diamond's role as “quite secondary” — was taken out of context and does not support the parties’ assertions.
. Docket Nos. 1675, 1676, and 1681. The Libassi Parties also filed the Declaration of Keith Sambur in support of their objection. See Docket No. 1682.
. See ¶ 1, Docket No. 1676.
. Docket No. 1698.
. On April 8, 2013, in compliance with the Modified Scheduling Order, the U.S. Trustee filed a position statement [Docket No. 1705], and Black Diamond and the Libassi Parties filed supplemental statements [Docket Nos. 1707 and 1708]. The Libassi Parties also filed the Declaration of Keith Sambur in support of their supplemental statement [Docket No. 1706], On April 15, 2013, Kaye Scholer filed (a) a response to (i) Black Diamond's limited objection to the KS 9019 Motion and (ii) Black Diamond's supplemental statement regarding the final fee application of Kaye Scholer [Docket No. 1714] and (b) a response to the UST Position Statement [Docket No. 1715]. Supplemental statements were also filed on April 19, 2013 by Capstone [Docket No. 1721] and by the Manzo Parties [Docket No. 1723], who also filed the Declaration of Andrew Tenzer [Docket No. 1720]. Capstone filed the Declaration of Steven J. Mandelsberg in support of its supplemental statement. [Docket No. 1722], By its position statement, the U.S. Trustee, among other things, sought to amend the U.S. Trustee Motion to seek "the non-monetary relief achieved in the Settlements” in the event that the Rule 9019 settlements were not approved by the Court.
. See April 19, 2013 Hr'g. Tr. [Docket No. 1735].
. April 19, 2013 Hr’g. Tr. at 6:16-21.
. The Court stated that, should the parties decide to include the non-monetary components of the UST/KS Settlement in any contractual settlement, there should be no inference drawn or statement made that the Court approved such measures or found they were necessary.
. Docket No. 1719.
. Docket No. 1678.
. Docket No. 1677.
. Docket No. 1683.
. See Docket Nos. 1691, 1693, and 1694. Capstone also filed the Declaration of Steven J. Mandelsberg in support of its objections to the Capstone Sanctions Motions. See Docket No. 1695.
. Docket Nos. 1701, 1702, and 1704. Black Diamond also filed the Declaration of Gregory Gartland in support of its reply. See Docket No. 1703.
. Docket No. 1683.
. See Docket Nos. 1693 and 1694. Capstone also filed the Declaration of Steven J. Mandelsberg in support of its objections to the Capstone Sanctions Motions. See Docket No. 1695.
.The Court's February 15, 2013 scheduling order required that any motions for sanctions pursuant to Bankruptcy Rule 9011 be served by February 22, 2013 and filed by March 15, 2013, not filed by January 11, 2013.
. Docket Nos. 1702 and 1704. Black Diamond also filed the Declaration of Gregory Gartland in support of its reply. See Docket No. 1703.
. Docket No. 1691.
. Docket No. 1701.
. The hearing on the fee applications filed by the Chapter 11 Trustee, Shearman, and Ernst & Young LLP has been adjourned to a date to be determined.
. Docket No. 1672. On the same date, the U.S. Trustee filed an amended statement regarding the Final Fee Applications. See Docket No. 1673. RJM I’s statement can be found at Docket No. 1674.
.RJM I explains that it takes no position on Capstone’s final fee application because, pursuant to Section 5.1 of the Plan, the Chapter 11 Trustee (and not the Liquidating Trustee) has the right to review fees and expenses incurred by Capstone prior to the Effective Date. With respect to Kaye Scholer, RJM I states that it has determined not to take a position on Kaye Scholer’s final fee application in order to avoid any suggestion of bias given the allegations that have been made regarding Mr. Manzo’s relationship with Mr. Solow and the engagement of Kaye Scholer by RJM and RJM I on two limited engagements. The statements of RJM I with respect to the other final fee applications are not relevant to this decision; the hearing on such applications has been adjourned to a date to be determined.
. Docket No. 1679. Mr. Libassi also filed the Declaration of Keith Sambur in support of his objection. See Docket No. 1680.
. Docket No. 1690.
. See Docket Nos. 1745, 1746, 1747, 1748, and 1749.
. Ms. Schwartz read a full description of the terms of the settlement agreement into the record. See April 22, 2013 Hr’g. Trans, at 16:1-25:14.
. The parties agreed with the Court that "effective date of appointment” actually means when the new trustee is "up and running.” See April 22, 2013 Hr'g. Trans, at 101:21-102:9.
. The Court raised with the parties the issue that the fiduciary's obligations to the Trust may extend beyond 60 days. See April 22, 2013 Hr’g. Trans, at 103:13-104:9. Mr. Manzo agreed that RJM I would not charge the Liquidating Trust for services rendered outside of the agreed-upon 60-day period to the extent such services are attributable to transition. See May 1, 2013 Hr’g. Trans. at 115:11-121:24.
. The parties agreed to modify the Manzo Parties’ Agreement to clarify that the U.S. Trustee would not object to RJM I’s request for payment of accrued but unpaid fees, reasonable attorneys’ fees, and expenses incurred as Liquidating Trustee above the $175,000 that will be foregone pursuant to the settlement agreement; however, the Manzo Parties recognize that there is no guarantee that any such amounts requested “shall” or "will” be paid. See April 22, 2013 Hr’g. Trans. at 123:21-124:25.
.Ms. Schwartz read a full description of the terms of the settlement agreement into the record. See April 22, 2013 Hr’g. Trans, at 93:7-112:10. On May 1, 2013, Ms. Schwartz presented to the Court a few modifications to the terms of the Manzo Parties' Settlement in order to address the concerns raised by the Court on April 22, 2013. See May 1, 2013 Hr'g. Trans, at 113:13-122:13. The terms described by Ms. Schwartz on May 1, 2013 constitute the final terms of the Manzo Parties' Settlement and are summarized herein.
. See April 22, 2013 Hr’g. Tr. at 42:3-4.
. Paragraph 12 provides that Black Diamond may object to allowance of such fees and expenses incurred after July 26, 2011, but only to the extent that such amounts, after allowance, would exceed $8 million in the aggregate if such objections were sustained. No party has disputed the evidence in the record that Capstone’s fees after July 26, 2011 remain under the $8 million threshold.
. In support of its argument, both at Trial and in pleadings, Capstone points to the Li-bassi Engagement Letter, which states that Black Diamond has agreed to pay Richards Kibbe's legal fees during the course of its representation of Mr. Libassi during the GSC cases. This payment of legal fees, Capstone argues, makes Mr. Libassi Black Diamond’s "agent."
.April 23, 2013 Hr’g. Tr. at 220:13-19 ( [Q:] "Did it occur to you that you needed to go back and clarify the record you created with your three declarations?” [Ordway:] "No.” [Q:] "You realized the inconsistency but decided — ” [Ordway:] "No, I don’t think it's inconsistent. I think my arrangements with Bob Manzo are not inconsistent with the Bankruptcy Code.”).
.See April 30, 2013 Hr’g. Tr. at 249:6-251:23; 279:8-15 (Garrity) ("I think what I said before is that as the trustee, as a fiduciary in overseeing the estate, more information about the relationship between Mr. Manzo and Capstone, I would've welcomed to know that. What I would've done with it once I got it, I don't know.... [A]gain, that's along the lines of always wanting to get as much information as I can get.").
. Id. at 275:21-23.
. Id. at 284:7-25.
. Id. at 285:2-7.
. May 1, 2013 Hr’g. Tr. at 19:10-22, 21:7-23 (Tenzer) ("It was an issue that had never
. Section 1107(a) of the Bankruptcy Code gives a debtor in possession the rights and powers of a chapter 11 trustee. 11 U.S.C. § 1107(a).
. As defined in section 101(14) of the Bankruptcy Code, a "disinterested person” (a) is not a creditor, an equity security holder, or an insider; (b) is not and was not, within two years before the date of the filing of the petition, a director, officer, or employee of the debtor; and (c) does not have an interest materially adverse to the interest of the estate or of any class of creditors or equity security holders. See 11 U.S.C. § 101(14).
. The provisions of Section 586(a)(3) of title 28 of the United States Code set forth the duties of the U.S. Trustee with respect to its oversight of the retention and compensation of professionals. Specifically, the U.S. Trustee is tasked with "monitoring applications filed under section 327 of title 11 and, whenever the United States trustee deems it to be appropriate, filing with the court comments with respect to the approval of such applications.” 28 U.S.C. § 586(a)(3)(I) (emphasis added).
. Leslie Fay, 175 B.R. 525; Granite Partners, 219 B.R. 22.
. Leslie Fay, 175 B.R. at 527-28.
. Id. at 528.
. Id. at 529-30. The undisclosed relationships included the following: (i) two members of the audit committee were both (a) potential targets of the audit committee’s investigation and (b) senior executives at investment firms that were substantial clients of Weil and which Weil would not sue without such clients’ consent and (ii) Weil had represented (a) BDO and (b) Forstmann & Co., the debtors’ seventh-largest creditor, in unrelated matters. Id. at 529-30.
. Id. at 530-31.
. Id. at 531.
. Id. at 536 (citing In re Rusty Jones, Inc., 134 B.R. 321, 345 (Bankr.N.D.Ill.1991) and In re Arlan’s Dep’t Stores, Inc., 615 F.2d 925, 932 (2d Cir.1979)).
. Id. at 537. Ultimately, Judge Brozman found that, because Leslie Fay was at a critical juncture in its reorganization efforts, “it might not be able to withstand” the delay caused by having to retain new counsel. Therefore, she allowed Weil to remain as counsel to the debtors, but ordered it to pay the $800,000 cost of the examiner’s report, as well the expenses the creditors incurred in challenging Weil’s impartiality. Id. at 539.
.Granite Partners, 219 B.R. 22.
. These four facts were disclosed to Willk-ie's client, the Trustee, during his interviews of counsel.
. The litigation advisory board, the trustee's successor under the plan, approached Willkie in the fall of 1996 about prosecuting claims on behalf of the estate, and Willkie eventually declined because Merrill refused to grant a waiver and consent. See id. at 31.
.The examiner also found that, with respect to the retention of Willkie to investigate claims against the broker-dealers, although the Merrill representation may have only initially raised the appearance of impropriety, by 1995 or 1996, it constituted a disabling conflict of interest under section 327(a) of the Bankruptcy Code. Id. at 32.
. Judge Bernstein also considered the examiner's conclusion that Willkie discharged its investigative duties in a thoroughly professional manner and, in fact, had provided exceptional services which were valuable to the estate. Ultimately, the court held that Willkie was not entitled to any of its fees for investigative services because of the taint caused by its relationships with Merrill, PWC and other broker-dealers — potential targets of the investigation. The court further disallowed 15% of Willkie’s fees charged for non-investigative work and ordered it to pay the cost of the examiner’s investigation. The court also ordered the Trustee to pay $50,000 to the estate as a sanction for his failure to disclose Willk-ie’s connections. Id. at 41-44.
. The persons included in this prohibition are trustees, ombudsmen, examiners, attorneys, accountants, and other professional persons compensated pursuant to section 330(a), as well as attorneys and accountants of an entity seeking reimbursement under section 503(b)(3). 4-504 Collier on Bankruptcy ¶ 504.01 [1] (16th ed. 2013).
. In re Futuronics Corp., 5 B.R. 489, 499 n. 3 (S.D.N.Y.1980), aff'd, 655 F.2d 463 (2d Cir.1981) (citing Advisory Committee's Note to Rule 219) (citing 3A Collier on Bankruptcy p. 1637 (1961)). See also In re Winstar Communications, 378 B.R. 756, 760 (Bankr.D.Del.2007) ("The purpose of § 504 also has been described as the preservation of ‘the integrity of the bankruptcy process so that the professionals engaged in bankruptcy cases attend to their duty as officers of the bankruptcy court, rather than treat their interest in bankruptcy cases as matters of traffic [i.e., matters of trade or commerce].' ") (quoting 4 Collier on Bankruptcy, ¶ 504.02[1], pp. 504-5 (15th ed. rev. 2007)); In re Worldwide Direct, Inc., 316 B.R. 637, 649 (Bankr.D.Del.2004) (explaining that the prohibition on fee sharing was enacted as "[w]henever fees or other compensation are shared among two or more professionals, there is incentive to adjust upward the compensation sought in order to offset any diminution to one’s own share.”); In re Matis, 73 B.R. 228, 231 (Bankr.N.D.N.Y.1987) (noting that section 504 is intended to prevent the abuse inherent in fee splitting between unrelated professionals).
. 3A Collier on Bankruptcy ¶ 62.38, p. 1642 (14th ed. 1985). Specifically, section 62c of the Bankruptcy Act provided that "[a] custodian, receiver, or trustee or the attorney for any of them, or any other attorney, rendering services in a proceeding under this Act or in connection with such proceeding, shall not in any form or guise share or agree to share his compensation for such services with any person not contributing thereto, or share or agree to share in the compensation of any person rendering services in a proceeding under this Act or in connection with such pro
. See In re Arlan’s Dept. Stores, Inc., 615 F.2d 925 (2d Cir.1979) ("Arlan's”); In re Futuronics Corp., 5 B.R. 489 (S.D.N.Y.1980) ("Futuronics /”), aff'd, 655 F.2d 463 (2d Cir.1981) ("Futuronics II”).
. Federal Rule of Bankruptcy Procedure 219, a precursor of Federal Rule of Bankruptcy Procedure 2016, requires an attorney seeking compensation to disclose whether an agreement or understanding exists between the applicant and any other person for the sharing of compensation received or to be received for services rendered in connection with the case. Subsection (d) of Rule 219 states that “[e]xcept as herein provided, a person rendering services in a bankruptcy case or in connection with such a case shall not in any form or guise share or agree to share the compensation paid or allowed him from the estate for such services with any other person.... This rule does not prohibit an attorney or accountant from sharing his compensation ... with a member or regular association of his firm.” Fed R. Bankr.P. 219.
. Id. at 499 n.3 (citing Weil v. Neary, 278 U.S. 160, 173, 49 S.Ct. 144, 73 L.Ed. 243 (1929)).
. Futuronics II, 655 F.2d at 471.
. In a footnote, the Second Circuit observed that Rule 219 restated the "long-standing" prohibition against illicit fee-sharing arrangements and also eliminated an exemption for forwarding fees which was formerly countenanced under section 62 of the Bankruptcy Act. The court noted that this change was made so that Rule 219 "comported with Canon 34 of the Canons of Professional Ethics and Disciplinary Rule 2-107 of the Code of Professional Responsibility." See id. at 469 n.12 (citing to Advisory Committee Note to Rule 219).
.Subsection (2) of section 504(b) provides a second limited exception to 504(a) which is not applicable in this case.
. Id. at 648.
. Id.
.Id. at 649.
. HBD also sought to bill the temporary personnel at rates higher than it paid to the employment agency for their services, attempting to show that HBD marked-up fees to account for the “extra overhead” that the temporary personnel cost the firm. As the court was presented with little concrete evidence regarding these additional costs incurred by HBD, it would not allow this overcharge to be borne by the debtors. The court disallowed the difference in fees between (i) the total amount sought by HBD for the temporary personnel and (ii) the sum of the invoices of the temporary employment agency. Id. at 651-52.
. Much has changed in the way law firms are organized since the founding of the earliest American firms in New York in the late eighteenth century. The complex, multinational structures of today's law firms would hardly be recognizable to the general partners of these early firms. Law firms today, as well as accounting and financial advisory firms, are comprised of partnerships, limited liability partnerships, professional corporations, limited liability companies — and combinations thereof. Large multinational firms also employ the Swiss verein structure in which many offices of the “firm” are linked via an association but are separate legal entities with separate revenue pools. See, e.g., In re Project Orange Assocs., LLC, 431 B.R. 363, 371 n. 3 (Bankr.S.D.N.Y.2010) (treating law firm offices as a "single entity" with respect to section 327(a) inquiry despite recognizing that firm’s offices were separate legal entities using the verein structure). Moreover, the titles and status afforded lawyers who practice in such firms have also evolved, along with the perquisites associated therewith; twenty-first century law firms include equity partners, non-equity partners, contract partners, shareholders, associates, contract associates, counsel, of counsel, senior counsel, and the list goes on; so too with the accountants, bankers, and financial advisors that comprise twenty-first century "advisory” firms. Gone are the days of the professional universe being neatly divided into members and associates— and lawyers and accountants — as contemplated by the Code and the Rules.
. In re Worldwide Direct, Inc., 316 B.R. at 649.
. May 14, 2013 Hr’g. Tr. at 147:5-8; 149:20-21; 163:24-164:2.
. Granite Partners, 219 B.R. at 45. Mr.
. Granite Partners, 219 B.R. at 45.
. When asked at Trial about the Ordway Declarations and if he knew what inquiries of the U.S. Trustee led to the need for Capstone to file further declaration in support of its retention, Mr. Ordway stated that he did not know; he was "just aware that we had to file a supplement — a supplement of the supplement, and you know, that I had to take a look at it and sign it.” When questioned about whether anyone at Kaye Scholer had spoken to anyone at Capstone about the October 5, 2010 discussion between Ms. Schwartz and lawyers at Kaye Scholer which led to the filing of the Second Supplemental Ordway Declaration, Mr. Ordway stated that he had not been told the content of such discussion, nor was he aware of anyone at Capstone having been told of it. See April 23, 2013 Hr’g. Tr. at 312:15-313:22.
. See Ordway Dep. 47:3-19; see also fn 85, supra.
. Id. at 316:7-20 (Ordway) (“I'm sure it's literally hundreds of attorneys [that] know that Bob is a contractor with me.”).
. See April 23, 2013 Hr'g. Tr. at 315:12-19 ([Qk “At any point in time did anyone ever suggest to you that the relationship between you and Mr. Manzo implicated Section 504” [Mr. Ordway]: "No.”).
. Id. at 183:8-16 ([Q]: "Does Capstone typically disclose whether professionals working in bankruptcy cases are employees or contractors?” [Ordway]: "Let me make this distinction. When I have folks who are contractors for me, and are working regularly full time for me, and have titles and are involved in bankruptcy cases, we’re not doing a special disclosure. On the other hand, if it’s a contractor from a firm and he’s part-time, and he’s solely brought in for a discreet [sic] purpose ..., then there’s disclosure.”).
. April 23, 2013 Hr’g. Tr. at 291:17-18. When asked about the accuracy of the language in Paragraph 15 of the Second Supplemental Ordway Declaration stating that Mr. Manzo “works exclusively for Capstone,” Mr. Ordway again responded ”[s]ubstance over form, I mean we were working together. Or form over substance, beg your pardon.” Id. at 230:25-231:7.
. Futuronics I, 5 B.R. at 499.
. Mr. Ordway described Capstone’s conflicts database as a “contacts systems where , we have a list of engagements, parties that we worked with in the past, et cetera.” He stated that, as part of Capstone's conflicts process, the list of identified parties from the current engagement is compared with the names in that system, and any overlap is ”review[ed] ... and determined] which ones might be relationships that should be disclosed or not as the case may be.” See April 23, 2013 Hr’g. Tr. at 261:14-21.
. See id. at 261:22-262:4.
. See id. at 262:5-7. Mr. Ordway also testified that Capstone asks its contractors "verbally” if they have any connections that Capstone "need[s] to know about.” He could not recall, however, whether he had actually asked Mr. Manzo about any interested parties in the Debtors’ cases. Id. at 260:21-261:2.
. See id. at 261:7-11 ([Q]: "My question was, Mr. Ordway, you don't have any written documents, any writings confirming that you made that inquiry to Robert Manzo in connection with the GSC cases, correct?" [Mr. Ordway]: "No”).
. April 24, 2013 Hr’g. Tr. at 14:24-15:2.
. May 14, 2013 Hr’g. Tr. at 154:21-155:2.
. April 24, 2013 Hr’g. Tr. at 92:12-93:1.
. March 2011 Amendment, Ex. 104. The March 2011 Amendment, among other things, acknowledged that Mr. Manzo “has or will likely enter into discussions with other consulting firms with the intention of securing employment ... commencing after March 31, 2011,” and it provided, inter alia, that Mr. Manzo was "not ... limited in any manner from participating in any other business activities which may directly or indirectly compete with Capstone's current business activities,” except that, during the term of the March 2011 Amendment, Mr. Manzo was not permitted “to solicit other existing Capstone engagements ... to provide services similar to that which Capstone currently offers regarding such engagements.” See fn 65, supra.
. As discussed at pp. 694-95 supra, the Capstone/Manzo Agreement, originally executed in February 2006, was amended at least three times — in February 2009, November 2010, and March 2011.
. Paragraph 15 of the Second Supplemental Ordway Declaration, states, in pertinent part, that "Mr. Manzo, through RJM, LLC, is an employee of, and works exclusively for, Capstone. No business is conducted by RJM, LLC except as described herein with respect to its employment by Capstone.” See Ex. 75; Docket No. 148.
.Discussing Mr. Manzo’s Innkeepers engagement in its post-trial brief, Capstone states that "Such a limited engagement is de minimus [sic] and does not affect Manzo's status as a full-time Capstone Executive Director through the relevant period." [Docket No. 1747] at p. 7 n.3. At Trial, when asked whether Capstone needed to supplement its GSC disclosures at the time of Mr. Manzo's Innkeepers engagement to indicate that Mr. Manzo was no longer working “exclusively” for Capstone, Mr. Ordway first testified that he did not think Capstone needed to do that. Upon further questioning by the Court, he stated that he wasn't aware of the inconsistency with what had previously been disclosed and therefore "didn't connect that [Capstone] needed to make an additional filing.” April 23, 2013 Hr’g. Tr. at 300:4-300:18.
. Local Rule 2016-l(a) of the Local Bankruptcy Rules for the Southern District of New York requires that “[a] person requesting an award of compensation or reimbursement of expenses for a professional shall comply with the Amended Guidelines for Fees and Disbursements for Professionals in Southern District of New York Bankruptcy Cases promulgated by the Court, which shall be available on the Court’s website http://www.nysb. uscourts.gov/sites/default/files/20/6-l-b-order. docx.” The Amended Guidelines were first adopted as General Order M-447 (Bankr.S.D.N.Y. January 20, 2013), and they apply to fee applications filed on or after February 5, 2013. The Amended Guidelines are not materially different from the fee guidelines that were in effect at the time of the filing of the fee applications in these cases, which guidelines were contained in General Order M-389 (Bankr.S.D.N.Y. Nov. 25, 2009).
. In re West End Fin. Advisors, LLC, et al., 2012 WL 2590613 at *3-4, 2012 Bankr.LEX-IS 3045 at *8 (citations omitted).
. 28 C.F.R., Pt. 58, Appendix. General Order M-389 (Bankr.S.D.N.Y. Nov. 25, 2009), which was in effect at the time of the filing of the fee applications in these cases in May 2012, states that the Court's guidelines "are consistent with, and supplemental to, the requirements contained in the [Fee] Guidelines and shall be followed by each applicant for allowance of compensation and reimbursement of expenses.”
. See 28 C.F.R., Pt. 58, Appendix, at (b)(4)(v). The Fee Guidelines further provide that "[t]ime entries should be kept contemporaneously with the services rendered in time periods of tenths of an hour.... Time entries for telephone calls, letters, and other communications should give sufficient detail to identify the parties to and the nature of the communication .... ” Id.
. See In re West End Fin. Advisors, LLC, et al., 2012 WL 2590613at *5, 2012 Bankr.LEXIS 3045 at *14 (quoting New York State Ass'n for Retarded Children, Inc. v. Carey, 711 F.2d 1136, 1146 (2d Cir. 1983)); see also United States Football League v. Nat’l Football League, 887 F.2d 408, 415 (2d Cir.1989) (affirming across the board reduction for vague time entries); Klimbach v. Spherion Corp., 467 F.Supp.2d 323, 332 (W.D.N.Y.2006) (applying a 10 percent across the board reduction for vague billing entries); In re Baker, 374 B.R. 489, 496 (Bankr.E.D.N.Y.2007) (reducing fees by 20 percent for block billing and stating that “[a]cross the board percentage cuts in the fees claimed are routinely utilized so that courts do not misuse their time ‘set[ting] forth item-by-item findings concerning what be countless objections to individual billing items', when the billing records are voluminous, as they are in this dispute.”) (citations omitted).
. In re Rockaway Bedding, Inc., 454 B.R. 592, 596 (Bankr.D.N.J.2011) (citations omitted).
. In re American Preferred Prescription, Inc., 218 B.R. 680, 686-87 (Bankr.E.D.N.Y.1998) (citations omitted).
. See 28 C.F.R., Pt 58, Appendix, at (b)(5). General Order M-389 also provides detailed expense guidelines. See, e.g., General Order M-389 at (E)(6)(expense for the meal of an individual working after 8:00 p.m. may not exceed $20.00).
. Docket No. 1431. The fee application does not include Capstone’s request for the $2.75 million Amended Performance Fee, which has been sought separately by the filing of the Amended Performance Fee Motion, nor does it include any fees or expenses incurred by Capstone for services rendered to the Liquidating Trust.
. Section 586(a)(3) of title 28 of the United States Code specifically instructs the U.S. Trustee to supervise and monitor certain areas of a case under chapter 11 while the case is being administered. Indeed, the only matter for which Section 586 affirmatively tasks the U.S. Trustee with filing an objection (if appropriate) is with respect to applications for compensation and reimbursement pursuant to section 330 of title 11. Section 586(a)(3)(A)(ii) provides, in pertinent part, that after reviewing such applications, the U.S. Trustee shall file with the court "com
. With respect to Capstone's first interim fee application, filed January 28, 2011 [Docket No. 400], the U.S. Trustee filed an objection to the allowance of a portion of the requested fees and expenses [Docket No. 439]. In response, Capstone provided the Debtors with a $150,000 fee reduction. See Order Granting First Interim Application of Capstone, dated January 26, 2012 [Docket No. 1140]. With respect to Capstone’s second interim fee application, dated October 21, 2011 [Docket No. 842], the U.S. Trustee filed a response stating that it did not object to an award of reasonable interim fees at that time, but it reserved all of its rights to object to the requested interim fees and expenses through the time of final allowance. See Docket No. 934. Capstone's second interim fee application was approved by order dated January 30, 2012, which order awarded Capstone the full amount of fees and expenses sought for the second interim period, $2,906,408.00 in fees and $55,438.26 in expenses. [Docket No. 1141].
. Capstone has argued that, as a preliminary matter, the waiver contained in Paragraph 12 of the Confirmation Stipulation — in which Black Diamond waived its right to object to any fees and expenses of retained professionals of the Debtors prior to July 26, 2011 and in amounts below $8 million— should apply with equal force to the Libassi Parties. In support of its argument, Capstone points to the Libassi Engagement Letter, which states that Black Diamond has agreed to pay Richards Kibbe’s legal fees during the course of its representation of Mr. Libassi during the GSC cases. This payment of legal fees, Capstone argues, makes the Libassi Parties Black Diamond's agent. While, given the facts of these cases, the Court questions the propriety of such an arrangement, it declines to extend Paragraph 12 of the Confirmation Stipulation to the Libassi Parties, who remain unsecured creditors in these cases. The Court observes, however, that, with respect to the objection to Capstone's fees, such objection was filed by Mr. Libassi only, not the Libassi Parties. A footnote to the objection states that because the other Libassi Parties are now employed by Black Diamond, those individuals did not join in the objection “out of an abundance of caution in complying with this Court's orders.”
With respect to the "so-called 504 issues” and Capstone's argument that Black Diamond should not be permitted to raise such issues as a result of Paragraph 12, the Court finds that the issue of the interpretation of section 504 of the Bankruptcy Code is qualitatively different from objections "to any fees and expenses” as stated in Paragraph 12 of the Confirmation Stipulation. Accordingly, the Court declines to extend the waiver contained in Paragraph 12 to these issues, and neither Black Diamond nor the Libassi Parties is barred from raising them.
Notwithstanding the Court's rulings on these issues, the Court observes that, at bottom, they are academic, as the Court has an independent duty to review fee applications whether or not an objection has been filed.
. Objection of Thomas Libassi to the Fee Requests of The [sic] Capstone Advisory Group, LLC and Renewed Request for Order to Disgorge Fees and to Remove Liquidating Trustee [Docket No. 1679]. Mr. Libassi also filed the Declaration of Keith Sambur in support of this objection [Docket No. 1680].
. The second interim fee period includes fee and expenses incurred from December 1, 2010 through and including August 31, 2011. As set forth in fn 261, supra, Capstone’s second interim fee application was approved by order dated January 30, 2012, which order awarded Capstone the full amount of fees and expenses sought for the second interim period, $2,906,408.00 in fees and $55,438.26 in expenses. [Docket No. 1141]. The third interim fee period includes fees and expenses incurred from September 1, 2011 through and including February 16, 2012. The Court has not yet entered an order addressing this fee period.
. See Third Interim and Final Fee Application of Capstone [Docket No. 1431] at Ex. E, p. 76.
. See Second Interim Fee Application of Capstone [Docket No. 842] at Ex. E, p. 180.
. This Court has previously articulated its concern with vague time descriptions such as "reviewing” documents. As Judge Bernstein stated in West End Fin. Advisors, "Conducting a reasonable review of specific documents for a necessary purpose is ordinarily compensa-ble. Here the document being ‘reviewed’ is sometimes described with specificity, but more often, timekeepers are 'reviewing' generic categories of documents, such as ‘schedules,’ 'claims’ and the like, for no apparent purpose. [The firm] has failed to satisfy its burden of showing the reasonableness or necessity for so many people ‘reviewing’ so many documents, many of which are described in such general terms that it is impossible to discern what the timekeeper is reviewing or why. This form of record keeping
. See April 24, 2013 Hr'g. Tr. at 325:8-10 (Mr. Manzo: "It's a Day Timer, it's a calendar, I’ve used over the years all different types. There's [sic] many of them”).
. See id. at 97:11-103:12.
. Id. at 281:15-18.
. Id. at 290:23-25.
. See Ex. 346 (sheet of paper folded by Mr. Manzo at Trial to demonstrate the approximate size of his daytimer).
. Mr. Manzo also testified that, in addition to recording his billable hours in his daytimer, he would also write scheduled meetings and other things in his daytimer. Id. at 281:19-23.
. Id. at 348:22-351:15. This testimony was particularly remarkable as a description of how Mr. Manzo managed to record time for multiple engagements, as he did, for example, during the months in which he was engaged in both the GSC cases and the Chrysler cases.
. Id. at 111:5-11.
. Id. at 280:12-285:3.
. See id. at 109:22-110-21. When questioned further on this point, Mr. Manzo added that the additional step of rewriting his time detail was necessary because when he sent in his lump sum time to Capstone, he added up the hours in the daytimer without the use of a calculator, as he knew later on he was going do the time descriptions specifically and make sure they actually added up. See id. at 169:25-170-22.
. Id. at 288:6-7.
. Id. at 159:15-19.
. Id. at 292:22-293:10; 328:7-15; 158:14-160:24.
.Id. at 112:19-113114:20 ([Q:] ”[Y]ou have no recollection that Capstone was preparing a sheet for you based on Kaye Scholer prebills ... for you to incorporate into your time records?” [Manzo:] “I don’t have a recollection of it, but, certainly, that — that could have occurred”). Mr. Manzo later testified that he remembers receiving the Kaye Scholer sheet of descriptions and incorporating them into his descriptions. See id. at 146:14-20. He also testified that he may have asked a Capstone junior analyst to compare Mr. Manzo's recollection of hours to Kaye Scholer’s time entries, but that only he, Mr. Manzo, could have prepared a time description for his hours. See id. at 149:14-152:25; Ex. 247.
. Id. at 168:18-169:21.
. At least one month’s time records for Mr. Manzo were sent to Capstone via fax by Mr. Solow from a golf course in Chicago. See id. at 170:25-172:21; Ex. 261.
. Notably, Mr. Manzo billed 426 hours to GSC during the month of December 2010, a month in which he also billed an additional 30 hours to other matters, including Chrysler and Refco. See Decl. of Keith Sambur [Docket No. 1680] at Ex. J. This reflects an average of over 14 billable hours per day, including holidays and weekends.
.See, e.g., Granite Partners, 219 B.R. at 43-44 (sanctioning Willkie for disclosure violations but recognizing and compensating Willkie "for the many unquestionably exceptional services that it performed in connection with the non-investigative work" after noting that "equitable considerations weigh in favor of compensating ... substantial and valuable services which were not affected by the tainted investigation”).
. See April 23, 2013 Hr’g. Tr. at 310:9— 311:14.
. In fact, the Court's guidelines include detailed provisions in order to ensure such professional expenses are reasonable and economical, including limiting "working dinners” to an amount of $20.00. See General Order M389 at (E)(6)(expense for the meal of an individual working after 8:00 p.m. may not exceed $20.00).
. It is also worth noting once again that Capstone took no voluntary reductions in its fees or expenses during the entirety of the GSC cases. Professionals in this district routinely exercise billing discretion. See, e.g., Fourth Application of Milbank, Tweed, Hadley & McCloy LLP, Counsel to Debtors and Debtors in Possession, for Interim Approval and Allowance of Compensation for Services Rendered and Reimbursement of Expenses During Period from May 1, 2013 Through and Including August 31, 2013, In re LightSquared Inc., et al., Case No. 12-12080 (Bankr.S.D.N.Y. October 18, 2013) at ¶ 16 n. 3 (requesting approval of $6,235,080.75 in fees for legal services rendered during the interim period, which amount reflected a $414,338.00 voluntary reduction in fees incurred).
. See, e.g., June 11, 2012 Hr’g. Tr. at 10:3-4 (counsel for Capstone referring to the 504 issue as "this so-called gaiting [sic] objection”).
. April 23, 2013 Hr'g. Tr. at 291:17-18 ( [Ordway:] "You know, I really think this is a lot of form over substance.”); see also Capstone Objection to U.S. Trustee Motion [Docket No. 1631] at p. 10 (Asserting that, because RJM did not conduct any activity other than serving as the counterparty to the Capstone/Manzo Agreement, for the purposes of section 504, RJM should "simply be disregarded” and any argument to the contrary "is a clear example of form over substance”).
. See In re Matco Elecs. Group, Inc., 383 B.R. 848, 853-54 (Bankr.N.D.N.Y.2008) (denying fees for failure to fully disclose a conflict and noting that Rule "2014 is not intended to condone a game of cat and mouse where the professional seeking appointment provides only enough disclosure to whet the appetite of the UST ... or [other parties], and then the burden shifts to those entities to make inquiry in an effort to expand the disclosure.").
.Upon information and belief, based upon the statements in the Capstone/Manzo 9019 Motion, approximately $230,000 in fees and expenses charged by Capstone to the Liquidating Trust for post-Effective Date services rendered remains unpaid. Such amounts will be scrutinized by the Successor Trustee, as discussed at pp. 756-57, infra.
. Capstone later amended its request for the Performance Fee and now seeks a $2.75M Amended Performance Fee. See Amended Performance Fee Motion [Dkt. No. 1412].
. By its final fee application, Capstone requests $5,947,270.00 in fees and $254,348.40 in expenses for services rendered in these cases.
. See, e.g., In re XO Communs., Inc., 398 B.R. 106, 109-110 (Bankr.S.D.N.Y.2008).
. The Court also observes that investment bankers are typically retained solely pursuant to section 328 of the Bankruptcy Code and compensated through a monthly fee; in the GSC cases, Capstone was retained pursuant to both sections 327(a) and section 328 of the Code and was compensated on an hourly basis.
. The "lodestar approach” refers to the practice employed by courts of calculating a reasonable fee amount by multiplying the number of hours worked by a reasonable billing rate to determine what aggregate fee amount is reasonable under the circumstances. See In re Kohl, 421 B.R. 115, 131 (Bankr.S.D.N.Y.2009).
. Dec. 21, 2004 Hr’g. Tr. at 17:17-17:24, annexed to Order Denying Request by Akin Gump Strauss Hauer & Feld LLP for Award of a Premium [Docket No. 14734), In re Worldcom, Inc., Case No. 02-13533 (Bankr.S.D.N.Y. Dec. 28, 2004).
. See Docket No. 1146, Exhibit A. The Ec-kert/Frank Letter was annexed as Exhibit A to the Performance Fee Motion.
. Bankruptcy Rule 9011 “parallels Federal Rule of Civil Procedure 11, containing 'only such modifications as are appropriate in bankruptcy matters.' ” Baker v. Latham Spar-rowbush Assocs. (In re Cohoes Indus. Terminal, Inc.), 931 F.2d 222, 227 (2d Cir.1991) (citations omitted).
. 762 F.2d 243, 254 (2d Cir.1985) (emphasis in original).
. Fed.R.Civ.P. 11(c)(1) (emphasis added). See also Ipcon Collections LLC v. Costco Wholesale Corp., 698 F.3d 58, 63 (2d Cir.2012).
. Docket No. 1702.
. The provisions in the Liquidating Trust Agreement affording the U.S. Trustee the post-Effective Date right (i) to make a motion seeking replacement of the Liquidating Trustee for gross negligence or willful misconduct and (ii) to recommend a successor trustee to the Court if a successor trustee cannot be designated by the beneficiaries of the Liquidating Trust are noteworthy inasmuch as they are not based on any powers granted to the U.S. Trustee by statute or otherwise. See, e.g., 28 U.S.C. § 586(a). Section 586(a)(3) specifically instructs the U.S. Trustee to supervise and monitor certain areas of a case under chapter 11 while the case is being administered. There is no mention in this section, however, of any role for the U.S. Trustee once a debtor’s plan has been confirmed and has become effective, nor is there any other statutory provision providing the U.S. Trustee with general supervisory authority over the post-effective date affairs of a debtor.
. The term “Beneficiaries” is defined in the Liquidating Trust Agreement as the Holders of Trust Units. It appears that Black Diamond holds a majority of the Trust Units.
. The Supreme Court has noted the inherent power of a federal court to regulate the parties appearing before it and the discretionary ability it possesses "to fashion an appropriate sanction for conduct which abuses the judicial process." Chambers v. NASCO, 501 U.S. 32, 44-45, 111 S.Ct. 2123, 115 L.Ed.2d 27 (1991); In re Rainbow Magazine, Inc., 77 F.3d 278, 284 (9th Cir.1996) (stating that "[b]y providing that bankruptcy courts could issue orders necessary 'to prevent an abuse of process,' Congress impliedly recognized that bankruptcy courts have the inherent power to sanction that Chambers recognized exists within Article III courts”).
. See Supplemental Statement by Thomas Libassi, Philip Raygorodetsky, Seth Katzen-stein and Nicholas Petrusic Describing Post-Effective Date Claims, dated April 8, 2013 [Docket No. 1708],
. See, e.g., D.A. Elia Constr. Corp. v. Damon & Morey, LLP, 389 B.R. 314, 320 (W.D.N.Y.2008) (finding that allegations of misconduct asserted after entry of a final order approving fees pursuant to section 330 of the Bankruptcy Code were barred by res judicata and stating that "[t]he present action is nothing more than an attempt by Elia to relitigate issues that were previously decided against it by the bankruptcy court, this Court and the Second Circuit. Such conduct represents the very essence of what the res judicata doctrine was designed to foreclose — the relitigation of previously decided issues in a subsequent action”); see also Allen v. McCurry, 449 U.S. 90, 94, 101 S.Ct. 411, 66 L.Ed.2d 308 (1980) ("[ujnder res judicata, a final judgment on the merits of an action precludes the parties or their privies from relitigating issues that were or could have been raised in that action").
. See, e.g., Allen v. McCurry, 449 U.S. 90, 101, 101 S.Ct. 411, 66 L.Ed.2d 308 (1980) ("Collateral estoppel does not apply where the party against whom an earlier court decision is asserted did not have a full and fair opportunity to litigate the claim or issue decided by the first court.”).
. On March 18, 2013, Shearman filed a Notice of Presentment of Order Approving Shearman & Sterling LLP's Withdrawal as Counsel to the GSC Liquidating Trust, which annexed a proposed order (the "Shearman Withdrawal Order”) [Docket No. 1684]. At a status conference on March 20, 2013, the other parties in the case, including the Liquidating Trustee, indicated that they had first become aware of the Shearman Withdrawal Order at the time it was filed on the docket. Shearman explained that, as a result of nego
. The notion of "disclosable” friendships is a thorny one. How would one determine when there needs to be disclosure? The U.S. Trustee never articulated a standard or test for the disclosure of friendships. The reality is that restructuring professionals do work long hours together and, as a result, form personal as well as professional friendships. Indeed, such relationships may help establish a beneficial platform of trust and cooperation.
. See April 19, 2013 Hr’g. Tr. [Docket No. 1735],
. See May 14, 2013 Hr’g. Tr. at 222:20-235:24 (detailing numerous instances of questionable conduct of U.S. Trustee).
. With respect to the first interim application of Kaye Scholer for the period of August 31, 2010 through November 30, 2010, then-presiding Judge Gonzalez took the matter under advisement following a bitterly contested hearing on December 21, 2011. By his opinion, dated February 29, 2012, Judge Gonzalez reduced Kaye Scholer’s fee and expenses for the first interim period by $316,456.81 in the aggregate. See Docket No. 1254.
.Technology also played a role in the parties' missed connections, as the parties in this matter, and, indeed, in most matters today, communicated primarily by email instead of by telephone or face-to-face meetings. For example, despite the fact that Mr. Micheli drafted at least one of the Ordway Declarations, and Kaye Scholer requested review and signature before filing all of Capstone's retention documents, Mr. Micheli testified at Trial that he had never met Mr. Ordway in person until this dispute arose. See April 30, 2013 Hr'g. Tr. at 230:17-21.
. Mr. Micheli testified at Trial that, sometime between September 23, 2010 and October 1, 2010, after he learned of the existence of RJM but before the filing of the First Supplemental Ordway Declaration, he "was trying to find out more information about [RJM],” and he went to Mr. Solow’s office to ask him "what RJM, LLC was.” Mr. Solow explained to him that RJM was “a liability pass through shield,” and the discussion ended because Mr. Solow received a phone call at that time. See April 30, 2013 Hr’g. Tr. at 175:14-176:17; 192:23-193:1; 193:11-13. After that conversation, Mr. Micheli continued to believe that Mr. Manzo was an executive director and employee of Capstone and that the relationship between RJM and Capstone was one of employer/employee. See id. at 178:15-179:23. Mr. Micheli also testified that both he and Mr. Kleinman of Kaye Scholer did additional "research” as to (i) whether any disclosure had been made by Capstone in the Chrysler case regarding Capstone’s relationship with the pass-through entity of RJM and (ii) what firms like Kirkland & Ellis disclose, if anything, with respect to pass-through entities. See id. at 219:3-22.
. See fn 308, supra; see also Grausz v. Englander, 321 F.3d 467, 472-75 (4th Cir.2003) (approval of fees under section 330 barred subsequent malpractice action against debtor’s counsel in chapter 11 case).
.Black Diamond's claim for Kaye Scho-ler’s alleged breach of fiduciary duty cannot survive a motion to dismiss because, among other things, Kaye Scholer owed a fiduciary duty to the Debtors and not to Black Diamond. See ICM Notes, Ltd. v. Andrews & Kurth, L.L.P., 278 B.R. 117, 126 (S.D.Tex.2002) (debtor's counsel does not owe fiduciary duties to any individual creditor and is not subject to creditor cause of action for breach of fiduciary duty); In re Dieringer, 132 B.R. 34, 37 (Bankr.N.D.Cal.1991) (“debtor’s attorney is not liable to creditors for mishandling a bankruptcy except to the extent that his conduct was fraudulent or otherwise intentionally wrongful.”). Moreover, ”[i]f a claim is a general one, with no particularized injury arising from it, and if that claim could be brought by any creditor of the debtor, the trustee is the proper person to assert the claim, and the creditors are bound by the outcome of the trustee’s action.” St. Paul Fire & Marine Ins. Co. v. PepsiCo, Inc., 884 F.2d 688, 701 (2d Cir.1989).
. This amount includes the $2.75 million sought by Capstone pursuant to the Amended Performance Fee Motion. By its final fee application, Capstone requests $5,947,270.00 in fees and $254,348.40 in expenses for services rendered in these cases.