WILLIAM C. HILLMAN, Bankruptcy Judge.
The matters before the Court are the "Fifty-Third and Final Application for Allowance of Attorneys' Fees and Reimbursement of Expenses by Andrews Kurth LLP Attorneys for the Chapter 7 Trustee"
These matters came before me after a non-evidentiary hearing held on December 11, 2012.
In order to accommodate the parties' desire to disburse all estate funds by the end of the year, I have expedited my consideration
At the time its petition was filed, Bank of New England Corporation ("BNEC") was the third largest bankruptcy in United States history. In the two decades that it has remained pending, it has only been surpassed by a dozen or so larger cases. Nevertheless, it remains unique in this district for both its size and complexity.
While some context is required, particularly with respect to the requests for enhancement, I will forgo an exhaustive recitation of the history of this case and its related proceedings. Instead, I will focus solely on those parts necessary to frame the issues now before me. Notably, the facts themselves are not in dispute, only the qualitative conclusions that may be drawn therefrom. Accordingly, the facts as stated below are taken in large part from Exhibit 2 to the AK Application and Attorney Russell's presentation at the December 11, 2012 hearing.
BNEC was a holding company for a variety of bank and non-bank subsidiaries headquartered in Boston.
On January 7, 1991, BNEC filed a voluntary Chapter 7 petition.
An interim Chapter 7 trustee was appointed, but at the March 21, 1991 meeting of creditors held pursuant to 11 U.S.C. § 341, Dr. Branch was elected Chapter 7 trustee for BNEC.
Attorney Russell explained some of the difficulties faced by Andrews Kurth and Dr. Branch in this case. Due to BNEC's systematic down-streaming of assets, internal documentation was often incomplete, leading to litigation.
The following table summarizing the work performed by Dr. Branch and his professionals and the results achieved was included in both the AK Application and the Branch Application.
Project Major Tasks/Result Value to the Estate Tax Analysis & Planning Avoided administrative insolvency Negotiated settlement of as a result of Federal $7,200,000 to resolve IRS priority Financial Assistance claim including claim for prepetition "Quickie Refund" of 89 million
Assured Distribution for Disaffiliated BNEC from Unsecured Creditors through Subsidiary Banks to avoid administrative favorable settlement of IRS insolvency from priority claim income tax liability for Federal Financial Assistance of $800 million Negotiated § 338(b)(10) election with Fleet resulting in payment to the estate of $1,504,097 Pursued and recovered $1,222,691.74 in tax refunds BNE Trust Company, N.A. Negotiated Sale of Company $4,347,057.13 in cash proceeds Recovered on Loan to $4,556.50 cash proceeds President by settlement BNE Capital Markets, Inc. Negotiated Sale of Company $6,159,766 in cash proceeds Constitution Capital Negotiated Sale of Company $6,929,515.03 in cash Management Company proceeds Pertinax Properties Negotiated Sale of Company $268,983.66 in cash proceeds BNE Clearing Corporation Negotiated Sale of Company $362,356.00 in cash proceeds New England Banker, Inc. Negotiated Sale of Company $1,439,145 in cash proceeds BNE Capital Corporation Long term service contract $13,293,279.82 in cash with Bank of Tokyo which encumbered proceeds to the estate leases terminated through negotiated settlement Marketed and sold leverage portfolio BNE Airfinance Ownership Dispute with $8,804,557.99 in cash FDIC Settled proceeds to the estate Sale Completed BNE International Leasing Negotiated Sale $75,000 in cash proceeds Corporation CBT Acceptance Corporation Recovery/collection of $1,757,079.92 in cash residual payments proceeds General Discount Recovery/collection of $1,133,629.21 in cash Corporation residual payments proceeds $602,499.47 37 Resolved Penrick Drilling $70,638.47 in cash settlement Company vs. General proceeds Discount Corporation Resolved Cooper v. General $111,361.05 in cash Discount Corporation settlement proceeds Investigation, analysis and $86,515.81 in cash settlement settlement of Pena proceeds Bankruptcy Estate Resolved North American $10,000 in cash settlement Corporation ("NACO") v. proceeds General Discount Corporation
Investigation of $34,000 claim No recovery against Pronto Stamping Investigation of $6,860 claim No recovery against B & F Leasing Company Resolved Arrowhead Drilling $51,911.05 in cash settlement Corporation proceeds Investigation of GDC's third No recovery lien in Ben Franklin Federal Savings v. Kerrigan, General Discount, et al Resolved General Discount $68,498.02 in cash settlement Corporation vs. Photomagic proceeds International, Inc., et al. Resolved General Discount $7,000 in cash settlement Corporation v. Jerry proceeds Stripling Lazere Financial Corporation Investigation of Assets $21,025.19 in cash settlement proceeds Theetge Settlement $37,000 in cash settlement proceeds Security Pacific Settlement $11,479.85 in cash settlement proceeds Residual Payments $15,286.05 New England Discount Investigation of wholly-owned No assets/no recovery Brokerage, Inc. subsidiary BNE Asset Sales, Inc. Investigation of wholly-owned No assets/no recovery subsidiary BNE Corporate, Inc. Investigation of wholly-owned No assets/no recovery subsidiary BNE General Services Corp. Investigation of wholly-owned No assets/no recovery subsidiary BNE Life Insurance Investigation of wholly-owned $115,205.03 in cash recovered Company subsidiary from Arizona bank account $99,992.00 in cash recovered from bond posted to Arizona Insurance Board BNE Massachusetts Corp. Investigation of wholly-owned $14,730.31 in cash settlement subsidiary proceeds Settlement with major Withdrawal of $9,477,019.74 creditor claim asserted by Penn Mutual against BNEC alleging successor liability BNE Mortgage Corporation Investigation of $1,500,000 No assets/no recovery owed to BNEC BNE Mortgage Services Investigation of $155,000 No assets/no recovery Corporation owed to BNEC BNE Old Colony Co. Investigation of wholly-owned No assets/no recovery subsidiary BNE Realty Credit Settlement with FDIC over $50,000 in cash settlement Corporation loan origination fee proceeds BNE Realty Leasing Recovered dormant funds $3,338.12 in cash settlement proceeds
CBT Capital Corporation Intermediate Holding Company Value reported individual for for Concap, BNE Trust those subsidiaries and BNE Clearing CBT Corporation Intermediate Holding Company Value reported individual for for Concap, BNE Trust those subsidiaries and BNE Clearing CBT Corporation Intermediate Holding Company Value reported individual for for Concap, BNE Trust those subsidiaries and BNE Clearing CBT Financial Corporation Intermediate Value reported individual for holding company for GDC, those subsidiaries Lazere and CBT Acceptances CBT Realty Corporation Sold to FDIC 12/21/94 $30,000.00 in cash settlement proceeds Citation II Corporation Investigation of $10,000 No assets/no recovery intercompany Maine National Corporation Investigation of wholly-owned No assets/no recovery subsidiary New England Capital Settlement of Dellece $115,016.51 in cash (Canada) Ltd. litigation settlement proceeds New England Commercial Investigation No assets/no recovery Finance Corporation Transitions Two, Limited Investigation, analysis & sale $687,513.18 in cash Partnership settlement proceeds Sale of ViewLogic Stock Investigation, analysis & sale $2,162,193.98 in cash settlement proceeds Landmark Partners Investigation, analysis & sale $4,929.58 in cash settlement proceeds Connecticut Seed Ventures Investigation, analysis & sale $450,000.00 in cash settlement proceeds Douglas Communication, L.P. Investigation, analysis & sale $329,009.98 in cash settlement proceeds POA Acquisition Corporation Investigation, analysis & sale $4,524,601.17 in cash settlement proceeds Executive Re, Inc. Investigation, analysis & sale $1,187,192.18 in cash settlement proceeds Workgroup Solutions, Inc. Investigation, analysis & sale $6,603,851.65 in cash settlement proceeds BankEast Pursued Claim in Class $82,785.50 in cash settlement Action Settlement proceeds Hartford Whalers Hockey Investigation, analysis & sale $200,000 in cash settlement Club (a Limited Partnership) proceeds Sale of Emengent Stock Investigation, analysis & sale $115,321.21 in cash settlement proceeds Bank Boston of Commerce Investigation, analysis & sale $14,841.88 in cash settlement proceeds Kathadin Securities of Maine, Investigation, analysis & sale $50,147.98 in cash settlement L.P. proceeds The Compad, L.P. Investigation, analysis & sale $244,254.75 in cash settlement proceeds Tritek Southern Investigated $492,320 subordinated $32,824.40 in cash settlement Communications, Ltd. loan settled in proceeds bankruptcy of Tritek
THL Holdings, Inc. Investigation, analysis & sale $27,481.54 in cash settlement proceeds Sale of Niagara Mohawk Investigation, analysis & sale $2,270,738.88 in cash Preferred Stock settlement proceeds Sale of Intelligent Stocks Investigation, analysis & sale $4,605.70 in cash settlement proceeds NASDAQ Antitrust Investigation, analysis & $1,389.45 in cash settlement Litigation Settlement settlement proceeds Loan to former employee Investigation, analysis & $46,000.00 in cash settlement Daniel Aquilino settlement proceeds Variety Tours Recover & collection of $8,543.90 in cash proceeds unclaimed fund Art Successfully asserted ownership $71,580.53 in cash settlement of art against FDIC proceeds Identified art broker & sold art Software Negotiated Sale to Fleet $602,460.82 in cash settlement proceeds Hardware Negotiated Sale $1,500.00 in cash settlement proceeds Trademarks Recovered value for use of trademarks by Bridge Banks in FDIC settlement Negotiated sale of Bank of $50,000.00 in cash settlement New England trademark proceeds BNE Premiums Conducted sales $32,336.93 in cash settlement proceeds Transfer Agent Balance Negotiated settlement with $640,456.52 in cash Mellon settlement proceeds UNUM Stock Ownership dispute with $596,573.96 in cash settlement FDIC settled proceeds Sale completed Travelers Insurance Settled $2,011,709.87 in cash Premium Refund settlement proceeds FDIC Accounts Litigation Filed Complaint Seeking recovery $12,556,051.38 in unencumbered of frozen accounts cash settlement proceeds recovered for estate Settled Dispute w/FDIC over $10,782,649.50 in additional seized bank accounts cash recovered and earmarked for settlement of IRS priority claims Maine Taking Case U.S. Government sued under None/overturned on appeal "Takings Clause" for value of Maine National Bank FDIC Furniture, Fixtures Investigation $902,860.17 in cash and Equipment Litigation settlement proceeds Litigation commenced against FDIC Settled with FDIC by sale of FF & E to FDIC/Fleet Fraudulent Conveyance Motion to Dismiss defeated $140,000,000.00 in cash Litigation & Catch-All settlement proceeds Litigation Extensive Discovery $54,050,685.22 in Bridge Bank claims against estate withdrawn
Defendant's Motion for Summary Judgment defeated Settled in multi-day mediation Pension Plan Surplus Trustee filed Declaratory $12,740.633.85 in cash Litigation Judgment action to establish settlement proceeds ownership of surplus and authority to terminate Settlement w/FDIC and certified class of Former Retirees Reached Successful Audit by IRS & PBGC Annuitization of Participants and Plan Termination D & O Litigation Trustee successfully intervened $5,202,793.25 cash settlement in prepetition shareholder proceeds from primary action carrier Settlement Negotiated with Primary Owner Settlement Negotiated with excess carrier Ernst & Young Litigation Defendants Motion to Dismiss $84,000,000.00 in cash defeated settlement proceeds Defendants Motion for Summary Withdrawal of E & Y proof of Judgment defeated claim $36,984.11 Extensive discovery and trial preparation Settled at end of first week of anticipated 3-week trial Preference Litigation Investigation, 40 + lawsuits $7,000,000.00 + in cash filed, litigation & settlement settlement proceeds $45,000.00 in unsecured claim against the estate withdrawn
For purposes of the AK Application, there are three main projects whose asserted "`exceptional' results for the BNEC... were the result of the dedication, skill, and creativity of AK attorneys" such that they contend they are entitled to a fee enhancement: (1) the implementation of a tax strategy to avoid administrative insolvency and a large tax claim; (2) the FDIC litigation recoveries; and (3) the Ernst & Young ("E & Y") litigation recoveries.
As previously stated, Andrews Kurth contends that among its "exceptional" results in this case is a tax strategy that avoided administrative insolvency and a large tax claim. As will be explained, this strategy was aimed at both pre- and post-petition tax liabilities that would have dealt a crippling blow to the BNEC estate.
BNEC filed consolidated federal income tax returns for itself, the bank subsidiaries and other subsidiaries prior to the FDIC seizure.
Although the 1989 Refund was authorized by the local IRS office, it required approval from the Congressional Joint Committee on Taxation because it exceeded $1,000,000.
In June, 1994, representatives of BDO Seidman, the accounting firm retained by Dr. Branch, Andrews Kurth, and the FDIC met with IRS officials to review certain factual discrepancies with respect to the 1989 Refund.
On July 17, 1997, the IRS filed an amended unsecured priority claim in the amount of $8,626,747.53 and a general unsecured claim in the amount of $48,265.35.
During the same period in which Dr. Branch and Andrews Kurth were resolving the prepetition tax claim arising from the 1989 Refund, BNEC was also facing the threat of substantial post-petition tax liabilities. This threat arose from the bank subsidiaries' and the Bridge Banks' receipt of federal financial assistance ("FFA") from the FDIC.
On December 20, 1995, however, the IRS issued final regulations under I.R.C. § 597 that generally retained the same rules regarding Bridge Banks succeeding to the transferor bank's status as a member of a consolidated group, but allowed for an irrevocable election to disaffiliate the recipient of FFA to be made by the consolidated group.
After extensive analysis, Attorney Ford and representatives of BDO Seidman concluded that if BNEC were authorized to disaffiliate, Dr. Branch would be required to report on BNEC's amended federal income tax returns for the years following 1990 additional tax liabilities in the approximate amount of $1,000,000.
In his affidavit, Ford explains that he has been unable to determine the full impact, if any, to BNEC's estate attributable to FFA due to a lack of documentation from the Bridge Banks, which he understands have not operated at a profit and have not filed tax returns.
Dr. Branch asserted causes of action against the FDIC, the Bridge Banks, and Fleet referred to as the "Accounts Litigation," (ii) the "Fraudulent Conveyance Litigation," (iii) the "FF & E Litigation," (iv) the "Catch-All" Litigation, and (v) the "Maine Taking Litigation."
At the December 11, 2012 hearing, Attorney Russell discussed some of the extraordinary efforts undertaken by Andrews Kurth to find experts and witnesses needed to evaluate and pursue the FDIC litigation:
On January 6, 1993, Dr. Branch filed an action to enforce BNEC's rights against E & Y. BNEC engaged the accounting firm
The case, in short, was based on the premise that E & Y's conduct disguised BNEC's numerous problems and validated BNEC's destructive course.
The District Court dismissed Dr. Branch's complaint on the grounds that he was asserting impermissible derivative claims, but afforded him the opportunity to amend his complaint to the extent that he could identify a damage to BNEC separate and distinct from any damage suffered by the subsidiaries.
It took fourteen years for the E & Y litigation to go to trial. Attorney Russell explained that part of the reason for delay was that the E & Y litigation was being hard fought and a conscious effort was made to slow the proceeding down so that Andrews Kurth, who was concurrently engaged in litigation with the FDIC, could resolve that matter first.
Attorney Russell explained that among the extraordinary efforts of Andrews Kurth with respect to the E & Y litigation was their capacity to find fact witnesses. For example, one of their most compelling witnesses was Vivian Cook, who had worked for the Office of the Comptroller of the Currency and "was on the team that went in to Bank of New England N.A. and figured out how bad things were."
Attorney Russell further explained the difficulty Andrews Kurth experienced searching for an accounting malpractice expert.
Andrews Kurth filed the AK Application on November 15, 2012. Because the relief requested in the AK Application is more expansive than a single interim pay period, it is helpful for purposes of discussion to divide the requests into distinct categories. I note, however, that the categories I have assigned are not necessarily identical to those used by Andrews Kurth because mine are based on conceptual similarities that will facilitate a clearer analysis.
The first category contains the fees, expenses, and 50% of the travel time incurred in from March 1, 2011 through September 30, 2012 (the "53rd Pay Period"). The following table summarizes the details of the Andrews Kurth professionals who rendered services during the 53rd Pay Period:
Professional Title Expertise Hourly Hours Total Fees Year Rate Billed Admitted Robin Russell Partner Bankruptcy $745 133.20 $99,234.00 1986 (2011) Robin Russell Partner Bankruptcy $795 234.10 $186,109.50 1986 (2012) Roy Bertolatus Partner Corporate $765 34.30 $26,239.50 1977 Allison Mantor Partner Tax $650 1 $650.00 1989
Chasless Associate Bankruptcy $475 61.50 $29,212.50 2001 Yancy Chasless Associate Bankruptcy $500 236.20 $118,100.00 2001 Yancy Linda Wilson Legal Corporate $295 9.50 $2,802.50 N/A Assistant Debbie Legal Bankruptcy $230 1 $230.00 N/A Weatherford Assistant Debbie Legal Bankruptcy $255 9.30 $2,371.50 N/A Weatherford Assistant TOTAL 720.10 $464,949.50
The total fees requested are broken down into the following project headings:
Category Brief Description of Services Total Requested
Hours Fees
Junior/Senior Distribution 253 $168,973.00
Bankruptcy Administration Day to day issues which arise in 4.10 $3,054.50
administering the estate, including
preparing six month report and
compiling information request by
Internal Securities.
Tax Matters Advising Dr. Branch with respect to 88.30 $63,490.00
tax matters, including work regarding
the § 503(b) status.
Final Fee Applications Preparing the AK Application. 122.10 $65,717.50
Estate Closure Preparing final tax returns, Dr. 252.60 $163,714.50
Branch's final report, and motions to
determine tax liability with respect to
2011 and 2012, abandon stock, and
destroy records.
In addition to the fees requested, Andrews Kurth seeks reimbursement of $17,807.03 in reasonable expenses and, consistent with the Fee Decision, $3,180.00 as 50% of its travel time.
The next category of requests contained within the AK Application is for fees and expenses incurred during the month of October, 2012. In the AK Application, Andrews Kurth represents that its accounting department reported gross fees of $92,000 and gross expenses of $368.94 for the period of October 1, 2012 to October 31, 2012. In the conclusion section of the AK Application, however, the fees requested are listed as $70,807.
The third category of requests consists of estimated fees and expenses for the period of November 1, 2012, through December 11, 2012, the date the final report was heard (the "Stub Period"). Andrews Kurth estimated its fees for this period as follows:
Professional Hourly Rate Estimated Hours Requested Fees Robin Russell $795 100 $79,500.00 Chasless Yancy $500 25 $12,500.00TOTAL 125 $92,000.00
The services included within this estimate are: working with the United States Trustee to resolve any issues with the final report; filing the final tax determination motion; negotiating with the IRS regarding the turnover of the final tax refunds; completing and filing the final fee applications; and attending the December 11, 2012 hearing. Additionally, Andrews Kurth estimated that it would incur reasonable expenses in the amount of $23,619.37 providing the 4,023 claimants with notice of the final report and final fee applications through mailing and publication, providing copies of the final report and final fee applications to the fifty-four allowed claimants, and traveling to Boston for the December 11, 2012 hearing. Based on prior trips, Andrews Kurth estimated its travel time as $3,180.
The fourth category is comprised of the Deferred Requests — various fees and expenses that Andrews Kurth either previously deferred or that I disallowed expressly or implicitly in the Fee Decision.
FDIC Litigation Interim Fee Reductions $310,193.78 E & Y Litigation Interim Fee Reductions $262,750.30 Boston Housing $140,764.70 Deal/Deposition/Trial Meals $59,386.59 Secretarial/Staff Overtime (Litigation) $41,340.19 Special Supplies $4,955.72 Document Management $63,189.20 50% Travel Time Through 52nd Pay Period $850,018.70 50% Travel Time for 53rd Pay Period93 $3,180.00 50% Travel Time for Stub Period94 $3,180.00TOTAL $1,738,959.18
Andrews Kurth notes that this is only a portion of the $3,033,467.50 in fees and expenses that I have disallowed or it has voluntarily absorbed on an interim basis.
Taxes $1,214,130.30 FDIC Litigation $10,887,664.00 E & Y Litigation $12,779,506.49Subtotal of Categories $24,881,300.79 Lodestar Multiplier 10%TOTAL $2,488,130.07
In sum, Andrews Kurth requests the following amounts in the AK Application:
Fees Requested for 53rd Pay Period $464,949.50
Expenses Requested for 53rd Pay Period $17,807.03
Travel Time Requested for 53rd Pay Period $3,180.00
Subtotal for 53rd Pay Period $485,936.53
Fees Requested for October 2012 $92,000.00
Expenses Requested for October 2012 $368.94
Subtotal for October 2012 $92,368.94
Fees Requested for Stub Period $92,000.00
Expenses Requested for Stub Period $23,619.37
Travel Time Requested for Stub Period $3,180.00
Subtotal for Stub Period $118,799.37
FDIC Litigation Interim Fee Reductions $310,193.78
E & Y Litigation Interim Fee Reductions $262,750.30
Boston Housing $140,764.70
Deal/Deposition/Trial Meals $59,386.59
Secretarial/Staff Overtime (Litigation) $41,340.19
Special Supplies $4,955.72
Document Management $63,189.20
50% Travel Time Through 52nd Pay Period $850,018.70
50% Travel Time for 53rd Pay Period $3,180.00
50% Travel Time for Stub Period $3,180.00
Subtotal of Deferred Requests $1,738,959.18
Enhancement (10% Lodestar Multiplier) $2,488,130.07
Total Requested in AK Application $4,924,194.09
Fees Awarded Through 52nd Pay Period $30,411,944.11
Expenses Awarded Through 52nd Pay Period $2,947,880.79
Travel Time Awarded Through 52nd Pay Period $850,018.70
Subtotal Through 52nd Pay Period $34,209,843.60
TOTAL REQUEST $39,134,037.69
(All Awards and Interim Payments)
The Branch Application was also filed on November 15, 2012. Dr. Branch seeks compensation in the amount of $5,286,525.65 for all interim periods and the period between March 1, 2007, and November 9, 2012, for which no interim compensation was requested. To date, he has been paid interim compensation in the amount of $5,281,123.04, plus reimbursement of expenses in the amount of $11,177.14. Therefore, Dr. Branch requests total final compensation in this case of $10,567,648.69.
The $10,567,648.69 Dr. Branch requests represents the maximum commission allowable under 11 U.S.C. § 326(a) based upon the distributions made in this case. He states, however, that he has devoted 17,946.30 hours to work on the estate and 2,404.70 hours in travel time.
In the interests of clarity and expediency, I will limit this section to Andrews Kurth's arguments in support of the enhancement. I will address the arguments in support of the Deferred Requests in my analysis below without first stating them here.
To start, Andrews Kurth notes that I recognized the possibility of an enhancement in the Fee Decision when I observed that "[i]f ... the claim results in vast sums flowing into the estate, it would not be inappropriate for counsel to seek something in excess of its normal rates."
Explaining the exceptional results achieved in this case, the AK Application states:
Indeed, Andrews Kurth asserts that it has brought value to the estate that is worth
Additionally, Andrews Kurth argues that it faced substantial risk of nonpayment until December, 1998, when all the tax issues were finally resolved. As explained above, had the tax claims not been litigated and settled, the estate would have been rendered administratively insolvent. Moreover, Andrews Kurth did not receive any interim compensation for the first nine months of the case, requiring the firm's managing partners to issue waivers in order to continue representing Dr. Branch.
In sum, Andrews Kurth posits that the requested enhancement is not a "bonus," but another way to arrive at a comparable rate. It asserts that its hourly rates were several hundred dollars less than those of Davis Polk & Wardell ("Davis Polk") during the E & Y litigation and Peabody & Arnold and Sullivan & Cromwell in the FDIC litigation. Accordingly, Andrews Kurth concludes that its rates were below market for providing the same services.
Dr. Branch supports the AK Application in its entirety. With respect to his own application, he notes that the United States District Court for the District of Massachusetts previously observed "that Dr. Ben Branch, having done a truly remarkable job of marshaling BNEC's assets, has paid the principal of the Senior Debt in full, together with all pre-petition interest, post-petition fees, and the Senior Debt holders' expenses."
While the United States Trustee does not object to the Branch Application, he does object to the AK Application in three respects. First, the United States Trustee asserts that in the Fee Decision, I "made it clear that `generally speaking, it will not permit fees to be paid from the estate for travel time greater than those which would be incurred if the professional's office were within the district.'"
Lastly, the United States Trustee, noting that the United States Court of Appeals
First, the Junior Indenture Trustees object to the payment of any expenses related to Secretarial/Staff Overtime or Special Supplies. With respect to the former, they argue that while I left the door open to such costs in the Fee Decision, Andrews Kurth has not demonstrated that reimbursement is appropriate due to "irresistible time pressures."
Next, the Junior Indenture Trustees assert that I should not grant Andrews Kurth an enhancement. Although they agree that Andrews Kurth performed high quality work and obtained commendable results in this case, they contend that the lodestar calculated fees are presumptively sufficient compensation. The Junior Indenture Trustees argue that the AK Application does not demonstrate that the work performed or results achieved involved services not generally required or expected from estate professionals. Indeed, they assert that Andrews Kurth did nothing exceptional beyond the scope of services reasonably contemplated at the time of their retention. In support, the Junior Indenture Trustees note that Andrews Kurth was well aware at the outset of the case that any successful liquidation would rely on substantial litigation with both the IRS and FDIC. For this reason, they similarly contend that the results — a 35% dividend to junior bondholders — while good, do not far exceed the reasonable expectations at the start of the case and justify an enhancement. The Junior Indenture Trustees also argue that an enhancement is unwarranted where the party funding the enhancement has not been made whole and does not consent. Lastly, they dispute that Andrews Kurth faced a substantial risk of nonpayment because BNEC had assets, though illiquid, and they received interim compensation within the first year of the case.
The Junior Indenture Trustees also object to the Branch Application on the basis that they believe it purports to award Dr. Branch an enhancement. They argue that 3% commission on distributions exceeding one million dollars contained within 11 U.S.C. § 326(a) is a cap and compensation
The six pro se objectors, who are all junior bondholders, oppose Andrews Kurth's enhancement asserting that it is "excessive,"
"The standards for allowance of fees for actual and necessary services and reimbursement of expenses are well known to practitioners before this Court, and are set forth not only in numerous decisions in this circuit ... but in 11 U.S.C. § 330(a)(3)(A) as well."
I have reviewed the itemized billing entries, summary of expenses, travel expense itemization, and travel log for the 53rd Pay Period. With the exception of a cab fare costing $92.50 that Attorney Russell incurred traveling from the airport to her residence in Texas, I find the fees, expenses, and travel time to be reasonable. Accordingly, I will allow fees in the amount of $464,949.50, reimbursement of expenses in the amount of $17,714.53, and travel time in the amount of $3,180 with respect to this period.
As explained above, in the AK Application, Andrews Kurth represents that its accounting department reported gross fees of $92,000 and gross expenses of $368.94 for the month of October, 2012. Later, however, it listed the fee request for this period as $70,807. The difference is irrelevant. These fees are not supported by itemized time entries and are wholly unsubstantiated. Accordingly, all fees and expenses for the month of October, 2012, are disallowed.
In the AK Application, Andrews Kurth requested $92,000 in fees for the Stub Period which it estimated it would incur based upon Attorney Russell billing 100 hours at $795 per hour and Attorney Yancy billing 25 hours at $500 per hour. Since the filing of the filing of the AK Application, Attorney Russell has represented that the actual billings far exceed the estimate. While fees must be substantiated,
With respect to Stub Period expenses, Andrews Kurth attached an estimated itemization for its requests which I find reasonable.
Andrews Kurth requests that it be allowed $310,193.78 with respect to fees incurred in the FDIC litigation, which it agreed to withdraw from its prior applications to avoid objections from the FDIC. The fees were withdrawn on an interim basis only and without prejudice to renewal. The United States Trustee does not object to the allowance of these fees. Although the Junior Indenture Trustees initially objected to this amount, they have since withdrawn their objection. Accordingly, the request for these fees is allowed.
Next, Andrews Kurth requests $262,750.30 for fees incurred in the E & Y litigation that were previously deferred. The firm explains that to help manage the escalating costs of the E & Y litigation, it offered Dr. Branch an interim discount with the understanding that Andrews Kurth could seek to recover the fees in a final fee application if the E & Y litigation was successful. Dr. Branch supports the allowance of these fees and no other party has objected. The request is allowed.
Andrews Kurth seeks reimbursement of Boston housing expenses in the amount of $140,764.70. In order to avoid excessive hotel costs and meal expenses, Andrews Kurth rented apartments in Boston for two of its attorneys. The first apartment was rented for Attorney Russell from July, 1991, to December, 1998.
Year Number of Nights Stayed 1991 167 1992 328 1993 288 1994 253 1995 248 1996 233 1997 194 1998 155
Year Number of Nights Stayed 1993 79 1994 261 1995 198
In light of Boston hotel rates ranging from $124 to $204 from 1991 to 1998, Andrews Kurth estimates that the apartments saved the estate $232,369.08.
While I was admittedly uncomfortable with the cost of non-local counsel in the Fee Decision, I nevertheless allowed Andrews Kurth their full travel expenses, including hotel fees. Given how much time counsel was required to be in the district, renting apartments was an appropriate cost containment measure. Therefore, reimbursement of the Boston housing expenses will be allowed.
Although I adopted a general rule disallowing meal expenses as "an item of personal overhead" in the Fee Decision, Andrews Kurth requests that I allow reimbursement of meal expenses in the amount of $59,386.59 for meals provided to working groups, attorneys, staff, and witnesses during sale closings, depositions, and trial preparation. Andrews Kurth asserts that these meals were not provided for pleasure but for sustenance, and they conferred an economic benefit to the estate because it eliminated the need to interrupt negotiations, depositions, and trial preparation with lengthy breaks outside the building. The United States Trustee objects citing my general rule.
In the Fee Decision, I articulated a number of general rules, but noted "that these rules may be subject to exceptions in clearly demonstrated special circumstances."
Andrews Kurth requests $41,340.19 for Secretarial/Staff Overtime. Heeding my warning in the Fee Decision that "secretarial overtime is overhead.... [a]bsent
Although I articulated an exception for "irresistible time pressures" to the general rule that secretarial overtime is overhead, I also noted that exceptions apply only "in clearly demonstrated special circumstances."
Andrews Kurth requests reimbursement for "special" supplies in the amount of $4,955.72. These extraordinary supplies necessitated by the FDIC and E & Y litigations. They include, but are not limited to, special boxing to ship trial exhibits and video equipment from Houston, Texas, to Boston, Massachusetts for the E & Y trial and large quantities of notebooks and dividers. As previously stated, the Junior Indenture Trustees object to reimbursement on the grounds that these expenses are simply overhead. Particularly in the absence of any itemization or more compelling information, I must agree. Absent "clearly demonstrated special circumstances,"
Andrews Kurth requests reimbursement of expenses in the amount of $63,189.20 for document management costs. In support, Andrews Kurth explains that millions of pages of documents were produced in connection with both the FDIC and E & Y litigations that required offsite storage and retrieval. Additionally, at the conclusion of certain matters, I have allowed certain documents to be destroyed. I note that while there are no objections to this request, Andrews Kurth has not offered any documentation in support. That said, document management expenses are customarily reimbursed and, given the size, complexity, and length of this case, I have no trouble finding the amount requested to be reasonable. Therefore, under the unique circumstances of this case, I will approve the document management costs in the amount requested despite the absence of any documentation substantiating the claim.
In the Fee Decision, I adopted a general rule that
Recognizing that Andrews Kurth, a Texas firm, had been retained before I articulated this standard, I allowed Andrews Kurth, as an equitable accommodation, 50% of its standard rates for travel time.
Andrews Kurth now seeks the other half of its travel time in the amount of $856,378.70,
Andrews Kurth, of course, argues that the results which have been achieved in this case could not have been achieved by another law firm. Both the United States Trustee and the Junior Indenture Trustees object.
But for the word "might," the quoted passage upon which Andrews Kurth relies would appear to be inconsistent with the general rule that professionals outside the district could be retained on the same terms as local professionals.
In the Fee Decision, I hypothesized that if, at the end of the case, vast sums flowed into the estate based upon counsel's services, "it would not be inappropriate for counsel to seek something in excess of its
While there is general agreement that "[u]pwards adjustments in bankruptcy cases are permissible provided the application shows rare and exceptional circumstances,"
In In re Pub. Serv. Co. of New Hampshire, Judge Yacos of the District of New Hampshire cogently explained at length the logical difficulties inherent in the concept of enhancement.
Other courts have recognized that two factors which are distinct from the lodestar
Having reviewed the record in this case and considered the arguments of the parties, I conclude that an enhancement is not appropriate. Without question, the services provided to Dr. Branch by Andrews Kurth have been of extremely high value — perhaps even exceptional — but one could reasonably assume, given their background and experience, that this was precisely why Dr. Branch retained them in the first place, in which case their lodestar should be sufficient compensation. Additionally, Andrews Kurth was aware at the outset of the case that any successful liquidation would rely on substantial litigation with both the IRS and FDIC.
Lastly, I note that many cases hold that payment of creditors in full is an important factor, if not a prerequisite, for the award of an enhancement. Although I can fathom the existence of a case where an enhancement may be appropriate when the unsecured creditors have received less
For these reasons, Andrews Kurth's request for a 10% enhancement to the lodestar is disallowed.
For the reasons set forth above, the following fees and expenses are allowed in the amounts listed:
Fees Requested for 53rd Pay Period $464,949.50
Expenses Requested for 53rd Pay Period $17,714.53
Travel Time Requested for 53rd Pay Period $3,180.00
Subtotal for 53rd Pay Period $485,844.03
Fees Requested for October 2012 $0.00
Expenses Requested for October 2012 $0.00
Subtotal for October 2012 $0.00
Fees Requested for Stub Period $92,000.00
Expenses Requested for Stub Period $23,619.37
Travel Time Requested for Stub Period $3,180.00
Subtotal for Stub Period $118,799.37
FDIC Litigation Interim Fee Reductions $310,193.78
E & Y Litigation Interim Fee Reductions $262,750.30
Boston Housing $140,764.70
Deal/Deposition/Trial Meals $0.00
Secretarial/Staff Overtime (Litigation) $0.00
Special Supplies $0.00
Document Management $63,189.20
50% Travel Time Through 52nd Pay Period $0.00
50% Travel Time for 53rd Pay Period $0.00
50% Travel Time for Stub Period $0.00
Subtotal of Deferred Requests $776,897.98
Enhancement (10% Lodestar Multiplier) $0.00
Total Awarded in AK Application $1,381,541.38
Fees Awarded Through 52nd Pay Period $30,411,944.11
Expenses Awarded Through 52nd Pay Period $2,947,880.79
Travel Time Awarded Through 52nd Pay Period $850,018.70
Subtotal Through 52nd Pay Period $34,209,843.60
FINAL COMPENSATION AWARDED $35,134,037.69
Section 326(a) of the Bankruptcy Code, titled "Limitation on compensation of trustee," provides:
The statute is clear that the 3% is not an entitlement,
According to Dr. Branch's records, he has devoted 17,946.30 hours to work on the estate and 2,404.70 hours in travel time.
I think yes. Much like his counsel, there can be little doubt that Dr. Branch's services to the estate have been of the highest quality and beneficial to the estate. That is precisely why he was elected Chapter 7 trustee. Unlike his counsel, however, Dr. Branch has not received regular interim payments, but instead has suffered substantial delays in payment.
In light of the foregoing, I will enter an approving in part and disapproving in part the AK Application, approving the Branch Application, and directing Dr. Branch to
