*Though a court cannot alter a professional fee arrangement, once approved under §328 of the Bankruptcy Code, even if contingent, the court may, consistent with the parties’ agreement in a negotiated approval order, evaluate the subsequent fee request for reasonableness under §330 of the Code. **An engagement tying contingent compensation to “any cash” received by Debtor’s estate may include consideration received from transactions identified by others.
Garces Restaurant Group, Inc., In Re, No. 18-19054 (D. N.J., Bankr., 1/11/19).
Following the sale of Debtors’ assets in this Chapter 11 proceeding, Debtors’ investment banker filed a first and final Application for fees and expenses pursuant to the parties’ Engagement Letter and court-approved §328 Retention Order. Both the U.S. Trustee and the Official Committee of Unsecured Creditors, and to a more limited extent, Debtors’ senior secured lenders, objected to the request on the grounds that (1) the application sought contingent compensation for an asset sale which the investment banker did not procure, (2) the fee was not reasonable under the standards of §330 of the Bankruptcy Code, and (3) the estate lacked sufficient funds to pay professional fees and expenses.
The Court rejects each objection and approves the Fee Application. The Court agrees with applicant that ordinarily a fee arrangement, even one for a contingent fee, approved by the court as reasonable under §328 of the Code, cannot be altered once approved. Here, though, the parties agreed in the negotiated Retention Order that the subsequent Fee Application could be challenged for reasonableness under §330 as well; thus, the court may do so here. However, such review must be by the test for reasonableness to which the parties agreed, i.e. “consistent with other investment banking fees earned during an expedited §363 marketing period.” Under this “hybrid review,” known as the Blackstone Protocol, and applying the parties’ agreed-upon measure of total consideration based on “any cash” received by the estate, the Court finds both the original $50,000 retainer and the $268,000 fee reasonable under §330.
Both the retainer and the fee in the range of 5.81% of the total $4.6 million consideration are consistent with amounts approved in comparable cases. This is especially so, given the short marketing period and the lower sale price, which “in the court’s experience” often results in higher percentage fees. Further, even absent the parties’ §330 carve-out, the fee is reasonable (1) as necessary and beneficial to the estate, and (2) when compared to similar services in non-bankruptcy cases. In so holding, the Court considers irrelevant that applicant did not identify the eventual buyer. The approved engagement did not include any exclusion for the eventual buyer, which was known at the time, and applicant provided valuable experience and expertise on the sale of distressed assets and market participants. Even the imputed hourly rate, which offers little assistance in the context of a transaction fee due upon completion and in a marketplace that does not concern itself with such a metric, is well within the range of average rates.
(D. Franceski: Perhaps this author is overly sensitive, but this is the second in as many investment banking fee cases summarized for SOLA where the Court felt compelled to compare and contrast, and not in a flattering way, the measure of banker compensation with the hourly rate typically applied to fee requests of attorneys.)
(SOLA Ref. No. 2019-10-02)
NOTICE: The court decision synopsis published above represents an abbreviated description of the actual decision and is re-printed here for its educational value. The author's effort is to report concisely the substance of the decision or a selected portion of the decision; commentary or analysis is generally reserved for the italicized section at the bottom of the summary. Subscribers to SAC's Online Litigation Alert (SOLA), from which this synopsis is excerpted, have immediate access to the full decision, in addition to the synopsis.
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