In re Lehman Bros. Holdings Inc.

487 B.R. 181, 2013 WL 587343, 2013 Bankr. LEXIS 601, 57 Bankr. Ct. Dec. (CRR) 159
CourtUnited States Bankruptcy Court, S.D. New York
DecidedFebruary 15, 2013
DocketNo. 08-13555 (JMP)
StatusPublished
Cited by2 cases

This text of 487 B.R. 181 (In re Lehman Bros. Holdings Inc.) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, S.D. New York primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
In re Lehman Bros. Holdings Inc., 487 B.R. 181, 2013 WL 587343, 2013 Bankr. LEXIS 601, 57 Bankr. Ct. Dec. (CRR) 159 (N.Y. 2013).

Opinion

MEMORANDUM DECISION GRANTING OMNIBUS APPLICATION FOR PAYMENT OF FEES AND REIMBURSEMENT OF EXPENSES CLAIMED BY INDIVIDUAL MEMBERS OF OFFICIAL COMMITTEE OF UNSECURED CREDITORS

JAMES M. PECK, Bankruptcy Judge.

Introduction and Analytical Overview

These historic bankruptcy cases have been characterized by professional excellence and creative problem solving leading to negotiation, cooperation and the ultimate compromise of conflicting positions. One commendable administrative achievement is that professional fees for estate professionals have been managed so smoothly in uncontested proceedings. Disputes relating to the approval of these fees have been resolved and have not burdened the Court. That is a remarkable feat given the sheer magnitude of the professional activities and associated fees and expenses that together exceed $1.8 billion.

Efficient and fair handling of fee allowance procedures has resulted in an unbroken pattern of uncontested applications for compensation of the retained professionals. Even applications based on substantial contribution claims have been approved without controversy.1 This transparent [183]*183and consensual fee review and approval process worked well and is a tribute to the professionals involved and to the constructive and positive role played by the Fee Committee appointed in these cases.

That record of avoided conflict and pragmatic compromise has now been broken in a contested matter in which the United States Trustee for Region 2 (the “UST”) challenges the legal right of members of a committee appointed under Section 1102 of the Bankruptcy Code — i.e. an official committee — to be paid reasonable compensation for legal services rendered to the individual members of that committee by their own attorneys when those fees, subject to findings of reasonableness, have been awarded under Lehman’s confirmed plan of reorganization (the “Plan”).2 The issue presented, whether to allow the professional fees of members of the Official Committee of Unsecured Creditors (the “Committee”), including two indenture trustees (collectively, the “Applicants”), focuses attention on the suitability of using plan provisions as a means to authorize the payment of professional fees where it is unclear — or even doubtful — that such fees could be recovered as administrative ex[184]*184penses if payment provisions had not been specified in the Plan.

Given the resolution of each of the other prior disagreements relating to professional fees, this isolated fee dispute stands out from the rest and must be about more than the fees themselves. A total of approximately $26 million is at stake, but in the context of the Lehman cases, that is not much money.3 This fight is about principle and the proper way to interpret distinct sections of the Bankruptcy Code in relation to enabling language in the Plan that authorizes distributions of cash from the Lehman estate to individual Committee members and certain indenture trustees to pay for their counsel fees. The Court assumes that Section 6.7 of the Plan detailing the entitlement to these distributions was added purposefully to give the Applicants greater assurance that they actually would receive these payments notwithstanding sections of the Bankruptcy Code indicating that payment of such counsel fees, in the ordinary course, would not be allowable as administrative expenses.4

As a practical matter, members of the Committee would not have been able to claim these payments with any degree of confidence were it not for the implementing language in the Plan. That is due to the structure of Sections 503(b)(3) and 503(b)(4) of the Bankruptcy Code. Under these sections, members of an official committee are not included in the list of creditors who qualify to claim administrative expense treatment for counsel fees for having made a substantial contribution in a bankruptcy case.

Section 6.7 of the Plan (securing the right to such payments for the Applicants) introduces what amounts to a contractual patch designed to cure these statutory omissions, and therein lies the rub. There are important appearance and policy issues at stake here: should members of any official committee who by statute have a central role in plan negotiations be allowed to use the plan process for their own financial gain and should they be able to realize benefits that the Bankruptcy Code ordinarily would not sanction? The Court believes this question animates the current dispute and is the reason compromise has not been possible.

These big picture concerns may explain motivations but do not change the analysis. [185]*185The inclusion of Section 6.7 as a mechanism to pay these professional fees is but one example of the creativity of the plan process itself, especially in a large and complex — and, in this instance, the largest ever — chapter 11 case. The Bankruptcy Code allows and even encourages such creativity within the broad outlines of what a plan must include (Section 1123(a)) or may include (Section 1123(b)). The available structuring alternatives are unconstrained but not limitless. The provisions of a plan simply must not be inconsistent with provisions of the Bankruptcy Code.

In establishing a right to receive reasonable payments under a plan that otherwise would not have been available to the Committee members if they had sought to recover such payments as allowed administrative expenses, Section 6.7 illustrates the ability to use language in a plan to achieve desired economic outcomes. It highlights the distinction between the types of administrative expenses that parties may claim against a debtor entity under applicable provisions of the Bankruptcy Code and other permissible expenses, not catalogued within the statute itself, that still may be identified and paid by the estate pursuant to a consensual plan of reorganization. The plan language provides for detailed treatment of the claims of stakeholders and becomes the means to provide for payment of certain expenses that are not specified in the Bankruptcy Code.

The question presented is whether that result should be permitted under the circumstances presented and whether a plan legitimately may provide for payment of the legal expenses of individual members of an official committee if the very same sort of expenses would not have been payable if sought as part of the process of allowing administrative expenses. Stated differently, can a plan properly circumvent the apparent restrictions on administrative expense treatment for professional compensation claims of this sort? The Court concludes that these payments under a plan are proper, provided that the payments are reasonable and not inconsistent with applicable provisions of the Bankruptcy Code. Here, the proposed payments of professional fees incurred by individual members of the Committee, even though not expressly provided by Section 503(b), are also not inconsistent with Section 503(b)5.

In reaching this conclusion, the Court rejects as overly restrictive the reading of Section 503(b) advanced by the UST in her objection to the requested fees. The [186]*186UST’s argument is built on the proposition that Section 503(b) has a controlling and preclusive impact and is the exclusive pathway by which a member of an official committee can ever be entitled to receive compensation for legal fees incurred while serving on such a committee.

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Related

In re AMR Corp.
497 B.R. 690 (S.D. New York, 2013)

Cite This Page — Counsel Stack

Bluebook (online)
487 B.R. 181, 2013 WL 587343, 2013 Bankr. LEXIS 601, 57 Bankr. Ct. Dec. (CRR) 159, Counsel Stack Legal Research, https://law.counselstack.com/opinion/in-re-lehman-bros-holdings-inc-nysb-2013.