Attorney Fees for Preparation of Fee Application Disallowed, In a Very Specialized Context. But What Are the Lessons For You?

4/10/08
In re Columbia Aircraft Manufacturing Corp., Case No. 07-33850-elp11
UNPUBLISHED LETTER RULING, by Judge Elizabeth Perris

This 8-page single-space unpublished letter by Judge Parris in this Chapter 11 case has virtually no direct relevance in the Chapter 7 and 13 worlds, except tangentially as to an attorney fee issue. In her letter the judge ruled on a number of legal issues to streamline an evidentiary hearing on an application for final compensation by the corporate debtor’s financial advisory and investment banking service provider (“ING”). Through these services, the debtor corporation was sold post-petition to Cessna Aircraft. For these services ING applied for $1,150,000 in fees and more than $26,000 in expenses, which the unsecured creditors’ committee objected to all but $50,000.

Most of Judge Parris’ rulings had to do with the appropriate legal standard for determining the amount of fees to be paid to an entity authorized for postpetition employment by the court under 11 USC §327 and §330, and the application of this standard to various allegations by the committee that ING had not done the work it had agreed to do. She ruled that “professionals … should be paid comparably to rates they would receive outside bankruptcy, so that professional will be willing to serve in bankruptcy cases.” As to the 7 specific issues about the quality of ING’s work, they are so limited to the services of a financial adviser and investment banker and the specific facts of this case that they don’t merit detailing here, especially since this is just an unpublished letter ruling.

The one attorney fee issue worth some attention pertained to whether ING should be paid ITS attorney’s fees for the legal services involved in preparing ING’s fee application. Perhaps contrary to expectations—since generally an attorney’s services in preparing a fee application are allowed—in this rather specialized context Judge Perris disallowed such fees here. Although ING itself had been appropriately employed by debtor through a court order under §327, its counsel had not. So its counsel’s attorney fees for preparing ING’s fee application were disallowed, A prepetition contract between ING and its counsel, not presented to or approved by the court, did not help its case, especially because the prepetition executory contract between ING and the debtor had been rejected by the court, and there was no prior written consent to such fees by the debtor, much less court approval.

BOTTOM LINE: Regardless of the unusual context here, the mantra is the same: get prior court approval for attorney fees or risk having them disallowed.

by Andrew Toth-Fejel, Bankruptcy Litigation Support for Attorneys, Andy@BLSforAttorneys.com

© 2008 Bankruptcy Litigation Support for Attorneys