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Delaware Bankruptcy Court Denies Fee Enhancement Requests

By Justin R. Alberto

On January 21, 2015, Judge Kevin Gross of the United States Bankruptcy Court for the District of Delaware denied a fee enhancement request by professionals representing the Official Committee of Unsecured Creditors of Fisker Automotive Holdings (the “Committee”). The professionals sought fee enhancements of approximately 50% in return for their original risk of nonpayment and the considerable odds they overcame to achieve a sale which provided once out-of-the-money unsecured creditors with a $0.40 recovery. The Office of the United States Trustee and Hybrid Tech Holdings (“Hybrid”), the original stalking horse purchaser that was on the hook for professional fees, objected to the fee enhancement requests. Specifically, the U.S. Trustee argued that this was not the “rare and exceptional” circumstance where fee enhancements are approved since creditors are nowhere close to being made whole. The U.S. Trustee also maintained that risk taken by the professionals was no greater than the risk taken by any professional in cases where unsecured creditors may be underwater. Hybrid objected more doctrinally that the enhancements are inappropriate since the professionals were retained under section 328 of the Bankruptcy Code, which has been interpreted to mean a fee arrangement may only be altered if it proves to have been improvident in light of unforeseen developments.

The Court agreed with the arguments advocated by the U.S. Trustee and Hybrid and denied the professionals’ fee enhancement requests. According to the Court, the amount of work performed by the professionals should have been expected. Also, the quick pace at which the case progressed notwithstanding substantial litigation was the result of the moving professionals’ refusal to accept repeated invitations for extensions of time. While the professionals found a competitive bidder that ultimately enhanced value for creditors, the Court noted that the professionals didn’t have to look far since the Committee’s lead law firm served as counsel in another case where that bidder successfully purchased the debtors’ assets. “The professionals’ contribution, while laudatory, was hardly the result of arduous undertaking.” According to the Court, the professionals did the job for which they were handsomely paid on the terms they requested and were therefore not entitled to the requested enhancements.

A copy of the opinion can be found here.

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