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Judge Silverstein Denies Professional Fees of Future Claims Representative for Appointment-Related “Self-Advocacy” While Establishing Future Claims Representative Appointment Process

Written by: Scott D. Jones

On November 20, 2020, Delaware Bankruptcy Court Judge, Laurie S. Silverstein, denied a fee application requesting over $232,000 in fees incurred by Young Conaway Stargatt & Taylor, LLP (“YCST”) for services rendered during the process to appoint one of its attorneys, James L. Patton (“Mr. Patton”), as the representative to the future talc personal injury claimants (the “Future Claimants’ Representative”).  In the opinion, Judge Silverstein held that the “fees and expenses incurred by Mr. Patton in his quest to become the future claimants’ representative [did] not benefit the bankruptcy estates.”  In addition, Judge Silverstein outlined the process for the appointment of a representative for demand holders in future cases that come before her.

On February 13, 2019, Imerys Talc America, Inc and certain affiliated debtors (the “Debtors”) filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware.  On February 27, 2019, the Debtors filed a motion (the “Debtors’ Motion”) requesting that Mr. Patton of YCST be appointed the Future Claimants Representative.  The United States Trustee filed a separate motion (the “UST Motion”) also asking the Court to appoint a legal representative for the future claimants (the “Claimants”) but requested that other parties-in-interest be allowed to nominate candidates.

On April 26, 2019, the Court held a hearing on the Debtors’ Motion and the UST Motion.  The Court denied the UST Motion and appointed Mr. Patton as the Future Claimants’ Representative.  Mr. Patton subsequently retained YCST as counsel to the Claimants.   On July 15, 2019, Mr. Patton and YCST filed a fee application requesting, inter alia, $232,471.50 in fees associated with the appointment of Mr. Patton as the Future Claimants’ Representative.  The Court, sua sponte, raised the question of whether the fees were appropriate and asked YCST to submit supplemental briefing with legal authority supporting payment of the fees.

In its supplement, YCST made several arguments.  First, YCST claimed that since Mr. Patton had served as the Future Claimants’ Representative prepetition, his appointment postpetition protected the interests of the Claimants.  In addition, YCST claimed that they were “uniquely equipped” to provide assistance regarding the Debtors’ Motion and that they were instrumental in overcoming the UST Motion.  Finally, YCST argued that Mr. Patton was required to supplement his disclosures to the Court and that YCST conducted the direct testimony of Mr. Patton during the hearing on the Debtors’ Motion.

In the opinion, Judge Silverstein determined that the issue boiled down to one question; “can a professional retained by a legal representative candidate be compensated by the bankruptcy estate for services performed to get him appointed?”  To answer that question, Judge Silverstein addressed section 330 of the Bankruptcy which permits the Court to award compensation for “actual and necessary” services.  In Baker Botts L.L.P. v. Asarco LLC, the United States Supreme Court provided guidance for a section 330 analysis and held that “professionals may be compensated for services only if that service is rendered to another and is ‘disinterested service.’”  Applying that guidance to the case at hand, Judge Silverstein concluded that there was no basis to award the disputed compensation to YCST.  The services provided by YCST and Mr. Patton benefitted each of their personal interests.  Thus, the services were not “disinterested” as required by the Supreme Court.

The Court concluded its analysis of the compensation requested by YCST by referring to its bench ruling which compared a claimants’ representative to a member of an Unsecured Creditors’ Committee.  “A creditor that truly believes it can best contribute to the committee may or may not get appointed, but it must pick up its own expenses in the attempt.”  The Court expounded on a Supreme Court analogy by stating that awarding YCST the disputed fees would be the “equivalent of a mechanic advocating for the use of its services over those of its competition.”  This self-advocacy benefits the mechanic, not the customer.

Lastly, Judge Silverstein addressed the process regarding the appointment of a representative for demand holders for future cases that come before her.  In an attempt to mitigate the expense of the process and reduce barriers to entry, Judge Silverstein will now require the person seeking the appointment to file with the court: “(i) a fulsome disclosure of connections, similar to that required under Bankruptcy Rule 2014 and (ii) a resume/curriculum vitae.”  The Court will hold a status conference as soon as practicable after the filing of a request to appoint a representative to discuss the terms under which any discovery will be permitted.  Judge Silverstein concluded by acknowledging that certain parties-in-interest have a legitimate interest in the appointment but the process should not be so “cumbersome, litigious or expensive” that capable people are dissuaded from applying.

A copy of the opinion can be found here.

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