Professional Fees in Large Chapter 11 Bankruptcy Cases November 30, 2017 1:00pm-3:00 (Eastern) / Noon-2:00pm (Central) / 10:00am-Noon (Pacific) Conference Dial-in Phone No: (312) 667-4792 Access Code: 260397 Panelists Jeffrey L. Cohen, Partner, Lowenstein Sandler LLP (New York) H. Joseph Acosta, Partner, FisherBroyles LLP (Dallas) Elise S. Frejka, Founding Member, Frejka PLLC (New York) 1
CLE Call-in Instructions Please use the NALFA dedicated conference call-in phone no. of (312) 667-4792 with access code the 260397 . In order to prevent background noise, please mute yourself as you join the call. The host may also mute registered guests as needed. Since the call is 120-minute program, you may want put the call on speaker. If you get dropped from the call, you can call back in We encourage questions for our panel. If you have questions for panelists before or during the program, please email them to Terry Jesse at terry@thenalfa.org 2
About NALFA The National Association of Legal Fee Analysis (NALFA) is a 501(c)(6) non- profit professional association for the legal fee analysis field. Our members provide a range of services on attorney fee and legal billing matters. Courts and clients turn to us for expertise when attorney fees and expenses are at issue in large, complex cases. NALFA members include fully qualified attorney fee experts, special fee masters, bankruptcy fee examiners, fee dispute mediators and legal bill auditors. Our members follow Best Practices in Legal Fee Analysis. For more on NALFA, visit www.thenalfa.org 3
NALFA 2017 CLE Series Sponsors 4
Panelists’ Bio Jeffrey L. Cohen is a partner at Lowenstein Sandler in New York. A trusted advisor to unsecured creditors, creditors’ committees, and debtors, Jeff’s tenacious counsel adds steady momentum to our growing client base in retail bankruptcy and is a strong resource to distressed clients in the technology sector. His practice centers on chapter 11 bankruptcy reorganizations and related litigation. Jeff has served as counsel to the creditors' committee in several of the most prominent retail and technology Chapter 11 cases in the country, notably retail matters such as Vestis (Eastern Mountain Sports, Bob’s Stores, Sports Chalet), City Sports, Skymall, Brookstone, Blockbuster Video, Filene’s Basemen. H. Joseph Acosta is a partner at FisherBroyles in Dallas. Joe has a broad base of bankruptcy, corporate restructuring and commercial litigation experience, having worked at national and international law firms, like Jones Day and Cox Smith, for most of his career. During his 17 years as a lawyer, he has been involved in some of the largest and most complex restructurings and litigation projects in the United States. He has taken lead roles in successfully representing banks, financing companies, distressed companies, committees, trustees, individuals, landlords, asset purchasers, retailers, and commercial creditors in all types of proceedings, including bankruptcy proceedings, federal and state lawsuits, arbitrations, and appeals . Elise S. Frejka is the founding member of Frejka PLLC in New York. Elise’s practice is concentrated in the area’s of creditor rights, corporate restructuring, and privacy, and litigation. Her practice focuses on restructuring; crisis management; corporate governance; and financings; plus acquisitions involving distressed situations in a wide array of industries on behalf of debtors, creditors, chapter 11 trustees, creditors committees, ad hoc committees, institutional lenders, investors, hedge funds, private equity firms, and acquirers of distressed assets and securities. Elise has counseled clients in every significant Ponzi scheme over the past decade. 5
Panel Discussion Outline I. Overview of Chapter 11 Bankruptcy II. The Use & Role of the Bankruptcy Fee Examiner III. Role of the U.S. Trustee Program IV. USTP Fee / Billing Guidelines V. Establishing Hourly Rates & Preparing Fee Applications VI. Fee Application Red Flags: Billing & Expenses VII. “Fees for Fees” Baker Botts v. Asarco and other newer related cases VIII.Questions 6
Overview of Chapter 11 Bankruptcy What is Bankruptcy? Bankruptcy is a court-supervised process pursuant to which debtors (individuals and businesses) are able to adjust their debts and legal obligations. Bankruptcy is intended to provide a fresh start for debtors; many Bankruptcy Code provisions are directed at this purpose. Bankruptcy is also intended to promote fair treatment among creditors and other interested parties. Note, this does not mean that creditors will be treated objectively fairly as concerns their rights against the debtor. 7
Overview of Chapter 11 Bankruptcy Common Types of Bankruptcy: Chapter 7 (Liquidation) Chapter 7 governs the process of liquidation. Businesses and individuals may file Chapter 7. Upon filing, a bankruptcy estate is created. A Chapter 7 trustee is appointed to liquidate the assets of the estate. Management, of it is a corporate debtor, is no longer in control of the business. The Chapter 7 trustee sells the debtor’s property and distributes the process to the creditors. If no valuable assets exist, the trustee will deem the case a “no asset” case and abandon the property back to the debtor. 8
Overview of Chapter 11 Bankruptcy Common Types of Bankruptcy: Chapter 11 (Reorganization) Chapter 11 governs the process of reorganization. Businesses and individuals may file Chapter 11. Upon filing, a bankruptcy estate is created. The bankrupt company is called debtor-in-possession (DIP). No trustee is immediately appointed in a Chapter 11. Management, if it is a corporate filing, remains in control of the DIP and may continue operating the business, including employing professionals, addressing creditor claims, and filing reports to the court. The DIP has the exclusive right, for a time, to file a plan of reorganization. 9
Overview of Chapter 11 Bankruptcy Other Types of Bankruptcies Chapter 9: Adjustment of debts of a municipality and other governmental entities. Chapter 12: Adjustment of debts of family farmers and fishermen with regular incomes. Chapter 13: Adjustment of debts of individuals with regular incomes. Chapter 15: Governs foreign and cross-border insolvency cases. 10
Overview of Chapter 11 Bankruptcy Key Players / Interested Parties in Bankruptcy Cases Debtor / Debtor-in-Possession (DIP) Secured Creditor Unsecured Creditor U.S. Trustee / USTP Case Trustee Fee Examiner Creditors Committee Professionals U.S. Bankruptcy Judge 11
Overview of Chapter 11 Bankruptcy The U.S. Trustee Program in Chapter 11 Cases: The Basics Division within the DOJ. Acts to protect the integrity of the bankruptcy system Conducts initial debtor interview and meeting of creditors (341 meeting) Reviews monthly operating reports, which advises parties of the debtor’s ongoing business operations. Professional retention and fee application oversight. May request dismissal, conversion or appointment of Chapter 11 trustee when debtor fails to meet obligations under the Bankruptcy Code. 12
The Role & Use of the Bankruptcy Fee Examiner Bankruptcy Fee Examiner: The Basics The fee examiner should be a bankruptcy expert who is qualified to make judgments about the costs, benefits and efficiency of the applicant’s work. Fee examiners have been appointed in large cases like Lehman Brothers , General Motors and American Airlines . The USTP Guidelines encourage greater use of fee examiners. Fee examiner is guided by the court order establishing the examiner’s duties and powers. Fee examiners are individuals, not fee audit firms. Fee audit firms can assist fee exmainers. 13
The USTP Fee Guidelines The USTP Fee Guidelines: The Basics Fee guidelines for Chapter 11 cases that list $50M or more in assets and $50M or more in liabilities. Fee Guidelines designed to ensure statutory requirements limiting bankruptcy fees to Market Rates – not Premium Rates. The USTP issued its original guidelines in 1996. The fee guidelines are not legally binding, but the USTP intends to lobby bankruptcy courts to incorporate them into their local rules of procedure. 14
The USTP Fee Guidelines What are the USTP Fee Guidelines? Required by Statute (1994 Bankruptcy Reform Act) Uniform and Consistent u Internal guidance for fee review u Expectations of professionals u Grounds for possible objections Initial USTP Guidelines (Appendix A) for all chapter 11 cases became effective in 1996. 15
The USTP Fee Guidelines What has Changed Since 1978 and 1996? Outside bankruptcy u Client revolution in managing and paying counsel u New technology Inside bankruptcy u Big cases even bigger u Proliferation in number of professionals u Fee review more challenging u Non-bankruptcy market practices not followed u Third-party payment and approval distort compensation 16
The USTP Fee Guidelines Fee Guidelines for Large Chapter 11 Cases (Appendix B) Process for adoption: u Two years u Pre-drafting consultation u Two drafts for public comment u DOJ Public Meeting u Assoc. AG announced June 11, 2013 u Effective for “large” (>$50 million in both assets and debts) chapter 11 cases filed after November 1, 2013. 17
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