United States Trustee for Region 2 December 19, 2012 at 10:00 a.m. U.S. Department of Justice
Office of the U.S. Trustee 33 Whitehall Street, 21st Floor New York, New York 10004 (212) 510-0500
UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK ---x
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In re : Chapter 11
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AMR CORPORATION, et al., : Case No. 11-15463 (SHL)
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Debtors. : (Jointly Administered) :
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OBJECTION OF THE UNITED STATES TRUSTEE TO APPLICATION OF MARATHON ASSET MANAGEMENT, LP FOR ALLOWANCE AND PAYMENT OF PROFESSIONAL FEES
PURSUANT TO 11 U.S.C. § 503(B) TO: THE HONORABLE SEAN H. LANE,
UNITED STATES BANKRUPTCY JUDGE:
Tracy Hope Davis, the United States Trustee for Region 2 (the “United States Trustee”), by and through her counsel, respectfully submits this objection (the “Objection”) to the
application (“Application”) of Marathon Asset Management, LP (“Marathon”) for allowance and payment of professional fees incurred by its attorneys, Wilmer, Cutler, Pickering, Hale & Dorr, LLP (“Wilmer Cutler”) pursuant to Section 503(b) of title 11, United States Code (the
“Bankruptcy Code”). ECF No. 5482. In support of the Objection, the United States Trustee respectfully states as follows:
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I. INTRODUCTION
The Bankruptcy Code provides that, in certain limited circumstances, a creditor that makes a substantial contribution in a bankruptcy case may recover its actual and necessary expenses in retaining an attorney or accountant. This provision of the Bankruptcy Code, however, is construed narrowly and is not intended to change the basic rule that the attorney must look to his or her own client for payment.
In reviewing the Application, the United States Trustee applied the standards for “substantial contribution” pursuant to Section 503(b)(3) of the Bankruptcy Code and
“reasonableness,” under Section 330 of the Bankruptcy Code. As discussed in detail below, the United States Trustee objects to allowance and payment of these fees because (i) Marathon has not met its burden of proof to establish that it met the statutory standards for substantial
contribution, thereby entitling them to a Section 503(b)(3) claim, and (ii) it has not met its burden to demonstrate the reasonableness of the requested compensation.
II. FACTS
1. On November 29, 2011 AMR Corp. (“AMR”) and certain of its direct and
indirect subsidiaries (collectively, the “Debtors”), including American Airlines, Inc. (“American Airlines”) and American Eagle Airlines, Inc. (“American Eagle”) each commenced cases under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”). ECF Doc No. 1
2. The cases are jointly administered pursuant to the Court’s November 29, 2011 order. ECF Doc No. 46.
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3. On December 5, 2011, the United States Trustee appointed an Official Committee of Unsecured Creditors (the “Creditors’ Committee”). ECF No. 128.
4. No Chapter 11 trustee or examiner has been appointed in these cases.
5. American Airlines’ Form 10-Q for the Quarterly Period ended September 30, 2011, dated October 19, 2011 (the “10-Q”) reflected that on August 31, 2011, American Airlines entered into an agreement with American Eagle and Executive Airlines, Inc. under which
American Eagle would sell to American Airlines 47 CRJ-700 Jet Aircraft and 216 Embraer 135, 140 and 145 Jet Aircraft and related assets. Delivery of the Jet Aircraft began on August 31, 2011, and the last Jet Aircraft was expected to be delivered in October 2011. American Airlines would take each Aircraft subject to, and American Eagle would be released from, all outstanding indebtedness relating to the Aircraft. As of the end of the third quarter of 2011, American Eagle had delivered 103 Embraer 135, 140 and 145 Jet Aircraft to American Airlines. According to the 10-Q, as of the end of the third quarter 2011, the net book value of the transferred Aircraft was $877 million, and the aggregate outstanding indebtedness (net of discount) associated with the transferred Aircraft was $712 million. Upon completion of the transfer of the Aircraft from American Eagle to American Airlines, it was expected that American Airlines’ aggregate outstanding indebtedness (net of discount) related to the Aircraft would be approximately $2.1 billion (the “Prepetition Transactions”).
6. By motion filed on December 8, 2011, the Debtors sought authority to (i) Enter into Agreements under Section 1110(a) of the Bankruptcy Code, (ii) Enter into Stipulations to Extend the Time to Comply with Section 1110 of the Bankruptcy Code and (iii) File Redacted Section 1110(b) Stipulations (the “Section 1110 Stipulation Motion”) ECF Doc No. 190.
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7. GE Capital Aviation Services LLC and U.S. Bank National Association, as Trustee, filed objections to the Section 1110 Stipulation Motion. ECF Docs. 329, 335.
8. By Order entered on December 23, 2012 (the “Section 1110 Order”), the Court approved the Section 1110 Stipulation Motion. ECF Doc No. 455.
9. On March 23, 2012, the Court entered an Order pursuant to Sections 105(a) and 107(b) of the Bankruptcy Code and Bankruptcy Rule 9018 establishing procedures for the provision of confidential information by the Debtors to the Committee (the “Protective Order”). ECF Doc No. 1989.
10. From January 26, 2012 to October 1, 2012 the Debtors filed eight Stipulations (“BNDES Stipulations”) under the Section 1110 Order with Banco Nacional de
Desenvolvimento Econômico e Social ("BNDES"), Agência Especial de Financiamento Industrial ("FINAME") and The Bank of New York Mellon Trust Company, N.A. solely as Security Trustee with respect to the financed regional aircraft ("Security Trustee," and collectively with BNDES and FINAME, the "Aircraft Finance Parties"). ECF Doc Nos. 851, 994, 1123, 3050, 3418, 3798, 4066, 4366, 4872.
11. Marathon filed an objection to the Seventh BNDES Stipulation on September 18, 2012, alleging a lack of adequate notice and information to creditors and parties in interest regarding proposed “transactions” contained therein that it alleged could affect recoveries to creditors of billions of dollars.1 ECF Doc No. 4530 at 1-2.
1 Marathon also filed a Limited Objection to the Eighth BNDES Stipulation on substantially similar grounds. ECF Doc No. 4974.
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12. Specifically, Marathon cited the Debtors’ public reporting of a transfer of aircraft from Executive Airlines, Inc. and American Eagle to American Airlines in exchange for an assumption of debt by American Airlines between August 31, 2011 and November 17, 2011, Marathon characterized the Prepetition Transactions as potential fraudulent conveyance claims that could be adversely affected under the terms of the Seventh BNDES Stipulation. Id. at 3-4. Marathon also questioned whether the Committee was in a position to protect the interests of the creditors in all estates with respect to inter-company claims. Id. at 7.
13. On October 9, 2012, the Debtors filed a motion (the “Settlement Motion”) under Sections §§ 105(a), 363 and 1110 of the Bankruptcy Code and Federal Rule of Bankruptcy Procedure (“Bankruptcy Rule”) 9019to approve a settlement (the “Settlement”) authorizing AMR, American Airlines, and American Eagle to (i) enter into a Restructuring Term Sheet relating to 198 regional aircraft with the Financing Parties, and Embraer Netherlands BV, ECC Leasing Company Limited, Embraer S.A. (the “Embraer Parties”); (ii) allowing certain general unsecured non-priority pre-petition claims of the Security Trustee of approximately $650 million against each of American and AMR; (iii) authorizing American to pay certain legal fees and other costs and expenses; (iv) approving the extension of the 60-day period under section 1110 of the Bankruptcy Code with respect to specified aircraft; (v) approving the release of the Financing Parties and the Embraer Parties from certain avoidance and similar claims and
liabilities, if any, in connection with the financing agreements with the Financing Parties and the Prepetition Transactions; and (vi) granting related relief.
14. On the same day, the Debtors filed a motion (the “Sealing Motion”) pursuant to Section 107 of the Bankruptcy Code and Bankruptcy Rule 9018 to seal certain provisions of the
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motion. ECF Doc No. 4937. The Sealing Motion alleged that the Settlement Motion contained sensitive, confidential, commercial information of the Debtors and of the Financing Parties and the Embraer Parties. Id. at 2. The Sealing Motion stated that counsel to the Committee had received an unredacted copy of the Settlement Motion and accompanying Term Sheets in
accordance with the terms of the Protective Order “. . . to permit the [Committee] to evaluate the implications of the transactions described in the Settlement Motion for the Debtors’ estates and intended reorganization, without putting the Debtors at a competitive disadvantage.” Id. at 3.
15. Marathon filed an objection to the Settlement Motion (the “Marathon Settlement Objection”) on October 23, 2012, on the basis, inter alia, that the proposed Settlement
effectively constituted a relinquishment by the Debtors of the right to investigate and seek redress for the Prepetition Transactions among the various estates -- that the Debtors were “. . . trading away rights of American Airlines for benefits to the Debtors as a whole, without allowing a mechanism for American Airlines to obtain a reallocation of value from the other Debtors to it on account of those rights.” ECF Doc No. 5084 at page 2. Manufacturers and Traders Trust Company, as Indenture Trustee filed a joinder to the Marathon Settlement Objection on October 23, 2012. ECF Doc No. 5089.
16. On the same day, Marathon filed a motion for the appointment of an Examiner (the “Examiner Motion”) under Section 1104 of the Bankruptcy Code for the limited purpose of investigating the Prepetition Transactions; determining whether the Prepetition Transactions gave rise to any claims; and assessing the potential effects on any such claims by the Settlement. ECF Doc 5087 at pages 1-2. Marathon stated that it was “. . . unaware of any detailed
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ability of the Committee to provide a reliable assessment of the transactions because the Committee did not represent American Airlines creditors’ exclusively. Id. at footnote 2.
17. The United States Trustee filed a Response in support of the appointment of an Examiner on November 17, 2012, on the basis that Section 1104(c)(2) of the Bankruptcy Code plainly and unambiguously mandated such an appointment because the $5 million unsecured debt threshold contained therein was met. ECF Doc No. 5265
18. On October 29, 2012, the Committee filed a Statement and Conditional Objection (the “Committee Conditional Settlement Objection”), supporting the Settlement Motion subject to certain proposed changes. ECF Doc No. 5165. Specifically, the Committee sought to preserve a continuing oversight role with respect to the contemplated transactions; to obtain clarification of termination rights and concomitant financial consequences of termination; and to preserve the rights of the Committee and all parties in interest to examine and challenge the Prepetition Transactions and the allocation of claims to specific debtors. Id.
19. The Committee Conditional Settlement Objection referenced its review and analysis “over the course of 2012” of substantial information from the Debtors concerning the regional fleet strategy of American Airlines, and the Committee’s numerous meetings with the Debtors, and the preparation of numerous presentations by the Committee’s professionals regarding the negotiation of the Master Term Sheet contemplated in the Settlement Motion and the corresponding transactions, as well as the Committee’s application to retain a valuation consultant to assist in analyzing the financial and economic aspects of the transactions. Id. at 3.
20. The Committee Conditional Settlement Objection also referred to the Debtors originally seeking to approve the Master Term Sheet through an 1110(b) process that “ . . . was,
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in the Committee's view, not sufficiently transparent. The Committee raised this problem with the Debtors and encouraged them to instead seek approval pursuant to [the Settlement Motion] so that all stakeholders could have greater access to the relevant details and form their own judgments and conclusions.” Id.
21. The Committee filed an objection to the Examiner Motion on November 1, 2012, asserting that it had for “many months” been evaluating the Prepetition Transactions, had sought the retention of a valuation consultant to assist in evaluating whether each debtor received reasonably equivalent value from the Prepetition Transactions, and had concluded a preliminary investigation leading to its Conditional Settlement Objection. ECF Doc No. 5202 at 2-3. In disputing Marathon’s contention to the contrary, the Committee stated that precisely because of its fiduciary duty to all of the various Debtors’ creditors, it was well-suited to conduct the investigation. Id.
22. By Stipulation and Order (the “Examiner Withdrawal Stipulation”) entered on November 13, 2012, the Court approved the withdrawal of the Examiner Motion and provided for a mechanism for the reservations of rights with respect to the Prepetition Transactions and the allocation of claims between the Debtors. It also provided that Marathon may file an application under Section 503(b)(3)(D) and 503(b)(4) for allowance of reasonable professional fees and expenses in connection with its objection to the Settlement and to the Seventh and Eighth BNDES Stipulations, the Examiner Motion and the negotiation of the Examiner Withdrawal Stipulation (collectively the Marathon Objections”),
which application may not exceed and shall in no event be allowed in an amount greater than $150,000 in total; provided that the Debtors and the Committee shall not oppose such application; provided
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whether Marathon has met the standards of sections 503(b)(3)(D) and 503(b)(4) of the Bankruptcy Code; provided further that no negative inference shall be drawn by the Debtors’ and the Committee’s failure to object; provided further that this paragraph is a condition to Marathon’s withdrawal of the Examiner Motion and the Marathon Objections…
23. Marathon filed the Application on November 30, 2012. ECF Doc No. 5482. It is predicated upon the Examiner Withdrawal Stipulation and the contention that the Marathon Objections resulted in a substantial contribution in the cases. In support of the Application, Marathon attached its professional’s time records. Application, Exhibit A. The time records were heavily redacted. Id.
III. LEGAL STANDARDS A. Substantial Contribution
i. 11 U.S.C. § 503(b)
24. Sections 503(b)(3)(D) and (4) of the Bankruptcy Code provide, in part: (b) After notice and a hearing, there shall be allowed
administrative expenses, other than claims allowed under section 502(f) of this title, including –
* * *
(3) the actual, necessary expenses, other than compensation and reimbursement specified in paragraph (4) of this subsection, incurred by –
* * *
(D) a creditor . . . or a committee representing creditors or equity security holders other than a committee appointed under section 1102 of this title, in making a substantial contribution in a case under chapter 9 or 11 of this title;
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(4) reasonable compensation for professional
services rendered by an attorney or an accountant of an entity whose expense is allowable under
paragraph (3) of this subsection, based on the time, the nature, the extent and the value of such services, and the cost of comparable services other than in a case under this title, and reimbursement for actual, necessary expenses incurred by such attorney or accountant . . . .
11 U.S.C. §§ 503(b)(3)(D) and (4). ii. Narrow Construction
25. Compensation based upon a “substantial contribution” is designed to meet policy objectives of encouraging meaningful participation in the reorganization process while keeping fees and administrative expenses at a minimum to preserve as much of the estate as possible for creditors. In re U.S. Lines, Inc., 103 B.R. 427, 430 (Bankr.
S.D.N.Y. 1989). Thus, Section 503(b) of the Bankruptcy Code is narrowly construed. See In re Bayou Group LLC, 431 B.R. 549, 560 (Bankr. S.D.N.Y. 2010) (“[T]he section’s policy of promoting meaningful creditor participation in the reorganization process is in tension with the contrasting policy, noted above, that provisions establishing administrative expenses should be construed narrowly and administrative expenses kept to a minimum.”); see also In re Villa Luisa, L.L.C., 354 B.R. 345, 348 (Bankr. S.D.N.Y. 2006) (“Claims for substantial contribution are . . . narrowly construed and are subject to strict scrutiny”) (citing U.S. Lines, 103 B.R. at 429); In re Granite Partners, L.P., 213 B.R. 440, 445 (Bankr. S.D.N.Y. 1997) (“‘substantial contribution provisions must be narrowly construed’ including to ‘discourage mushrooming expenses’ and ‘do not change the basic rule that the attorney must look to his own client for payment.’”).
11 iii. Burden of Proof on Applicant
26. Whether a creditor has made a substantial contribution in a reorganization case is a question of fact. See In re Hooker Invs., Inc., 188 B.R. 117, 120 (S.D.N.Y. 1995). The burden of proof rests on the applicant to show by a preponderance of the evidence that the services it rendered provided a substantial benefit to the estate. In re Best Prods. Co., 173 B.R. 862, 866 (Bankr. S.D.N.Y. 1994); see also Villa Luisa, 354 B.R. at 348 (it is exceedingly difficult to satisfy the burden of proof because a litigant is presumed to act in its own interest). To meet the evidentiary threshold, the movant must establish that “‘[its] services have some causal relationship to the contribution.’ Mere conclusory statements regarding the causation or provision of a substantial contribution are insufficient to establish that a substantial contribution has been made.” U.S. Lines, 103 B.R. at 430. (emphasis in the original).
iv. Actual and Demonstrable Benefit to the Estate At-Large
27. The inclusion of Section 503(b)(4) in the Bankruptcy Code does not change the general rule that an attorney must look to his client for payment of his fees. Granite Partners, 213 B.R. at 445. Rather, compensation under “substantial contribution” grounds “is limited to those extraordinary actions that lead to an ‘actual and demonstrable benefit to the debtor’s estate, the creditors, and to the extent relevant, the stockholders.’” In re Randall’s Island Family Golf Ctrs., Inc., 300 B.R. 590, 598 (Bankr. S.D.N.Y. 2003) (quoting In re Jensen-Farley Pictures, Inc., 47 B.R. 557, 569 (Bankr. D. Utah 1985)); accord Best Prods., 173 B.R. at 866 and In re Alert Holdings, Inc., 157 B.R. 753, 757 (Bankr. S.D.N.Y. 1993).
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28. In determining whether a creditor has made a substantial contribution, courts generally consider the following factors:
a. whether the services benefitted the creditor or all creditors;
b. whether the services provided a direct, significant and demonstrable benefit to the estate; and
c. whether the services rendered were duplicative of services rendered by attorneys for the committee, the committees themselves, or the debtor and its attorneys.
Best Prods., 173 B.R. at 865.
29. Active participation alone is insufficient to give rise to a substantial contribution claim. Granite Partners, 213 B.R. at 446; see also In re Big Rivers Elec. Corp., 233 B.R. 739, 749-50 (W.D. Ky. 1998) (actions taken by claimants in doing such things as documenting transactions that formed the basis of debtor’s plan of
reorganization, sharing expense of audit of environmental issues relating to debtor’s plans, assisting debtor in negotiating certain contracts, and analyzing debtor’s manpower issues, lacked any motivation to benefit or increase the bankruptcy estate but, instead, were designed solely to increase claimant’s economic position, and so claimants were not entitled to recover on their claims for substantial contribution). Participating in the negotiating, drafting and confirmation of a reorganization plan is not sufficient to support a substantial contribution claim. See Granite Partners, 213 B.R. at 449; see also In re Sentinel Mgmt., 404 B.R. 488, 496 (Bankr. N.D. Ill. 2009) (noting that negotiation, even when hard fought by parties involved, of a provision in Chapter 11 plan is an expected and routine activity, that does not give rise to a substantial contribution to the estate).
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v. Insubstantial and Duplicative Services are Not Compensable
30. Requests for compensation for insubstantial or duplicative services or services that deplete rather than increase the size of estate assets should be denied. U.S. Lines, 103 B.R. at 429-430; see also In re Asarco, LLC, No. 05-21207, 2010 WL 3812642, at *8 (Bankr. S.D.N.Y. Tex. Sep. 28, 2010) (“Activities of a creditor or their counsel that are ordinary, expected, routine, or duplicative do not constitute a substantial contribution to a debtor’s estate.”). An applicant cannot recover fees related to case administration, monitoring and education, including attending hearings, reviewing documents and consulting with clients because these services are performed for the client, not the estate. Granite Partners, 213 B.R. at 453-54. Further, because settlement negotiations require the participation of many parties-in-interest, they usually do not give rise to substantial contribution claims. See Matter of Columbia Gas Sys., Inc., 224 B.R. 540, 549 (Bankr. D. Del. 1998) (creditor’s Section 503(b) claims were rejected where the evidence showed that the participation of many parties was needed to effectuate a
settlement); see also In re Alumni Hotel Corp., 203 B.R. 624, 632 (Bankr. E. D. Mich. 1996) (successful reorganizations require consensual activity and if one applicant’s fees are approved, others might argue they also made a substantial contribution).
B. Reasonableness i. 11 U.S.C. § 503(b)
31. Under Section 503(b) of the Bankruptcy Code, a creditor who makes a substantial contribution is entitled to reasonable fees and necessary expenses of its attorneys and accountants. Alert Holdings, 157 B.R. at 757. Under Section 503(b)(4),
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the Court retains the right to review professional fees for reasonableness but the applicant must first establish that it made a substantial contribution. In re Mariner Post-Acute Network, Inc., 267 B.R. 46, 61 (Bankr. D. Del. 2001). To the extent that “substantial contribution” is proven, then the standards as set forth in Section 330 of the Bankruptcy Code apply in determining the extent the fees and expenses of the professional are reimbursable under Section 503(b)(4). See, e.g. In re Wind N’Wave, 509 F.3d 938, 944 (9th Cir. 2007); In re Celotex Corp., 227 F.3d 1336, 1341 (11th Cir. 2000).
ii. 11 U.S.C. § 330
32. The reasonableness standard set forth in 11 U.S.C. § 330 provides, in part: (a)(1) After notice . . . and a hearing . . . the court may award to a .
. . professional person employed under section 327 or 1103 – (A) reasonable compensation for actual, necessary services rendered by the . . . professional person or attorney and by any paraprofessional employed by any such person; and
(B) reimbursement for actual and necessary expenses. 11 U.S.C. § 330(a)(1).
33. Factors that the Court considers in determining reasonableness are set forth in Sections 330(a)(3), (4) and (6). Section 330(a)(3) of the Bankruptcy Code provides:
(3) In determining the amount of reasonable compensation, to be awarded to . . . a professional person, the court shall consider the nature, the extent, and the value of such services, taking into account all relevant factors, including –
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(B) the rates charged for such services;
(C) whether the services were necessary to the administration of, or beneficial at the time at which the service was rendered toward the completion of, a case under this title;
(D) whether the services were performed within a reasonable amount of time commensurate with the complexity, importance, and nature of the problem, issue, or task addressed;
(E) with respect to a professional person, whether the person is board certified or otherwise has
demonstrated skill and experience in the bankruptcy field; and
(F) whether the compensation is reasonable based on the customary compensation charged by
comparably skilled practitioners in cases other than cases under this title.
11 U.S.C. § 330(a)(3)(A) through (F).
34. Under Section 330(a)(4) of the Bankruptcy Code: (a)(4) the court shall not allow compensation for --
(i) unnecessary duplication of services; or (ii) services that were not -
a. reasonably likely to benefit the debtor’s estate; or
b. necessary to the administration of the case.
11 U.S.C. § 330(a)(4).
35. The applicant has the burden of proving that the services rendered were actual and necessary, and that the compensation sought was reasonable. In re Bennett
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Funding Group, Inc., 213 B.R. 234, 244 (Bankr. N.D.N.Y. 1997). The services must be both necessary and reasonable. In re Keene Corp., 205 B.R. 690, 696 (Bankr. S.D.N.Y. 1997). Services are necessary if they benefit the estate. Id. “The determination of reasonableness is an objective test that considers what services a reasonable lawyer or legal firm would have performed in the same circumstances.” In re Ames Dep’t. Stores, Inc., 76 F.3d 66, 72 (2d Cir.1996) (citing In re Taxman Clothing Co., 49 F.3d 310, 315 (7th Cir.1995)); accord In re Drexel Burnham Lambert Group, Inc., 133 B.R. 13, 23 (Bankr. S.D.N.Y. 1991).
36. Applicants must support their requests for fees and expenses with specific, detailed and itemized documentation to meet their burden of proof. Bennett Funding, 213 B.R. at 244-45. Under Section 330(a)(1)(B), a professional seeking an expense reimbursement from the estate “must furnish enough specificity for the Court to establish whether a given expense was both actual and necessary.” In re Fibermark, Inc., 349 B.R. 385, 399 (Bankr. D. Vt. 2006). Expenses are actual if they are actually incurred and necessary if “reasonably needed to accomplish proper representation of the client.” In re Korea Chosun Daily Times, Inc., 337 B.R. 758, 769 (Bankr. E.D.N.Y. 2005).
37. In the Southern District of New York, applicants must also comply with United States Trustee Fee Guidelines (the “UST Guidelines”), the Court’s Amended Guidelines for Fees and Disbursements for Professionals in Southern District of New York Bankruptcy Cases (General Order M-389) (as amended) (the “Amended Court Guidelines”) (collectively, the “Fee Guidelines”). The Fee Guidelines require, among other things, that applicants arrange detailed time entries in project categories, see UST
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Guidelines Section 4(i), and file a certification with their applications. See Amended Court Guidelines at 1.
IV. OBJECTION
Marathon has not Met its Burden to Establish a Substantial Contribution Claim. 38. Marathon states that “absent [its] considerable efforts to protect American Airlines’ rights in respect of the Prepetition Transactions, those rights would not have been protected.” Application, at pages 3-4. In sum, Marathon contends that it made a substantial contribution in these cases because absent the filing by it of its various Objections and Motion for an Examiner, there was no party, including the Committee, that was prepared to fully investigate the Prepetition Transactions and to allocate between the estates the proceeds of potential recoveries.
39. In its Application, Marathon simply states that it was unable to obtain a definitive answer from the Committee or the Ad Hoc Group of Financial Creditors regarding whether they would be objecting to the initial attempts of the Debtors to obtain approval of the settlement terms, and that ultimately Marathon was the only party to object. Application, at page 3. However, as shown below, Marathon’s claims regarding the Committee’s unwillingness or inability to fulfill the Committee’s fiduciary obligation to all creditors by fully investigating the Prepetition Transactions were disputed.
40. Specifically, the first of the Marathon Objections was filed on September 18, 2012. ECF Doc 4530. In that Objection, Marathon referred to the Prepetition Transactions as potential fraudulent conveyance claims which could be adversely affected under the terms of the Seventh BNDES Stipulation. In that Objection, Marathon raised issues with respect to the
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Committee’s ability to fairly investigate the Prepetition Transactions on behalf of the creditors of American Airlines. ECF Doc No. 4530, at page 7.
41. Similarly, in the Marathon Settlement Objection, Marathon stated that it was “. . . unaware of any detailed investigation of the Prepetition Transactions to date by the
[Committee],” and againquestioned the ability of the Committee to provide a reliable assessment of the transactions because the Committee did not represent American Airlines creditors’
exclusively. ECF Doc No. 5087 at footnote 2.
42. As shown below, these assertions by Marathon were disputed by the Committee. To begin with, in a footnote to its Objection to the Seventh BNDES Stipulation, Marathon itself acknowledged that Committee counsel had access to confidential information under the terms of the Protective Order that Marathon did not have, while questioning whether Committee members possessing solely American Airlines’ creditors’ interests had reviewed the transactions. ECF Doc No. 4530, at footnote 5.
43. Therefore, based upon the record, it appears that Marathon was aware that it had neither the extensive information possessed by the Committee nor the knowledge of the
Committee’s actions in exercising its fiduciary duty to the creditors of the Debtors’ estates. Marathon’s statement, however, that it was unaware of any detailed investigation by the
Committee into the Prepetition Transactions does not mean that the Committee was unaware of those transactions, or that it had not conducted an investigation. The Prepetition Transactions were public knowledge from the inception of the cases because of the disclosure by American Airlines in its 10-Q on October 19, 2011.
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44. The Committee Conditional Settlement Objection detailed its review and analysis “over the course of 2012” of substantial information from the Debtors concerning the regional fleet strategy of American Airlines, and the Committee’s numerous meetings with the Debtors, and the preparation of numerous presentations by the Committee’s professionals regarding the negotiation of the Master Term Sheet contemplated in the Settlement Motion and the
corresponding transactions, as well as the Committee’s application to retain a valuation
consultant to assist in analyzing the financial and economic aspects of the transactions. Id. at 3. 45. In the Committee’s Examiner Response, it stated that it had for “many months” prior to the filing of the Examiner Motion been evaluating the Prepetition Transactions. ECF Doc No. 5202 at page 3. It sought the retention of a valuation consultant in October, 2012 to assist in evaluating whether each debtor received reasonably equivalent value from the
Prepetition Transactions, and had concluded a preliminary investigation. ECF Doc No. 5202 at page 4.
46. The Committee Conditional Settlement Objection also referred to fact that the Debtors originally sought to approve the Master Term Sheet through an 1110(b) process that “. . . was, in the Committee's view, not sufficiently transparent. The Committee raised this problem with the Debtors and encouraged them to instead seek approval pursuant to [the Settlement Motion] so that all stakeholders could have greater access to the relevant details and form their own judgments and conclusions.” Id.
47. Marathon is presumed to have acted in its own self-interest. Villa Luisa, 354 B.R. at 348 It has not met its burden of demonstrating that, but for its efforts, American Airlines’ rights in respect of the Prepetition Transactions would not have been protected. Services that
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duplicate those rendered by other court appointed officers, absent proof that they are unwilling or unable to act, are not compensable as substantial contributions. Granite Partners, 213 B.R. at 446 ; U.S. Lines, 103 B.R. at 429. In this case, the Committee has expressed both the
willingness and ability to act, and Marathon has not provided proof of the Committee’s
unwillingness or lack of capacity to do so. Id. It has therefore not met its burden under Section 503(b). Best Prods., 173 B.R. 862 at 866.
Marathon Has not Established Reasonableness of the Professional Fees.
48. In the event the Court finds that Marathon has met its burden to establish the threshold requirements for “substantial contribution,” then the standards set forth in Section 330 of the Bankruptcy Code apply in determining the extent the fees and expenses of the professional are reimbursable under Section 503(b)(4). See, e.g. Wind N’Wave, 509 F.3d at 944; In re
Celotex Corp., 227 F.3d 1336, 1341 (11th Cir. 2000).
49. Marathon has the burden of proving that the services rendered were actual and necessary, and that the compensation sought was reasonable and must support its request for fees with specific, detailed and itemized documentation to meet its burden of proof. See Bennett Funding, 213 B.R. at 244-45. It has failed to do so.
50. Marathon seeks professional fees for its attorneys, Wilmer Cutler in the amount of $150,000.00, which is the amount of the cap contained in the Examiner Withdrawal Order. It supports its fee application with heavily redacted time records, which are completely opaque. They contain references to purported tasks such as e-mails, telephone conferences drafting, discussion, revision, study, conference, research, review, and meetings. See Application at Exhibit A. Other than identifying the name of the person performing the general tasks, and the
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amount of time expended in total for each entry or group of entries, a total number of hours and an aggregate fee of $206,891.50, there is absolutely no information upon which a reviewer can ascertain the nature and reasonableness of the work performed and the fee sought. The
application does not even minimally meet the requirements of Section 330 or the Fee Guidelines, nor does it identify the hourly rates of the listed parties, or whether they are attorneys or other personnel.
51. Attorneys are permitted in appropriate circumstances to extract from billing records and redact certain information, but they must provide sufficient detail to support the fee claimed. See e.g. In re 110 Tenth Avenue Associates, Inc., 2010 WL 3304204 at *1 (Bankr.
S.D.N.Y. 2010). See also In re 50 Pine Co., LLC, 317 B.R. 276, 286 (Bankr. S.D.N.Y. 2004)(in contract and unjust enrichment action, noting that the redaction of descriptions of services rendered in their entirety, precluded a determination of reasonableness); RN1 Wind Down Corporation, 2007 WL 949647 *6 (Bankr. Del. 2007)(in context of reviewing settlement , Court unable to determine reasonableness of fees due to redacted time records). The burden of proof is on the party seeking attorneys’ fees to prove their reasonableness, and that burden is not met to the extent the time entries are redacted. In re Frazin, 413 B.R. 378, 418 (Bankr. N.D. Tx 2009)(Denying fees to the extent of redacted entries.). Redacted time entries preventthe court from performing the review required by Section 330(a)(4)(a). In re Las Vegas Monorail
Company, 458 B.R. 553, 559 (Bankr. Nev. 2011)(denying interim fees without prejudice due to redacted time entries.).
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52. Because Marathon and Wilmer Cutler have failed to meet their burden to
demonstrate the reasonableness of the fees sought, the application must be denied irrespective of whether the threshold issues regarding substantial contribution are met.
IV. CONCLUSION
For the reasons set forth above, the United States Trustee respectfully requests that the Court sustain the Objection and grant such other and further relief as is just.
Dated: December 12, 2012
Respectfully submitted, TRACY HOPE DAVIS UNITED STATES TRUSTEE By: /s/ Eric J. Small
Eric J. Small Richard Morrissey Trial Attorneys
33 Whitehall Street, 21st Floor New York, New York 10004 (212) 510-0500
