Court Reconsiders Order, Grants Trustee's Counsel Fees In Excess of Carve-Out and Approves Reduction of Carve-Out for Unsecured Creditors
In re Argose, Inc., 377 B.R. 148 (Bankr. D. Del. 2007) (Judge Mary F. Walrath)
The Trustee of the debtor’s Chapter 7 estate entered into a stipulation with the debtor’s secured lenders for the payment of fees to Trustee’s counsel. The stipulation permitted a carve-out for Trustee’s counsel of $50,000, which could be renegotiated depending on the “complexity” of the sale of the debtor’s assets. The stipulation also carved out $50,000 for unsecured creditors. The Court entered an order approving the stipulation. After asset sales that returned far less for the estate than anticipated, Trustee’s counsel submitted final fee applications for $81,393.50. After the Court approved the application, the Trustee paid the fee to his counsel. The Trustee then moved to modify the order approving the stipulation to allow the higher fees, and represented to the Court that, as a consequence, after payment of the Trustee’s commissions, there would be insufficient funds to pay to the unsecured creditors their full $50,000 carve out. The Court denied the motion, and the Trustee moved for reconsideration. On reconsideration, the Court reversed itself, finding that the stipulation permitted this course of action.
In the case of this Chapter 7 debtor, Argose, Inc., the Court approved a stipulation between the Trustee and the pre-petition lender to the estate authorizing a carve-out from the lender’s collateral of $50,000 for the Trustee’s counsel and $50,000 for unsecured creditors.
The Court approved counsels’ final fee applications, totaling $81,393.50, and the Trustee paid the fees, even though they exceed the cap. The Trustee then filed a motion to modify the order to permit payment of the additional fees because of what the Trustee called “unanticipated” complexity on the sale of the debtor’s assets, and to reduce the carve-out for unsecured creditors to $30,000. The Court denied the motion, finding it was unclear why a modification was needed when there seemed to be sufficient funds in the estate to pay the unsecured creditors and the increased counsel fees and because there appeared to be no basis for the relief requested. The Trustee moved for reconsideration. There were no objections to the motion for reconsideration.
At a hearing on the motion, counsel for the Trustee explained that the modification was needed because, although the estate had $52,500 cash on hand, the Trustee’s commission might be as high as $16,165.91, leaving insufficient funds to pay the unsecured creditors the $50,000 carve-out allotted in the stipulation that the Court approved. Counsel further noted that the carve-out provided for renegotiation of fees “depending on the complexity of sale” of the collateral. In fact, the sale took longer than expected, and realized fewer proceeds than expected. Finally, counsel for the Trustee argued that because the unsecured creditors were not a party to the stipulation, they had no expectation of receiving the $50,000 carve out provided therein.
The Court reversed its earlier order and granted to motion for modification of the order approving the stipulation. The lender had secured claims of approximately $8.3 million on the petition date. There were no priority claims, and about $155,193.39 in unsecured claims. The Court found that when the parties entered into the stipulation, they believed that the sale of assets would realize sufficient funds to pay the carve-outs and provide a recovery for the secured creditors. However, the sale of assets only yielded $50,000.
Because the lenders had liens on all the assets of the estate, and because the stipulation allowed for renegotiation of the carve-out for counsel fees “depending upon the complexity of sale” of the assets, the Court granted motion and ordered that the carve-out for unsecureds would be reduced to $30,000.
