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Will You Be My Counsel?

Alan J. Mandel Law Offices had been representing a Debtor in Possession (DIP) in Chapter 11 and sought final payment for Attorneys’ fees as well as expenses. Ultimately Mandel received only part of the requested compensation due to its overly broad reading of the Bankruptcy Code and the resulting attempt to fit a square peg into a round hole.

Officially “No” … Unofficially “Yes”
Multiut, an Illinois Corporation, filed a Chapter 11 Petition on May 14, 2009 due largely to litigation between it and Dynegy Marketing and Trade. Mandel, who was eventually retained with Court approval, served as outside general counsel to Multiut during the litigation and even acted as Bankruptcy Counsel. But Mandel was not hired by Multuit until January 22, 2010 and was not “officially” retained until February 1, 2010; at which point it sought payment for fees and costs retroactive to the Petition Date via a legal technique known as nunc pro tunc (Latin for ‘now, for then’).

But as a creditor of Multuit’s with a stake in the outcome of its Chapter 11 reorganization, Dynegy fought back by voicing its displeasure at the apparent conflict of interest between Mandel the litigator and Mandel the bankruptcy attorney. Due in part to those objections, Multiut’s Plan of Reorganization failed and the case was converted to a Chapter 7 liquidation – ensuring that almost nobody got anything.

It’s the Latin, Stupid
In its ruling, the Court noted that under Sec.330 of the Bankruptcy Code, as well as case law on the subject from the 7th Circuit, an Attorney not retained in accordance with the Code is ineligible for compensation regardless of whether its work benefited the bankruptcy estate. In other words, the Bankruptcy Court would not go out of its way to avoid stiffing a lawyer: if an Attorney failed to plan it looked like they might as well have planned to fail. As for the nunc pro tunc argument, the Mandel Court noted that other courts had considered it and concluded that nunc pro tunc retention ought to be permitted only in “extraordinary circumstances,” whatever that meant. That said, the Court granted Mandel compensation in this case. So all’s well that ends well, right? Well not exactly …

Game of Counsels
The decision to grant some fees and costs to Mandel was not the end of the inquiry. After looking into the facts, the Court noted that many of the services recorded by Mandel were compensable only under Sec. 327(a) of the Bankruptcy Code: not Sec. 327(e). The latter section, which was the basis of the Mandel Application for Compensation, was narrower in scope and did not include the same activities.

So, did Mandel go too far? To the Court there was no question in this case. “General Chapter 11 Administrative” services were not within the purview of 327(e), which explicitly states that services must be for a specific purpose other than the Bankruptcy case itself. The kinds of “day to day activities” recorded by Mandel were clearly connected with the Bankruptcy case and thus not payable under 327(e). What’s more, the Debtor had already obtained 327(a) Counsel to handle the Bankruptcy case, so Mandel should have known it could not take on “day to day” activities and expect to be paid.

A Man’s Got to Know His Limitations
The upshot of the Mandel decision is simple: respect the Bankruptcy Code or face the consequences. Get compensated the right way, or expect to go back to the office at least partially empty-handed.
If you enjoyed this post feel free to contact M. Hedayat & Associates today. The firm has been expertly handling Bankruptcy cases of all kinds for nearly twenty years.
IN RE MULTIUT CORPORATION, Bankr. Court, ND Illinois 2012

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