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understand the basis of the bankruptcy court's decision. Here, the bankruptcy court made such a determination and the BAP is not left with a "definite and firm conviction that a mistake has been committed." Thus, the bankruptcy court's decision to not allow certain fees due to what it viewed as overlawyering on the part of the Trust is affirmed.
Facts: Pre-petition, XO Communications, Inc. ("XO") hired Houlihan Lokey Howard & Zukin Capital ("Houlihan") pursuant to an engagement letter (the "Engagement Letter") to help XO secure financing. Under the Engagement Letter, XO paid a $250,000 monthly fee and Houlihan could earn a transaction fee (the "Transaction Fee") calculated as a percentage of XO's total outstanding debt. XO had two pre-packaged plans it was going to pursue going into bankruptcy: Plan A involved closing on a stock-purchase agreement and, if that failed, Plan B involved creating a stand-alone plan. XO declared bankruptcy and, on the same day, filed its disclosure statement, plan (with Plans A and B), and a motion to retain Houlihan under the terms of the Engagement Letter. Certain parties objected to the Transaction Fee being paid under Plan B but not Plan A; Houlihan was retained under § 328 with the possibility of earning a Transaction Fee if Plan A closed but whether Houlihan earned a transaction fee if Plan B closed was to be determined at a later date. Plan A never closed and Plan B was consummated. Houlihan filed a fee application and requested a Transaction Fee of $20 million with respect to Plan B. The bankruptcy court awarded Houlihan $4 million - $2 million of which represented a transaction fee for Plan B's closing - but failed to provide sufficient details of the award for the transaction fee; the Second Circuit remanded the matter to the bankruptcy court for more details.
Issues: Whether Houlihan is entitled to a Transaction Fee for the successful closing of Plan B under the Engagement Letter that was approved by the bankruptcy court.
Rules: A § 328 retention involves a bankruptcy court determining whether the terms of the retention are reasonable on a forward-looking basis based on the facts known at the time of the retention. Once a party is retained under § 328, "there is no 'look back' to examine the reasonableness of the compensation in the context of the nexus between the effort expended by the financial advisor and the culmination of the transaction." On the other hand, a court reviews a fee application under § 330 for reasonableness by looking back to determine whether the fees requested are reasonable in light of the facts that took place when the services at issue were rendered - the court considers the "nature, the extent, and the value of such services." When determining whether fees requested by a financial advisor are reasonable under § 330, the court considers "(i) whether the financial advisor's services were necessary and beneficial to the estates at the time they were rendered, and (ii) whether the compensation is reasonable based on the customary compensation charged by comparably skilled practitioners in cases outside bankruptcy."
Holding: The court explained its prior $2 million award for the restructuring of secured debt and awarded an additional $1 million for the restructuring of unsecured debt under Plan B.
Reasoning: Here, although Houlihan was retained under § 328 and was able to get a Transaction Fee if Plan A was consummated, such was not the case with respect to Plan B. Therefore, the court reviewed Houlihan's Transaction Fee request under § 330. At the time Houlihan was retained in bankruptcy, the court noted that it did not believe that the market would have supported paying a $20 million transaction fee for Plan B. Ultimately, the court decided that "Houlihan failed to establish the relationship between its assistance and the actual restructuring of that debt because [at the time Houlihan was hired] the unsecured debt was 'out of the money.' Houlihan had little discernable impact on that effort." However, the court felt that Houlihan had assisted enough in the consummation of Plan B that it should be awarded an additional $1 million for the restructuring of unsecured debt (in addition to what had been previously awarded).
