IN THE DISTRICT COURT OF THE VIRGIN ISLANDS
BANKRUPTCY DIVISION
ST. CROIX, VIRGIN ISLANDS
In re: ) Chapter 11
)
HOVENSA L.L.C., )
) Case No. 1:15-bk-10003 (MFW)
Debtors. )
______________________________)
MEMORANDUM OPINION1
Before the Court is the Motion of Attorney Lee J. Rohn for
Disgorgement of Fees or in the Alternative for a Fee Audit of the
fees paid to counsel for the Liquidating Trustee. Although the
Court agrees with Attorney Rohn that her dispute over the fees
paid by the Liquidating Trustee to his counsel is within the
jurisdiction of this Court, it finds that the fees are reasonable
and that disgorgement is not appropriate for the reasons stated
below.
I. BACKGROUND
On September 15, 2015, Hovensa L.L.C. (the “Debtor”) filed a
petition under chapter 11 of the Bankruptcy Code. On January 20,
2016, the Court confirmed the Debtor’s Second Amended Plan (the
“Plan”). (D.I. 563, 572.) The Plan established the Hovensa
Liquidating Trust (the “Trust”) to administer the Trust’s assets
and to resolve general unsecured claims through distribution and
1 This Memorandum Opinion constitutes the findings of
fact and conclusions of law of the Court pursuant to Rule 7052 of
the Federal Rules of Bankruptcy Procedure.
other means. Under the Plan, Jay Borow was appointed as the
Liquidating Trustee. The Plan also provided for an Oversight
Committee consisting of three members: John Keough, Stephen
Weisbrod, and Lee Rohn. The Trust was charged with resolution
and payment of the remaining unsecured claims. The Liquidating
Trustee retained Dentons US LLP (“Dentons”)2 as general counsel
and Weisbrod Matteis and Copley (“WMC”)3 as special insurance
counsel.
The Liquidating Trust has since resolved and paid all trade
claims, with the approval of the tort claimant representatives
and the Court. (D.I. 856 & 864.) After extensive negotiation,
the Trust and Oversight Committee also agreed to a procedure for
the resolution of tort claims, which was approved by this Court.
(D.I. 1042.) Under that procedure, tort claimants were given two
options. Under Option 1, claimants agreed to have their claims
against the estate valued by retired Judge Henry Smock in a very
expedited and summary fashion after submission of relevant
information. (Id. at ¶ 14.) Those claims would then be paid
their pro rata share of the funds held by the Trust. (Id. at ¶¶
15 & 23.) Option 2 granted immediate relief from the stay and
the Plan injunctions to claimants who were then free to pursue
2 Dentons had served as counsel to the Unsecured
Creditors’ Committee during the chapter 11 case.
3 WMC was a firm owned by Stephen Weisbrod, a member of
the Oversight Committee.
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the Debtor’s insurance carrier and any other parties who might be
responsible for their claims. (Id. at ¶¶ 30-31.) Option 2
claimants, however, waived any claims and rights to a
distribution they may have against the estate. (Id. at ¶ 32.)
Attorney Rohn represents approximately 70% of the claimants who
elected Option 1 and a substantial number of claimants who
elected Option 2. (D.I. 1177 at ¶ 22.)
On October 15, 2018, Attorney Rohn filed a Motion for
Disgorgement of Fees or in the Alternative a Motion for Fee Audit
of Dentons and WMC. (D.I. 1173.) The Liquidating Trustee filed
a Request for Summary Disposition of, and Preliminary and
Procedural Objection to, the Motion. (D.I. 1177.) A hearing was
scheduled on the Motion for November 15, 2018, but was canceled
when the parties asked that the Court rule on the written
submissions. The matter is ripe for decision.
II. ARGUMENT
A. Jurisdiction
The Liquidating Trustee contends, as a preliminary
objection, that the Court does not have jurisdiction to review
the fees of his professionals. He argues that the confirmed Plan
provided, through the Liquidating Trust documents, for review of
his professionals’ fees only by him and the Oversight Committee.
(D.I. 563 at Art. VII.F.) The Confirmation Order itself provided
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that once approved in that manner, such fees “shall be paid” by
the Trust “without any further notice to or action, order, or
approval of the Bankruptcy Court.” (D.I. 572 at ¶ 56.) Although
the Bankruptcy Court retained jurisdiction after confirmation to
resolve general disputes, the Liquidating Trustee contends that
it does not have jurisdiction over the approval or payment of his
professionals’ fees.
Attorney Rohn responds that the provisions of the Plan and
Confirmation Order which allow payment of the Liquidating
Trustee’s professionals’ fees without Court Order does not mean
that the Court has no jurisdiction over those fees. She points
to the Liquidating Trust documents as support for her contention
that any dispute over those fees falls within the Bankruptcy
Court’s jurisdiction. (D.I. 596.)
The Court agrees with Attorney Rohn. The Liquidating Trust
documents expressly provide that if there is a dispute over the
fees of the Liquidating Trustee’s professionals, the Bankruptcy
Court will have jurisdiction to decide that dispute. The
Liquidating Trust Agreement provides that “the Bankruptcy Court
shall retain exclusive jurisdiction over the Liquidating Trust
after the Effective Date, including, without limitation,
jurisdiction to resolve any and all controversies, suits and
issues that may arise in connection therewith.” (Id. at § 12.8.)
In addition, section 2.6 specifically states that “[i]f the
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parties are unable to reach a consensual resolution of any [fee]
objection, the party who received an objection to its fees and
expenses may seek payment of such fees and expenses by filing a
motion with and obtaining an Order from the Bankruptcy Court.”
(Id. at § 2.6(b).) Similarly, section 4.5 of the Liquidating
Trust Agreement provides that “[a]ny disputes between and among
the Oversight Committee, its Members or the Liquidating Trustee
shall be resolved by the Bankruptcy Court, and the Liquidating
Trustee shall bring any such dispute to the Bankruptcy Court for
resolution if so requested in writing by any of such parties.”
(Id. at § 4.5.)
Therefore, the Court concludes that it has jurisdiction to
decide the Motion filed by Attorney Rohn.
B. Timeliness
The Liquidating Trustee also contends that Attorney Rohn’s
Motion is grossly untimely because it seeks disgorgement of fees
allowed and paid for the 31 months that the Liquidating Trust has
been operating. He contends that changing the fee procedures at
this late date is an impermissible modification of the Plan. 11
U.S.C. § 1127(b) (prohibiting modification of a plan post-
confirmation if the plan has been substantially consummated).
The Court rejects the Trustee’s argument that the Motion
filed by Attorney Rohn seeks to impermissibly modify the
confirmed Plan because, as the Court finds above, the request is
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in compliance with both the Plan and the Liquidating Trust
Agreements.
The Court does agree with the Liquidating Trustee, however,
that the Motion is barred by the doctrine of laches. See, e.g.,
Lehman Bros. Holdings Inc. v. Spanish Broad. Sys., Inc., No.
CIV.A. 8321-VCG, 2014 WL 718430, at *7 (Del. Ch. Feb. 25, 2014),
aff’d,
105 A.3d 989 (Del. 22014) (stating that “equity
encompasses the doctrine that if a plaintiff seeking equitable
relief unreasonably delays in bringing her claim, and that delay
unfairly prejudices the defendant, laches will bar the equitable
relief the plaintiff seeks.”).
The Motion seeks review and disgorgement of fees going back
as far as February 2016. (D.I. 1173 at Exs. 7 & 8.) Attorney
Rohn did not advise the Liquidating Trustee in writing of any
objections to those fees, however, until July 2017. (Id. at Ex.
1.) The July 19, 2017, letter expressed concerns only with
respect to Dentons’ May 2017 statement. (Id.) Her complaints
thereafter were intermittant. (Id. at Exs. 3 & 5.) Further, the
Oversight Committee (of which she was a member) reviewed all of
the fee requests of the Liquidating Trustee’s professionals and
approved them unanimously or by a two to one vote. (Id. at Exs.
2 & 6.) The Liquidating Trustee’s professionals relied on
approval and payment of their fees in accordance with that
procedure.
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Because Attorney Rohn did not file her Motion with the Court
until October 15, 2018, the Court concludes that she sat on her
rights and disgorgement of the professionals’ fees at this late
date (almost three years after some of them were incurred) is
barred by the doctrine of laches.
C. Merits of the Motion
Even if the Motion were not barred by laches, the Court
concludes that it is without merit. In her Motion, Attorney Rohn
contends that Dentons and WMC have overbilled the estate by
billing for duplication of services (including intra-office
conferences), secretarial or clerical work, and submitting vague
descriptions of services, citing In re D’Amico, No. 05-19217,
2009 WL 2982987 (Bankr. N.D.N.Y. Sept. 14, 2009); In re New
Boston Coke Corp.,
299 B.R. 432 (Bankr. E.D. Mich. 2003); In re
Bennett Funding Group, Inc.,
213 B.R. 234 (Bankr. N.D.N.Y. 1997).
The Liquidating Trustee contends that the cases cited by
Attorney Rohn are inapposite because they concerned the approval
of fees of professionals of the estate under sections 327 through
330 of the Bankruptcy Code which are no longer applicable because
the fees in question are for post-confirmation professionals.
The Court disagrees with the Liquidating Trustee. Under the
Bankruptcy Code, fees must be “reasonable” to be eligible for
compensation. The Liquidating Trust Agreement itself provides
for a “reasonableness” standard for fees of the Liquidating
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Trustee, his professionals, and members of the Oversight
Committee. (D.I. 596 at §§ 2.5 & 4.5.) Therefore, the Court
concludes that it is appropriate to apply that standard to the
fees to which Attorney Rohn objects.
However, the Court does agree that the cases cited by
Attorney Rohn are not applicable because they do not state the
standard for the determination of reasonable fees articulated in
the Third Circuit. See, e.g., In re Busy Beaver Bldg. Centers,
Inc., 19 F.3d 833 (3d Cir. 1994). Further, while the Motion
attaches what purports to be a fee audit (the “Audit”) and
identifies certain entries in the invoices which Attorney Rohn
asserts are not compensable, the Court disagrees with her
conclusion that compensation is not appropriate for those
services.
1. Administrative services
The Motion objects to entries it describes as
“administrative” and alleges that these are “clearly overhead
expenses and the cost of doing business.” Attorney Rohn asserts
that such services are not compensable. See, e.g., D’Amico, 2009
WL 2982987, at * 4.
The Third Circuit has, however, rejected a per se rule
disallowing clerical or administrative services, noting that “we
expect that, when feasible, members of the bar representing
debtors will engage paralegals and other support staff when they
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are able to render legal services efficiently yet effectively,
with the objective of alleviating the diminution of the estate's
assets.” Busy Beaver, 19 F.3d at 852.
Applying Third Circuit law, it is clear that the objection
to compensation for administrative services is without merit.
Dentons’ entries show the need for the services rendered, which
included the establishment and maintenance of an extranet data
room for the tort claims, reviewing and serving pleadings in the
case, preparing exhibits, retrieving documents, and similar
tasks. (D.I. 1173 at Ex. 7.) The WMC entries to which Attorney
Rohn objects as administrative are similar: they involved the
organization of the relevant insurance policies and preparation
of a chart of them; the creation of a folder in their system for
all relevant insurance documents and emails; downloading,
reviewing, organizing, and maintaining a database of documents
produced in litigation; researching and organizing documents for
an upcoming hearing; and retrieving, organizing, and compressing
documents for electronic production to opposing counsel. (Id. at
Ex. 8.)
The Court concludes that all of these tasks are those
typically performed by paralegals or lower level associates and
do involve the exercise of legal judgment and expertise. As
such, the Court concludes that these tasks are clearly the
provision of legal services and were appropriately performed by
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lower level associates or paralegals. Further, the Court does
not find that billing for these administrative services was
excessive in this case.4 Instead, it was an efficient and
effective manner of providing services to the Liquidating Trustee
and fully consistent with Third Circuit law. Busy Beaver, 19
F.3d at 852.
2. Vague descriptions/blockbilling
The Motion also objects to entries described as “vague, non-
descriptive, block billing of time.” Approximately 170 hours of
Dentons’ total 2200 hours of services and 24 hours of WMC’s 1000
hours of services are so characterized in the Audit.
The Third Circuit has confirmed “the applicant’s duty to
submit fee applications with enough detail to enable the court to
reach an informed decision - one necessarily grounded in
complete, coherent information - as to whether the requested
compensation is justified.” Busy Beaver, 19 F.3d at 845 (citing
In re Nucorp Energy, Inc.,
764 F.2d 655, 658 (9th Cir. 1985).
That duty also includes the obligation to not “lump” entries
but to list each service performed and the amount of time spent
on it. See, e.g., In re Jefsaba, Inc.,
172 B.R. 786, 801 (Bankr.
E.D. Pa.) (“It is well-settled in this circuit that only time
4 The Audit identified approximately 52 hours of Dentons’
2200 hours of services and 16 of WMC’s 1000 hours of services as
objectionable administrative services. (D.I. 1173 at Exs. 7 &
8.) This is less than 3% of the total hours billed by them.
(Id.)
10
entries separately listed and explained in detail are
compensable.”) (citing In re Meade Land and Development Co.,
Inc., 527 F. 2d 280, 283 (3d Cir. 1975); In re Mayflower
Associates,
78 B.R. 41, 48 (Bankr. E.D. Pa. 1987)).
“Courts have refused repeatedly to approve unitemized
disbursements for services that are lumped together in a single
entry, because such action inhibits the court from estimating the
reasonableness of the individual services and their value to the
debtor's estate.” In re Worldwide Direct, Inc., (quoting In re
Ward,
190 B.R. 242, 246 (Bankr. D. Md. 1995)).
However, in this case, the Court comes to the same
conclusion that it did in the Worldwide Direct case: “While the
objection is technically correct, we do not find generally that
the time entries are lumped to such an extent that we cannot
ascertain whether an appropriate amount of time was spent on each
task.” Id. at 643.
A review of the entries identified in the Audit as
“blockbilling” reveals that those entries typically do not “lump”
together activities without breaking down the amount of time
spent on each activity within that entry. A review of Dentons’
entries identified in the Audit as “vague” show them to be
related to claims review,5 insurance coverage issues,6 trust-
5 See entries for 3/2/16, 3/17/16, 3/29/16, 3/30/16,
4/1/16, 4/4/16, 5/18/16, 5/19/16, 5/21/16, 5/27/16, 7/9/16,
9/1/16, 9/6/16, 9/7/16, 9/21/16, 11/4/16, 5/10/18, 5/14/18,
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related issues,7 document production,8 and the like. Because the
Liquidating Trustee was responsible for those issues, the Court
finds that the work done was within Dentons’ responsibility and
necessary for the provision of services to the Trustee. The
Court finds that Dentons provided sufficient detail of the work
done.
For example, the Audit lists as “excessive/nondescript/
vague” Dentons’ entries on December 14, 15 and 29, 2016, for
drafting and revising a bifurcation motion. The Court does not
feel that the time is excessive or that the description is
lacking. The December 29 entry shows that the revisions were
being done as a result of comments by the Liquidating Trustee and
the Oversight Committee (of which Attorney Rohn was a member) so
she was already familiar with the work being done.9
Similarly, the WMC entries alleged to be “lumped” or “vague”
5/16/18, 7/27/18. (D.I. 1173 at Ex. 7.)
6 See entries for 3/2/16, 4/4/16, 5/18/16, 6/22/16,
5/14/18, 5/16/18. (D.I. 1173 at Ex. 7.)
7 See entry for 3/11/16. (D.I. 1173 at Ex. 7.)
8 See entry for 7/4 & 5/17. (D.I. 1173 at Ex. 7.)
9 Similarly, the Audit objects to entries in early 2018
for drafting the tort claims procedures motion. See entries for
1/12/18, 1/16/18, 2/4/18, 2/15/18, 2/20/18, 3/1/18. (D.I. 1173
at Ex. 7.) Attorney Rohn, as a representative of most of the
tort claimants and a member of the Oversight Committee, was
intimately involved in the negotiation of those procedures and
the Court finds that no additional description is warranted.
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relate to research and analysis of claims,10 drafting a chart and
memo with recommendations for the claims,11 and drafting a memo
of law in opposition to the insurers’ motion to dismiss.12 The
Court finds those entries to be sufficiently detailed and not
excessive.
3. Duplicative services/intra-office conferences
The bulk of the objections relate to entries that Attorney
Rohn describes as duplicative and/or intra-office conferences or
communication. Specifically, she objects to one or more
professionals meeting or otherwise communicating with each other
or with the Liquidating Trustee about case-related matters.
While courts have reduced fee applications where the services
rendered are duplicative, the courts have also recognized the
importance of intra-office conferences in large cases. “In a
complex case, however, one attorney cannot perform all the tasks
required. Where more than one attorney is involved, a certain
amount of intra-office conferencing is necessary in order to
coordinate their tasks.” In re 14605, Inc., No. 05–11910, 2007
WL 2745709, at *10 (Bankr. D. Del. 2007). Such a delegation of
work assures that lower level attorneys and paralegals do the
10 See entry for 11/9/16, 1/5/17. (D.I. 1173 at Ex. 8.)
11 See entry for 12/14/16, 6/26/17, 5/7/18. (D.I. 1173 at
Ex. 8.)
12 See entry for 10/10/17, 10/13/17, 10/15/17, 10/16/17.
(D.I. 1173 at Ex. 8.)
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work that does not require the experience of the highest-billing
partner, thereby reducing fees charged to the estate overall.
As aptly noted by the Court in the Jefsaba case:
Further, in light of our strong support for the
use of paralegals and associates, we recognize the need
for intra-office conferences so that matters can be
discussed and assignments made and reviewed. All
participants may bill for the time spent in the
intra-office conferences [because] . . . when more than
one professional is working on the same matter,
communication and coordination is required. One person
must be aware of what everyone is doing or unnecessary
duplication of work will result.
In re Jefsaba, Inc., 172 B.R. 786, 800 (Bankr. E.D. Pa. 1994)
(emphasis omitted).
The Audit asserted that 225 hours of the 2200 hours billed
by Dentons for the period from February 2016 through July 2018
were objectionable on this basis; for WMC it was 155 hours of
1000 hours.13 Much of the intra-office time was spent among
attorneys working on the same matter in the case getting
assignments, reviewing each other’s work, or updating each other
on developments. There were instances where more than one
attorney working on a matter met with the Liquidating Trustee
and/or the Oversight Committee to review that matter. The Court
finds that all of those services were appropriate and could be
billed by both attorneys.
Id.
A few of the objections were to the work of more than one
13 D.I. 1173 at Exs. 7 & 8.
14
attorney revising an objection or memorandum.14 The Court
rejects this objection because it is appropriate for an attorney
and his supervisor to review each other’s draft pleadings,
significant reports to the client or communications with opposing
counsel. There is one objection to two attorneys attending a
hearing.15 That hearing was a significant one, on the motion
filed by Attorney Rohn to enlarge the time within which tort
claimants could make an election and a motion to quash a
subpoena,16 and both attorneys had been involved in preparation
for that hearing. The Court will allow compensation for both.
After a review of the Audit and the bills attached, the
Court believes that the amount of time spent in communication and
coordination among the lawyers for the Liquidating Trustee was
appropriate. Therefore, the Court concludes that even if the
objection of Attorney Rohn to the fee requests of counsel for the
Liquidating Trustee was not barred by the doctrine of laches, it
is meritless.
4. Conflict of interest
The Court also rejects as meritless Attorney Rohn’s
suggestion that counsel had a conflict of interest with the
14 See entries for 11/14/16 and 5/17/18, for example.
(D.I. 1173 at Ex. 7.)
15 See entry for 6/14/18. (D.I. 1173 at Ex. 7.)
16 D.I. 1061, 1087.
15
Liquidating Trustee once an objection to their fees was raised.
Apparently she contends that the Liquidating Trustee was required
to hire independent counsel at that time to evaluate the
objection. The Court rejects this assertion as the procedure
identified in the Liquidating Trust Agreement did not mandate
that; rather the Agreement provided that fees were subject to
approval of the Liquidating Trustee and the Oversight Committee
themselves.
Attorney Rohn correctly states that in bankruptcy cases
attorneys typically cannot charge fees for defense of their fee
applications. Baker Botts L.L.P. v. ASARCO LLC, 135 S.Ct. 2158
(2015). However, the Supreme Court in that case ruled only that
the Bankruptcy Code itself did not provide for the payment of
those fees.
Id. at 2164-65. It did acknowledge, however, that
parties could agree to the payment of such fees.
Id. at 2164.
In this case, Dentons’ and WMC’s fees have been approved by
agreement of the Liquidating Trustee and the Oversight Committee
in accordance with the procedures established by the Liquidating
Trust Agreement. Accordingly, the Court will not disallow those
fees.
III. CONCLUSION
For the reasons stated above, the Court will deny the Motion
of Attorney Lee J. Rohn for Disgorgement of Fees or in the
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Alternative for a Fee Audit.
An appropriate Order follows.
Dated: December 12, 2018
BY THE COURT:
Dacha Wek
Mary F. Walrath
United States Bankruptcy Judge
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