Attorneys' Fees for`Useless Work' in Ch. 11 Case Cut in Half

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By Daniel Gill

May 26 — A bankruptcy court cut by 50 percent a firm's requested fees related to nine amended plan and disclosure statements filed on behalf of a Chapter 11 debtor ( In re Budd Co., 2016 BL 163935, Bankr. N.D. Ill., No. 14B 11873, 5/20/16 ).

Judge Jack B. Schmetterer of the U.S. Bankruptcy Court for the Northern District of Illinois in a May 20 opinion said the court would reduce fees requested by the debtor's counsel which were incurred in the process of preparing and seeking approval of a disclosure statement to be submitted with a proposed plan.

The opinion allowed counsel 50 percent of the $131,500.50 the firm requested for what the court said was “unnecessary work” which “was not at all useful either at the time or in retrospect.”

The court entered a separate order on May 23 reducing the subject fee application by $65,000 in accordance with the opinion.

Shrinking Estate

The Budd Company, Inc. used to be a manufacturer in the auto industry, according to other documents filed in the case. Budd ceased its manufacturing business in 2006.

In an April 1, 2014, filing, the debtor's president and CEO explained that after 2006 the debtor's sole business consisted of “satisfying legacy and other liabilities.” These consisted primarily of pensions, payments to asbestos damage claimants, and retiree medical coverage, according to the filing.

Budd commenced a Chapter 11 case on March 31, 2014, at which time it had $384 million cash on hand. Chapter 11 affords individuals or companies various protections from the actions of creditors and allows those debtors to propose a plan for either reorganizing or liquidating.

A Chapter 11 debtor (or a trustee if one is appointed) or another party in interest may file a proposed plan providing for the future administration of the bankrupt entity. The plan must be accompanied by a “disclosure statement” prepared in accordance with 11 U.S.C. §1125 and any applicable local rules.

By the time of this decision, the court said, the estate had been dissipated to $271 million. Judge Schmetterer opened his opinion by discussing “large fees” contributing to “eroding” the cash on hand held by the debtor.

Nine Amendments

The opinion focused on one of many fights between the parties in the case, the preparation and approval of the disclosure statement required by Section 1125 of the Bankruptcy Code.

The court was clearly displeased with the work and costs associated with this task, noting the following specific complaints:

  •  There were nine amendments to the proposed plan and disclosure statement (ten iterations including the original);
  •  the disclosure statements were “bulky and complicated,” and the court thought it significant that the disclosure statements, which are meant to explain the plan, were more than twice the length of the plans themselves;
  •  each iteration of the disclosure statement was “repetitive, confusing and overly technical,” despite the court previously ordering the preparation of a clear simplified introduction; and
  •  the principal objecting party, which the court said was trying to “destroy” the plan by its objections, incurred less than $11,000 in fees during the same period that the debtor's attorneys were charging the estate $130,000.


The judge highlighted his problem with the complexity of the disclosure statement by noting that all the parties capably prepared “short, clear, simple and informative” letters in support of their respective positions vis-a-vis the disclosure statement.

‘Useless Work.'

The court concluded its opinion by stating that a 50 percent reduction of fees for “such useless work would be generous” and consequently ordered that an independent fee examiner's proposed reduction of 15 percent be increased to 50 percent. It cautioned that future fee applications would be reviewed similarly regarding work on the disclosure statement.

The court entered an order allowing $65,000 of the $131,000 requested for these fees. According to the case docket, the total fees sought by Proskauer Rose in the fee application subject to this order was more than $2.7 million.

The debtor's counsel was Proskauer Rose LLP, Chicago. It does not appear from the docket that any party filed an objection to the fee request.

To contact the reporter on this story: Daniel Gill in Washington at

To contact the editor responsible for this story: Jay Horowitz at

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