- Case No. 11-41010 (5th Cir. December 11, 2012)
- REVERSED and REMANDED award of Section 328(a) fee enhancement to Debtor Asarco's financial advisor for further proceedings because clear error was not the appropriate standard for reviewing a conclusion that facts (i.e. subsequent developments) were not capable of being anticipated and the appropriate standard was de novo review. In addition, the Fifth Circuit, comparing Asarco to a dusty, yet functional Corvette, held that none of the facts on which the enhancement were based satisfied Section 328(a)'s improvidence exception because they were capable of being anticipated even if there were "latent problems lurking under its hood." Further, the Fifth Circuit held that Section 328(a) creates a "high hurdle to clear" when seeking to revise the terms of a professional's compensation after the fact and the court set out and reviewed the cases and policy behind Section 328(a).
- Procedural context:
- Bankruptcy Court awarded fee enhancement of $975,000 after successful plan confirmation in Asarco bankruptcy based on Section 328(a) of the bankruptcy code for services provided by Barclays that were both outside the scope of the engagement letter and "not capable of being anticipated." Asarco appealed contending that the bankruptcy court's fee award was error because the subsequent developments giving rise to the additional services were "not incapable of anticipation." The district court reviewed bankruptcy court's factual determinations that fee agreement was improvident and incapable of anticipation under the deferential clear error standard and found the award was supported by the record and not clearly erroneous.
- Asarco filed bankruptcy in 2005 and shortly thereafter retained Lehman Brothers as its financial advisor. At the time of filing, the bankruptcy was anticipated to last a month because Asarco was a non-public subsidiary of a foreign corporation and a quick sale was expected. Because of numerous unknown internal problems at Asarco, the quick sale did not materialize and a lengthy proceeding ensued instead. The original financial advisor Lehman Brothers also filed for bankruptcy and Barclays purchased Lehman Brothers investment arm and entered into a new, more generous, fee engagement, approved by the bankruptcy court, with the fee agreement expressly subject to Section 328(a) and not subject to review under Section 330 of the bankruptcy code, to do what Lehman was previously doing. Asarco experienced a "steady exodus" of employees including its CEO and board of directors on a scale the bankruptcy court found unusual and alarming. Although outside the scope of its engagement, Barclays prepared an employee retention plan, worked to solve the liquidity crisis, developed a copper hedging program, recruited new members to the board of directors and advised the board on a day-to-day basis, acted as the CFO in the absence of one and helped transition the new CEO. After the plan of reorganization was approved, in what was hailed as one of the most successful reorganizations in United States history, Barclays submitted a fee request for (1) $1,202,000 in unanticipated services; (2) $2,000,000 success fee; and (3) $6,000,000 auction fee. A fee enhancement of $975,000 was awarded based on services not anticipated based on the length of the bankruptcy, unusual turnover of board of directors, the CEO and key employees, and additional services performed that were not anticipated.
- Wiener, Elrod and Southwick, Circuit Judges
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