Barron & Newburger, P.C. v. TX Skyline, Ltd. (In the Matter of Woerner)

Barron & Newburger, P.C. v. Texas Skyline, Ltd. (In re Woerner), --- F.3d ---, Case No. 13-50075 (5th Cir. Apr. 9, 2015)
In this “Anti-Snax” decision by the en banc Court of Appeals, the Fifth Circuit OVERTURNED its retrospective attorney’s-fee rule from In re Pro-Snax Distributors, Inc., 157 F.3d 414 (5th Cir. 1998), adopting in its place the prospective, “reasonable likely to benefit the estate” standard endorsed by other circuits. In doing so, the Court noted that Pro-Snax was wrongly decided at the time, having relied upon In re Melp, Ltd., 179 B.R. 636 (E.D. Mo. 1995), which was decided under the statute prior to the Bankruptcy Reform Act of 1994. The Fifth Circuit discussed the legislative history of the Bankruptcy Reform Act, as it applied to § 330, and explained that “[t]he legislative process therefore strongly suggests that Congress could not have intended the language of § 330 to impose an actual-benefit requirement determinable by a court only at the completion of the case.” In view of this legislative history and the application of the statute in other circuits, the Court concluded that the prospective “reasonable at the time” standard must apply. And, based on that conclusion, the Court determined that remand to the bankruptcy court was necessary “out of an abundance of caution given the complex facts of the case before us . . . to evaluate whether B&N is entitled to fees under the prospective, ‘reasonable at the time’ standard.”
Procedural context:
This was a rehearing en banc, after the Fifth Circuit affirmed the district court’s judgment in 2014. The district court affirmed the bankruptcy court’s initial order of a 85% fee reduction under the retrospective Pro-Snax standard, concluding that B&N failed to prove an “identifiable, tangible, and material benefit to the estate.”
On the eve of a major state-court judgment against the debtor, he filed a voluntary chapter 11 bankruptcy petition. During the year in chapter 11, before the case was converted to chapter 7, the debtor’s attorneys, Barron & Newburger (“B&N”) incurred over $130,000 in legal fees and expenses. B&N filed an application for compensation after the case converted to chapter 7, but the UST and would-be judgment creditor objected on the basis that the fees did not provide an identifiable, material benefit to the estate. The bankruptcy court, despite its comment that the quality of work was not objectionable, reduced the fees by 85% and awarded only $20,000 based on the retrospective Pro-Snax standard applicable in the Fifth Circuit. B&N appealed.
Edward C. Prado writing for the en banc court; Grady Jolly specially concurring

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