In re Tropicana Entertainment LLC

In re Tropicana Entertainment LLC, et al, --- F.3d ---, 2012 WL 3776531, No. 10-3970 (3d Cir. Aug. 31, 2012)
The Third Circuit Court of Appeals held that an ad hoc noteholder committee’s (the “Noteholder Committee”) fees were not entitled to administrative priority pursuant to 11 U.SC. § 503(b)(3)(D) even though the Debtors had stipulated that the Noteholder Committee fees were entitled to administrative priority. Particularly, the Third Circuit Court of Appeals affirmed the denial because the Noteholder Committee failed to present evidence that demonstrated that the Noteholder Committee would not have incurred their expenses but-for a promise of reimbursement by the Debtors.
Procedural context:
The Third Circuit Court of Appeals affirmed the district court and bankruptcy court’s ruling and denied the Noteholder Committee’s motion for reimbursement of $2,320,172.00 in fees and expenses pursuant to § 503(b)(3)(D).
In December 2007, Tropicana Entertainment LLC and affiliates (the “Debtors”), had its New Jersey gaming license revoked by the New Jersey Casino Control Commission as a result of board member William J. Yung, III’s gross mismanagement of the Debtors’ business. The license revocation triggered several events of default provisions pursuant to the Debtors’ loan documents and placed the Debtors into financial distress. The Noteholder Committee demanded Yung to resign. Young refused to step down as a board member and the Debtors subsequently filed their chapter 11 petition for bankruptcy in May 2008. One day after the Debtors filed for bankruptcy, the Noteholder Committee filed an emergency motion for appointment of a Chapter 11 trustee and have Yung removed as a member of the Debtors’ board. The Debtors resolved the Noteholder Committee's emergency motion by entering into a settlement agreement. The settlement agreement required Yung to resign and also recognized that the Noteholder Committee’s expenses that had accrued as a result of pursuing the emergency motion were entitled to administrative priority status because the Noteholder Committee’s expenses “represent[ed] a substantial contribution to the Debtors’ estate.” The bankruptcy court ultimately denied the Noteholder Committee’s application for reimbursement for fees and expenses incurred as a result of prosecuting their emergency motion. The district court affirmed the bankruptcy court's denial.
Ambro, Chagares and Aldisert

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