Substantial Contribution Claims

Any analysis in respect to substantial contribution claims must begin with a close review of section 503 of the Bankruptcy Code. In particular, section 503(b)(3)(D) permits a court to allow as an administrative expense the actual and necessary expenses incurred by creditors, indenture trustees, equity security holders, and creditor and equity holder committees (other than official committees) who make a substantial contribution to a Chapter 11 case. Pursuant to section 503(b)(4), these expenses may include reimbursement of reasonable compensation for professional fees incurred. As noted above, because the Bankruptcy Code does not define the phrase “substantial contribution,” what exactly constitutes a substantial contribution in any particular Chapter 11 case is therefore left to judicial discretion and interpretation.

The Third Circuit, in Lebron v. Mechem Fin. Inc., 27 F.3d 937 (3d Cir. 1994), set forth a two-pronged test for substantial contribution to which many other courts have adhered. The two prongs are as follows: 1) the efforts of the applicant must result in an actual and demonstrable benefit to the debtor's estate and its creditors; and 2) the benefit must be more than an incidental one arising from activities the applicant has pursued in protecting its own interests. See also Granite Partners, 213 B.R. 440, 446 (Bankr. S.D.N.Y. Oct. 6, 1997) (compensation is limited to those extraordinary actions that “foster and enhance, rather than retard or interrupt the progress of reorganization”); In re Richton Int'l Corp., 15 B.R. 854, 856 (Bankr. S.D.N.Y. 1981) (“The appropriate test of compensable services is whether they substantially contributed to the result.”). In addition to the foregoing test, courts have considered whether: 1) the services provided were duplicative of services performed by others; and 2) the request was supported by any of the major parties-in-interest in the case, such as the debtor, the official creditors' committee and the United States Trustee. See In re Summit Metals, 379 B.R. 40, 51 (Bankr. D. Del. Dec. 4, 2007); In re Dana Corporation, et al., 390 B.R. 100, 109 (Bankr. S.D.N.Y. June 19, 2008) (emphasizing the United States Trustee's and ad hoc committee of certain equity holders' objections to an application for reimbursement for making an alleged substantial contribution). Further, in reviewing an application for reimbursement for substantial contribution, courts may consider whether such reimbursement will result in the impairment of other creditors. See In re Richton Int'l Corp., 15 B.R. at 856 (emphasizing that the debtor's estate is able to pay the expenses with no impairment of other creditors). The speed with which a successful result has been achieved is also relevant to a court's determination. See In re Penn-Dixie Indus., Inc., 18 B.R. 834, 836 (Bankr. S.D.N.Y. 1982) (“time compression is reflective of the intensity of efforts exerted by all concerned.”).

Courts and Creditors

Moreover, courts have found that creditors are presumed to be acting in their own self-interest until they can demonstrate that their actions have transcended self-protection. Lebron; In re Solar Mfg. Corp., 206 F.2d 780, 781 (3d Cir. 1953) (“the work [of attorneys employed by creditors] must be at the expense of their clients unless it is in some manner beneficial to the estate”). Nevertheless, the self-interest of creditors or their professionals does not necessarily bar reimbursement for substantial contribution made for the benefit of the estate. In re Richton Int'l Corp., 15 B.R. at 856. Otherwise, creditor participation in reorganization could be discouraged. Id. The question of whether a party may recover on a substantial contribution claim is circumstantial and involves a balancing of all of the above-mentioned factors. Accordingly, courts' holdings vary with respect to whether a party should be reimbursed for fees and expenses pursuant to sections 503(b)(3)(D) and (b)(4) of the Bankruptcy Code.

In Lebron, the Third Circuit granted the substantial contribution motion of Scott, a creditor and former officer and director of the debtor, because of Scott's efforts in: 1) uncovering the mismanagement and self-dealing by other board members of the debtor; 2) successfully endeavoring to have a trustee appointed; and 3) thereafter assisting the trustee collecting assets for the benefit of all creditors of the estate. In granting the substantial contribution request, the Third Circuit found that the purpose of section 503(b)(3)(D) of the Bankruptcy Code is to encourage activity that would benefit the estate as a whole, rather than reimbursing for efforts that would have been undertaken regardless of the expectation of reimbursement. Lebron, 27 F.3d at 944. The Lebron court awarded Scott's substantial contribution claim, notwithstanding the fact that he incurred expenses in pursuit of his own interests, because at least some of his efforts were designed to benefit the estate and all of its creditors.

The Loral Case

In Loral Space & Communications Ltd., et al, Bankr. S.D.N.Y., Case No. 03-41710 (RDD), the bankruptcy court granted two motions pursuant to sections 503(b)(3)(D) and (b)(4) of the Bankruptcy Code. which sought reimbursement for close to $1 million in fees and expenses in the aggregate that were incurred in making a substantial contribution in the bankruptcy cases. The two motions were filed by: 1) attorneys for an ad-hoc trade claims committee, the members of which held in excess of $26 million in unsecured trade claims against one of Loral's solvent debtor entities known as Space Systems/Loral or SS/L; and 2) Angelo Gordon & Co., L.P., which likewise held in excess of $19 million in unsecured trade claims against SS/L, and who worked together with the trade committee to effectuate the substantial contribution. In short, the trade committee and Angelo Gordon argued that the plans of reorganization initially filed by the debtors, with the support of the official creditors' committee, improperly provided for a distribution to trade creditors of 33 cents on the dollar, when their claims against an otherwise solvent entity should have been treated as unimpaired and paid in full. The attorneys retained by the trade committee and Angelo Gordon expended considerable efforts preparing and interposing what turned out to be successful objections to the disclosure statement filed in respect of the unconfirmable plan. Indeed, the disclosure statement objections, and the comments made by the court at the disclosure statement hearing in response thereto, directly resulted in renewed negotiations between all the major parties-in-interest, including the trade committee and Angelo Gordon. Those negotiations, in turn, culminated in a confirmed plan of reorganization which provided for, among other things: 1) a recovery for trade creditors of 100 cents on the dollar, plus post-petition interest at an agreed-to rate of 6%; and 2) support from the debtor and the official creditors' committee for any substantial contribution claims sought by either the trade committee or Angelo Gordon.

The bankruptcy court granted the two substantial contribution motions as a result of the movants' active role in facilitating the negotiations and successful confirmation of the plan, as well as for their role in protecting the interests of all of the unsecured creditors at the SS/L level and for augmenting the recoveries of all of the creditors at that level. The court reasoned that the trade committee and Angelo Gordon augmented the recoveries of all creditors who had “frankly been disregarded or ignored by the plan that had been submitted” by the debtors. See Feb. 7, 2006 Hearing Transcript at 104. In Loral, and unlike in Dana and Tropicana discussed below, the court did not find that the self-interests of the trade committee or Angelo Gordon barred their ability to recover for their substantial contribution.

The Dana Corporation Case

In In re Dana Corporation, et al., 390 B.R. 100 (Bankr. S.D.N.Y. June 19, 2008), the Bankruptcy Court denied a substantial contribution claim request filed by Appaloosa Management L.P. (“Appaloosa”), as a prospective investor and bidder in the debtors, which sought in excess of $2.5 million. Appaloosa contended that its actions benefited the debtors because the objections it interposed in respect of certain agreements that the debtors had been entering into with another investor, and the resulting submission of various counter-proposals increased the guaranteed investment in the debtors by $290 million. See Id. at 109. The court, however, held that Appaloosa did not overcome the presumption that it acted only in its self-interest, explaining that “services calculated primarily to benefit the client do not justify an award even if they also confer an indirect benefit of the estate” and “compensation ' is reserved for those rare and extraordinary circumstances when the creditor's involvement truly enhances administration of the estate.” See Id. at 108-09. Further, the court explained that to the extent Appaloosa's actions played some role in achieving the result, it was insufficient to rise to the level of a substantial contribution. See Id. at 110. Finally, in denying Appaloosa's motion, the court considered, and ultimately agreed with, the objections that were interposed by the United States Trustee and an ad-hoc committee of certain equity holders in opposition to Appaloosa's motion.

The Tropicana Case

In In re Tropicana Entertainment, LLC, et. al., Bankr. D. Del., Case No. 08-10856 (KJC), decided in September 2009, the bankruptcy court denied a substantial contribution motion filed by a consortium of senior subordinated bondholders which sought in excess of $2.4 million in fees and expenses. In that case, the consortium filed a motion, just one day after the petition date, seeking the emergency appointment of a Chapter 11 trustee and the removal of William J. Jung, III, Tropicana's owner, CEO, and board chairman, who the consortium alleged had grossly mismanaged the debtors. Less than two months later, the parties to the trustee motion came to a settlement agreement whereby Yung was stripped of his board seats. Included in the settlement documents was an acknowledgement by the debtors that the consortium had made a substantial contribution to the debtors' estates.

Several weeks after the settlement was reached, the consortium filed their substantial contribution motion pursuant to section 503(b)(3)(D) and (b)(4) of the Bankruptcy Code seeking an administrative expense claim for approximately $2.3 million as reimbursement for professional fees and expenses incurred in litigating the trustee motion. In support of its motion, the consortium argued that its prosecution of its motion to appoint a trustee resulted in a “textbook” and “quintessential” substantial contribution in those cases because: 1) “Yung's resignation from the Board enabled a new management team to focus on rebuilding the Debtors' business reputation, regaining the trust and confidence of state gaming regulators, and moving the cases toward a Chapter 11 plan”; and 2) the consortium's efforts benefitted all creditors, pointing to the support of the official creditors' committee and a steering committee of senior secured lenders to remove Mr. Yung from the board.

Another ad-hoc committee ' one comprised of senior secured lenders ' however, objected to the consortium's motion arguing that: 1) the consortium sought to appoint the Chapter 11 trustee not to benefit the estates as a whole but to protect its own “asset” and economic interest; 2) the consortium would have filed the trustee motion regardless of the potential for reimbursement of its fees and expenses; and 3) the consortium was wasteful in generating a tremendous amount of fees on unnecessary and aggressive re-litigation. Moreover, and citing to In re Columbia Gas Sys., Inc., 224 B.R. 540, 548 (Bankr. D. Del. 2007) (listing a realm of activities that should be recognized as substantial contributions), the steering committee explained that unlike other scenarios that provide the basis for substantial contribution, the consortium did not, among other things, compromise its own claim, create a plan to pay creditors more than or dramatically increase the treatment of creditors under a debtor-proposed plan, or enhance disclosure of information available to an impaired class.

Another objection to the substantial contribution motion was filed by certain so-called liquidating LandCo debtors who argued that: 1) because the noteholders were neither creditors of any of the LandCo debtors nor did they make any contribution to any of the LandCo bankruptcy cases, they were not permitted to recover on a ' 503(b) administrative claim; and 2) the fees and expenses sought by the consortium exceeded the total amount of distributions to the LandCo debtors' unsecured creditors by a factor of six to one and were therefore excessive and patently unreasonable.

Agreeing with the steering committee of senior secured lenders, the bankruptcy court denied the consortium's motion, and in doing so, focused upon, interestingly enough, the consortium's motive, stressing in particular that the consortium did not meet its burden to establish that they would not have moved forward unless there was reimbursement by the estate, as required by Lebron. The court explained that “the exercise here is to separate out the self-interest and to see what else might warrant an award for a substantial contribution.” See Sept. 10, 2009 Hearing Transcript, at 29-30. Specifically, with respect to the consortium's preparation and litigation of the trustee motion, the court reasoned that the consortium “had such a bloodthirst for Mr. Yung, that it would have proceeded to do what it did regardless of whether there was a benefit shared by others who were constituents in the estate” and that the consortium's actions to remove Yung were “taken largely in the self-interest of the movants ' and would have been taken whether there would have been estate reimbursement or not.” See Id. at 9, 53. The consortium appealed the bankruptcy court's decision to the Delaware district court, where it is currently pending.

Conclusion

Although the law with respect to “substantial contribution” claims appears to remain unchanged after the recent Tropicana decision, the decision does add to the existing uncertainty by illustrating that motive of the applicant is an important factor that courts will scrutinize in considering requests for substantial contribution claims. The question going forward is whether courts will consider the motivation of a particular claimant as the determining, overriding factor, and decide the motion on that ground alone, or whether courts will consider the element of intent as one of a number of factors as it analyzes the totality of the circumstances, balancing the contribution made to the estate against the claimant's motives. On the one hand, the courts in Tropicana and Dana gave great weight to the motivation of the party seeking reimbursement.

On the other hand, the courts in Lebron and Loral seemed to weigh more heavily the actual contribution that was made to the estate, as well as the support of other constituents, rather than the actual intent of the claimants. While it is clear that the granting of a motion for substantial contribution depends upon all of the facts and circumstances of a particular case, at least at present, there is no formula for how much weight to afford each particular factor. All eyes are no doubt on the Delaware district court as we await their decision in connection with the Tropicana appeal.

Steven B. Smith, a member of this newsletter's Board of Editors, (http://www.lawjournalnewsletters.com/Admin/cgi-bin/udt/steven.%[email protected]) is Counsel and Jennifer A. Muller is an associate at Dechert LLP.

In order to encourage active and meaningful participation by creditors in a Chapter 11 bankruptcy case, the drafters of the Bankruptcy Code included a provision therein which grants creditors an administrative expense claim for the actual and necessary expenses incurred in making a substantial contribution in a Chapter 11 case. In other words, where a creditor retains a professional to advance a particular position in a Chapter 11 case whose efforts result in the making of a substantial contribution to the case, such creditor can potentially get reimbursed for all of its out-of-pocket expenses, including for reasonable compensation for professional services rendered.

As with other important concepts found in the Bankruptcy Code, its drafters purposely refrained from defining the phrase “substantial contribution,” thereby leaving courts with the ability to exercise their discretion on a case by case basis. This discretion, however, has given rise to uncertainty as to whether, and to what extent, the intent of the creditor seeking a substantial contribution claim is factored into a court's consideration. This article: 1) discusses the standards that govern substantial contribution claims; 2) highlights several examples of substantial contribution claim requests that have either succeeded or failed, with a focus on the recent failed substantial contribution claim in the Tropicana case; and 3) explores how courts have considered the element of intent in adjudicating such substantial contribution claims.

Substantial Contribution Governing Standards

Any analysis in respect to substantial contribution claims must begin with a close review of section 503 of the Bankruptcy Code. In particular, section 503(b)(3)(D) permits a court to allow as an administrative expense the actual and necessary expenses incurred by creditors, indenture trustees, equity security holders, and creditor and equity holder committees (other than official committees) who make a substantial contribution to a Chapter 11 case. Pursuant to section 503(b)(4), these expenses may include reimbursement of reasonable compensation for professional fees incurred. As noted above, because the Bankruptcy Code does not define the phrase “substantial contribution,” what exactly constitutes a substantial contribution in any particular Chapter 11 case is therefore left to judicial discretion and interpretation.

The Third Circuit, in Lebron v. Mechem Fin. Inc. , 27 F.3d 937 (3d Cir. 1994), set forth a two-pronged test for substantial contribution to which many other courts have adhered. The two prongs are as follows: 1) the efforts of the applicant must result in an actual and demonstrable benefit to the debtor's estate and its creditors; and 2) the benefit must be more than an incidental one arising from activities the applicant has pursued in protecting its own interests. See also Granite Partners, 213 B.R. 440, 446 (Bankr. S.D.N.Y. Oct. 6, 1997) (compensation is limited to those extraordinary actions that “foster and enhance, rather than retard or interrupt the progress of reorganization”); In re Richton Int'l Corp., 15 B.R. 854, 856 (Bankr. S.D.N.Y. 1981) (“The appropriate test of compensable services is whether they substantially contributed to the result.”). In addition to the foregoing test, courts have considered whether: 1) the services provided were duplicative of services performed by others; and 2) the request was supported by any of the major parties-in-interest in the case, such as the debtor, the official creditors' committee and the United States Trustee. See In re Summit Metals, 379 B.R. 40, 51 (Bankr. D. Del. Dec. 4, 2007); In re Dana Corporation, et al., 390 B.R. 100, 109 (Bankr. S.D.N.Y. June 19, 2008) (emphasizing the United States Trustee's and ad hoc committee of certain equity holders' objections to an application for reimbursement for making an alleged substantial contribution). Further, in reviewing an application for reimbursement for substantial contribution, courts may consider whether such reimbursement will result in the impairment of other creditors. See In re Richton Int'l Corp., 15 B.R. at 856 (emphasizing that the debtor's estate is able to pay the expenses with no impairment of other creditors). The speed with which a successful result has been achieved is also relevant to a court's determination. See In re Penn-Dixie Indus., Inc., 18 B.R. 834, 836 (Bankr. S.D.N.Y. 1982) (“time compression is reflective of the intensity of efforts exerted by all concerned.”).

Courts and Creditors

Moreover, courts have found that creditors are presumed to be acting in their own self-interest until they can demonstrate that their actions have transcended self-protection. Lebron; In re Solar Mfg. Corp., 206 F.2d 780, 781 (3d Cir. 1953) (“the work [of attorneys employed by creditors] must be at the expense of their clients unless it is in some manner beneficial to the estate”). Nevertheless, the self-interest of creditors or their professionals does not necessarily bar reimbursement for substantial contribution made for the benefit of the estate. In re Richton Int'l Corp., 15 B.R. at 856. Otherwise, creditor participation in reorganization could be discouraged. Id. The question of whether a party may recover on a substantial contribution claim is circumstantial and involves a balancing of all of the above-mentioned factors. Accordingly, courts' holdings vary with respect to whether a party should be reimbursed for fees and expenses pursuant to sections 503(b)(3)(D) and (b)(4) of the Bankruptcy Code.

In Lebron, the Third Circuit granted the substantial contribution motion of Scott, a creditor and former officer and director of the debtor, because of Scott's efforts in: 1) uncovering the mismanagement and self-dealing by other board members of the debtor; 2) successfully endeavoring to have a trustee appointed; and 3) thereafter assisting the trustee collecting assets for the benefit of all creditors of the estate. In granting the substantial contribution request, the Third Circuit found that the purpose of section 503(b)(3)(D) of the Bankruptcy Code is to encourage activity that would benefit the estate as a whole, rather than reimbursing for efforts that would have been undertaken regardless of the expectation of reimbursement. Lebron, 27 F.3d at 944. The Lebron court awarded Scott's substantial contribution claim, notwithstanding the fact that he incurred expenses in pursuit of his own interests, because at least some of his efforts were designed to benefit the estate and all of its creditors.

The Loral Case

In Loral Space & Communications Ltd., et al, Bankr. S.D.N.Y., Case No. 03-41710 (RDD), the bankruptcy court granted two motions pursuant to sections 503(b)(3)(D) and (b)(4) of the Bankruptcy Code. which sought reimbursement for close to $1 million in fees and expenses in the aggregate that were incurred in making a substantial contribution in the bankruptcy cases. The two motions were filed by: 1) attorneys for an ad-hoc trade claims committee, the members of which held in excess of $26 million in unsecured trade claims against one of Loral's solvent debtor entities known as Space Systems/Loral or SS/L; and 2) Angelo Gordon & Co., L.P., which likewise held in excess of $19 million in unsecured trade claims against SS/L, and who worked together with the trade committee to effectuate the substantial contribution. In short, the trade committee and Angelo Gordon argued that the plans of reorganization initially filed by the debtors, with the support of the official creditors' committee, improperly provided for a distribution to trade creditors of 33 cents on the dollar, when their claims against an otherwise solvent entity should have been treated as unimpaired and paid in full. The attorneys retained by the trade committee and Angelo Gordon expended considerable efforts preparing and interposing what turned out to be successful objections to the disclosure statement filed in respect of the unconfirmable plan. Indeed, the disclosure statement objections, and the comments made by the court at the disclosure statement hearing in response thereto, directly resulted in renewed negotiations between all the major parties-in-interest, including the trade committee and Angelo Gordon. Those negotiations, in turn, culminated in a confirmed plan of reorganization which provided for, among other things: 1) a recovery for trade creditors of 100 cents on the dollar, plus post-petition interest at an agreed-to rate of 6%; and 2) support from the debtor and the official creditors' committee for any substantial contribution claims sought by either the trade committee or Angelo Gordon.

The bankruptcy court granted the two substantial contribution motions as a result of the movants' active role in facilitating the negotiations and successful confirmation of the plan, as well as for their role in protecting the interests of all of the unsecured creditors at the SS/L level and for augmenting the recoveries of all of the creditors at that level. The court reasoned that the trade committee and Angelo Gordon augmented the recoveries of all creditors who had “frankly been disregarded or ignored by the plan that had been submitted” by the debtors. See Feb. 7, 2006 Hearing Transcript at 104. In Loral, and unlike in Dana and Tropicana discussed below, the court did not find that the self-interests of the trade committee or Angelo Gordon barred their ability to recover for their substantial contribution.

The Dana Corporation Case

In In re Dana Corporation, et al., 390 B.R. 100 (Bankr. S.D.N.Y. June 19, 2008), the Bankruptcy Court denied a substantial contribution claim request filed by Appaloosa Management L.P. (“Appaloosa”), as a prospective investor and bidder in the debtors, which sought in excess of $2.5 million. Appaloosa contended that its actions benefited the debtors because the objections it interposed in respect of certain agreements that the debtors had been entering into with another investor, and the resulting submission of various counter-proposals increased the guaranteed investment in the debtors by $290 million. See Id. at 109. The court, however, held that Appaloosa did not overcome the presumption that it acted only in its self-interest, explaining that “services calculated primarily to benefit the client do not justify an award even if they also confer an indirect benefit of the estate” and “compensation ' is reserved for those rare and extraordinary circumstances when the creditor's involvement truly enhances administration of the estate.” See Id. at 108-09. Further, the court explained that to the extent Appaloosa's actions played some role in achieving the result, it was insufficient to rise to the level of a substantial contribution. See Id. at 110. Finally, in denying Appaloosa's motion, the court considered, and ultimately agreed with, the objections that were interposed by the United States Trustee and an ad-hoc committee of certain equity holders in opposition to Appaloosa's motion.

The Tropicana Case

In In re Tropicana Entertainment, LLC, et. al., Bankr. D. Del., Case No. 08-10856 (KJC), decided in September 2009, the bankruptcy court denied a substantial contribution motion filed by a consortium of senior subordinated bondholders which sought in excess of $2.4 million in fees and expenses. In that case, the consortium filed a motion, just one day after the petition date, seeking the emergency appointment of a Chapter 11 trustee and the removal of William J. Jung, III, Tropicana's owner, CEO, and board chairman, who the consortium alleged had grossly mismanaged the debtors. Less than two months later, the parties to the trustee motion came to a settlement agreement whereby Yung was stripped of his board seats. Included in the settlement documents was an acknowledgement by the debtors that the consortium had made a substantial contribution to the debtors' estates.

Several weeks after the settlement was reached, the consortium filed their substantial contribution motion pursuant to section 503(b)(3)(D) and (b)(4) of the Bankruptcy Code seeking an administrative expense claim for approximately $2.3 million as reimbursement for professional fees and expenses incurred in litigating the trustee motion. In support of its motion, the consortium argued that its prosecution of its motion to appoint a trustee resulted in a “textbook” and “quintessential” substantial contribution in those cases because: 1) “Yung's resignation from the Board enabled a new management team to focus on rebuilding the Debtors' business reputation, regaining the trust and confidence of state gaming regulators, and moving the cases toward a Chapter 11 plan”; and 2) the consortium's efforts benefitted all creditors, pointing to the support of the official creditors' committee and a steering committee of senior secured lenders to remove Mr. Yung from the board.

Another ad-hoc committee ' one comprised of senior secured lenders ' however, objected to the consortium's motion arguing that: 1) the consortium sought to appoint the Chapter 11 trustee not to benefit the estates as a whole but to protect its own “asset” and economic interest; 2) the consortium would have filed the trustee motion regardless of the potential for reimbursement of its fees and expenses; and 3) the consortium was wasteful in generating a tremendous amount of fees on unnecessary and aggressive re-litigation. Moreover, and citing to In re Columbia Gas Sys., Inc., 224 B.R. 540, 548 (Bankr. D. Del. 2007) (listing a realm of activities that should be recognized as substantial contributions), the steering committee explained that unlike other scenarios that provide the basis for substantial contribution, the consortium did not, among other things, compromise its own claim, create a plan to pay creditors more than or dramatically increase the treatment of creditors under a debtor-proposed plan, or enhance disclosure of information available to an impaired class.

Another objection to the substantial contribution motion was filed by certain so-called liquidating LandCo debtors who argued that: 1) because the noteholders were neither creditors of any of the LandCo debtors nor did they make any contribution to any of the LandCo bankruptcy cases, they were not permitted to recover on a ' 503(b) administrative claim; and 2) the fees and expenses sought by the consortium exceeded the total amount of distributions to the LandCo debtors' unsecured creditors by a factor of six to one and were therefore excessive and patently unreasonable.

Agreeing with the steering committee of senior secured lenders, the bankruptcy court denied the consortium's motion, and in doing so, focused upon, interestingly enough, the consortium's motive, stressing in particular that the consortium did not meet its burden to establish that they would not have moved forward unless there was reimbursement by the estate, as required by Lebron. The court explained that “the exercise here is to separate out the self-interest and to see what else might warrant an award for a substantial contribution.” See Sept. 10, 2009 Hearing Transcript, at 29-30. Specifically, with respect to the consortium's preparation and litigation of the trustee motion, the court reasoned that the consortium “had such a bloodthirst for Mr. Yung, that it would have proceeded to do what it did regardless of whether there was a benefit shared by others who were constituents in the estate” and that the consortium's actions to remove Yung were “taken largely in the self-interest of the movants ' and would have been taken whether there would have been estate reimbursement or not.” See Id. at 9, 53. The consortium appealed the bankruptcy court's decision to the Delaware district court, where it is currently pending.

Conclusion

Although the law with respect to “substantial contribution” claims appears to remain unchanged after the recent Tropicana decision, the decision does add to the existing uncertainty by illustrating that motive of the applicant is an important factor that courts will scrutinize in considering requests for substantial contribution claims. The question going forward is whether courts will consider the motivation of a particular claimant as the determining, overriding factor, and decide the motion on that ground alone, or whether courts will consider the element of intent as one of a number of factors as it analyzes the totality of the circumstances, balancing the contribution made to the estate against the claimant's motives. On the one hand, the courts in Tropicana and Dana gave great weight to the motivation of the party seeking reimbursement.

On the other hand, the courts in Lebron and Loral seemed to weigh more heavily the actual contribution that was made to the estate, as well as the support of other constituents, rather than the actual intent of the claimants. While it is clear that the granting of a motion for substantial contribution depends upon all of the facts and circumstances of a particular case, at least at present, there is no formula for how much weight to afford each particular factor. All eyes are no doubt on the Delaware district court as we await their decision in connection with the Tropicana appeal.

Steven B. Smith, a member of this newsletter's Board of Editors, (http://www.lawjournalnewsletters.com/Admin/cgi-bin/udt/steven.%[email protected]) is Counsel and Jennifer A. Muller is an associate at Dechert LLP.