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Sixth Circuit Adds Results-Based Contingency to Fee Payment Approval
A recent decision from the U.S. Court of Appeals for the Sixth Circuit may be creating a tsunami of concern to those attorneys and law firms that regularly represent bankruptcy trustees. The decision, in essence, takes an hourly fee arrangement between the trustee and the trustee's attorneys and adds a results-based contingency to the approval of any fee payment authorization by the bankruptcy court.
The case of In re Village Apothecary, 21-1555 (6th Cir. Aug. 16, 2022), addresses whether a bankruptcy court may consider "results obtained" when determining whether fees are reasonable under Section 330(a)(3) of the Bankruptcy Code. Ultimately, the Sixth Circuit decided yes it could.
Village Apothecary, a pharmacy in Ann Arbor, Michigan, filed for Chapter 7 bankruptcy in 2015. The court appointed a trustee and trustee's special counsel (a law firm) to investigate potential causes of action totaling $1.6 million that would potentially benefit the estate. The special counsel undertook a year-long investigation into these potential causes of action and eventually drafted a complaint against Village Apothecary's president, Garry Turner. Although the complaint was never filed, it was used as leverage to settle with Turner for $38,000. Notably, the estate's assets totaled $40,710.87.
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