UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
Hearing Date and Time: July 9, 2012 at 3:00 p.m.
Objection Deadline: June 29, 2012 at 4:00 p.m.
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In re
DEWEY & LEBOEUF LLP,
Debtor.
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Chapter 11
Case No. 12-12321(MG)
OMNIBUS OBJECTION OF THE UNITED STATES TRUSTEE TO
APPLICATIONS OF DEBTOR FOR SEPARATE ORDERS AUTHORIZING
THE EMPLOYMENT AND RETENTION OF (I) TOGUT, SEGAL & SEGAL
LLP AS COUNSEL TO THE DEBTOR; (II) PROSKAUER ROSE LLP AS
SPECIAL EMPLOYMENT AND LITIGATION COUNSEL; (III)
KEIGHTLEY & ASHNER LLP AS SPECIAL PENSION BENEFITS
COUNSEL; (IV) GOLDIN ASSOCIATES, LLC AS SPECIAL CONSULTANT;
(V) ON-SITE ASSOCIATES, LLC AS COLLECTION AGENT; (VI)
DEVELOPMENT SPECIALISTS, INC. AS WIND DOWN CONSULTANT;
(VII) SITRICK AND COMPANY AS CORPORATE COMMUNICATION
CONSULTANT; (VII) BROWN RUDNICK LLP AS COUNSEL FOR THE
OFFICIAL COMMITTEE OF UNSECURED CREDITORS; AND (IX)
KASOWITZ, BENSON, TORRES & FRIEDMAN LLP AS COUNSEL TO THE
OFFICIAL COMMITTEE OF FORMER PARTNERS
TRACY HOPE DAVIS
UNITED STATES TRUSTEE
Brian S. Masumoto
Elisabetta G. Gasparini
Michael T. Driscoll
Trial Attorneys
33 Whitehall Street, 21st Floor
New York, New York 10004
Tel. No. (212) 510-0500
Fax. No. (212) 668-2255
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TABLE OF CONTENTS
TABLE OF CONTENTS ................................................................................................................. i
TABLE OF AUTHORITIES ......................................................................................................... iii
I. SUMMARY STATEMENT ................................................................................................1
II. BACKGROUND .................................................................................................................3
A. General .....................................................................................................................5
B. Zolfo Cooper ............................................................................................................5
C. The Togut Application .............................................................................................6
D. The Proskauer Application ......................................................................................7
E. The Keightley Application .......................................................................................9
F. The Goldin Application .........................................................................................10
G. The On-Site Application ........................................................................................11
H. The DSI Application ..............................................................................................13
I. The Sitrick Application ..........................................................................................14
J. The Brown Rudnick Application ...........................................................................15
K. The Kasowitz Application .....................................................................................15
III. DISCUSSION ....................................................................................................................16
A. The Governing Law ...............................................................................................16
1. Section 327(a) ............................................................................................16
2. Section 327(e) ............................................................................................16
3. Section 328.................................................................................................18
4. Sections 330 and 331 .................................................................................19
B. The Debtor Has Not Met Its Burden to Establish That the Services
to Be Provided by Certain Professionals Are Necessary and Do Not
Overlap ...................................................................................................................20
1. Proskauer and Keightley ............................................................................21
2. On-Site and DSI .........................................................................................22
3. Sitrick .........................................................................................................23
C. Additional Disclosures Are Required to Determine
Whether Certain Professionals Are Disinterested..................................................24
1. Togut ..........................................................................................................25
2. Proskauer....................................................................................................25
3. Keightley ....................................................................................................26
4. Goldin ........................................................................................................26
5. On-Site .......................................................................................................26
6. Sitrick .........................................................................................................26
D. It Appears That Proskauer Represents and Holds Interests Adverse
to the Debtor and Its Estate with Respect to the Matters
on Which It Is Employed .......................................................................................27
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E. The Keightley Application Does Not Support Approval of the
Retention Under the Improvident Standard of Section 328 ...................................29
F. The Proposed Orders Should Require Restained Professionals
to Disclose Any Rate Increase ...............................................................................31
G. The Retained Professionals Should Apply the Balance of the
Retainer to the First Interim Fee Applications .......................................................33
H. On-Site Should Not Be Paid in Advance of Submitting
Fee Applications ....................................................................................................36
IV. CONCLUSION ..................................................................................................................38
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TABLE OF AUTHORITIES
Cases
Bank Brussels Lambert v. Coan (In re AroChem Corp.), 176 F.3d 610
(2d Cir. 1999) .....................................................................................................................18
Diamond Lumber v. Unsecured Creditors' Comm., 88 B.R. 773
(Bankr. N.D. Tex 1998) .....................................................................................................25
In re 419 Co., 133 B.R. 867 (Bankr. N.D. Ohio 1991) ..................................................................25
In re Allegheny Int'l, 117 B.R. 171 (W.D. Pa. 1990) ....................................................................20
In re Benjamin's-Arnolds, Inc., 123 B.R. 839 (Bankr. D. Miss. 1990) .........................................34
In re Borders Group, Inc., 465 B.R. 195 (Bankr. S.D.N.Y. 2011) ................................................20
In re Congoleum Corp., 426 F.3d 678 (3d Cir. 2005) ...................................................................17
In re Engel, 124 F.3d 567 (3d Cir. 1997) .......................................................................................16
In re Fernandez, 441 B.R. 84 (Bankr. S.D. Tex. 2010) ...........................................................19, 20
In re Gillett Holdings, 137 B.R. 452 (Bankr. D. Colo. 1991) ........................................................30
In re Ginco, Inc., 105 B.R. 620 (Bankr. D. Colo. 1988) ................................................................17
In re Granite Partners, 219 B.R. 22 (Bankr. S.D.N.Y. 1998) ............................................18, 25, 32
In re Haven Eldercare, LLC, 382 B.R. 180 (Bankr. D. Conn. 2008) ............................................37
In re High Voltage Eng'g Corp., 311 B.R. 320 (Bankr. D. Mass. 2004) .................................18, 19
In re Homesteads Community at Newtown, LLC, 390 B.R. 32
(Bankr. D. Conn. 2008)................................................................................................28, 29
In re Insilco Tech., Inc., 291 B.R. 628 (Bankr. D. Del. 2003) .................................................33, 34
In re Jensen-Farley Pictures, Inc., 47 B.R. 557 (Bankr. D. Utah 1985) ........................................19
In re JMK Constr. Group, Ltd., 441 B.R. 222 (Bankr. S.D.N.Y. 2010) ..................................17, 18
In re Johns-Manville Corp., 32 B.R. 728 (S.D.N.Y. 1983) ...........................................................16
In re Keene Corp., 205 B.R. 690 (Bankr. S.D.N.Y. 1997) ............................................................24
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In re Knudsen Corp., 84 B.R. 668 (9th Cir. B.A.P. 1988) ......................................................34, 35
In re Leslie Fay, 175 B.R. 525 (Bankr. S.D.N.Y. 1994) ................................................................24
In re Matco Elec. Group, Inc., 383 B.R. 848 (Bankr. N.D.N.Y. 2008) .........................................24
In re Pan American Hosp. Corp. , 312 B.R. 706 (Bankr. S.D. Fla. 2004) ...............................34, 35
In re Pillowtex, Inc., 304 F.3d 246 (3d Cir. 2002) .........................................................................25
In re Project Orange, 431 B.R. 363 (Bankr. S.D.N.Y. 2010) ..................................................18, 28
In re Spanjer Brothers, Inc., 191 B.R. 738 (Bankr. N.D. Ill. 1996) ...............................................19
In re Star Ready Mix, Inc., 2008 WL 5338746 (Bankr. E.D. Cal. Dec. 18, 2008) ........................27
In re Worldcom, 311 B.R. 151 (Bankr. S.D.N.Y. 2004) ...............................................................18
In re XO Commcn's Inc., 323 B.R. 330 (Bankr. S.D.N.Y. 2005) ..................................................19
In re Yablon, 136 B.R. 88 (Bankr. S.D.N.Y. 1992) .......................................................................19
In re Yeisley, 64 B.R. 360 (Bankr. S.D. Tex. 1986) ......................................................................20
Nischwitz v. Miskovic (In re Airspect Air, Inc., 385 F.3d 915 (6th
Cir. 2004) .......................30, 31
Riker, Danzig et al. v. Official Committee (In re Smart World Techs., LLC)
383 B.R. 869 (S.D.N.Y. 2008) .....................................................................................18, 30
Rome v. Braunstein, 19 F.3d 54 (1st Cir. 1994) .............................................................................24
Statutes
11 U.S.C. § 327 ...................................................................................................................... passim
11 U.S.C. § 328 ...................................................................................................................... passim
11 U.S.C. § 330 ...................................................................................................................... passim
11 U.S.C. § 331 ...................................................................................................................... passim
11 U.S.C. § 503 ............................................................................................................34, 35, 36, 37
11 U.S.C. § 507 ..............................................................................................................................34
11 U.S.C. § 547 ..............................................................................................................................25
Rules
Fed. R. Bankr. P. 2014 ........................................................................................................... passim
Fed. R. Bankr. P. 2016 ...................................................................................................................36
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Administrative Orders
Administrative Order M-412 ...................................................................................................36, 37
Other Authorities
United States Trustee Guidelines for Reviewing Applications for Compensation and
Reimbursement of Expenses Filed Under 11 U.S.C. § 330 ...............................................32
3 Collier on Bankruptcy ¶327.02[1] (16th
Ed. Rev.) ......................................................................20
3 Collier on Bankruptcy ¶331.01 (16th
Ed.) ...................................................................................36
Exhibits
United States Trustee Objection Chart .......................................................................................... A
United States Trustee Retention Duplication Chart ....................................................................... B
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TO: THE HONORABLE MARTIN GLENN,
UNITED STATES BANKRUPTCY JUDGE:
Tracy Hope Davis, the United States Trustee for Region 2 (the “United States Trustee”),
in furtherance of the duties and responsibilities set forth in 28 U.S.C. §§ 586(a)(3) and (5),
hereby respectfully files her Objections (the “Objections”) to the entry of interim and/or final
orders approving the retention applications of (i) Togut, Segal & Segal LLP (“Togut”) as
Counsel to the Debtor (the “Togut Application,” ECF Docket No. 98); (ii) Proskauer Rose LLP
(“Proskauer”) as Special Employment and Litigation Counsel (the “Proskauer Application,” ECF
Docket No. 106); (iii) Keightley & Ashner LLP (“Keightley”) as Special Pension Benefits
Counsel (the “Keightley Application,” ECF Docket No. 107); (iv) Goldin Associates, LLC (the
“Goldin”) as Special Consultant (the “Goldin Application,” ECF Docket No. 100); (v) On-Site
Associates, LLC (“On-Site”) as Collection Agent (the “On-Site Application,” ECF Docket No.
103); (vi) Development Specialists, Inc. (“DSI”) as Wind-Down Consultant (the “DSI
Application,” ECF Docket No. 104); (vii) Sitrick And Company (“Sitrick”) as Corporate
Communications Consultant (the “Sitrick Application,” ECF Docket No. 102); (viii) Brown
Rudnick LLP (“Brown Rudnick”) as Counsel to the Official Committee of Unsecured Creditors
(the “Brown Rudnick Application,” ECF Docket No. 115); and (ix) Kasowitz, Benson, Torres &
Friedman LLP (“Kawowitz”) as Counsel to the Official Committee of Former Partners (the
“Kasowitz Application,” ECF Docket No. 122 and, collectively with the other retention
applications, the “Retention Applications”). In support of the Objections, the United States
Trustee states as follows:
I. SUMMARY STATEMENT
As set forth below and Exhibit A attached hereto, the Retention Applications at issue here
either contain or propose provisions that are impermissible, do not comply with the Bankruptcy
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Code or Bankruptcy Rules, raise concerns with respect to conflicts of interest, and/or fail to
provide sufficient disclosures for the United States Trustee or any other party in interest to make
a determination as to the disinterestedness of the firms that the Debtors seek to retain.
Specifically, the United States Trustee objects to the Retention Applications on the following
grounds:
The Debtors have not met their burden to show that the retention of multiple
professionals is warranted. More specifically, the Debtors (a) have failed to establish
how the retention of a communications consultant in a liquidating case is necessary to the
administration of, or beneficial to the completion of this case and (b) should provide
further explanation as to how the services to be provided by Proskauer, Keightley, On-
Site, DSI, and Zolfo do not overlap.
There are serious concerns regarding whether Proskauer’s retention as special
employment counsel runs afoul of the prohibition pursuant to Section 327(e) of the
Bankruptcy Code that the attorney not represent or hold any interest adverse to the estate
on the matter on which the attorney is retained where it appears that Proskauer may be
opposed to its own partners and employees who joined the firm from the Debtor.
Additional disclosures are required, pursuant to Federal Rule of Bankruptcy Procedure
2014, in order for the Court, the United States Trustee, and other parties in interest to
make a determination on the firms’ disinterestedness.
The Keightly Application does not support approval of the law firm’s retention under the
improvident standards of Section 328.
Consistent with the Bankruptcy Rules, professionals should be required to disclose any
rate increases.
Certain professionals are holding retainers that they received pre-petition as evergreen
retainers and appear to seek approval to hold their respective retainers until the end of the
case, rather than drawing-down on them upon the approval of the first application.
However, the firms are already subject to a risk minimizing device which would ensure
that they receive almost all of their fees and expenses on a monthly basis. Accordingly,
the retention of an evergreen retainer would allow certain professionals to be treated
differently than other professionals or administrative claimants in this case, leading to an
inequitable result especially in a case in which the Debtor has no prospect of
reorganizing.
On-Site seeks to be paid in advance of submitting fee applications in contravention of
Bankruptcy Code Sections 330 and 331 and the Proposed Interim Compensation Order
(as defined below).
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As set forth in detail below, absent modification of these provisions or absent
supplemental affidavits being filed to address the disclosure inquiries, the Retention Applications
should not be approved.1
II. BACKGROUND
A. General
1. On May 28, 2012 (the “Petition Date”), Dewey & LeBoeuf LLP (the “Debtor”)
commenced a voluntary case under Chapter 11 of the Bankruptcy Code. See ECF Doc. No. 1.
2. In accordance with Local Bankruptcy Rule 1007-2, the Debtor supported the
petition with the Declaration of the Jonathon A. Mitchell (the “Mitchell Declaration”). See ECF
Docket No. 2. According to the Mitchell Declaration, Mr. Mitchell is the Chief Restructuring
Officer (the “CRO”) of the Debtor and a senior managing director at Zolfo Cooper Management,
LLC (“Zolfo Cooper”). Id. at ¶ 15. Mr. Mitchell was retained by the Debtor to assist in the
wind-down of the Debtor and the liquidation of its assets. Id. at ¶¶ 15-16.
3. On the Petition Date, all of the Debtor’s offices were closed or were in the process
of being closed in the United States. Id. at ¶ 82.
4. On or about May 4, 2012, as a result of the acceleration of approximately $225
million in principal amount of prepetition secured obligations, the Debtor issued notices under
the applicable Worker Adjustment and Retraining Notification (“WARN”) statutes, notifying
employees that the vast majority of them would likely be terminated as soon as May 15, 2012.
Id. at ¶ 11.
5. On or about May 11, 2012, the Debtor appointed a committee to oversee the
firm’s wind-down (the “Wind-Down Committee”). Id. at ¶ 12. The Wind-Down Committee
1 To the extent that parties wish to resolve the Objections, the parties should contact the Office of United States Trustee.
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was comprised of Janis M. Meyer, Esq., a partner of the Debtor and its General Counsel, and
Stephen J. Horvath III, Esq., the Debtor’s Executive Partner. Id.
6. During the week of May 14, 2012, the Wind-Down Committee, along with the
Debtor’s former Finance Director and outside professional advisors, began to negotiate with the
Debtor’s Prepetition Bank Lenders (as defined in the Mitchell Declaration) and holders of the
Secured Notes (as defined in the Mitchell Declaration) a plan to wind-down the firm (the “Wind-
Down Plan”). Id. at ¶ 13.
7. The Wind-Down Plan contemplates an agreed upon budget for the wind-down of
the firm, which includes, among other things, collecting accounts receivable and meeting other
costs of administering this Chapter 11 case, including investigating and pursuing, if warranted,
claims and causes of action against the Debtor’s partners and other third parties. Id. at ¶¶ 14, 16.
8. As of the Petition Date, there were approximately 150 employees remaining, with
the expectation that, as of June 1, 2012, the numbers of employees would be further reduced to
90 individuals. Id. at 26.
9. On May 31, 2012, pursuant to Section 1102 of the Bankruptcy Code, the United
States Trustee appointed in this case (a) an Official Committee of Unsecured Creditors (the
“Creditors’ Committee”) and (b) an Official Committee of Former Partners of the Debtor (the
“Former Partners’ Committee,” and together with the Creditors’ Committee, the “Statutory
Committees”). See ECF Doc. Nos. 43-44.
10. On June 13, 2012, the Bankruptcy Court entered a Final Order (1) Authorizing
Use of Cash Collateral, (2) Granting Adequate Protection, and (3) Modifying the Automatic Stay
(the “Final Cash Collateral Order”). ECF Docket No. 91. The Final Cash Collateral Order
provides a fixed budget for professional fees, the violation of which triggers a termination of the
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use of cash collateral, and thereafter limits aggregate professional fees and expenses to $250,000.
Id. at ¶ 16.
11. Attached as Exhibit A to the Final Cash Collateral Order is a “Domestic Weekly
Cash Flow Budget For the Period June 14, 2012 through July 31, 2012” (the “Budget”) that
provides a six-week budget for professionals as follows: On-Site - $448,000; Debtor’s
Professionals - $3.529 million; Statutory Committees’ Professionals - $753,000; and Lenders
Professionals - $2.255 million. Id. at 51-52, Exhibit A.
12. The Budget also provides for weekly compensation for the “Dissolution
Committee” (presumably the Wind-Down Committee) of $58,000, representing annualized
compensation of $3.016 million. Id. at 51.
13. On June 15, 2012, the Debtor filed a motion seeking entry of an order establishing
procedures for interim monthly compensation and reimbursement of expenses of professionals
(the “Proposed Interim Compensation Order”) that is also scheduled to be heard on July 9, 2012.
ECF Docket No. 96. The Proposed Interim Compensation Order would allow the retained
professionals in this case to be paid 80% of their fees and 100% of their expenses on a monthly
basis following the filing of monthly statements and absent an objection to the professionals’
monthly fee statements. Id.
14. To date, the Debtor is currently operating its business and managing their affairs
pursuant to Sections 1107 and 1108 of the Bankruptcy Code. No trustee or examiner has been
appointed.
B. Zolfo Cooper
15. June 15, 2012, the Debtor filed an application seeking the approval of a services
agreement (the “Services Agreement”) by and among the Debtor, Mr. Mitchell, and Zolfo
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Cooper (the “CRO Application”) nunc pro tunc to the Petition Date. ECF Docket No. 96. The
Zolfo Cooper Application is supported by the Declaration of Jonathan A. Mitchell (the “Mitchell
Services Agreement Declaration”). Id., Exhibit 3. A copy of the Services Agreement is attached
to the proposed order approving the Services Agreement. Id. Pursuant to the Services
Agreement dated May 16, 2012, Zolfo Cooper was retained by the Wind-Down Committee as
the Debtor’s CRO. Id.
16. The duties to be performed pursuant to the Services Agreement are as follows:
(b) Mitchell and [Zolfo Cooper] shall be authorized to make decisions with
respect to all aspects of the Wind-down, in such manner as they deem necessary
or appropriate in their sole discretion in a manner consistent with the business
judgment role, and the provisions of local law and in the event of a chapter 11
filing, the United States Bankruptcy Code, subject only to appropriate governance
by the Wind-down Committee. Mitchell and Associate Directors (individually, a
“Representative” and collectively, the “Representatives”) shall not have any
authority to make decisions with respect to hiring or terminating the members of
the Wind-down Committee or otherwise committing the Firm or its resources
other than in the ordinary course of business unless approved by the Wind-down
Committee and, if required, the United States Bankruptcy Court. All decisions of
Mitchell shall be discussed to the extent Mitchell deems reasonably appropriate
with the member or members of the Wind-down Committee that Mitchell, in the
exercise of his sole discretion, determines to be appropriate prior to the
implementation of such decisions.
Id.
C. The Togut Application
17. On June 15, 2012, the Debtor filed an application seeking the retention of Togut
as general bankruptcy counsel pursuant to Section 327(a) of the Bankruptcy Code (the “Togut
Application”) nunc pro tunc to the Petition Date. ECF Docket No. 98. The Togut Application is
supported by the Declaration of Albert Togut, a partner of Togut (the “Togut Declaration”). Id.,
Exhibit 2.
18. According to the Togut Declaration, Togut was engaged on or about April 1, 2012
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“to assist the Debtor with evaluating restructuring options and to prepare for a Chapter 11 case
should a filing become necessary or desirable.” Togut Application at ¶ 9. As of the date of the
filing of the Togut Application, the Togut Declaration indicates that the Debtor paid Togut
$406,052.76 for services rendered through April 30, 2012, plus a $1 million retainer. Id. The
Togut Declaration states that the retainer will be first be applied to Togut’s unpaid fees and
expenses up through the Petition Date and the balance will be held and applied to unpaid post-
petition fees and expenses allowed by the Bankruptcy Court. Id. The Togut Declaration is
silent as to whether the remaining balance of the retainer will be applied to the first interim fee
application.
D. The Proskauer Application
19. On June 15, 2012, the Debtor filed an application seeking the retention of
Proskauer as Special Employment and Litigation Counsel pursuant to Section 327(e) of the
Bankruptcy Code nunc pro tunc to the Petition Date. ECF Docket No. 106. The Proskauer
Application is supported by the Declaration of Lawrence R. Sandak (the “Sandak Declaration”).
Id., Exhibit 2.
20. According to the Proskauer Application, the Debtor seeks approval to employ
Proskauer to:
(a) advise the Debtor regarding employment issues;
(b) advise and represent the Debtor regarding WARN-related issues, including
defending any WARN actions commenced against the Debtor and representing
the Debtor’s interests in negotiations concerning WARN actions in which the
Debtor is involved, including, but not limited to, objections to WARN-related
claims filed against the estate;
(c) advise and represent the Debtor regarding the Pension Plans or certain other
retirement plans, and in any litigation related thereto, including defending claims
related to the Pension Plans brought by PBGC or otherwise;
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(d) appear before any administrative panel, this Court and any appellate courts
and protect the interests of the Debtor’s estate with respect to employment issues;
and
(e) perform other necessary employment-related legal services and provide other
necessary legal advice to the Debtor in connection with this Chapter 11 case.
Proskauer Application at ¶ 15.
21. According to the Sandak Declaration, during the one-year period prior to the
Petition Date, the Debtor paid Proskauer a total of approximately $584,701.11, all of which has
been debited against outstanding fees and expenses incurred prior to the Petition Date. Sandak
Declaration at ¶ 8. It further states that while Proskauer is still reconciling time and expense
charges, after application of these payments, Proskauer estimates that it has a prepetition claim of
approximately $36,300 against the Debtor. Id.
22. The Sandak Declaration discloses that prior to the Petition Date, but at various
times after May 14, 2012, approximately 63 former partners, associates and staff of the Debtor
joined Proskauer and that Proskauer will represent certain former partners of the Debtor that are
now Proskauer partners in “personal matters.” Id. at ¶ 14. Certain of the former employees of
the Debtor may be eligible to participate as members of the plaintiff class in the WARN action.
Id. Further, Proskauer represents the Debtor as a plan sponsor of a profit sharing plan in
connection with providing advice regarding the maintenance of the plan's tax qualified status so
that contributions to the plan are not currently taxable to the participants. Id. The Sandak
Declaration further states:
[t]he plan participants, some of whom are now partners and employees of
Proskauer, could suffer adverse tax consequences if the matter is not resolved
satisfactorily. Proskauer has established an “ethical screen” between the former
DL partners and employees and the Proskauer partners and employees who will
be providing services to the Debtor.
Id.
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E. The Keightley Application
23. On June 15, 2012, the Debtor filed an application seeking the retention of
Keightley as Special Pension Benefits Counsel pursuant to Section 327(a) of the Bankruptcy
Code nunc pro tunc to the Petition Date. ECF Docket No. 107. The Keightley Application is
supported by the Declaration of Harold J. Ashner (the “Ashner Declaration”). Id., Exhibit 2.
24. According to the Keightley Application, Keightley “will support the Togut Firm
and Proskauer in evaluating the claims of the Pension Benefit Guaranty Corporation (the
‘PBGC’) and will assist the Togut Firm and Proskauer in developing strategies to resolve the
PBGC’s claims.” Keightley Application at ¶ 14. Specifically, Keightley will perform the
following services: “(a) Providing advice and guidance to the Debtor that will allow the Debtor
to evaluate the PBGC’s claims; (b) Supporting the Togut Firm and Proskauer in evaluating the
PBGC’s claims; and (c) Assisting the Togut Firm and Proskauer in developing strategies to
resolve the PBGC’s claims.” Id. at ¶ 18.
25. The Keightley Application states that Keightley seeks approval of its hourly fee
structure pursuant to Section 328(a) of the Bankruptcy Code. Id. at ¶ 25. In addition, the
proposed order granting the retention of Keightley (the “Proposed Keightley Retention Order”)
states, “[t]he Fee Structure and the reimbursement of expenses, set forth in the Agreement, are
approved pursuant to section 328(a) of the Bankruptcy Code.” Proposed Keightley Retention
Order at ¶ 3.
26. According to the engagement letter (the “Keightley Engagement Letter”) attached
to the Keightley Application, the Debtor paid Keightley a pre-petition retainer of $50,000 on
April 30, 2012. Keightley Engagement Letter at 1. It states, “[f]or future bills to Dewey, we will
treat the bill as having been paid from your funds in the IOLTA account to the extent that
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IOLTA funds are sufficient and will ask that you replenish the IOLTA account to the $50,000
level by the fifth calendar day after the date of the bill . . . .” Id. at 1-2. This “evergreen”
retainer is not mentioned in the Keightley Application or in the Ashner Declaration. It is unclear
whether a post-petition balance remains on the retainer and, to the extent that such a balance
remains, whether the balance would be applied to the first interim fee application.
27. According to the Ashner Declaration, Keightley has represented and continues to
represent an undisclosed party in interest in matters wholly unrelated to the Debtor’s case.
Ashner Declaration at ¶¶ 6-7. Further, according to Keightley, the Debtor is aware of, and
consents to, the continued representation of this undisclosed party in interest. Id. at 7.
F. The Goldin Application
28. On June 15, 2012, the Debtor filed an application seeking the retention of Goldin
as Special Consultant pursuant to Section 327(a) of the Bankruptcy Code nunc pro tunc to the
Petition Date. ECF Docket No. 100. The Goldin Application is supported by the Declaration of
David Pauker (the “Pauker Declaration”). Id., Exhibit 2.
29. According to the Pauker Declaration, the Debtor retained Goldin on or about
April 22, 2012 to assist Dewey and its counsel to identify and evaluate potential claims against
partners and consider options for settling any such claims. Pauker Declaration at ¶ 16.
Specifically, the Goldin will provide the following:
(a) Assist the Debtor and its counsel to evaluate potential claims against partners
and former partners;
(b) Assist the Debtor and its counsel to formulate proposals for the settlement and
resolution of claims against partners and former partners;
(c) Participate in discussions and negotiations among the various parties to the
bankruptcy regarding the settlement of partner claims;
(d) Provide testimony respecting any settlement or resolution of partner claims;
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and
(e) Provide such other services related to claims against partners and former
partners (and related claims against other parties) as the Debtor may from time to
time request and the Goldin Firm may be willing to provide.
Id. at ¶ 6; Goldin Application at ¶ 10;
30. Further, according to the Pauker Declaration, prior to the Petition Date, the
Debtor paid Goldin a total of $660,000, of which less than $115,000 remains as a retainer.
Pauker Declaration at ¶ 16. The Pauker Declaration states that the retainer will be first be
applied to Goldin’s unpaid fees and expenses up through the Petition Date and the balance will
be held and applied to unpaid post-petition fees and expenses allowed by the Bankruptcy Court.
Id. The Pauker Declaration is silent as to whether the remaining balance of the retainer will be
applied to the firm’s first interim fee application.
31. The Pauker Declaration states that Goldin conducted a review of its connections
to certain interested parties identified on an addendum attached to the Goldin Application. Id. at
¶ 18. Of the parties identified on the addendum, the Pauker Declaration indicates that none of
the parties represented more than 5% of the aggregate of Goldin’s revenues for 2011. Id.
G. The On-Site Application
32. On June 15, 2012, the Debtor filed an application seeking the retention of On-Site
as Collection Agent pursuant to Section 327(a) of the Bankruptcy Code nunc pro tunc to the
Petition Date. ECF Docket No. 103. The On-Site Application is supported by the Declaration of
George Abodeely (the “Abodeely Declaration”). Id., Exhibit 2.
33. According to the On-Site Application, the Debtor retained On-Site to provide
collection assistance of the approximately $217.4 million of non-contingent domestic billed and
unbilled accounts receivables. On-Site Application at ¶ 6. Specifically, On-Site will provide the
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following services to the Debtor:
a. provide collection assistance for the Receivables as specified in the Agreement,
including, but not limited to, (i) analyzing the Receivables portfolio, organizing
and planning the collection process, and (ii) managing the Debtor’s billing and
collections team and providing On-Site professionals to supplement such team;
b. provide collection assistance (similar to that provided for the Receivables) for
additional billed and unbilled accounts receivables (the “Additional Receivables”)
as may be later assigned to On-Site by the Debtor;
c. provide the Debtor with arbitration/litigation preparation services (the
“Preparation Services”) relating to the Receivables and the Additional
Receivables, as requested by the Debtor; and
d. provide monthly status reports to the Debtor summarizing On-Site’s collection
results, and make presentations to the Debtor, its professionals and/or other
designated persons regarding the status of collection efforts and results.
Id. at ¶ 6; Abodeely Declaration at ¶ 5; Proposed On-Site Retention Order at ¶ 2.
34. According to the On-Site Application, the Debtor will compensate On-Site on a
commission-based contingency fee arrangement tied to the gross recovery of receivables
collected under the terms of a document referred to as “the Agreement.” On-Site Application at
¶ 9; see also Abodeely Declaration at ¶ 8. The Agreement was not attached to the On-Site
Application nor was a copy provided to the Office of the United States Trustee prior to the filing
of this Objection.
35. Further, according to the On-Site Application, prior to the Petition Date the
Debtor paid On-Site a pre-petition retainer of which a balance of $122,947.26 remains. On-Site
Application at ¶ 11; see also Abodeely Declaration at ¶ 4; Proposed On-Site Retention Order at ¶
4. On-Site requests that the Bankruptcy Court approve an arrangement whereby the Debtor
would pay On-Site $27,052.74 post-petition so that the retainer would be $150,000. On-Site
Application at ¶ 11; see also Abodeely Declaration at ¶ 10; Proposed On-Site Retention Order at
¶ 4. The On-Site Application and the Abodeely Declaration indicate that approval of the
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Proposed Order would permit On-Site to apply the retainer to fees and expenses without further
application from the Bankruptcy Court. On-Site Application at ¶ 11; Abodeely Declaration at ¶
10; Proposed On-Site Retention Order at ¶ 4.
36. According to the Abodeely Declaration, On-Site disclosed that prior to the
Petition Date, it was retained by counsel to J.P. Morgan Chase, a secured creditor of the Debtor,
as a consultant with regard to the Debtor’s account receivable portfolio. Abodeely
Declaration at ¶ 5. The Abodeely Declaration does not indicate whether this engagement is
complete.
H. The DSI Application
37. On June 15, 2012, the Debtor filed an application seeking the retention of DSI as
Wind Down Consultant pursuant to Section 327(a) of the Bankruptcy Code nunc pro tunc to the
Petition Date. ECF Docket No. 104. The DSI Application is supported by the Declaration of
William A. Brandt, Jr. (the “Brandt Declaration”). Id., Exhibit 2.
38. According to the DSI Application, the Debtor retained DSI to provide
management and advisory services to the Debtor. DSI Application at ¶ 6. Specifically, DSI will
provide the following services to the Debtor:
a. familiarize itself with the Debtor's operations, assets and liabilities and the
proceedings in the Debtor's Chapter 11 case relating to DSI’s functions as wind
down consultant;
b. assist in implementing strategic and tactical courses of action during the
Debtor’s Wind-Down relating to vacating office spaces, negotiating with lessors,
and resolving issues relating to client files and records and leased property;
c. coordinate with the Chief Restructuring Officer (the “CRO”), the Debtor’s
proposed bankruptcy counsel and Wind-Down Committee with respect to the
foregoing; and
d. assist, if necessary, in negotiations with parties-in-interest and their
representatives with respect to the foregoing.
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Id. at ¶ 5.
39. According to an engagement letter dated May 29, 2012 (the “DSI Engagement
Letter”) attached to the DSI Application, as of the Petition Date, DSI held a pre-petition retainer
with a balance between $225,000 and $250,000. DSI Engagement Letter at 2. The DSI
Engagement Letter, DSI Application, and Brandt Declaration do not indicate whether the
remaining balance of the retainer will be applied to DSI’s first interim fee application.
40. According to the Brandt Declaration, DSI will adjust the hourly rates of the fees
charged to the Debtor as of January 1st of each year. Brandt Declaration at ¶ 8.
I. The Sitrick Application
41. On June 15, 2012, the Debtor filed an application seeking the retention of Sitrick
as Corporate Communications Consultant pursuant to Section 327(a) of the Bankruptcy Code
nunc pro tunc to the Petition Date. ECF Docket No. 102. The Sitrick Application is supported
by the Declaration of Michael Sitrick (the “Sitrick Declaration”). Id., Exhibit 2.
42. According to the Sitrick Application, the Debtor retained Sitrick to assist in
“protecting, retaining, and developing the goodwill and confidence of a number of constituency
groups and stakeholders during the wind down process.” Sitrick Application at ¶ 11.
Specifically, Sitrick will provide the following services to the Debtor: “writing and distributing
press releases, consulting on public relations strategy, media relations and media monitoring in
connection with the Chapter 11 case, and advising on communications programs for various
constituents, including clients.” Id. at ¶ 12.
43. Prior to the Petition Date, the Debtor paid Sitrick a pre-petition retainer of
$35,000. Id. at ¶ 14; see also Sitrick Declaration at ¶ 6. The Sitrick Application states that when
the retainer has been fully applied against time charges, additional time charges will be billed as
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incurred. Id. The Sitrick Application is silent as to whether the remaining balance of the retainer
will be applied to the firm’s first interim fee application.
J. The Brown Rudnick Application
44. On June 21, 2012, the Creditors’ Committee filed an application seeking the
retention of Brown Rudnick as Counsel to the Creditors’ Committee pursuant to Section 1103(a)
of the Bankruptcy Code nunc pro tunc to June 4, 2012. ECF Docket No. 115. The Brown
Rudnick Application is supported by the Declaration of Edward S. Weisfelner (the “Weisfelner
Declaration”). Id., Exhibit A.
45. According to Footnote 1 of the Brown Rudnick Application, “[p]eriodically, but
no less frequently than each calendar year, Brown Rudnick reviews its hourly rates and revises
them consistent with market conditions.” Brown Rudnick Application at n.1.
K. The Kasowitz Application
46. On June 21, 2012, the Former Partners’ Committee filed an application seeking
the retention of Kawowitz as Counsel to the Former Partners’ Committee pursuant to Section
1103(a) of the Bankruptcy Code nunc pro tunc to June 4, 2012. ECF Docket No. 122. The
Kasowitz Application is supported by the Declaration of David M. Friedman (the “Friedman
Declaration”). Id., Exhibit B.
47. According to a proposed order (the “Proposed Kasowitz Retention Order”)
attached to the Kasowitz Application, Kasowitz will file a notice of rate increase. The Proposed
Kasowitz Retention Order, however, is silent of as to the timing of such notice. See Proposed
Kasowitz Retention Order at ¶ 4.
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III. DISCUSSION
A. The Governing Law
The Retention Applications rely on Sections 327(a), 328, 330 and 331 of the Bankruptcy
Code.
1. Section 327(a)
Pursuant to Section 327(a):
the trustee, with the court’s approval, may employ one or more attorneys,
accountants, appraisers, auctioneers, or other professional persons, that do not
hold or represent an interest adverse to the estate, and that are disinterested
persons, to represent or assist the trustee in carrying out the trustee’s duties under
this title.
11 U.S.C. § 327(a).
“[A]pproval under Section 327 [of the Bankruptcy Code] establishes only that [a
professional] may be employed by the debtor-in-possession, and not that his employment will
therefore or thereafter be compensated from estate funds.” In re Engel, 124 F.3d 567, 572 (3d
Cir. 1997)(emphasis added); see also In re Johns-Manville Corp., 32 B.R. 728, 731 (S.D.N.Y.
1983) (“section 327 approvals are merely preliminary ‘go aheads’ rather than conclusive
determinations [of fees and expenses]”). Therefore, Section 327 establishes no guaranteed right
to payment of fees. Rather, this provision simply sets the guideposts for retention, such as
requiring that the professional is disinterested and lacks any materially adverse interest. See 11
U.S.C. § 327(a).
2. Section 327(e)
Pursuant to Section 327(e):
The trustee, with the court’s approval, may employ, for a specified special
purpose, other than to represent the trustee in conducting the case, an attorney that
has represented the debtor, if in the best interest of the estate, and if such attorney
does not represent or hold any interest adverse to the debtor or to the estate with
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respect to the matter on which such attorney is to be employed.
11 U.S.C. § 327(e).
The language of Section 327(e) sets up a three-prong test for the employment of special
counsel. First, the employment may only be authorized for a “specified special purpose” other
than “conducting the case. Id. The “specified special purpose” must be unrelated to the
reorganization and must be explicitly described in the application. In re Congoleum Corp., 426
F.3d 678, 689 (3d Cir. 2005); In re Star Ready Mix, Inc., 2008 WL 5338746 (Bankr. E.D. Cal.
Dec. 18, 2008). The second and third prongs of the “special counsel” test are dependent on the
first. Id. at *2. Once the purpose for special counsel’s employment is adequately and
specifically defined, a debtor must show that the proposed counsel “does not represent or hold
any interest adverse to the estate” with respect to the proposed employment. 11 U.S.C. § 327(e).
A debtor must also show that the employment of special counsel is in the best interest of the
estate. Id.
The “requirements for retention under section 327(a) that a professional not
hold or represent an interest adverse to the estate apply equally to retention under section
327(e).” In re JMK Constr. Group, Ltd., 441 B.R. 222, 230-31 (Bankr. S.D.N.Y. 2010) (citation
omitted). The only substantive difference in application is that under section 327(e) the adverse
interest analysis is with respect to “the matter on which such attorney is to be employed.” 11
U.S.C. §327(e) (emphasis added); see also In re Ginco, Inc., 105 B.R. 620, 621 (Bankr. D. Colo.
198) (finding that under either Section 327(a) or 327(e), proposed counsel cannot represent an
interest adverse to the estate, with the only difference in the adverse interest standard being that
subsection (e) mandates that the interest not be adverse with respect to the matter on which the
attorney is to be employed). The term adverse interest is not defined in the Bankruptcy Code.
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However, the Second Circuit has defined the term as:
(1) to possess or assert any economic interest that would tend to lessen the value
of the bankruptcy estate or that would create either an actual or potential dispute
in which the estate is a rival claimant; or (2) to possess a predisposition under
circumstances that render such a bias against the estate.
In re Worldcom, 311 B.R. 151, 163 (Bankr. S.D.N.Y. 2004) (quoting Bank Brussels Lambert v.
Coan (In re AroChem Corp.), 176 F.3d 610, 623 (2d Cir.1999)); see also JMK Constr. Group,
441 B.R. at 229; In re Project Orange, 431 B.R. 363, 370 (Bankr. S.D.N.Y. 2010) (quoting
Granite Partners, 219 B.R. at 33)) (“Generally stated, the adverse interest test is objecting and
excludes ‘any interest or relationship, however, slight, that would even faintly color the
independent and impartial attitude required by the Code and Bankruptcy Rules.’ ”).
3. Section 328
Likewise, Section 328 creates no automatic right of payment. This provision authorizes:
employment of a professional person under section 327 or 1103 of this title, as the
case may be, on any reasonable terms and conditions of employment, including
on a retainer, on an hourly basis, or on a contingency fee basis. Notwithstanding
such terms and conditions, the court may allow compensation different from the
compensation provided under such terms and conditions after the conclusion of
such employment, if such terms and conditions prove to have been improvident in
light of developments not capable of being anticipated at the time of the fixing of
such terms and conditions.
11 U.S.C. § 328(a) (emphasis added).
Under Section 328(a), the Court “may not award a fee different from one that it has
approved in a retention order unless it finds that the terms in the retention order were
‘improvident in light of developments not capable of being anticipated at the time.’ ” Riker,
Danzig et al. v. Official Committee (In re Smart World Techs., LLC), 383 B.R. 869, 877
(S.D.N.Y. 2008); see also In re High Voltage Eng’g Corp., 311 B.R. 320, 332 (Bankr. D. Mass.
2004) (once a fee arrangement is approved under Section 328, the ability of the bankruptcy court
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to review the amount of compensation payable to the professional is circumscribed).
Thus, in approving a fee arrangement under Section 328(a), it has been held that “a court
may not revisit the reasonableness” of the arrangement when approval of the fees eventually is
sought. In re XO Commcn’s, Inc., 323 B.R. 330, 339 (Bankr. S.D.N.Y. 2005). Because a
finding of improvidence is a high and subjective standard, courts rarely disturb the original terms
of a professional’s employment. In re Yablon, 136 B.R. 88, 92 (Bankr. S.D.N.Y. 1992). Under
Section 328, an intervening circumstance in order to render improvident a court’s decision to
grant a fee application must be one that would have affected the court’s decision in the first
place. High Voltage, 311 B.R. at 331. It must have been relevant to that decision in some way,
rendering it untenable or unwise in hindsight. Id.
4. Sections 330 and 331
Section 330(a) provides:
After notice to the parties in interest and the United States Trustee and a hearing,
and subject to sections 326, 328, and 329, the court may award to a trustee . . . an
examiner, . . . or a professional person employed under section 327 or 1103-
(A) reasonable compensation for actual, necessary services rendered by the
trustee, examiner, professional person, or attorney and by any
paraprofessional person employed by any such person; and
(B) reimbursement for actual, necessary expenses.
11 U.S.C. § 330(a)(1)(A) and (B).
Section 331 further permits a professional to apply to the court for compensation “before
such date as is provided under section 330 of this title.” 11 U.S.C. § 331. With respect to the
interim fee applications pursuant to Section 331, interim fee awards are discretionary, and are
subject to reexamination and adjustment during the course of the case. In re Spanjer Brothers,
Inc., 191 B.R. 738, 747 (Bankr. N.D. Ill. 1996), citing In re Jensen-Farley Pictures, Inc., 47 B.R.
557 (Bankr. D. Utah 1985); see also In re Fernandez, 441 B.R. 84, 98-99 (Bankr. S.D. Tex.
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2010) (noting that due to the speculative nature of interim fee awards, they are “always subject to
the court's reexamination and adjustment during the course of the case.”). Any interim fees
awarded or paid are payable on account of such services and are subject to the court’s review at
the time of the final fee applications.
B. The Debtor Has Not Met Its Burden to Establish That the Services to Be Provided
by Certain Professionals Are Necessary and Do Not Overlap
Prior to approving the retention of a professional, the Court should inquire whether such
retention is necessary for the administration of the case. See, e.g., 3 Collier on Bankruptcy
¶327.02[1] (16th
Ed. Rev.) (“The determinative question in approving the employment of a
professional person is whether it is reasonably necessary during the administration of the estate
to have professional persons, such as attorneys or accountants, employed. An attorney for a
trustee should not be employed unless the attorney’s special professional skills are necessary for
the protection and benefit of the estate or will further the aims of the case.”); see also In re
Allegheny Int’l, 117 B.R. 171 (W.D. Pa. 1990) (citing In re Yeisley, 64 B.R. 360, 362 (Bankr.
S.D. Tex. 1986) (noting that the policy reasons for the requirement of court approval of a
professional retention include cost control, provisions for an opportunity for objection to
unnecessary expenditures and avoidance of duplicative services and costs)).
The Debtor has the burden of proof to establish that a proposed employment application
is proper. In re Borders Group, Inc., 465 B.R. 195, 199 (Bankr. S.D.N.Y. 2011) (“[a] retention
application must comply with section 327 of the Bankruptcy Code and Bankruptcy Rule 2014,
which impose legal requirements and burdens on a debtor presenting the retention application
and upon the professional that seeks to be retained”).
As discussed below and depicted on Exhibit B attached hereto, the Debtor has failed to
satisfy its burden that some of the firms it seeks to retain are necessary and that the cost to the
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estate for these firms is warranted:
1. Proskauer and Keightley
The United States Trustee objects to the Proskauer and Keightley applications because
the circumstances of this case do not warrant the need for two law firms to perform what appear
to be the same services. The proposed duties of Proskauer and Keightley are duplicative of
services to also be provided by Togut, as they relate to evaluating claims by the PBGC.
For example, the Debtor proposes to employ Proskauer to, among other duties, “(c)
advise and represent the Debtor regarding the Pension Plans or certain other retirement plans,
and in any litigation related thereto, including defending claims related to the Pension Plans
brought by PBGC or otherwise . . . .” Proskauer Application at ¶ 15(c). Similarly, the Debtor
proposes to employ Keightley to: “(a) Provid[e] advice and guidance to the Debtor that will
allow the Debtor to evaluate the PBGC’s claims; (b) Support[] the Togut Firm and Proskauer in
evaluating the PBGC’s claims; and (c) Assist[] the Togut Firm and Proskauer in developing
strategies to resolve the PBGC’s claims.” Keightley Application at ¶ 18. See Exhibit B.
If this proposed arrangement is approved, there will be three sets of eyes, including
Togut, examining the same documents and negotiating with the PBGC. The inherent risk of
permitting such overlapping retentions is duplication of services, accompanied by overbilling.
Indeed, the retention applications for Proskauer or Keightley do not set forth in any
comprehensive detail the division of duties and delegation of authority between the law firms as
well as the division of labor with Togut. Beyond pro forma pledges to avoid duplication, none of
the Retention Applications, including Togut, have described with any specificity what
procedures the firms explicitly intend to undertake to avoid duplication and overbilling.
Moreover, none of the Retention Applications give an explanation, as required by Bankruptcy
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Rule 2014, as to why one firm cannot perform the services that the other professionals are being
retained to provide.
In addition, Proskauer’s “catch-all” scope of services appears to overlap with other
services to be provided by Togut. See Proskauer Application at ¶ 15 (“(e) perform other
necessary employment-related legal services and provide other necessary legal advice to the
Debtor in connection with this Chapter 11 case.”). The Retention Applications must clearly
delineate the services to be performed and proposed counsel should each propose appropriate
safeguards to prevent duplication.
2. On-Site and DSI
The United States Trustee objects to the applications of On-Site and DSI because it
appears that each of these firms are providing services related to the collection of the Debtor’s
account receivables, a service already provided by Zolfo Cooper. For example, the Debtor has
engaged Zolfo Cooper to assist Mr. Mitchell in the wind-down and liquidation activities of the
Debtor. ECF Docket No. 96, CRO Application at ¶ 11. Inherent in such a wind-down is the
necessity to collect the Debtor’s outstanding account receivables.
In addition to employing Zolfo Cooper to lead these efforts, the Debtor contemplates
employing On-Site as a Collection Agent with collection assistance of the approximately $217.4
million of non-contingent domestic billed and unbilled accounts receivables. See On-Site
Application at ¶ 6. Although the Debtor proposes to compensate On-Site on a contingent fee
arrangement, based on the information provided, the arrangement is duplicative of the services to
be rendered by Zolfo Cooper.2 The United States Trustee requests that Zolfo Cooper should
2 The United States Trustee also objects to On-Site’s proposal to provide “arbitration/litigation preparation services”
and monthly reporting relating to the account receivables to the extent that such service are not included in its
contingency fee and that this service overlaps with the services provided by other professionals proposed to be
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coordinate with On-Site to ensure that such risk of duplication is eliminated.
Likewise, the services to be provided by DSI overlap with those of Zolfo Cooper. As
noted above, the Debtor proposes to employ DSI as a Wind Down Consultant to assist with lease
and property disposition. For example, a proposed duty of DSI is to “coordinate with the Chief
Restructuring Officer (the ‘CRO’), the Debtor’s proposed bankruptcy counsel and Wind-Down
Committee . . . .” DSI Application at ¶ 6. Indeed, the Debtor specifically contemplates that
employment of Zolfo Cooper and DSI will be overlapping and duplicative. See CRO
Application at ¶ 12 (“DSI will provide services complementary to those provided by Zolfo
Cooper.”).
In addition to the lease consulting, the United States Trustee objects to DSI’s overly
broad and vague proposed task to “familiarize itself with the Debtor's operations, assets and
liabilities and the proceedings in the Debtor's Chapter 11 case relating to DSI’s functions as wind
down consultant . . . .” DSI Application at ¶ 6. Such a “catch-all” provision will increase the
risk of duplication with Zolfo Cooper and the other proposed professionals to be retained in the
case. See Exhibit B.
3. Sitrick
The United States Trustee objects to the retention application of Sitrick for the reason
noted below. As noted supra, the Debtor seeks to employ Sitrick as a corporate communications
consultant with such duties as “writing and distributing press releases, consulting on public
relations strategy, media relations and media monitoring in connection with the Chapter 11 case,
and advising on communications programs for various constituents, including clients.” ECF
Docket No. 102, Sitrick Application at ¶ 12.
retained in the case, such as Togut.
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By the Debtor’s own admission, it is now in the process of a wind-down that
contemplates the liquidation of all of the Debtor’s assets. See ECF Docket No. 2, Mitchell
Declaration at ¶¶ 15-16. Given these circumstances, the Debtor has failed to demonstrate the
necessity of hiring a public relations firm in a liquidation case. In addition, it is unclear to what
extent such services could be provided by Togut, Zolfo Cooper, or the Debtor’s remaining
employees. Finally, the Debtor has failed to show to what extent such employment will benefit
the estate as a whole.
C. Additional Disclosures Are Required to Determine Whether Professionals Are
Disinterested
The Court should not authorize the employment of professionals until the applicants
comply with Rule 2014 of the Federal Rule of Bankruptcy Procedure (“Bankruptcy Rule 2014”).
Bankruptcy Rule 2014 provides that professionals seeking to be retained disclose “to the best of
the applicant’s knowledge, all of the [professional’s] connections with the debtor, creditors, any
party in interest . . . .” Fed. R. Bankr. P. 2014(a). The purpose of Bankruptcy Rule 2014 is to
provide the bankruptcy court and the United States Trustee with information to make an
informed decision as to whether the retained professional is disinterested. Rome v. Bruanstein,
19 F.3d 54, 59 (1st Cir. 1994); In re Leslie Fay, 175 B.R. 525, 533 (Bankr. S.D.N.Y. 1994).
Such compliance is the responsibility and burden of each retained professional. See In re
Keene Corp., 205 B.R. 690, 695 (Bankr. S.D.N.Y. 1997). The term “connections” is broad and
strictly construed for the purposes of Bankruptcy Rule 2014. “It is equally clear that the level of
disclosure outlined in the Rule is mandatory, whether or not that disclosure would unearth a
conflict of interest.” In re Matco Elec. Group, Inc., 383 B.R. 848, 852 (Bankr. N.D.N.Y. 2008).
It is also apparent that the requirement to disclose all connections is not subjective “whereby the
professional discloses only those ‘connections’ that he/she/it concludes are relevant.” Id. at 853;
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see also In re Granite Partners, 219 B.R. 22, 35 (Bankr. S.D.N.Y. 1998) (noting that the court
should not have to “rummage through files or conduct independent fact finding investigations” to
determine whether a professional should be disqualified).
The United States Trustee requests the following additional disclosures by each of the
following professionals prior to the approval of the Retention Applications on an interim or final
basis:
1. Togut
Paragraph 9 of the Togut Application indicates that Togut received a $1
million retainer prior to the Petition Date. The information does not disclose
the balance remaining of the retainer as of the Petition Date. Also, as noted
infra at Section III(G) of this Objection, Togut has not indicated whether it
will apply the retainer to its first interim fee application.
2. Proskauer
Paragraph 8 of the Sandak Declaration states that during the one-year period
prior to the Petition Date, the Debtor paid Proskauer a total of approximately
$584,701.11, all of which has been debited against outstanding fees and
expenses incurred prior to the Petition Date. The information does not
disclose, however, the date of the invoices for which payment was received
during the ninety-day period prior to the Petition Date, the period of time
covering those invoices, and the date of payment for those invoices. It is,
therefore, not possible to determine whether Togut has received any
preferential payments under Section 547(b) of the Bankruptcy Code, which
could possibly raise concerns with respect to the firm’s disinterestedness.
See, e.g., In re Pillowtex, Inc., 304 F.3d 246 (3d Cir. 2002); In re 419 Co., 133
B.R. 867, 869 (Bankr. N.D. Ohio 1991) (quoting Diamond Lumber v.
Unsecured Creditors’ Comm., 88 B.R. 773, 779 (N.D. Tex. 1988)(“[A]ny
large or unusual payment by a Debtor to its counsel within the preference
period are relevant to a conflicts analysis and therefore warrant scrutiny by the
bankruptcy court when approval is sought to employ pre-petition counsel
postpetition.”).
In addition, the United States Trustee requests additional disclosures as set
forth infra at Section III(D) of this Objection.
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3. Keightley
Page 1 of the Keightley Engagement Letter states that the Debtor paid
Keightley a pre-petition retainer of $50,000 on April 30, 2012. The
information does not disclose the balance remaining of the retainer as of the
Petition Date. Also, as noted infra at Section III(G) of this Objection,
Keightley has not indicated whether it will apply the retainer to its first
interim fee application.
Paragraphs 6 and 7 of the Ashner Declaration state that Keightley has
represented and continues to represent an undisclosed party in interest in
matters wholly unrelated to the Debtor’s case. Further, according to
Keightley, the Debtor is aware of and consents to the continued representation
of the party in interest. Keightley should disclose the identity of the party in
interest, the percent of revenue that such representation generates for
Keightley, and whether Keightley can be adverse to such client.
4. Goldin
Paragraph 18 of the Pauker Declaration states that Goldin conducted a review
of its connections to certain interested parties identified on an addendum
attached to the Goldin Application. Of the parties identified on the addendum,
the Pauker Declaration indicates that none of the parties represented more
than 5% of the aggregate of Goldin’s revenues for 2011. Additional disclosure
should be provided with respect to any party in interest whose percentage of
revenue is above one percentage of revenue for Goldin.
5. On-Site
Paragraph 9 of the On-Site Application states that the Debtor will compensate
On-Site on a commission-based contingency fee arrangement tied to the gross
recovery of receivables collected under the terms of a document referred to as
“the Agreement.” The Agreement was not attached to the On-Site Application
nor was a copy provided to the Office of the United States Trustee.
Accordingly, additional disclosure with respect to such agreement is sought.
Paragraph 5 of the Abodeely Declaration states that On-Site, prior to the
Petition Date, was retained by counsel to J.P. Morgan Chase, a secured
creditor of the Debtor, as a consultant with regard to the Debtor’s accounts
receivables portfolio. On-Site should provide an additional disclosure that
indicates whether this engagement is complete.
6. Sitrick
Paragraph 6 of the Sitrick Declaration states that prior to the Petition Date, the
Debtor paid Sitrick a pre-petition retainer of $35,000. The information does
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not disclose the balance remaining of the retainer as of the Petition Date.
Also, as noted infra at Section III(G) of this Objection, Sitrick has not
indicated whether it will apply the retainer to its first interim fee application.
D. It Appears That Proskauer Represents and Holds Interests Adverse to the Debtor
and Its Estate with Respect to the Matter on Which It Is Employed
The United States Trustee has serious concerns with respect to whether Proskauer
represents interests adverse to the Debtor or the estate with regards to its employment as special
employment counsel in violation of the prohibition in Section 327(e). As discussed below,
without further disclosures, it appears that Proskauer may, while representing the Debtors, be
opposed to its own partners and employees, who laterally moved from the Debtor to Proskauer,
on matters within the scope of Proskauer’s retention as special employment counsel.
As noted above, Proskauer is being retained to provide special employment and litigation
advice to the Debtor. In the Sandak Declaration, the declarant disclosed that as a result of the
Debtor’s demise, 63 former Debtor’s partners, associates, and staff joined Proskauer. See
Sandak Declaration at ¶ 14. Moreover, in addition to representing the Debtor with respect to
special labor matters, Proskauer also represents some of the firm’s partners who moved laterally
from the Debtor as well as other former partners of the Debtor in “personal matters.” Id.
Further, while Proskauer represents the Debtor regarding WARN-related issues, including
defending any WARN actions commenced against the Debtor, “[c]ertain former Dewey
employees may be eligible to participate as members of the plaintiff class in the WARN action.”
Id. The Sandak Declaration, however, does not explain (a) whether the “personal matters” in
which Proskauer is representing the former Dewey partners are adverse to any of the matters
connected to the firm’s representation of the Debtor and (b) whether any of the former Dewey
employees that lateraled to Proskauer are eligible to participate as members of the plaintiff class
in the WARN action that also falls within the scope of Proskauer’s representation of the Debtor.
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Additional disclosures are required to address the issues raised above that may give rise to the
firm’s conflict of interest pursuant to the standards set forth in Section 327(e).
Aside from those disclosures, the Sandak Declaration also provides that Proskauer
represents the Debtor as a “plan sponsor of a profit sharing plan in connection with providing
advice regarding the maintenance of the plan’s tax qualified status so the contributions to the
plan are not currently taxable to the participant.” Id. While Proskauer is involved in this
representation on behalf of the Debtor’s estate, certain of the plan participants are now partners
or otherwise employed at Proskauer. Id. Moreover, Proskauer expressly admits that such
partners and other employees “could suffer adverse tax consequences if the matter is not resolved
satisfactorily.” Id. While Proskauer is being retained to provide advice to the Debtor regarding
the taxability of the plan, the parties on the other side of the representation are actual partners
and employees of the same firm. It is unclear, therefore, how Proskauer can, on one hand,
represent the interests of the Debtor’s estate when such interests would negatively impact the
firm’s own partners and employees. Accordingly, there must be additional disclosures
explaining in detail the nature of the plan and the representation at issue. In addition, Proskauer
should disclose whether any of its lateral partners were members of Debtor’s management, and
in any way, involved in creating or implementing policies relating to employment that Proskauer
will be interpreting, defending, or enforcing as Debtor’s special employment counsel.
Although the Sandak Declaration states that Proskauer has established an “ethical screen”
between the former Debtor’s partners and employees and the Proskauer partners and employees
who will be providing services to the Debtor, that is not the “cure all” to conflict issues and does
not automatically insulate Proskauer from the possible disqualifying factors set forth herein. See
Project Orange, 431 B.R. at 375-76; see also In re Homesteads Community at Newtown, LLC,
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390 BR 32, 52 (Bankr. D. Conn. 2008) (holding that waiver letter of debtor’s counsel providing
that firm’s representation of member of debtor would be terminated after a dispute between the
member and the trustee had actually been identified did not address the problem that the firm’s
“dual loyalties may taint the conduct of [the] litigation.”).3
Absent further satisfactory disclosures regarding the apparent conflict issues, the United
States Trustee objects to the Proskauer Application on the grounds that Proskauer represents and
holds interests adverse to the Debtor and its estate even with respect to the matters on which the
firm is to be employed.
E. The Keightly Application Does Not Support Approval of the Retention Under the
Improvident Standard of Section 328
The Keightley Application seeks approval of its hourly fee structure pursuant to Section
328(a). See Keightley Application at ¶ 25; Proposed Keightley Retention Order at ¶¶ 2-3 (“The
Fee Structure and the reimbursement of expenses, set forth in the Agreement, are approved
pursuant to section 328(a) of the Bankruptcy Code.”). The United States Trustee objects to the
Keightley Application under Section 328 and requests that the proposed order be modified to
delete any reference to Section 328.
Sections 328 and 330 establish a two-tiered system for judicial review and approval of
the terms of a professional's retention. Section 330 authorizes the bankruptcy court to award a
retained professional “reasonable compensation” based on an after-the-fact consideration of “the
nature, the extent, and the value of such services, taking into account all relevant factors.” 11
U.S.C. § 330(a). However, Section 328(a), the standard of review that Keightley appears to
3 Courts have also held that the disinterestedness of a professional within a firm is imputed to the entire firm. See In
re Vebeliunas, 231 B.R. at 196 (citations omitted) (“The general rule is that when one member of a firm is
disqualified, all members of that firm must be similarly disqualified . . . . The reason for this rule is that any interest
held by one attorney is imputed to the rest of the lawyers in a firm”).
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seek, requires a bankruptcy court to forgo a full post-hoc reasonableness inquiry if it pre-
approves the “employment of a professional person under section 327 . . . on any reasonable
terms and conditions of employment, including on a retainer, on an hourly basis, on a fixed or
percentage fee basis, or on a contingent fee basis.” 11 U.S.C. § 328(a).
If the court pre-approves the terms and conditions of the retention under Section 328(a),
its power to amend those terms is therefore severely constrained. It may only “allow
compensation different from the compensation provided under such terms and conditions after
the conclusion of such employment, if such terms and conditions prove to have been improvident
in light of developments not capable of being anticipated at the time of the fixing of such terms
and conditions.” Id., see, e.g., In re Smart World Techs., LLC, 552 F.3d 228, 232 (2d Cir. 2009)
(stating that “pre-approval of a fee agreement under 11 U.S.C. §328(a) depends on the totality of
the circumstances, including whether the professional’s application, or the court’s order,
referenced section 328(a), and whether the court evaluated the propriety of the fee arrangement
before granting final, and not merely preliminary, approval.”).
Under the circumstances of this bankruptcy case, it would be inappropriate to apply
Section 328(a) to the Court’s and the parties’ review of Keightley’s fees. Instead, reliance upon
the reasonableness standard of Section 330 is justified and appropriate. The burden of proof to
establish that the terms and conditions of employment – including the imposition of Section
328(a) – is on the Debtor, as applicant. Nischwitz v. Miskovic (In re Airspect Air, Inc.), 385
F.3d 915, 921 (6th Cir. 2004). To meet its burden, the Debtor must provide specific evidence to
establish that “the terms and conditions are in the best interest of the estate.” In re Gillett
Holdings, Inc., 137 B.R. 452, 455 (Bankr. D. Colo. 1991). A professional’s requested invocation
of Section 328(a) is neither mandatory nor automatic, regardless of the proposed compensation
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scheme. A professional should not automatically expect approval of its retention under Section
328 solely because it asks for it.
The invocation of Section 328 is usually granted in retention applications of financial
advisors, where the fee arrangement includes a success or transaction fee. It is not the norm for
the Debtor’s special counsel to seek retention under Section 328, because, in essence, it is asking
the Court to bless its fees without giving any parties in interest the opportunity to review them
under the “reasonableness” standard. In this case, despite the Debtor’s multiple applications
seeking to retain various hourly professionals, Keightley is the only one seeking approval of its
fee structure under the standards of Section 328.
Neither the Debtor nor Keightley has met its burden of proof to demonstrate why – or
how – the hourly fee structure proposed by Keightley is reasonable under Section 328(a).
Airspect Air, 385 F.3d at 921 (“burden should rest on the applicant to ensure that the court notes
explicitly the terms and conditions if the applicant expects them to be established at that early
point.”). Accordingly, Keightley’s proposed hourly fee structure and the reimbursement of its
expenses pursuant to Section 328(a) should be denied.
F. The Proposed Orders Should Require Retained Professionals to Disclose Any Rate
Increase
The proposed retention orders for Togut, Proskauer, Keightley, Goldin, DSI, Sitrick, On-
Site, and Brown Rudnick are silent with respect to the firms providing any notice of when rate
increases go in effect for their respective professionals.4 Bankruptcy Rule 2014 expressly
provides, among other things, that a retention application:
shall state the specific facts showing the necessity for the employment, the name
of the person to be employed, the reasons for the selection, the professional
4 While the Proposed Kasowitz Retention Order provides that the firm will file a notice of rate increase, no timeline
is provided. See Proposed Kasowitz Retention Order at ¶ 4.
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services to be rendered, any proposed arrangement for compensation and, to the
best of the applicant’s knowledge, all of the person’s connections with the debtor,
creditors, any other party in interest, their respective attorneys and accountants,
the United States trustee, or any person employed in office of the United States
Trustee.
Fed. R. Bankr. P. 2014 (emphasis added). The law is clear in this Circuit that a professionals’
duty of disclosure under Fed. R. Bankr. 2014 continues through closure of the case. See, e.g., In
Granite Partners, 219 B.R. at 35 (although Bankruptcy Rule 2014 does not expressly require
supplemental or continuing disclosure, Section 327(a) implies a continuing duty of disclosure).
The United States Trustee Guidelines require that every fee application provide, among
other information, the “names and hourly rates of all applicant’s professionals and
paraprofessionals who billed time, explanation of any changes in hourly rates from those
previously charged, and statement of whether the compensation is based on the customary
compensation charged by comparably skilled practitioners in cases other than cases under title
11.” See United States Trustee Guidelines (b)(1)(iii). Where, however, fee applications do not
conspicuously disclose such rate increases, the reviewer is left to sift through various
applications and figures contained therein to determine whether a professional’s rate increase
went into effect at any time during the fee application period. This considerably adds to the time
it takes to review fee applications.5 See Fed. R. Bankr. P. 2014.
5 In order to alleviate these concerns, the United States Trustee suggests, as has been done in other cases, that the
following provision be added to retention orders to alleviate the concerns set forth above:
ORDERED, that prior to any increases in [Professional’s] rates, as set forth in paragraph [] of the
Application, [Professional] shall file a supplemental affidavit with the Court and provide ten
business days’ notice to the Debtors, the United States Trustee and any official committee. The
supplemental affidavit shall explain the basis for the requested rate increases in accordance with
Section 330(a)(3)(F) of the Bankruptcy Code and state whether Professional’s client has consented
to the rate increase. The United States Trustee retains all rights to object to any rate increase on all
grounds including, but not limited to, the reasonableness standard provided for in Section 330 of
the Bankruptcy Code, and the Court retains the right to review any rate increase pursuant to
Section 330 of the Bankruptcy Code.
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G. The Retained Professionals Should Apply the Balance of the Retainers to the First
Interim Fee Applications
The Retention Applications for Togut, Goldin, DSI, On-Site, and Sitrick all are either
silent with respect to whether the retainers they received prepetition will be applied to the first
fee application approved or expressly contemplate that the firms will maintain an evergreen
retainer. See Togut Application at ¶ 9; Pauker Declaration at ¶ 16; On-Site Application at ¶ 11;
DSI Engagement Letter at Page 2; Sitrick Application at ¶ 11. However, the firms have each
failed to satisfy their burden to show that they should be entitled to hold their retainers until the
Court’s approval of their final fee applications at the end of the case.
The type of retainer at issue is commonly referred to as an “evergreen retainer.” In re
Insilco Tech., Inc., 291 B.R. 628, 632 (Bankr. D. Del. 2003).6 In the Southern District of New
York, retained professionals holding pre-petition retainers draw down on the pre-petition retainer
upon the Court’s approval of the professional’s first interim fee application. See In re AMR
Corporation, Case No. 11-15463 (SHL); In re Old Carco LLC (f/k/a Chrysler LLC) Case No. 09-
50002 (ALG); Motors Liquidation Company (f/k/s/ General Motors Corporation) Case No. 09-
50026 (REG); In re Chemtura Corp., Case No. 09-11233 (REG); In re Almatis B.V., Case No.
10-12308 (MG).7 This immediate draw-down is used to balance the rights among the various
6 In Insilco, the Bankruptcy Court described “evergreen retainers” as follows:
The evergreen retainer is similar to a security retainer in that it is to secure payment of fees for
future services. But in the case of an evergreen retainer, the funds are not intended to be used to
pay approved fees until approval of the final fee application. Instead, the holder of an evergreen
retainer intends to be paid its interim fees and expenses out of operating cash. Such a position is
designed to minimize a professional’s risk of nonpayment if a debtor’s financial position
deteriorates, an estate becomes illiquid and does not have sufficient cash flow to pay professional
fees.
291 B.R. at 632.
7 But see Saint Vincents Catholic Medical Center of New York, Case No. 05-14945 (CGM) (Bankr. S.D.N.Y. July
1, 2010) (bench decision) (overruling the United States Trustee’s objection to evergreen retainer held by Debtors’
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constituencies which have claims against the Debtor’s post-petition cash.
Evergreen retainers are used to minimize a professional’s exposure to the risk of non-
payment. Insilco, 291 B.R. at 632. Under the Bankruptcy Code priority scheme, the
administrative claims of retained professionals fall under Section 507(a)(2) and retained
professionals share pari passu with other professionals and administrative claimants.
None of the professionals seeking to be retained in this case have demonstrated any basis
for being treated differently from any other administrative creditors. Indeed, under the Proposed
Interim Compensation Order, retained professionals will each receive 80% of their invoiced fees
and 100% of their expenses on a monthly basis. See ECF Docket No. 96. Some of the
professional’s desire to hold their retainers in case of the non-payment of their fees in essence
gives them an unfair monetary advantage, by reallocating the risk of a potential insufficiency of
the Debtor’s assets to satisfy administrative claims. Professionals retained in these cases as well
as other Section 503(b) administrative claimants share pari passu in the event of administrative
insolvency, thus the risk should not be borne by all other administrative claimants aside from the
firms who received pre-petition retainers.
As stated supra, in other jurisdictions evergreen retainers are not atypical. See In re
Knudsen Corp., 84 B.R. 668, 672-73 (9th Cir. B.A.P. 1988); In re Benjamin’s-Arnolds, Inc., 123
B.R. 839, 840 (Bankr. D. Miss. 1990); Insilco, 291 B.R. at 635; In re Pan American Hosp. Corp.,
312 B.R. 706, 712-13 (Bankr. S.D. Fla. 2004). A review of the case-law, however, demonstrates
that even under the varying standards of these jurisdictions, the professionals that are the subject
of the objection in this particular Section have each failed to satisfy their burden.
professionals).
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The seminal case on evergreen retainers is Knudsen, which set forth four findings
necessary to approve an evergreen retainer:
1. The case is an unusually large one in which an exceptionally large amount of
fees accrue each month; 2. The court is convinced that waiting an extended period for payment would
replace an undue hardship on counsel;
3. The court is satisfied that counsel can respond to any reassessment; and
4. The fee retainer procedure is, itself, the subject of a noticed hearing prior to
any payment thereunder.
84 B.R. at 672-73.
None of the professionals at issue here pass scrutiny under the Knudsen factors. This is a
large case, but not the largest in this District. No retained professional in this case will have to
wait an extended period of time to be paid, since, to the extent the Proposed Interim
Compensation Order is approved, they each will receive 80% of their fees and 100% of their
disbursement each month. Accordingly, they have failed to demonstrate that their retainers are
reasonable in light of these proposed procedures that allow for payment more often than what is
contemplated by Section 331. See Pan American Hospital, 312 B.R. at 713. Although holding
their retainers to the end of the case may serve their individual best interests, the professionals
have not shown why this arrangement is in the best interests of the estate.
Moreover, this is not a case where there is a prospect of reorganization. The facts show
that the Debtor is in a wind-down process. It is unknown whether there will be sufficient funds
to pay all administrative claims. In the event of administrative insolvency, Togut, Goldin, DSI,
On-Site, and Sitrick would not have to share their retainers pari passu with other professionals or
administrative claimants, but rather each would have more in compensation or distribution than
other professionals or Section 503(b) claimants by virtue of the retainers held.
Under these circumstances, the Court should deny Togut, Goldin, DSI, On-Site, and
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Sitrick requests to hold their pre-petition retainers until the conclusion of the case. Rather, each
professional should be required to draw down on their retainer at the first interim hearing on
approval of their fee application.8
H. On-Site Should Not Be Paid in Advance of Submitting Fee Applications
On-Site seeks the authority to, among other things, be paid upon providing the Debtor
with an invoice and upon confirmation by the Debtor that the invoice comports with the fee
arrangement set forth in the On-Site Application, without any other party in interest having the
opportunity to review the amounts sought. See On-Site Application at ¶ 11; Abodeely
Declaration at ¶ 10; Proposed On-Site Retention Order at ¶ 4. The aforementioned provision,
however, is inconsistent with the requirements of the Bankruptcy Code, the Bankruptcy Rules,
and standing orders of the Court. See 11 U.S.C. §§ 503(b)(2); 331; Fed. R. Bankr. P. 2016; and
M-412 (Order Establishing Procedures for Monthly Compensation and Reimbursement of
Expenses of Professionals) (dated December 21, 2010) (“Administrative Order M-412”).
Section 331 of the Bankruptcy Code permits a professional person retained under Section
327 – such as On-Site – to apply to the court for interim compensation and reimbursement of
expenses once every 120 days (or more if the Court permits) without having to wait until the end
of the case. 11 U.S.C. § 331; see 3 Collier on Bankruptcy ¶331.01 (16th
Ed.) (“Section 331
‘remove[s] any doubt that officers of the estate may apply for, and the court may approve,
compensation and reimbursement during the case, instead of being required to wait until the end
of the case, which in some instances, may be years.’ ”). “Although Section 331 permits a Court
8 The United States Trustee suggests that the following provision be added to retention orders:
ORDERED, that [Professional] shall apply any remaining amounts of its prepetition retainer as a
credit toward post-petition fees and expenses, after such post-petition fees and expenses are
approved pursuant to the first Order of the Court awarding fees and expenses to [Professional].
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to award compensation on a time interval more frequent than every 120 days, there exists no
statutory authority permitting compensation to be ‘advanced’ without court approval.” In re
Haven Eldercare, LLC, 382 B.R. 180, 184 (Bankr. D. Conn. 2008); see also 11 U.S.C. §
503(b)(2) (compensation and reimbursement of expenses awarded under Section 330 shall be
allowed after notice and a hearing).
Although the Proposed Interim Compensation Order contemplates the payment of 80% of
professional fees and 100% of the expenses on a monthly basis, the proposed order contemplates
that such payment would occur only after the professional files a monthly fee statement and after
certain parties in interest, including the United States Trustee, have had the opportunity to raise
objections with respect to the payment of such fees. See ECF Docket No. 96; Administrative
Order M-412. On-Site, however, seeks to go beyond the procedures proposed in the Proposed
Interim Compensation Order and seeks payment in advance of filing any fee application or
giving any party, aside from the Debtor, the opportunity to review its invoice. Such a proposal
violates the provisions of the Bankruptcy Code. See 11 U.S.C. § 331.
Accordingly, the United States Trustee objects to On-Site receiving payments for its
services without first filing fee applications and requests that it be required to comply with
Section 331 and/or any monthly interim compensation order entered in this case.
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IV. CONCLUSION
WHEREFORE, the United States Trustee respectfully requests that the Court (a) sustain
the foregoing Objections, (b) deny the Retention Applications in their current forms, and (c)
grant such other and further relief as the Court may deem just and proper.
Dated: New York, New York
June 29, 2012 TRACY HOPE DAVIS
UNITED STATES TRUSTEE
By: /s/ Brian S. Masumoto
Brian S. Masumoto
Elisabetta G. Gasparini
Michael T. Driscoll
Trial Attorneys
33 Whitehall Street, 21st Floor
New York, New York 10004
Tel. No. (212) 510-0500
Fax. No. (212) 668-2255
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EXHIBIT A
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Dewey & LeBoeuf LLP, 12-12321 (MG)
Exhibit A
1
Professional Scope of Services Compensation Structure Objections/Issues
Togut Segal & Segal
General Bankruptcy Counsel (a) advise the Debtor regarding its powers and duties as a debtor in possession in the continued management and wind-down of its operations; (b) attend meetings and negotiate with representatives of creditors and other parties in interest; (c) take necessary action to protect and preserve the Debtor’s estate, including prosecuting actions on the Debtor’s behalf, defending any action commenced against the Debtor and representing the Debtor’s interests in negotiations concerning litigation in which the Debtor is involved, including, but not limited to, objections to claims filed against the estate; (d) prepare on the Debtor’s behalf motions, applications, adversary proceedings, answers, orders, reports and papers necessary to the administration of the estate; (e) advise the Debtor in connection with its proposed chapter 11 plan of liquidation; (f) appear before this Court and any appellate courts and protect the interests of the Debtor’s estate before these Courts; and (g) perform other necessary bankruptcy-related legal services and provide other necessary legal advice to the Debtor in connection with this Chapter 11 case.
Hourly: Current standard hourly rates for the Togut Firm are (i) partners $800 to $935; (ii) associates and counsel $185 to $715; (iii) paralegals and law clerks $145 to $285.
Paragraph 9 of the Togut Application indicates that Togut received a $1 million retainer prior to the Petition Date. The information does not disclose the balance remaining of the retainer as of the Petition Date. See UST Objection § III(C)(1).
The proposed order should require retained professionals to disclose any rate increase. See UST Objection § III(F).
Togut should apply the balance of the retainers to the first interim fee applications. See UST Objection § III(G).
Professional Scope of Services Compensation Structure Objections/Issues
Proskauer Rose
Debtor's Special Employment and Litigation Counsel Under 327(e) (a) advise the Debtor regarding employment issues; (b) advise and represent the Debtor regarding WARN-related issues, including defending any WARN actions commenced against the Debtor and representing the Debtor’s interests in negotiations concerning WARN actions in which the Debtor is involved, including, but not limited to, objections to WARN-related claims filed against the estate; (c) advise and represent the Debtor regarding the Pension Plans or certain other retirement plans, and in any litigation related thereto, including defending claims related to the Pension Plans brought by PBGC or otherwise; (d) appear before any administrative panel, this Court and any appellate
Hourly: Proskauer’s normal billing rates in its domestic offices, are as follows: $550 to $1,050 per hour for partners; $450 to $950 per hour for senior counsel; $205 to $750 per hour for associates; and $100 to $315 per hour for paraprofessionals.
Proskauer’s services overlap with those of Keightley. See UST Objection § III(B)(1).
Proskauer’s “catch-all” scope of services appears to overlap with the services to be provided by Togut. See UST Objection § III(B)(1).
Paragraph 8 of the Sandak Declaration states that during the one-year period prior to the Petition Date, the Debtor paid Proskauer a total of approximately $584,701.11, all of which
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2
Proskauer Rose (cont.)
courts and protect the interests of the Debtor’s estate with respect to employment issues; and (e) perform other necessary employment-related legal services and provide other necessary legal advice to the Debtor in connection with this Chapter 11 case.
has been debited against outstanding fees and expenses incurred prior to the Petition Date. The information does not disclose, however, the date of the invoices for which payment was received during the ninety-day period prior to the Petition Date, the period of time covering those invoices, and the date of payment for those invoices. See UST Objection § III(C)(2).
Additional disclosures are required to address the issues raised above which can give rise to the firm’s conflict of interest pursuant to the standards set forth in Section 327(e). See UST Objection § III(D).
Additional disclosures are required that explain in more detail the nature of it representation of the Debtor as the plan sponsor of a profit sharing plan. See UST Objection § III(D).
Additional disclosures are required on the “ethical screen” between the former Debtor’s partners and employees and the Proskauer partners and employees who will be providing services to the Debtor. See UST Objection § III(D).
The Proposed Order Should Require Retained Professionals to Disclose any Rate Increase. See UST Objection § III(F).
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3
Professional Scope of Services Compensation Structure Objections/Issues
Keightley & Ashner
Debtors' Special Pension Benefits Counsel (a) Providing advice and guidance to the Debtor that will allow the Debtor to evaluate the PBGC’s claims; (b) Supporting the Togut Firm and Proskauer in evaluating the PBGC’s claims; and (c) Assisting the Togut Firm and Proskauer in developing strategies to resolve the PBGC’s claims.
Hourly: $775 to $825 for attorneys, $600 to $650 for other professionals, and $225 for paralegals or law clerks. Expenses: travel costs, long distance calls, express mail, special or hand deliveries, copying costs, document processing, computerized legal research, court fees, expert fees, transcript costs and, in general, all identifiable expenses that would not have been incurred except for representation of a particular client. In addition, retention of one or more experts who may or may not provide testimony in connection with the Pension Matters.
Keightley’s services overlap with those of Proskauer. See UST Objection § III(B)(1).
Page 1 of the Keightley Engagement Letter states that the Debtor paid Keightley a pre-petition retainer of $50,000 on April 30, 2012. The information does not disclose the balance remaining of the retainer as of the Petition Date. See UST Objection § III(C)(1).
Paragraphs 6 and 7 of the Ashner Declaration state that Keightley has represented and continues to represent an undisclosed party in interest in matters wholly unrelated to the Debtor’s case. Further, according to Keightley, the Debtor is aware of and consents to the continued representation of the party in interest. Id. at 7. Keightley should disclose the identity of the party in interest, the percent of revenue that such representation generates for Keightley, and whether Keightley can be adverse to such client. See UST Objection § III(C)(3).
The Keightley Application does not support approval of the retention under the improvident standard of Section 328. See UST Objection § III(E).
The proposed order should require retained professionals to disclose any rate increase. See UST Objection § III(F).
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Professional Scope of Services Compensation Structure Objections/Issues
Goldin Associates
Debtor’s Special Consultant (a) Assist the Debtor and its counsel to evaluate potential claims against partners and former partners; (b) Assist the Debtor and its counsel to formulate proposals for the settlement and resolution of claims against partners and former partners; (c) Participate in discussions and negotiations among the various parties to the bankruptcy regarding the settlement of partner claims); (d) Provide testimony respecting any settlement or resolution of partner claims; and (e) Provide such other services related to claims against partners and former partners (and related claims against other parties) as the Debtor may from time to time request and the Goldin Firm may be willing to provide.
Hourly: Actual rates not disclosed.
• Paragraph 18 of the Pauker Declaration states that Goldin conducted a review of its connections to certain interested parties identified on an addendum attached to the Goldin Application. Of the parties identified on the addendum, the Pauker Declaration indicates that none of the parties represented more than 5% of the aggregate of Goldin’s revenues for 2011. Additional disclosure should be provided with respect to any party in interest whose percentage of revenue is above one percentage of revenue for Goldin. See UST Objection § III(C)(4).
The proposed order should require retained professionals to disclose any rate increase. See UST Objection § III(F).
Goldin should apply the balance of the retainers to the first interim fee applications. See UST Objection § III(G).
Professional Scope of Services Compensation Structure Objections/Issues
On-Site Associates
Debtor’s Collection Agent a. provide collection assistance for the Receivables as specified in the Agreement, including, but not limited to, (i) analyzing the Receivables portfolio, organizing and planning the collection process, and (ii) managing the Debtor’s billing and collections team and providing On-Site professionals to supplement such team; b. provide collection assistance (similar to that provided for the Receivables) for additional billed and unbilled accounts receivables (the “Additional Receivables”) as may be later assigned to On-Site by the Debtor; c. provide the Debtor with arbitration/litigation preparation services (the
Commission-Based Contingent Fee: the Commissions are based, in part, on a scale tied to the gross recovery of receivables collected. The commission scale contemplates a number of factors, including the amount of the receivable and the nature of the receivable at issue. Such structure is
On-Site’s services overlap with those of Zolfo Cooper. See UST Objection § III(B)(2).
Paragraph 9 of the On-Site Application states that the Debtor will compensate On-Site on a commission-based contingency fee arrangement tied to the gross recovery of receivables collected under the terms of a document referred to as “the Agreement.” The Agreement was not attached to the On-Site Application nor
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On-Site (cont.) “Preparation Services”) relating to the Receivables and the Additional Receivables, as requested by the Debtor; and d. provide monthly status reports to the Debtor summarizing On-Site’s collection results, and make presentations to the Debtor, its professionals and/or other designated persons regarding the status of collection efforts and results.
customary in the industry for services of the type contemplated under the Agreement. Additionally, the Debtor seeks authority to reimburse On-Site for its reasonable and necessary travel-related expenses up to $20,000 during the first year of this engagement (the “First Year Expenses”). The Agreement contemplates a one (1) year term effective from May 28, 2012, subject to further extension by the parties. The Debtor and On-Site have agreed to share certain of On-Site’s reasonable and necessary travel-related expenses following the first year of the engagement.
was a copy provided to the Office of the United States Trustee. Accordingly, additional disclosure with respect to such agreement is sought. See UST Objection § III(C)(5).
Paragraph 5 of the Abodeely Declaration states that On-Site, prior to the Petition Date, was retained by counsel to J.P. Morgan Chase, a secured creditor of the Debtor, as a consultant with regard to the Debtor’s accounts receivables portfolio. On-Site should provide an additional disclosure that indicates whether this engagement is complete.
Paragraph 11 of the On-Site Application indicates that, prior to the Petition Date, the Debtor paid On-Site a pre-petition retainer of which a balance of $122,947.26 remains. The information does not disclose, however, the date of the invoices for which payment was received during the ninety-day period prior to the Petition Date, the period of time covering those invoices, and the date of payment for those invoices. See UST Objection § III(C)(5).
The proposed order should require retained professionals to disclose any rate increase. See UST Objection § III(F).
On-Site should apply the balance of the retainers to the first interim fee applications. See UST Objection § III(G).
On-Site should not be paid in advance of submitting fee applications. See UST Objection § III(H).
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Professional Scope of Services Compensation Structure Objections/Issues
Development Specialists, Inc.
Debtor’s Wind Down Consultant a. familiarize itself with the Debtor's operations, assets and liabilities and the proceedings in the Debtor's Chapter 11 case relating to DSI’s functions as wind down consultant; b. assist in implementing strategic and tactical courses of action during the Debtor’s Wind-Down relating to vacating office spaces, negotiating with lessors, and resolving issues relating to client files and records and leased property; c. coordinate with the Chief Restructuring Officer (the “CRO”), the Debtor’s proposed bankruptcy counsel and Wind-Down Committee with respect to the foregoing; and d. assist, if necessary, in negotiations with parties-in-interest and their representatives with respect to the foregoing.
Hourly: William A. Brandt, Jr. $640 Patrick J. O’Malley $550 George E. Shoup III $380 Jill E. Costie $295 Wolfgang D. Tsoutsouris $250 Sean L. Farrell $250
DSI’s services overlap with those of Zolfo Cooper. See UST Objection § III(B)(2).
The proposed order should require retained professionals to disclose any rate increase. See UST Objection § III(F).
Professional Scope of Services Compensation Structure Objections/Issues
Sitrick & Company
Debtor’s Corporate Communication Consultant Professional services that may include, without limitation, writing and distributing press releases, consulting on public relations strategy, media relations and media monitoring in connection with the Chapter 11 case, and advising on communications programs for various constituents, including clients
Hourly: Its standard hourly rates. Sitrick's standard hourly rates range from $185 to $895, depending on the particular professional. Sitrick has received a retainer in the amount of $35,000 to cover fees and expenses incurred by Sitrick. Sitrick will keep track of hourly time charges, which will be applied against the retainer. When the retainer has been fully applied against time charges, additional time charges will be billed as incurred. The
It is unclear to what extent Sitrick’s employment is necessary. See UST Objection § III(B)(3).
Paragraph 6 of the Sitrick Declaration states that prior to the Petition Date, the Debtor paid Sitrick a pre-petition retainer of $35,000. The information does not disclose the balance remaining of the retainer as of the Petition Date. See UST Objection § III(C)(7).
The Proposed Order Should Require Retained Professionals to Disclose any Rate Increase. See UST Objection § III(F).
Sitrick should apply the balance of the retainers to the first interim fee applications. See UST Objection § III(G).
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Sitrick & Company (cont.)
compensation arrangement set forth in the Sitrick Agreement is hereinafter referred to as the Fee Structure.
Professional Scope of Services Compensation Structure Objections/Issues
Brown Rudnick
Creditors' Committee Counsel a. assisting and advising the Committee in its discussions with the Debtor and other parties in interest regarding the overall administration of the case; b. representing the Committee at hearings to be held before this Court and communicating with the Committee regarding the matters heard and the issues raised as well as the decisions and considerations of this Court; c. assisting and advising the Committee in its examination and analysis of the conduct of the Debtor’s wind down of its operations; d. reviewing and analyzing pleadings, orders, schedules, and other documents filed and to be filed with this Court by interested parties in this case; advising the Committee as to the necessity, propriety, and impact of the foregoing upon the interests of unsecured creditors in this case; and consenting or objecting to pleadings or orders on behalf of the Committee, as appropriate; e. assisting the Committee in preparing such applications, motions, memoranda, proposed orders, and other pleadings as may be required in support of positions taken by the Committee, including all trial preparation as may be necessary; f. conferring with the professionals retained by the Debtor and other parties in interest, as well as with such other professionals as may be selected and employed by the Committee; g. coordinating the receipt and dissemination of information prepared by and received from the Debtor’s professionals as well as such information as may be received from professionals engaged by the Committee or other parties in interest in this case; h. participating in such examinations of the Debtor and other witnesses as may be necessary in order to analyze and determine, among other
Hourly: Attorneys: $375to $1055 Staff: $260 to $370
The Proposed Order Should Require Retained Professionals to Disclose any Rate Increase. See UST Objection § III(F).
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Brown Rudnick (cont.)
things, the Debtor’s assets and liabilities, whether the Debtor has made any avoidable transfers of property, or whether cause of action exist on behalf of the Debtor’s estate; i. negotiating and formulating a plan of liquidation for the Debtor; and j. assisting the Committee generally in performing such other services as may be desirable or required for the discharge of the Committee’s duties pursuant to Bankruptcy Code Section 1103.
Professional Scope of Services Compensation Structure Objections/Issues
Kasowitz, Benson, Torres & Friedman
Former Partners' Committee Counsel a. providing the Committee with legal advice with respect to its rights, duties and powers as an official committee appointed under section 1102 of the Bankruptcy Code; b. assisting the Committee in investigating the acts, conduct, assets, liabilities and financial condition of the Debtor; c. making all necessary actions to protect and to preserve the interests of the Committee and the interests of those represented by such committee during the administration of this case, including, as applicable and necessary, prosecuting and defending actions on behalf of the estate; d. preparing pleadings and applications as may be necessary in furtherance of the Committee’s interests and objectives; e. participating in formulating a plan of liquidation; f. assisting the Committee in considering and requesting the appointment of a trustee or examiner or conversion, should such action(s) become necessary; g. consulting with the Debtor, its professionals and the U.S. Trustee concerning the administration of the Debtor’s estate; h. representing the Committee in hearings and other judicial proceedings; and i. performing such other legal services as may be required and as are deemed to be in the best interests of the Committee and the constituency which it represents.
Hourly: Partners $540 - $1155 Special Counsel $535 - $840 Associates $290 - $675 Staff Attorneys $235 - $445 Paralegals $150 - $275 Expenses: KBT&F regularly charges its clients for the expenses and disbursements incurred in connection with the client’s case, including, inter alia, word processing, telecommunications, photocopying, postage and package delivery charges, court fees, transcript costs, travel expenses, expenses for “working meals” and computer-aided research.
The proposed order should require retained professionals to disclose any rate increase. See UST Objection § III(F).
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EXHIBIT B
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Dewey & LeBoeuf LLP, 12-12321 (MG)
Exhibit B
1
*Bold Denotes Duplication
Togut Segal & Segal Proskauer Rose Keightley & Ashner LLP
General Bankruptcy Counsel (a) advise the Debtor regarding its powers and duties as a debtor in possession in the continued management and wind-down of its operations; (b) attend meetings and negotiate with representatives of creditors and other parties in interest; (c) take necessary action to protect and preserve the Debtor’s estate, including prosecuting actions on the Debtor’s behalf, defending any action commenced against the Debtor and representing the Debtor’s interests in negotiations concerning litigation in which the Debtor is involved, including, but not limited to, objections to claims filed against the estate; (d) prepare on the Debtor’s behalf motions, applications, adversary proceedings, answers, orders, reports and papers necessary to the administration of the estate; (e) advise the Debtor in connection with its proposed chapter 11 plan of liquidation; (f) appear before this Court and any appellate courts and protect the interests of the Debtor’s estate before these Courts; and (g) perform other necessary bankruptcy-related legal services and provide other necessary legal advice to the Debtor in connection with this Chapter 11 case.
Debtor's Special Employment and Litigation Counsel Under 327(e) (a) advise the Debtor regarding employment issues; (b) advise and represent the Debtor regarding WARN-related issues, including defending any WARN actions commenced against the Debtor and representing the Debtor’s interests in negotiations concerning WARN actions in which the Debtor is involved, including, but not limited to, objections to WARN-related claims filed against the estate; (c) advise and represent the Debtor regarding the Pension Plans or certain other retirement plans, and in any litigation related thereto, including defending claims related to the Pension Plans brought by PBGC or otherwise; (d) appear before any administrative panel, this Court and any appellate courts and protect the interests of the Debtor’s estate with respect to employment issues; and (e) perform other necessary employment-related legal services and provide other necessary legal advice to the Debtor in connection with this Chapter 11 case.
Debtors' Special Pension Benefits Counsel (a) Providing advice and guidance to the Debtor that will allow the Debtor to evaluate the PBGC’s claims; (b) Supporting the Togut Firm and Proskauer in evaluating the PBGC’s claims; and (c) Assisting the Togut Firm and Proskauer in developing strategies to resolve the PBGC’s claims.
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*Bold Denotes Duplication
Zolfo Cooper Development Specialists, Inc. On-Site Associates, LLC
Debtor’s CRO (b) Mitchell and [Zolfo Cooper] shall be authorized to make decisions with respect to all aspects of the Wind-down, in such manner as they deem necessary or appropriate in their sole discretion in a manner consistent with the business judgment role, and the provisions of local law and in the event of a chapter 11 filing, the United States Bankruptcy Code, subject only to appropriate governance by the Wind-down Committee. Mitchell and Associate Directors (individually, a “Representative” and collectively, the “Representatives”) shall not have any authority to make decisions with respect to hiring or terminating the members of the Wind-down Committee or otherwise committing the Firm or its resources other than in the ordinary course of business unless approved by the Wind-down Committee and, if required, the United States Bankruptcy Court. All decisions of Mitchell shall be discussed to the extent Mitchell deems reasonably appropriate with the member or members of the Wind-down Committee that Mitchell, in the exercise of his sole discretion, determines to be appropriate prior to the implementation of such decisions.
Debtor’s Wind Down Consultant a. familiarize itself with the Debtor's operations, assets and liabilities and the proceedings in the Debtor's Chapter 11 case relating to DSI’s functions as wind down consultant; b. assist in implementing strategic and tactical courses of action during the Debtor’s Wind-Down relating to vacating office spaces, negotiating with lessors, and resolving issues relating to client files and records and leased property; c. coordinate with the Chief Restructuring Officer (the “CRO”), the Debtor’s proposed bankruptcy counsel and Wind-Down Committee with respect to the foregoing; and d. assist, if necessary, in negotiations with parties-in-interest and their representatives with respect to the foregoing.
Debtor’s Collection Agent a. provide collection assistance for the Receivables as specified in the Agreement, including, but not limited to, (i) analyzing the Receivables portfolio, organizing and planning the collection process, and (ii) managing the Debtor’s billing and collections team and providing On-Site professionals to supplement such team; b. provide collection assistance (similar to that provided for the Receivables) for additional billed and unbilled accounts receivables (the “Additional Receivables”) as may be later assigned to On-Site by the Debtor; c. provide the Debtor with arbitration/litigation preparation services (the “Preparation Services”) relating to the Receivables and the Additional Receivables, as requested by the Debtor; and d. provide monthly status reports to the Debtor summarizing On-Site’s collection results, and make presentations to the Debtor, its professionals and/or other designated persons regarding the status of collection efforts and results.
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