Professional Compensation Committee Meeting Minutes
2005 Annual Spring Meeting
The Professional Compensation Committee’s Meeting at the
ABI’s Annual Spring Meeting was highlighted by a presentation by
Committee Members Ed Malpass and Steve Schwaber on Professional
Compensation Issues for Small Practitioners. The presentation addressed
the numerous practice issue, financing smaller firms in bankruptcy cases
including, staffing, expense, fee management and practice management
issues. Ed and Steve’s presentation was well received and involved
a great deal of audience participation.
During the business portion of the Professional Compensation
Committee Meeting, it was announced that James D. Sweet of Murphy
Desmond SC will be stepping down as Co-chair of the Professional
Compensation Committee after his three year term in office ended at the
conclusion of the annual meeting. Jim has been instrumental in providing
leadership for the numerous and important projects which the
Professional Compensation Committee has undertaken in the past three
years including, the recently published handbook for non-attorney
professionals: “Getting Paid: Retention and Compensation
Bankruptcy Case as a Guide for Non-Attorney Professionals.”
Jim’s hard work and dedication have greatly strengthened the
Professional Compensation Committee and although he is departing as a
Co-chair of the committee, Jim will remain active in the
committee’s work and efforts.
Replacing Jim as Co-chair of the committee is Thomas A. Morrow, a
director of AlixPartners LLC. Tom is highly experienced restructuring
and turnaround professional whose engagements have included working as
CRO of Core Mark and on the Kmart Bankruptcy. Tom is also a member of
the board of directors of the Association of Insolvency and
Restructuring Advisors. Tom is also the first non-attorney named as a
co-chair of the Professional Compensation Committee.
Further, as noted above, the committee’s handbook on the hiring
and compensation process for non-attorney professionals “Getting
Paid” went on sale at the annual meeting. This book was the
culmination of months of hard work by numerous Committee Members
including Chip Bowles, Ed Malpass, Steve Schwaber, James Sweet, Mark
Williams, Faye Knowles, Mitch Ryan, Bebe Barton, Richard Carmody, John
Ames and Harry Greenfield. The book was also generously sponsored by
Adams and Reese LLP; AlixPartners LLC; Fredrikson & Byron PA; FTI
Corporate Finance; Greenebaum Doll & McDonald PLLC; King &
Spalding LLP; Mesirow Financial Consulting LLC; Murphy Desmond SC and
Norman, Wood, Kendrick & Turner.
Finally, members of the committee were given a brief update as to the
progress of the ABI Chapter 11 Professional Fee Study (“Fee
Study”). At the present time, the Fee Study’s reporter,
Steven Lubben of Seaton Hall University School of Law, has selected the
cases to be studied in the various divisions and, is currently in the
process of gathering information and critical pleadings in those cases
for his evaluation and empirical research input. Further updates on the
Fee Study will be provided periodically to members of the Professional
Compensation Committee as well as the ABI at large.
Finally, it was announced at the Professional Compensation Committee
Meeting that its Winter Leadership Program will be a joint presentation
with the Financial Advisors Committee and Litigation Committee. At the
present time, the tentative nature of this three committee program will
include a case study and mock trial of an actual objection to
professional fees, a presentation of critical changes made in the area
of professional compensation by the new law and, a panel discussion of
compensation issues from actual bosses who employ and pay
2004 Winter Leadership Conference
The committee will be teaming up with the Commercial Fraud Task Force
to present “Court Oversight of Creditor Professional Fees in
Consumer Bankruptcy Cases: Urban Myth or Developing Practice
Area,” a discussion of issues relating to the allowance of
creditor’s professional fees in chapter 7 and chapter 13 cases. In
light of the increasing frequency of contracts that provide for attorney
or “collection fees” in the world of consumer finance and
the growing trend toward “nationalization” of consumer
creditor practice in consumer bankruptcy cases, this is a topic of
increasing importance to both debtor and creditor counsel. In addition,
a review of “Waiver and Disclosure Issues in Bankruptcy
Proceedings: Fleming, Jore, 11 U.S.C. §329 and
Beyond,” will be discussed, as well as important developments in
the “Area of Disclosure by Court-appointed Counsel in Bankruptcy
Proceedings,” which will focus on the obligations of
debtor’s counsel in consumer cases under 11 U.S.C. §329 and
the developing impact of the recent decisions of Fleming
and Jore in business proceedings.
2004 Annual Spring Meeting
On April 17, 2004, the Professional Compensation Committee conducted
a joint educational program with the Ethics and Mass Torts Committees.
This was the first tri-committee meeting at ABI that encompassed
back-to-back time slots. Thus, the program lasted about 2.3 hours with a
short break between sessions. Short business meetings for each committee
followed the program. The program consisted of a panel discussion of a
variety of substantive, compensation and ethics issues in mass tort
cases, some of which are peculiar to these types of cases. We were
fortunate to have three experienced panelists, each of whom has had
intensive exposure to the issues in these types of cases: Hon. Leslie J.
Tchaikovsky, U.S. Bankruptcy Judge for the Northern District of
California; Theodore L. “Ted” Freedman, Kirkland &
Ellis, New York; and Robert M. “Bob” Fishman, Shaw, Gussis,
Fishman, Glantz & Wolfson LLC, Chicago. The panel discussion was
moderated by Richard P. Carmody, Adams and Reese/Lange Simpson LLP of
Birmingham, Ala. Also participating were the committee co-chairs:
Richard “Rick” Meth, Pitney, Hardin LLP of Morristown, N.J.
(Ethics); and James D. Sweet, Murphy & Desmond of Madison, Wis. and
C. R. “Chip” Bowles Jr., Greenbaum, Doll & McDonald PLLC
of Louisville, Ky. (Professional Compensation). Ted Freedman is one of
the co-chairs of the Mass Tort Committee. Unfortunately, Hon. Judith K.
Fitzgerald, Chief Bankruptcy Judge for the Western District of
Pennsylvania, was unable to attend because of family illnesses (though
she was instrumental in planning the program).
The panelists discussed the following issues:
- The status of the Asbestos Bill (S. 2290), its prospects for passage
and the constitutionality of “rolling up” trusts established
- When a case is “ripe” for filing so that it is not
dismissed as a “bad-faith” filing. (SGL Carbon, 3d.
- The cast of professionals usually appearing during a mass tort case,
with elaboration on the roles and duties of special insurance counsel
for the debtor and the future claimants’ representative and
his/her counsel, who have duties of due diligence in valuing the debtor
and establishing the parameters of the trust established under
§524(g) of the Code.
- Whether insurance companies, particularly non-settling companies,
have standing as claimants or parties-in-interest.
- The payment of “facilitation fees” by the debtor, its
affiliates or the settling insurers to claimants’ attorneys who
can influence the acceptance of a consensual plan of reorganization, and
the potential conflicts that can result (Combustion Engineering and
- The retention of special counsel, particularly insurance counsel on
a contingent-fee basis, under §328, the criteria for approval and
the ability of the court to re-visit the fee arrangement as
“improvident” (Matter of Barron – 5th Cir.).
- Payment of fees to counsel for committee members in addition to
committee counsel (First Merchants Acceptance Corp. – 3d. Cir.)
and payment of fees to those creditors making a “substantial
- Contribution by the settling insurers to the payment of the
debtor’s administrative expenses as part of a consensual plan of
2003 Winter Leadership
The joint meeting of the Ethics and Professional Compensation
Committees featured an excellent presentation by Roberta DeAngelis,
Acting Region 3 U.S. Trustee, John Tittle of Crossroads LLC, Robert
Rosenberg of Latham & Watkins, and William H. Schorling of Klett
Rooney Lieber & Schorling. An outline of the presentation and the
remaining meeting agenda is set forth below.
A. Presentation: "The Service Professional's Nightmare: What to
Do if Your Client Files for Bankruptcy, and How to Avoid Getting
- Can You Be Retained by the Debtor?
- Disinterestedness and Adverse Interest—Bowles, "Fighting
Nazgul, Trolls and Orcs is Easy; Disclosing under Rule 2014 is Hard,"
April 2003 ABI Journal.
- Waiver of Pre-Petition Fees
- The Role of Special Counsel
- Officers, Directors and Shareholders
- Protocol on Dual Service of Financial Advisors—The "Delaware"
- Debtor Affiliates What is an "operating agreement"?
- Getting Paid...and Keeping It!
- In re Pillowtex, 304 F.3d 246 (3d Cir. 2002), and Other
Warnings—Friedlander and Nylen, "Accounts Receivable and Retainer
Management: Lessons from Pillowtex," December/January 2003,
- Retainers, Security Deposits and Other Payment Arrangements;
Selection of Important Cases on Retainers and Pre-Petition Payments
A. In re First Jersey Securities Inc., 180 F.3d 504 (3rd Cir.
1999), rev'g., In re Brennan, 187 B.R. 135 (Bankr. D. N.J. 1999).
Case involving First Jersey and its 100 percent shareholder, Robert
Brennan. Prior to Bankruptcy, First Jersey owed its law firm more than
$389,000 for work done in the unsuccessful defense of securities fraud
litigation, which resulted in a $75 million disgorgement order against
First Jersey and Brennan. On the day of First Jersey and Brennan's
chapter 11 filings, the law firm received stock ultimately sold for
$600,003 to be held and ultimately sold by the law firm to provide the
law firm with a $200,000 retainer for representing the debtors as
special counsel under 11 U.S.C. §327(e) and to pay the debtors
$250,000 in full satisfaction of their pre-petition fees. The balance of
any sale proceeds would be returned to the debtors. While the transfer
of the stock for the purposes set forth above was disclosed, the fact
the transfer occurred within the 90-day preference period was not
The bankruptcy court found that the law firm did not receive a
preference and that there was no conflict of interest by the possible
receipt of the preference by the special counsel. The bankruptcy court
also stated that the receipt of the preference did not disqualify the
special counsel in this case. The district court affirmed.
The Third Circuit reversed, holding that the receipt of an initially
undisclosed preference under the facts of this case disqualified special
counsel in this case. The Third Circuit also found the transfer in
question was clearly a preference and that no defenses applied to the
preference and remanded for further proceedings.
B. In re Bressman, 214 B.R. 131 (Bankr. D. N.J. 1997)
(Discussing problems with "non refundable retainer and discussing the
types of retainers permissible in bankruptcy proceedings).
- The Professional on the Creditors' Committee—Fiduciary Duties.
Supplemented by a handout prepared by John Tittle and Bowles, "They
Filed Bankruptcy on Me!", published in the November 2003 ABI
- Privilege Issues
- Can the Committee Hire the Professional's Firm?
- The Professional as Litigation Target.
- Creditor and Shareholder Lawsuits
- Malpractice Claims
- Issues Resulting from Prior Negotiations with a Pre-Petition
- Committee Business
- Ethics Committee:
- ABI Journal: "Straight and Narrow"
- Programs: Regional Conferences/Workshops, Coordination with Other
- Committee Projects
- Professional Compensation Committee:
C. Miscellaneous and "Good-Will"
2003 Annual Spring
The latest meeting of the Professional Compensation Committee was
highlighted by a presentation of Jonathan Friedlander of the Chicago
office of Kirkland and Ellis entitled "Accounts Receivable and Retainer
Management Lessons from Pillowtex," which addressed possible responses
to the numerous employment and professional compensation issues raised
by the Third Circuit's decision in In re Pillowtex, 304 F.3d 246
(3rd Cir. 2002), and was based on his article of the same name published
in the December/January 2003 issue of the ABI Journal. Jonathan
discussed the various problems raised by Pillowtex and offered
several possible solution to avoid the economically painful result
suffered by the attorneys in Pillowtex.
In the business portion of the meeting, the committee discussed the
status of its proposed employment and fee handbook for non-attorney
professionals and decided that a new round of chapter drafts would be
circulated for review by the authors of the chapters to further refine
the final project, which is expected to be completed prior to the Winter
The second topic of discussion concerned what steps the committee
could take to further define what constitutes connection for purposes of
disclosure under Bankruptcy Rule 2016. It was decided that the committee
would approach the Ethics Committee about a joint approach to this
2002 Winter Leadership
The Professional Compensation Committee of ABI met at 8:00 a.m. on
Dec. 7, 2002, in conjunction with the ABI Winter Leadership Conference
in Tucson, Ariz. A roster of those attending is available on request.
The meeting was co-chaired by John Ames and Jim Sweet.
The first order of business was a discussion of the Handbook
Project started by the committee in late 2001. An outline of the
Handbook was adopted at the committee's Washington, D.C., meeting
in April 2002, and some of the chapters were assigned to volunteers.
Other chapters remained unassigned. The discussion resulted in a
modification of the Handbook outline, and the assignment of the
remaining chapters to volunteers. The balance of the Handbook
discussion was deferred to the end of the meeting so the committee's
educational program could proceed.
Chip Bowles then made two educational presentations: the first on how
to get paid and avoid being conflicted out of involuntary bankruptcy
proceedings, and the second on the concept of "ordinary course"
Following Mr. Bowles's presentation, the main committee meeting was
adjourned at 9:30 a.m.
Following adjournment, a subcommittee, comprised of the volunteer
authors of various chapters of the Handbook, met to establish
protocols and timetables for completion of the work on the
Handbook. A copy of a memo summarizing the protocols and time
tables is attached to these minutes.
2001 Winter Leadership
The meeting began with the introduction of the morning's speaker, Mr.
C.R. "Chip" Bowles Jr., a lawyer with the firm of Greenbaum Doll &
McDonald PLLC in Louisville, Ky. Mr. Bowles spoke on the topic of "Noisy
Withdrawals and the Res Judicata Effect of Awards of Final Fee
Following Mr. Bowles's presentation, the committee turned to old
business. For about one year, the committee has been discussing the idea
of creating a handbook that could be used by debtor and committee legal
counsel when the need for the employment of additional professionals in
a bankruptcy case arises. The committee believes that there is a need
for such a handbook to assist attorneys to explain to other
professionals the process for getting appointed, and the process that
must be followed to be sure those professionals are paid. The committee,
by unanimous consent, outlined the contents of this handbook. While the
details are yet to be firmed up, the working outline of the handbook is
- Who is a "professional person" who must be retained under
- What does it mean to be "disinterested"?
- Procedures for applying for appointment (including forms of motion
and affidavit under R. 2014(a) and R. 2016(b)).
- Written fee agreements
- Types of fee structures allowed under §328 for different types
- Monthly payment arrangements "subject to
- The concept of "ordinary" vs. "case" professionals.
- Time-keeping and the lodestar method.
- Itemization and limitation on expense reimbursements.
- Applying to the court for approval of fees and costs.
- Interim and final orders approving fees and costs.
- Fee enhancements and the "Jay Alix Protocol."
The committee delegated to the co-chairs the task of editing the
publication and seeking approval from ABI to go forward with the
project. The co-chairs, once the publication is approved, were also
delegated the authority to assign the writing of various chapters to
members of the committee.
The committee also briefly discussed the seminar topics for the 2002
conferences. Various suggestions were made. The co-chairs were delegated
the responsibility to contact various members of the committee to
finalize a topic for the April conference in Washington, D.C.
1999 Winter Leadership
The Professional Compensation Committee voted to present its own CLE
program at the next available ABI general meeting (either in Washington,
D.C., in the April/May time frame, or at the next Winter Leadership
Conference). The working title of the seminar is, "Now That You Have
Your Order, How Do You Get Paid?" Steve Schwaber (San Marino, Calif.)
will "host" the program, and he has reported to James Sweet (Murphy
& Desmond S.C., Madison, Wis.) that two other committee members are
willing to work with him on the program. Mr. Schwaber was to provide the
committee with a working draft of the program topics in January. At that
time, he was also to provide the names of the other committee members
who will assist with the presentation.
On a related matter, Mr. Sweet met for an hour with Richard P.
Carmody (Lange, Simpson, Robinson & Somerville, Birmingham, Ala.)
after the meeting to discuss a CLE program to be presented jointly by
the Professional Compensation and Ethics Committees. (Mr. Carmody is a
co-chair of the Ethics Committee.) The joint program will deal with
issues of disclosure, recent cases relating to non-disclosure and
disgorgement, retention issues and related topics. As soon as we have
the details about the program from Mr. Carmody, the committee can meet
to decide how and if it will proceed. Edward Malpass (Malpass &
Associates, Irvine, Calif.) will head up the committee's brochure
project. Its working title is, "What Every Professional Needs to Know
About Dealing with a Bankruptcy Estate." It will be geared to
accountants, turnaround specialists, realtors, bank counsel or anyone
else looking to be paid from a bankruptcy estate. It will be a handbook
on how to get appointed, how to make appropriate disclosures, how to
apply for fees and the myriad other relationships a professional has
with a bankruptcy estate. It will also include forms. Mr. Malpass will
provide a working draft of an outline.
The committee voted unanimously to urge ABI to press Congress for an
amendment to §330 of the Bankruptcy Code to re-insert the phrase,
"...or to the debtor's attorney..." back into §330(a). There are
now decisions around the country that state that the elimination of the
phrase in the most recent legislative change was an oversight, and
clearly the section makes no sense as currently written. Mr. Sweet is to
write a letter to ABI Executive Director Sam Gerdano for presentation to
the ABI Executive Committee regarding ABI taking an affirmative stance
on this proposed amendment. It was suggested that it may be useful for
the committee to undertake a research project regarding all of the local
rules relative to the application process for the approval of fees and
costs in a bankruptcy case. Some districts have no local rules at all,
while others overwhelm you with local rules. It was then suggested that
many of the "local rules" are not really local rules at all. Rather,
they are U.S. Trustee "local guidelines" that become the "common law" of
a particular jurisdiction.
The discussion on this topic then turned to the issue of R. 2016(b)
and R. 2014(a) disclosures, and the U.S. Trustee's participation in the
growing body of law regarding these disclosure rules. The idea for a
possible joint CLE program with the Ethics Committee relating to these
disclosures grew out of this conversation. Finally, it was suggested
that Mr. Sweet should attempt to determine who, within the national U.S.
Trustee structure, is in charge of the official fee guidelines. Once
this person is identified, he is to contact the person and try to
establish a liaison between the committee and the U.S. Trustee's office
regarding the issues of disclosures and fees. One committee member
suggested that it might be possible to draft some "model" disclosures
that would provide counsel a "safe harbor," or at least come up with
some proposed changes to the guidelines or the Rules to guide lawyers
regarding their disclosure responsibilities. It was also suggested that
the contact person at the U.S. Trustee's office could be included on the
panel of the joint seminar with the Ethics Committee.
1999 Annual Spring
First the committee discussed a project being headed up by Peter
Franklin at Locke, Purnell, Rain & Harrell in Dallas to update the
working papers generated by the committee in connection with the
extensive report on professional compensation published in the early
'90s. (The report is on ABI Online at http://www.abiworld.org/abidata/online/TCnatrep.html.)
Anyone interested in working on this project should contact Peter
Franklin at (214) 740-8446.
At the last committee meeting, Ed Malpass of Irvine, Calif. suggested
putting together a compensation guide to be published by ABI. The focus
of this project will be to put together a step-by-step handbook for the
practitioner regarding having his or her employment and compensation
approved by the bankruptcy court. This project was discussed with Rick
Meth, ABI Vice President-Publications, and awaits approval. Please
contact Ed Malpass at (714) 453-8100 if you would like to work on this
Also at our meeting last December, Steve Schwaber suggested that the
committee look into the ethical considerations with getting paid after
the bankruptcy court has entered its order approving fees. Steve has
agreed to make a presentation on this issue at the 1999 Winter
Leadership Conference in La Quinta, Calif.
The meeting concluded with an presentation by Robert B. Millner from
the Chicago office of Sonnenschein, Nath & Rosenthal on the subject
of retainers as cash collateral. The committee thanks Rob for his
presentation on this interesting and timely issue.