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The Financial-Adviser Model for Attorney Compensation in Bankruptcy Cases

July 1, 2004, Laurie Selber Silverstein, Elizabeth D. Power, Joyce W. Wong


The issue of attorney compensation remains a perennial focal point for both bankruptcy practitioners and their clients.  The June 27, 2002 edition of The Daily Deal asked "Are Bankruptcy Professionals Getting Excessive Bonuses for Just Doing Their Jobs?"[1]  In the article, the author discusses the fee enhancements or success bonuses requested and/or received by financial advisors, chief executive officers, and lawyers.  It was reported that the "new twist" was that "law firms are now attempting to model their fee enhancements on what financial advisers have done by asking the court to approve their success fee at the beginning of their engagements."[2]

While neither research nor inquiry has revealed a case in which a court has entered an order approving the retention of a law firm on terms similar to that now fairly routinely granted to financial advisors in large chapter 11 cases, such a day may come.  The legal framework for such an arrangement is already in place under either Section 328 of the Bankruptcy Code, which provides for retention of professionals "on any reasonable terms and conditions of employment" or under Section 330 of the Bankruptcy Code which instructs the court to consider "the customary compensation charged by comparably skilled practitioners in cases other than cases under this title."  No change in the law is needed.  Increased judicial familiarity with assessing compensation for financial professionals and the market-based approach to attorney compensation together with a growing trend toward alternative billing arrangements arguably indicates that a 'flat fee plus success fee' could be construed as a reasonable fee arrangement for attorneys to adopt, and courts to approve, in the future.

I. Traditional Attorney Compensation in Bankruptcy (Sections 327, 330)

The employment of professional persons by a debtor-in-possession, trustee or creditors' committee and the award of fees to such professionals are governed by Sections 327, 1103, 328 and/or 330 of the Bankruptcy Code.  Debtors-in-possession are authorized to retain counsel under Section 327, and creditors' committees are authorized to retain professionals under Section 1103.  Each of these sections provides that a firm may be employed "with the court's approval" thereby necessitating the court's active participation.[3]  Employment under one of these sections, however, does not guarantee payment of compensation from the debtor's estate.[4]

Because law firms representing debtors or creditors' committees have traditionally couched their retention applications in terms of Section 327 or 1103, as applicable, there is little controversy that attorneys' fees based on such retentions are reviewable after-the-fact, upon application to the court, under Section 330 of the Bankruptcy Code.  Section 330 directs the court to award "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."[5]  In its analysis of reasonableness, the bankruptcy court is to consider:

the nature, the extent, and the value of such services, taking into account all relevant factors including -

  • the time spent on such services; 
  • the rates charged for such services; 
  • whether the services were necessary to the administration of, or beneficial at the time at which the service was rendered toward the completion of, a case under this title; 
  • whether the services were performed within a reasonable amount of time commensurate with the complexity, importance, and nature of the problem, issue or task addressed; and 
  • whether the compensation is reasonable based on the customary compensation charged by comparably skilled practitioners in cases other than cases under this title.[6]

These factors are in large part derived from the seminal case of Johnson v. Georgia Highway Express, Inc. a Title VII class action lawsuit, applied to bankruptcy cases by the Court of Appeals for the Fifth Circuit in In re First Colonial Corp. of America.[7]  While adopting the Johnson factors, the Fifth Circuit imposed a "spirit of economy" overlay explaining that fee awards in bankruptcy cases should be at the lower end of reasonableness because attorneys assisting in a bankruptcy case are officers of the court and should not be as generously compensated as they might be if privately employed.[8]

The "spirit of economy" overlay applied to professional compensation by the First Colonial Court was expressly rejected in the Bankruptcy Code although the Johnson factors remain vital.  Section 330 reflects a fundamental shift away from favoring the economy of the estate to a focus on competitive compensation to debtors' attorneys.[9]  Congress expressed concern that payment of arbitrarily lower rates to attorneys in bankruptcy proceedings versus those established by the market for non-bankruptcy legal services would result in attorneys leaving (or never entering) bankruptcy practice.[10]

As, in general, requests for payment of attorney fees are based upon the hours worked by the law firm, it is not surprising that, even taking into account the new standard under Section 330, awards of fees in bankruptcy are primarily based on hourly rates.  Indeed, the courts have developed and continue to apply a 'lodestar' reasonableness inquiry - the number of hours reasonably expended are multiplied by an hourly rate, with some courts finding a strong presumption that the lodestar product is reasonable.[11]  The Court of Appeals for the Sixth Circuit appears to have gone somewhat further in taking the position that the lodestar method of fee calculation is the only method by which reasonable fees should be determined.[12]  And, while the Sixth Circuit found that a court can take into account typical compensation, it must do so in the context of a discussion of reasonable hours and a reasonable rate.[13]

In In re Busy Beaver Building Centers, Inc., the Court of Appeals for the Third Circuit delineated its view of Section 330, and what it termed the new market-driven approach to compensation.[14]  The Busy Beaver Court found that Section 330 requires courts to consider "the costs of 'equivalent' practitioners of the art (including their billing structures), as well as the applicant's billing practices with 'equivalent' clients" and practices of comparable non-bankruptcy firms and the rates at which their services are provided.  In Busy Beaver, the Third Circuit overturned the lower Courts' refusal to compensate for paralegal services once it categorized their work as "clerical" holding that the classification of work as clerical does not determine compensability.  Rather, noting the "remarkable transformation of the legal market" over the last two decades, including the incorporation of paralegals providing a wide range of services, the Court found the relevant inquiry to be whether comparable non-bankruptcy firms typically charge their clients for the tasks being performed by the paralegal in the bankruptcy case, as well as the market rate at which such services are provided.[15]

The Busy Beaver Court also nodded to the prevalent practice of awarding fees calculated pursuant to the lodestar methodology, but did not see that practice as limiting.  Rather the Court stated:

While bankruptcy fees are commonly calculated using the lodestar method, we note in closing that, contrary to the apparent view of the Sixth Circuit Court of Appeals, see In re Boddy, 950 F.2d 334, 337 (6th Cir. 1991), § 330 by no means ossifies the lodestar approach as the point of departure in fee determinations.  We refer to it here because the product of an hourly rate by the number of hours worked to this day remains the overwhelmingly prevailing billing method within the market for most legal services.  But with the rise of competitive pressures and the ceaseless evolution of the legal community, we may expect to witness law practitioners adapt to the changed circumstances by developing alternative billing practices and methods.  The strength of the market approach Congress embraced with § 330 is that these developments, including regional variations, will automatically percolate up through bankruptcy fee allotments.  While § 330 is not an engine for implementing innovative strategies, it will readily accommodate alternative practices once comfortably established in the realm of comparable non-bankruptcy legal services.[16]

Thus, while it is arguably universally recognized that, under Section 330, courts must consider market forces as a factor in determining reasonableness of fees, courts are not uniform as to the weight to be given to market forces as opposed to the other factors delineated in Section 330.[17]

II. Financial-Adviser Model of Compensation

(Section 328) Section 328(a) authorizes, with the court's approval, the employment of a professional person by a trustee, or a creditors' or equity security holders' committee "on any reasonable terms and conditions of employment, including on a retainer, on an hourly basis,[18] or on a contingent fee basis."[19]  The involvement of bankers and financial advisors in Chapter 11 cases has increased as the nature of these cases have increased in complexity[20] to the point that today, it is customary for both debtors and the creditors' committee to retain financial advisors at the commencement of a large chapter 11 case.[21]  While debtors and creditors' committees typically seek to retain their law firms under Section 327, in recent years, they typically seek to retain their financial advisors under Section 328 of the Bankruptcy Code.  The seeming attractiveness of retention under this section of the Bankruptcy Code is that the court has the discretion to award compensation that is different than the amount of compensation approved pursuant to Section 328 only in the event that the terms and condition of employment 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."[22]

Investment banker/financial advisor fees are typically comprised of a flat monthly or transactional fee and a 'success' or 'bonus' fee tailored to the objectives of the reorganization.[23]  While this structure is familiar today, in the early 1990s neither this fee structure, nor the universe of services provided by investment bankers was a familiar topic for bankruptcy courts.[24]  Courts were forced to address the difficulties in assessing the reasonableness of fee applications because financial advisors generally do not charge by the hour or keep time records.[25]  Some courts, while recognizing that deference should be given to the compensation standards applicable to financial advisors outside of the bankruptcy context, did not recognize those structures in bankruptcy.[26]

The Section 328 issues courts are addressing today, as they apply to investment advisors, is whether various indemnification provisions typically found in engagement letters outside of bankruptcy are "reasonable" under Section 328.  In United Artists, the Third Circuit returned to its Busy Beaver decision and found that, like a Section 330 analysis, an analysis under Section 328 should be "market driven."[27]  The Court recognized that just because certain indemnification provisions are common in the marketplace does not make them reasonable for purposes of Section 328.  However, after an analysis of common practices, as well as analogous standards of indemnification under Delaware corporate law, the Court found reasonable the indemnification provision presented based on the record presented to the Bankruptcy Court and its own understanding of that provision.[28]  United Artist's Section 328 "market driven" but not "market determined" test has been followed.[29]

The Court of Appeals for the Eighth Circuit agreed with the general proposition, but not the outcome, of United Artists.  In Thermadyne Holdings Corporation, the Court affirmed the ruling of a bankruptcy court refusing to approve an engagement letter of a financial advisor containing indemnification language, finding that on the facts of the case in front of it that the bankruptcy court did not abuse its discretion.[30]  In so holding, the Eighth Circuit found

Although due deference should be given to the standards applicable to certain professions outside the bankruptcy context, the bankruptcy court is not bound absolutely by those standards.  Rather the court is first bound by the dictates of the Bankruptcy Code.  Moreover, prevailing employment terms and conditions outside the bankruptcy context should be considered, but should be only one of many factors in the analysis of what is "reasonable" in the totality of the circumstances.  The bankruptcy court correctly found that there is no blanket mandate that all terms or conditions of employment for professionals allowed or approved outside of bankruptcy must be similarly allowed or approved within bankruptcy.  These considerations, however, should be but one factor in the analysis of what is reasonable under the circumstances.[31]

Section 328 has also recently been discussed in the context of approval of evergreen retainers given to debtors' law firms prepetition.[32]  In that context, and following the factors addressed in the United Artists concurring opinion, the Bankruptcy Court considered the following non-exclusive factors:

(1) whether terms of an engagement agreement reflect normal business terms in the marketplace; (2) the relationship between the Debtor and the professionals, i.e., whether the parties involved are sophisticated business entities with equal bargaining power who engaged in an arms-length negotiation; (3) whether the retention, as proposed, is in the best interests of the estate; (4) whether there is creditor opposition to the retention and retainer provisions; and (5) whether, given the size, circumstances and posture of the case, the amount of the retainer is itself reasonable, including whether the retainer provides the appropriate level of "risk minimization," especially in light of the existence of any other "risk-minimizing" devices, such as an administrative order and/or carve-out.[33]

More generally, the Bankruptcy Court ruled that what is reasonable under Section 328 must be tailored to Bankruptcy Code requirements, including the specific circumstances of the case, the court's supervisory role and the interests of the various constituents.[34]

III. Using the Financial Advisor Model for Attorney Compensation

Because Section 328 provides for retention of professionals on "any" reasonable terms and conditions of employment, nothing prohibits a debtor or committee from seeking to retain a law firm on a basis comparable to that of a financial advisor if the debtor or committee believes such terms are advantageous to the estate.  As many courts have warned, however, the bankruptcy arena is not the forum for inventive compensation schemes, nor a forum in which to set the market.[35]  Accordingly, it would appear that in order for such a request to be successful, the proponent of such an arrangement must convince the court, in the first instance, that the market outside of bankruptcy recognizes the arrangement.

In November of 1998, the American Bar Association's Committee on Lawyer Business Ethics produced its report on alternative billing practices.[36]  In the Section Report, the ABA Committee reported that alternative billing comprises a small, but increasingly prevalent method of fee structures for attorneys.  Alternative arrangements can take many forms, including flat fees, value billing, incentive billing, and/or combinations of the above.[37]  These arrangements are designed to be more responsive to clients' needs by ensuring greater predictability of costs and a stronger relationship between the cost of services and the result achieved.[38]  A 1994 Gallop poll conducted for the ABA indicated that hourly billing was still the dominant system,[39] but that "eighty percent of lawyers surveyed use flat fees some of the time and significant percentages of lawyers at least occasionally offer discounts off regular hourly charges and had received bonus payments."[40]  A 1998 report of a law firm management consulting firm showed that twenty-five percent of corporate legal work was performed through alternative billing arrangements at that time.[41]

The Section Report further indicated that the financial structure model has been utilized in a "few notable cases" by firms specializing in merger and acquisition work,[42] but that despite some flurries of publicity, compensation based upon a percentage of the value of the completed transaction has not become widespread in large transactions.[43]  Notwithstanding, the ABA Commission believed that the trend of alternatives to hourly fee arrangements would continue to grow.[44]

Citing Section 328, as well as the practice outside of bankruptcy, at least one law firm has sought to be compensated consistent with a financial advisory fee structure. In the cases of The Finova Group Inc.,[45] and Comdisco, Inc.,[46] Wachtell, Lipton, Rosen & Katz ("WLRK") as counsel for the official committee of unsecured creditors in each case sought to be retained on a flat fee plus "contingent fee" basis.  In Finova, the creditors' committee sought to compensate WLRK on the basis of $50,000 per month (plus reimbursement of actual and necessary expenses) plus a contingent fee ranging from $1.0 to $3.95 million based on the value of distributions paid to unsecured creditors, beginning with recoveries of eighty-five percent of total debt.[47]  The structure of the fee arrangement sought in Comdisco was substantially similar in form.[48]

In each instance, the creditors' committee recognized the non-traditional nature of the fee arrangement, but asserted that it was the "most likely means to promote the interest of unsecured creditors in maximizing their recovery."[49]  Each committee asserted that a case, such as theirs with an announced sale of the business, or a substantial portion thereof, was particularly "apt" for such an arrangement.[50]  Each committee noted WLRK's expertise in both bankruptcy and merger and acquisition transactions.[51]  The supporting affidavits filed with the application in each case stated (with minor differences) that the approach to compensation set forth in the applications was regularly employed by WLRK in out-of-court restructurings, corporate control contests, sale transactions, and other transactions, and that "[a]ccordingly, the fee structure set forth [] is consistent with the fees charged to clients of [WLRK] generally."[52]  It was further represented that the monthly sum was or was likely to be below the actual time charges in each case and comparable cases.[53]

In Finova, the Office of the United States Trustee objected to the Finova Application taking the position that the "contingent" fee was really in the nature of a "success fee" as it was a "near certainty" that the valuation of the distributions to creditors would trigger the back-end fee.[54]  The United States Trustee further asserted that WLRK should not be compensated on a transactional basis where they did not bring the deal to the table.[55]  And finally, the United States Trustee took the position that any success fee should be subject to plenary review at the conclusion of the case and awarded to committee counsel only for extraordinary results, but, in any event, not "for merely doing what it was supposed to do in furtherance of the basic fiduciary duty of the Committee."[56]

Unfortunately, but perhaps not surprisingly, we do not have the benefit of a decision from either the Finova Court or the Comdisco Court.  In Finova, the Court approved WLRK's retention as follows:

The Application is granted, subject to the negotiated modification of the terms of WLRK's compensation as follows:  Subject to Bankruptcy Court approval upon submission of a final fee application pursuant to the Bankruptcy Code, the Federal Rules of Bankruptcy Procedure, the Local Rules of this Court, and such other orders as the Court may direct, WLRK shall be entitled to compensation according to its hourly rates, plus actual and necessary expense reimbursements, with an express reservation of WLRK's right to seek a fee enhancement over and above such hourly rates based upon the success of the results achieved through WLRK's efforts, and a further reservation of the Objectors' right to oppose such fee enhancement request.[57]

And, at the initial hearing on the Comdisco Application, the Court approved WLRK's retention and the monthly fee, but continued the hearing to a date approximately two months out to consider the remaining compensation.  During the interim, WLRK and the committee agreed that WLRK would be compensated on an hourly basis, and asked the Court to modify its previous order.[58]

One reported case that does merit mentioning for its self-expressed "unique experiment and thorough departure from the usual hourly rate billing procedure utilized in large cases" is In re Home Express, Inc.[59]  In Home Express, at the outset of the case, the Court observed to the parties its conclusion that the awarding of fees pursuant to the "lodestar hybrid incorporated into § 330" was becoming too burdensome for the Court to handle, and gave counsel a choice:  either the appointment of a professional fee examiner, or an agreement by the professionals to a flat rate for all of their services.[60]  If counsel chose the flat fee arrangement, they were to provide "a breakdown of the time required for each category of services, a summary of the fees awarded in cases of comparable size in this district or others, and the total amount of fees they sought for the entire case."[61]  The Court's response to concerns about matters that could not reasonably be anticipated was that "most Chapter 11 cases are filled with surprises, both good and bad, and that [counsel] should build such contingencies into their flat fees."  Counsel chose the flat fee arrangement, and after several submissions, and hearings, the Court adjusted certain portions of the estimates up and down, and approved a flat fee for each professional.[62]

About a year later, the professionals filed a joint motion to amend the order approving the retention.  The Court reviewed the specific supplemental fees requested by each professional, and did award additional fees to certain professionals based on the Court's assessment of a "real surprise" based on a pervasive managerial vacuum in the case.  The Court, however, did not award the full supplemental fees requested, because, based on the evidence put on the record, it found that some of the overrun was due to excessive time spent on certain matters.  The Court concluded:

When I offered an alternative means of arriving at a reasonable fee in this case, I fully expected some trial and error in what was and is, to my knowledge, a unique experiment and thorough departure from the usual hourly rate billing procedure utilized in large cases.  As noted above, I am not prepared to preclude any additional adjustments to the flat rates initially proposed.  But unless the professionals can present convincing evidence of encounters with truly unforeseeable developments, the fees as set forth in this order are intended to be final allowances.[63]

Research did not reveal a reported case following Home Express' lead.

As shown above, whether a court evaluates the terms of engagement of a law firm up front under Section 328, or at the conclusion of the case under Section 330, the guiding principle is that the fees be "reasonable."  In determining what is reasonable, courts look to the various factors set forth in Section 330, including the compensation charged for such services outside of bankruptcy.  While this is only one factor, it appears to be a prerequisite to acceptance of a non-hourly based model for attorney fees.  The financial-advisor model is one such model.  The better line of cases does not preclude approving the retention of law firms on this basis.  As the financial-advisor model becomes more prevalent, there will be no legal impediment to approval of compensation along these lines.  The challenge for the law firm is to first convince its client, and then the bankruptcy court that such a model is in the best interest of the estate and "reasonable."


*   Laurie Selber Silverstein is a partner at Potter Anderson & Corroon LLP and heads the firm's restructuring and bankruptcy practice.  The author thanks Elizabeth D. Power and Joyce W. Wong for their assistance in the preparation of this article.  The views or opinions expressed in this article are those of the author alone and do not necessarily represent the views or opinions of Potter Anderson & Corroon LLP or its clients.
1   Shannon D. Murray, The Price of Success, THE DAILY DEAL, June 27, 2002, at 5-6.
2   Id. at 5. 
3   See 11 U.S.C. § 327(a) (". . . the trustee, with the court's approval, may employ one or more attorneys . . . to represent or assist the trustee in carrying out the trustee's duties under this title."); 11 U.S.C. § 1103(a) (". . .with the court's approval, such committee may select and authorize the employment by such committee of one or more attorneys . . . to represent or perform services for such committee.") 
4   In re Engel, 124 F.3d 567, 572 (3d Cir. 1997) (rejecting notion that approval under Section 327 and compensation under Section 330 can be compressed into one step; approval of fees under Section 330 is a "mandatory second part of a two-step process"); In re Johns-Manville Corp., 32 B.R 728, 731 (S.D.N.Y. 1983) (approval of retention under Section 327 is merely a "preliminary 'go ahead'[]" rather than conclusive determination of a right to payment of fees). 
5   11 U.S.C. § 330(a). 
  See 11 U.S.C. § 330(a)(3); Johnson v. Georgia Highway Express, Inc., 488 F.2d 714, 719 (5th Cir. 1974) (noting that its guidelines for evaluating fees were consistent with those recommended by the American Bar Association's Code of Professional Responsibility, Ethical Consideration 2-18, Disciplinary Rule 2-106). 
7   In re First Colonial Corp. of America, 544 F.2d 1291, 1299 (5th Cir. 1977). 
8   Id
9   See In re Busy Beaver Bldg. Ctrs., Inc., 19 F.3d 833, 851 (3d Cir. 1994); In re Hillsborough Holdings Corp., 127 F.3d 1398, 1403 (11th Cir. 1997); In re Drexel Burnham Lambert Group Inc., 133 B.R. 13, 19 (Bankr. S.D.N.Y. 1991) (". . . the policy behind , and intention of § 330(a) is incontrovertible.  The practice of Bankruptcy Courts setting 'appropriate' rates, or reducing rates otherwise accepted by the market for comparable services because of a notion of 'economy of the estate,' has been specifically rejected by Congress and abandoned in the statutory scheme.") 
10   H.R. REP. NO. 95-595 at 330, reprinted in 1978 U.S.C.C.A.N. 5963, 6286. 
11   Drexel, 133 B.R. at 22 (citing cases). 
12   In re Boddy, 950 F.2d 334, 337 (6th Cir. 1991) (fees requested in a chapter 13 case); In re Newman, 270 B.R. 845, 847 (Bankr. S. D. Ohio 2001) (the Court of Appeals for the Sixth Circuit has adopted the lodestar method of fee calculation for bankruptcy cases). 
13   Boddy, 950 F.2d at 338 (noting that in many cases consideration of other factors will be duplicative of the lodestar calculation, which subsumes these factors in its analysis of reasonable hourly rate and hours worked). 
14   See Busy Beaver, 19 F.3d at 853-54. 
15   Id. at 851-56 (but also noting that despite the market-driven approach, some paralegal services may go uncompensated). See also Hillsborough Holdings, 127 F.3d at 1404 ("the best approach to achieving the goal of full - but not excessive - compensation "is to rely on the market, subject to the modification that the court will, in practical terms, act as a surrogate for the estate, reviewing the fee application much as a sophisticated non-bankruptcy client would review a legal bill.'") quoting Busy Beaver, 19 F.3d at 848. 
16   Busy Beaver, 19 F.3d at 856 (citations omitted); see also In re Intelogic Trace, Inc., 188 B.R. 557, 561 (Bankr. W. D. Tex. 1995) (in evaluating the merits of approving a success fee, the court notes that "[i]f the only 'marketplace' is the marketplace of professionals who work almost exclusively in bankruptcy cases, a court might justifiably be suspicious that bankruptcy gets a 'special pricing arrangement.'"). 
17   Drexel, 133 B.R. at 19-20; see Boddy, 950 F.2d at 338. 
18   As set forth above, attorneys and courts tend to address the issue of hourly fee arrangements in the context of Section 327.  However, as is clear from the text of Section 328, even hourly fee arrangements are governed by Section 328.  The author suggests that, as in cases of contingent fee based requests or financial advisor requests, the point to address the reasonableness of the hourly fee arrangement is when the Court is asked to approve the retention of the professional (compare In re Kurtzman, 220 B.R. 538, 542 (S.D.N.Y. 1998)) (declining to approve retention of attorneys under Section 327 because proposed hourly rate was in excess of that charged by similar firm for comparable legal services; court found that "by implication, [] under 11 U.S.C. § 328 (a) a court may disapprove a trustee's choice of counsel if the proposed rate of compensation is not reasonable"), appeal dismissed, 194 F.3d 54 (2d Cir. 1994).  No "implied" authority is necessary, however, because Section 328, by its term, applies to all fee arrangements of retained professionals.  The complicating factor in an hourly fee arrangement (as opposed to a contingent fee, flat fee or structured fee) is that only the rate, and not the number of hours can be approved in advance.  Thus, in a Section 330 review of reasonableness it is too easy for a party or the court to sidestep the limitation on departing from the terms of employment by pointing to excessive hours as the culprit. 
19   11 U.S.C. § 328(a); 3 COLLIER ON BANKRUPTCY ¶ 328.02[1] (15th ed. rev. 2002). 
20   Drexel, 133 B.R. at 24. 
21   United Artists Theatre Co. v. Walton, 315 F.3d 217, 234 (3d Cir. 2003) ("[f]inancial advisors are an essential part of reorganizations."). 
22   11 U.S.C. § 328(a); STAN BERNSTEIN, COLLIER COMPENSATION, EMPLOYMENT AND APPOINTMENT OF TRUSTEES AND PROFESSIONALS IN BANKRUPTCY CASES 4.12 (14th ed. 2002) ("COLLIER"); In re Merry-Go-Round Enters., Inc., 244 B.R. 327 (Bankr. D. Md. 2000) (upholding fee award of a 40% recovery totaling $71,200,000 because arrangement was expressly approved under Section 328 and the approval was not improvident under that section). 
23   See generally Drexel, 133 B.R. at 25; see also COLLIER at 4.12. 
24   Drexel, 133 B.R. at 24. 
25   Id
26   In re Gillette Holdings, Inc., 137 B.R. 452 (Bankr. D. Col. 1991) (finding that an award of millions of dollars of fees based upon meeting certain milestones in the case in tandem with a fixed monthly fee was improper at the outset of the case and must await a successful conclusion and proper entitlement). 
27   United Artists, 315 F.3d at 230 (making the distinction between "market driven" and "market-determined" because of the supervisory role of the bankruptcy court); see also id. at 238 n.4 (Rendell, J., concurring) (while disagreeing with the reasoning of the majority, finding indemnification clause, as modified, "reasonable" under Section 328 on the facts of that case, including consideration of the prepetition engagement letter and other market sensitive factors). 
28   The Court did note, however, the "safe harbor" of Section 328 which permits the court to "reconsider its approval of any employment terms for professionals."  Id. at 233 n.19. 
29   In re Baltimore Emergency Services II, LLC, 291 B.R. 382, 386 (Bankr. D. Md. 2003) (noting that a factual record to support findings of reasonableness is required). 
30   In re Thermadyne Holdings Corp., 283 B.R. 749, 759-60 (8th Cir. 2002). 
31   Id. at 757 (citations omitted). 
32   In re Insilco Techs., Inc., 291 B.R. 628, 632-36 (Bankr. D. Del. 2003). 
33   Insilco, 291 B.R. at 634. 
34   Id.; see also In re Niover Bagels, Inc., 214 B.R. 291, 294 (Bankr. E.D.N.Y. 1997) ("[t]he flexibility written into [the Section 328] standard encourages bankruptcy judges to approve compensation arrangements that reflect market conditions and to fashion arrangements suitable to the circumstances of the case before it."). 
35   See supra at p. 5 and n.16. 
36   Committee on Lawyer Business Ethics, Section Report: Business and Ethics Implications of Alternative Billing Practices: Report on Alternative Billing Arrangements, 54 BUS. LAW 175 (1998) ("Section Report"). 
37   Id. at 182-87. 
38   Id
39   For a survey of certain types of alternative fee arrangements see ABA Commission on Billable Hours, ABA Commission on Billable Hours Report 2001-2002 available at (2002). 
40   Section Report at 188. 
41   Id
42   Id. at 189. 
43   Id. at 189-90. 
44   Id. at 190. 
45   The Finova Group, Inc., et al., Case No. 01-0697 (Bankr. D. Del.), Walsh, J. 
46   Comdisco, Inc., et al., Case No. 01 B 24795 (Bankr. N.D. Ill.), Barliant, J. 
47   See Application for Order Approving Retention of Wachtell, Lipton, Rosen & Katz as Counsel for Official Committee of Unsecured Creditors, The Finova Group, Inc., et al., Case No. 01-0697 (Bankr. D. Del.) (Docket Item 418) ("Finova Application"). 
48   Application of the Official Committee of Unsecured Creditors of Comdisco, Inc. et al., to Employ Wachtell, Lipton, Rosen & Katz as Counsel, Comdisco, Inc., et al., Case No. 01 B 24795 (Bankr. N.D. Ill.) (Docket Item 421) (monthly fee of $100,000 per month, with capped contingent fee ranging from $725,000 to $5 million based on a blended average recovery to all unsecured creditors of at least eighty-five percent of total unsecured debt) ("Comdisco Application"). 
49   Finova Application ¶ 11; Comdisco Application ¶ 11. 
50   Finova Application ¶ 12; Comdisco Application ¶ 12. 
51   Finova Application ¶ 15; Comdisco Application ¶ 17. 
52   Finova Application, Affidavit in Support of Application Authorizing Employment and Retention of Wachtell, Lipton, Rosen & Katz as Counsel for Official Committee of Unsecured Creditors ¶ 9; Comdisco Application, Affidavit in Support of Application Authorizing Employment and Retention of Wachtell, Lipton, Rosen & Katz as Counsel for Official Committee of Unsecured Creditors ¶ 7. 
53   Finova Application, Affidavit ¶ 6 (monthly sum "well below"); Comdisco Application, Affidavit ¶ 6 (monthly sum "likely to be below"). 
54   Limited Objection of the United States Trustee to Application of the Official Committee of Unsecured Creditors to Retain Wachtell, Lipton, Rosen & Katz as Counsel, The Finova Group, Inc., et al., Case No. 01-0697 (Bankr. D. Del.) ¶ 8 (Docket Item 524) ("UST Objection"). 
55   Id. at ¶ 9. 
56   Id. citing In re Intelogic Trace, 188 B.R. 557, 561 (Bankr. W.D. Tex. 1995).  The Official Committee of Equity Holders also filed an objection to the Finova Application stating that any additional compensation over and above WLRK's normal hourly charges should be paid solely from the recoveries to the unsecured creditors. Limited Objection of Official Committee of Equity Security Holders to Application of the Official Committee of Unsecured Creditors to Retain Wachtell, Lipton, Rosen & Katz as Counsel, The Finova Group, Inc., et al., Case No. 01-0697 (Bankr. D. Del.) ¶ 11 (Docket Item 525). 
57   Consent Order Pursuant to 11 U.S.C. §§ 1103(a) and 328(a) Authorizing the Employment and Retention of Wachtell, Lipton, Rosen, & Katz as Counsel For Official Committee of Unsecured Creditors, The Finova Group, Inc., et al., Case No. 01-0697 (Bankr. D. Del.) ¶ 1 (Docket Item 1211).  Ultimately, the Court approved a settlement related to the final application of WLRK permitting a success fee of approximately $800,000, indicating that "[t]his was a difficult issue.  I've given a lot of thought to it and I have - I may - well, I have perhaps a different view than some parties to this matter.  But I'm going to accept the settlement as reached simply because I think the parties who effected the settlement are in a better position to judge this matter than I am, although I don't necessarily agree with the result.  Since the parties have reached a consensual arrangement, I'm content to pass on."  The Finova Group, Inc., et al., Case No. 01-0697 (Bankr. D. Del.) Transcript May 22, 2002; Stipulation and Agreed Order Resolving Final Application of Wachtell, Lipton, Rosen & Katz for Allowance of Compensation and Reimbursement of Expenses (Docket Item 1598). 
58   Amended Application of the Official Committee of Unsecured Creditors of Comdisco, Inc. et al., to Employ Wachtell, Lipton, Rosen & Katz as Counsel, Comdisco, Inc., et al., Case No. 01 B 24795 (Bankr. N.D. Ill.) (Docket Item 1288). 
59   In re Home Express, Inc., 213 B.R. 162 (Bankr. N.D. Cal. 1997). 
60   Id. at 165. 
61   Id
62   Id. at 165-66.  For example, the Court "all but eliminated" the time allotted for preparation of fee applications, as he anticipated only one application at the end of the case for fees already paid, but made an upward adjustment for claims litigation.  After arriving at the flat fee arrangement, the Court directed the chief executive officer and the chair of the committee to submit sworn statements either in support of the flat fees or in opposition to them.  The Court also required notice and an opportunity for a hearing.  Only two objections were filed, and neither objector appeared at the hearing.  The Office of the United States Trustee did not object, but requested copies of monthly time sheets.  While the Court directed the professionals to comply with the request of the United States Trustee, the Court made clear that the flat fee arrangements were subject to adjustment only under the Section 328 "improvident" standard.  Id.  The Order approved by the Court is appended to the decision. 
63   Id. at 168.