In re: Federal Mogul-Global Inc. v. Official Committee of Unsecured

PRECEDENTIAL
Filed October 31, 2003
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 02-4166
IN RE:
FEDERAL MOGUL-GLOBAL INC.;
T&N LIMITED
COMMITTEE OF EQUITY SECURITY HOLDERS
OF FEDERAL-MOGUL CORPORATION,
Appellant
v.
OFFICIAL COMMITTEE OF UNSECURED CREDITORS
ON APPEAL FROM THE
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
(Dist. Court No. 02-cv-01503)
District Court Judge: Alfred M. Wolin
Argued on July 23, 2003
Before: ALITO, FUENTES, and BECKER, Circuit Judges.
(Opinion Filed: October 31, 2003)
I. CONNOR BIFFERATO
MEGAN N. HARPER
Bifferato, Bifferato & Gentilotti
1308 Delaware Ave.
Wilmington, DE 19806

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DAVID F. HEROY (argued)
KEVIN Y. PAK
ANDREW B. COHEN
MICHAEL YETNIKOFF
Bell, Boyd & Lloyd, LLC
70 West Madison, Suite 3300
Chicago, IL 60602
Counsel for Appellant
CHARLENE D. DAVIS (argued)
JAMES TOBIA
The Bayard Firm
222 Delaware Ave., Suite 900
P.O. Box 25130
Wilmington, DE 19899
PETER D. WOLFSON
ANDREW P. LEDERMAN
Sonnenschein, Nash & Rosenthal
1221 Avenue of the Americas
New York, NY 10020
Counsel for Appellees
OPINION OF THE COURT
ALITO, Circuit Judge:
This appeal concerns a Bankruptcy Court order issued in
the course of Chapter 11 reorganization proceedings
involving Federal-Mogul Global, Inc. (“Federal-Mogul”) and
its various subsidiaries (collectively the “Debtors”). The
Official Committee of Equity Security Holders of Federal-
Mogul Corp. (the “Equity Committee”) appeals an order of
the United States District Court for the District of Delaware
affirming an order of the United States Bankruptcy Court
for the District of Delaware. The Bankruptcy Court’s order
granted the Equity Committee’s application to retain
Deloitte & Touche LLP (“D&T”) to give the Committee
financial advice in connection with the Debtors’
reorganization, but the order limited the amount that D&T
could charge the Debtors’ estates for its services to $30,000
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per month. In capping D&T’s fees, the Bankruptcy Court
expressed a belief that the debtor was likely insolvent and
that the appointment of the Equity Committee might not
have been justified. In addition, the Bankruptcy Court
relied on its belief that the Debtors’ financial advisors had
already compiled a significant amount of financial data that
could be made available to the Committee and that there
was consequently no need for the Equity Committee’s
advisors to duplicate that research.
The Equity Committee challenges the portion of the order
limiting D&T’s compensation on two grounds. First, the
Committee contends that the cap on D&T’s fees was not
authorized under 11 U.S.C. § 328(a) and was unsupported
by the evidence before the Bankruptcy Court. Second, the
Committee maintains that 11 U.S.C. § 1103(b) prohibited
the Bankruptcy Court from directing the Committee to rely
on financial data compiled by the Debtors’ advisors. For the
reasons stated below, we hold (1) that 11 U.S.C. § 328(a)
authorizes Bankruptcy Courts to devise and impose caps
on the compensation of financial advisors retained in
connection with Chapter 11 proceedings; and (2) that 11
U.S.C. § 1103(b) does not prohibit a Bankruptcy Court from
instructing a financial advisor to an equity security holders’
committee to rely on data previously compiled by
professionals retained by the debtors in a reorganization
proceeding. However, we find that the record contains
insufficient information to permit us to determine the
factual basis for the cap. Accordingly, we vacate the
Bankruptcy Court’s order and remand the case for further
proceedings consistent with this opinion.
I.
The Debtors are manufacturers and distributors of
automotive parts. On October 1, 2001, the Debtors filed
petitions for relief pursuant to Chapter 11 of the
Bankruptcy Code. On October 4, 2001, the Bankruptcy
Court consolidated the petitions for adjudication in a single
proceeding. On October 23, 2001, the United States Trustee
(the “Trustee”) appointed the Official Committee of
Unsecured Creditors of Federal-Mogul Corp. (the “Creditors
Committee”) to represent the interests of the Debtors’
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unsecured creditors in the reorganization. On October 24,
2001, the Trustee appointed the Official Committee of
Asbestos Personal Injury Claimants (the “Asbestos
Committee”) to represent the interests of persons claiming
injury due to asbestos contained in the Debtors’ products.
The Bankruptcy Court authorized both the Creditors and
Asbestos Committees to retain multiple accounting firms to
assist them during the reorganization proceeding. On June
12, 2002, the Trustee appointed the Equity Committee.
On August 7, 2002, the Equity Committee submitted an
application, pursuant to 11 U.S.C. §§ 328(a) and 1103 and
Fed. R. Bankr. Proc. 2014(a) and 2016(b), to retain D&T as
financial advisors in connection with the Debtors’
reorganization. The application stated that D&T would
serve the Equity Committee by valuing the Equity
Committee’s potential recovery under a reorganization plan,
investigating the Debtors’ financial condition, assisting in
the negotiation of the Debtors’ Chapter 11 plan, rendering
expert testimony, and providing any other services the
Equity Committee required in connection with the case.
App. II at 92-94. To justify D&T’s retention, the Equity
Committee noted that the Debtors and the creditors’
committees involved in the case had retained their own
financial professionals, and the Equity Committee
maintained that the employment of D&T was needed to
create a “level playing field.” Id. at 94-95. The Equity
Committee also cited its need to obtain an independent
analysis of financial data compiled by the Debtors. Id. at
94-95. Under the Equity Committee’s proposal, D&T would
be compensated at an hourly rate, and its compensation
would be capped at $200,000 per month for the first five
months of D&T’s employment and limited to $125,000 per
month thereafter. Id. at 95.
The Creditors Committee filed objections to the Equity
Committee’s application. The Creditors Committee
contended that the Bankruptcy Court should not authorize
D&T’s retention because (1) the Equity Committee did not
stand to receive any value from the Debtors’ reorganization,
since the Debtors were insolvent; and (2) if retained by the
Equity Committee, D&T would labor under a conflict of
interest. The Creditors Committee accompanied its
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objection with a table of figures that, in the Committee’s
view, showed that the Debtors were insolvent. The Creditors
Committee estimated that the Debtors’ total commercial
debt was approximately $5.7 billion and noted that Federal-
Mogul “last reported its estimate of asbestos liability at over
$1.6 billion, and the asbestos committee has opined that
the number is a significant multiple thereof.” Id. at 135. On
August 26, 2002, the Asbestos Committee joined in the
Creditors Committee’s objection.
On August 28, 2002, the Bankruptcy Court held a
hearing on the Equity Committee’s application. The
Bankruptcy Court heard argument from the parties but did
not take evidence. The Bankruptcy Court expressed
skepticism on two grounds regarding the amount of
compensation that the Equity Committee requested for
D&T. First, the Bankruptcy Court agreed with the Creditors
Committee’s contention that, since the Debtors were
probably insolvent, the Equity Committee was not likely
entitled to any value from the Debtors’ reorganization.1 Id.
at 150. Second, even if the Equity Committee could obtain
value from the Debtors’ reorganization, the Bankruptcy
Court believed that D&T could rely on financial data
already compiled by the professionals serving the Debtors.
See id. at 147-48 (“[I]t seems to me that we’ve got so much
accounting information here that if you added up all the
numbers and divide [sic] it by four you would probably get
the right one.”); id. at 157 (“You don’t have to go back and
put together all new work product.”). In the Bankruptcy
Court’s view, the Debtors had the incentive to maximize the
value that the Equity Committee could receive from the
reorganization proceeding, and thus the Debtors would
likely provide any information the Equity Committee
requested. Id. at 167. If the Debtors failed to provide the
Equity Committee with such information, the Bankruptcy
Court observed, it could always order them to do so. Id. at
186.
1. We say that the Bankruptcy Court concluded that the Debtors were
“probably insolvent” because the court did not unqualifiedly endorse the
proposition that the Debtors were insolvent. See App. II at 169 (“I’m not
suggesting that I am pronounced [sic] that the debtor has no equity.”).
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On September 13, 2002, the Bankruptcy Court entered
an order authorizing the Equity Committee to retain D&T
and capping the monthly fees that D&T could charge the
Debtors’ estates at $30,000 per month. On September 18,
2002, the Equity Committee appealed the Bankruptcy
Court’s order to the District Court, claiming (1) that the fee
cap “deprive[d] the Equity Committee from [sic] being able
to obtain adequate financial advice,” (2) that the
Bankruptcy Code does not authorize the imposition of a
cap on financial professionals’ compensation, and (3) that
the Bankruptcy Court clearly erred in finding that the
Debtors were insolvent. Id. at 34. The Creditors Committee
cross-appealed, claiming, for the reasons set forth in its
objection to the Equity Committee’s application, that the
Equity Committee was not entitled to retain financial
advisors.
On October 29, 2002, the District Court issued an order
affirming the Bankruptcy Court’s decision. In relevant part,
the District Court described the applicable law as follows:
Section 1103(a) of the Bankruptcy Code provides that
a duly constituted committee may “with the court’s
approval” select and authorize the employment of
attorneys, accountants and other professionals. Section
328(a) makes the terms of such employment also
subject to approval by court [sic].
The Bankruptcy Court must consider the “all relevant
factors,” [sic] including the time spent, rates charged
and “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.” 11 U.S.C. § 330(a)(3)(C).
App. I at 2. Applying this standard, the District Court
agreed with the Bankruptcy Court’s conclusion that “[t]he
proposed scope of work for [D&T] . . . was largely
duplicative of the work of the several teams of financial
professionals already employed by several constituencies.”
Id. at 3. In the District Court’s view, it was particularly
important to avoid charging the Debtors more fees than
necessary, as “tremendous fee obligations have been
incurred by financial professionals in this large and
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complex case and . . . they constitute a burden on the
estate of this insolvent debtor.” Id. Moreover, according to
the District Court, the other committees involved in the
case “appeared willing to give the Equity Committee access
to the financial information they had developed.” Id. In light
of these factors, the District Court concluded, the $30,000
fee cap was appropriate, as that amount “would permit
financial advisors to advise the [Equity] Committee based
upon data developed by the other constituencies” without
charging the Debtors for unnecessary services. Id. at 4. The
Equity Committee then took this appeal.
On appeal, the Equity Committee raises three issues.
First, the Equity Committee argues that 11 U.S.C. § 328(a)
did not authorize the Bankruptcy Court to impose its own
caps on D&T’s compensation at the outset of its retention.
Second, the Equity Committee contends that the District
Court erred in suggesting that the Equity Committee could
rely on financial data compiled by the Debtors’ financial
professionals because the Debtors’ had “a conflicting
interest.” Appellant’s Br. at 27. Finally, the Equity
Committee maintains that, even if the Code permits the
imposition of fee caps, the Bankruptcy Court’s decision to
impose the fee cap in the present case was not supported
by the record.2
II.
We first consider the Equity Committee’s argument that
the Bankruptcy Court was not authorized under 11 U.S.C.
2. The Equity Committee also contends that the District Court erred by
analyzing the fee cap under the wrong section of the Bankruptcy Code
and agreeing with the Bankruptcy Court’s factual findings. See
Appellant’s Opening Brief at 18-21, 25, 29. We cannot, however, grant
the Equity Committee relief based on the District Court’s alleged errors.
Rather, our review is limited to the Bankruptcy Court’s decision. As the
Sixth Circuit aptly observed in In re Trident Assoc. Ltd. Pshp., 52 F.3d
127, 130 (6th Cir. 1995), “[t]his court directly reviews the bankruptcy
court’s decision, not the district court’s review of the bankruptcy court’s
decision.” See also In re Pizza of Hawaii, Inc., 761 F.2d 1374, 1377 (9th
Cir. 1985) (“Because we are in as good a position as the district court to
review the findings of the bankruptcy court, we independently review the
bankruptcy court’s decision.”).
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§ 328(a) to impose a cap on D&T’s monthly fees. We begin
by reviewing the relevant Code sections.
A.
Title 11 United States Code, § 1102(a)(1), authorizes a
United States Trustee to appoint “committees . . . of equity
security holders as the . . . trustee deems appropriate.” 11
U.S.C. § 1102(a)(1). A committee appointed under 11 U.S.C.
§ 1102 has the power to “select and authorize the
employment . . . of one or more attorneys, accountants, or
other agents, to represent or perform services for such
committee.” 11 U.S.C. § 1103(a). Under 11 U.S.C. § 328(a),
the employment of a professional requires approval by a
Bankruptcy Court. Section 328(a) states:
The trustee, or a committee appointed under section
1102 of this title, with the court’s approval, may
employ or authorize the 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 contingent 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.
Thus, a committee appointed under 11 U.S.C.
§ 1102(a)(1), may, “with the approval” of the Bankruptcy
Court, employ a professional “on any reasonable terms and
conditions of employment, including [employment] on an
hourly basis.” Under 11 U.S.C. § 330(a)(1), such a
professional may apply to receive fees from the bankruptcy
estate after the professional has rendered services to the
committee. Generally, a Bankruptcy Court reviewing a
professional’s fee application under Section 330(a)(1) must
award that professional a fee that is “reasonable” in light of
certain factors set out in that provision.3 See 11 U.S.C.
3. These factors include “the nature, the extent, and the value of such
services, the time spent on such services, and the cost of comparable
services other than in a case under this title.” 11 U.S.C. § 330(a)(1).
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§ 330(a)(1) (authorizing a Bankruptcy Court to award a
professional “reasonable compensation for actual,
necessary services rendered”); Zolfo, Cooper & Co. v.
Sunbeam-Oster Co., 50 F.3d 253, 261 (3d Cir. 1995)
(stating that a professional’s “claim to money from the
bankruptcy estate is limited to a claim for reasonable fees”).
But when a Bankruptcy Court has “fix[ed] . . . terms and
conditions” of employment for an application to employ that
was approved, the Court may allow compensation on
different terms or conditions only if the court’s initial
approval “prove[s] to have been improvident in light of
developments not capable of being anticipated at the time”
of approval. 11 U.S.C. § 328(a); see also In re B.U.M. Int’l.,
Inc., 229 F.3d 824, 829 (9th Cir. 2000) (“[A] bankruptcy
court may not conduct a[n] . . . inquiry into the
reasonableness of [a professional’s] fees and their benefit to
the estate if the court already has approved the
professional’s employment under 11 U.S.C. § 328.”); In re
Nat’l. Gypsum Co., 123 F.3d 861, 862 (5th Cir. 1997)
(“Under . . . § 328 [a] professional may avoid . . .
uncertainty by obtaining court approval of compensation
agreed to with [a committee] . . . . Thereafter, that approved
compensation may be changed only . . . ‘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.’ ”); In re Benassi,
72 B.R. 44, 47 (E.D. Minn. 1987) (Ҥ 330(a)(1) does not
supplant § 328(a) and give the [bankruptcy] judge free reign
to void a previously authorized employment agreement for
a percentage fee.”); 3 Collier on Bankruptcy § 328.03[1]
(15th ed. rev. 2002) (“A court may not revisit [its] prior
determination as to the ‘reasonableness’ of an agreement
previously approved [pursuant to Section 328(a)] unless
and until it determines that the terms and conditions
proved to be ‘improvident.’ ”). With this framework in mind,
we turn to the specific arguments advanced by the Equity
Committee.
B.
The Equity Committee first suggests that the Bankruptcy
Court in this case exceeded its authority by adding its own
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caps on D&T’s fees. As we understand its argument, the
Equity Committee seems to contend that a Bankruptcy
Court, when presented with an application to employ a
professional, must either approve the application in toto
without alteration or it must reject the application.4 We do
not agree.
1.
The language of Section 328(a) does not support the
Equity Committee’s argument. As noted, Section 328(a)
states in relevant part that a committee, “with the court’s
approval,” may employ a professional “on any reasonable
terms and conditions of employment.” This language may
easily be interpreted to mean that the Court may approve
the employment of a professional on any terms and
conditions that the Court finds necessary to satisfy the
requirement of reasonableness.5
2.
The Equity Committee’s reading of Section 328(a) also
makes little sense. In the view of the Equity Committee, if
a Bankruptcy Court is presented with an application
containing an unreasonable term, the Court’s only option is
to reject the application. But even if this view were correct,
a Bankruptcy Court, in rejecting such an application, could
surely explain why it found the term in question to be
4. See Appellant’s Br. at 13 (relevant Bankruptcy Code provisions “only
permit approval (or denial) of retention on ‘reasonable’ terms, not
unilateral alterations . . . .”)
5. The second sentence of 11 U.S.C. § 328(a) is entirely consistent with,
and indeed supports, this interpretation. The second sentence states
that a professional must be paid in accordance with any terms and
conditions of employment that are fixed when the employment is
approved unless “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.” The second
sentence of 11 U.S.C. § 328(a) thus forecloses the argument that a
Bankruptcy Court, if presented with an application containing an
unreasonable term or condition, may approve the application but correct
the unreasonable term when compensation is later sought.
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unreasonable, and the Court surely could entertain an
amended application that is consistent with the Court’s
expressed view of what is reasonable. Thus, even on the
Equity Committee’s view, a Bankruptcy Court could achieve
the same result that is produced by approving an
application with modifications. The only difference is that
the Equity Committee’s reading would require a needlessly
complicated and burdensome procedure. We do not think
that Section 328(a) was intended to produce such a result.
3.
Our decision in Zolfo, Cooper & Co. v. Sunbeam-Oster Co.,
50 F.3d 253, 261 (3d Cir. 1997), supports our conclusion
that a Bankruptcy Court need not approve or reject an
application as presented but may approve an application
with modified terms that the Court finds necessary to
render the proposed employment reasonable. In Zolfo,
Cooper & Co., the debtors filed an application seeking to
retain Zolfo, Cooper & Co. (“Zolfo”) as financial advisors.
The application proposed certain hourly rates for Zolfo. The
Bankruptcy Court entered an order stating only that the
debtors were “authorized to retain [Zolfo] . . . to perform the
services as set forth in” the debtors’ application. Zolfo,
Cooper & Co., 50 F.3d at 262. When Zolfo later applied for
compensation from the estate, the Bankruptcy Court
awarded Zolfo lower hourly rates than the debtors had
sought in the application. Zolfo appealed, claiming that “the
bankruptcy court could [not], consistent with [11 U.S.C.]
§ 328(a), reach an independent determination of the fees to
which Zolfo . . . was entitled without a finding that the
rates set forth in Zolfo[’s] . . . retention affidavit were
improvident.” Id. at 261. Zolfo’s argument relied on the
premise that the Bankruptcy Court had implicitly approved
Zolfo’s hourly rates under Section 328(a) by authorizing
Zolfo’s employment without taking exception to its proposed
fee structure. We rejected this argument, stating that “[i]f
the order [approving a professional’s retention] does not
expressly and unambiguously state specific terms and
conditions (e.g. specific hourly rates or contingency fee
arrangements) that are being approved pursuant to the first
sentence of section 328(a), then the terms and conditions
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are merely those that apply in the absence of specific
agreement.” Id. (quoting In re C & P Auto Transp., Inc., 94
B.R. 682, 685 n.4 (Bankr. E.D. Cal. 1988)). Since the order
authorizing Zolfo’s retention said nothing about Zolfo’s
hourly rates, the order could not “bind the court to
particular terms and conditions of compensation.” Id. at
262.
Zolfo, Cooper & Co. makes it clear that a Bankruptcy
Court may approve some of the terms and conditions
proposed in an employment application while rejecting
others.6 This point is implicit in Zolfo, Cooper & Co.’s
holding that the Bankruptcy Court’s approval of the
application to retain Zolfo did not necessarily imply
approval of the hourly rate sought in the application. If the
Bankruptcy Court could not approve the application
without approving all of its terms, there would have been
no need to ask whether the Bankruptcy Court had
specifically approved Zolfo’s hourly rates. See also B.U.M.
Int’l., 229 F.3d at 829 (holding that Section 328(a) permits
a Bankruptcy Court to approve a professional’s retention
but “specifically reserve[ ] the right to approve the fees”);
Unsecured Creditors’ Comm. v. Puget Sound Plywood, Inc.,
924 F.2d 955, 960 (9th Cir. 1991) (“[E]ven if the
bankruptcy court approved an hourly rate [under Section
328(a)], if it did not fix the number of allowed hours, that
matter still would be subject to the court’s review.”); In re
Northeast Express Reg’l. Airlines, Inc., 235 B.R. 695, 699
(Bankr. D. Maine 1999) (holding that Section 328(a)
authorizes a Bankruptcy Court to approve a professional’s
employment with the caveat that “all fees and expenses
shall remain subject to court approval”); In re Olympic
Marine Servs., 186 B.R. 651, 654 (Bankr. E.D. Va. 1995)
(holding that Section 328(a) permits a Bankruptcy Court to
approve an employment application while making the
6. Moreover, the Bankruptcy Court may reserve judgment regarding the
reasonableness of certain proposed terms and conditions until later in
the proceeding. See In re Circle K Corp., 279 F.3d 669, 671 (9th Cir.
2001) (“[A] bankruptcy court is not compelled to accept a professional’s
employment under § 328 merely because the application cites that
statutory provision. The bankruptcy court is free to make clear that it is
only conditionally approving the professional’s retention.”).
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“compensation award . . . subject to the court’s ‘further
review’ ”); In re Warrior Drilling & Eng’g. Co., 18 B.R. 684,
693 (Bankr. N.D. Ala. 1981) (holding that because the
Bankruptcy Court did not specifically approve the fee
retainer sought in an employment application, the court
was not bound to adhere to that arrangement under
Section 328(a)). We consequently reject the Equity
Committee’s contention that under 11 U.S.C. § 328(a) a
Bankruptcy Court must approve or reject an application to
employ a professional without modification.
C.
1.
The Equity Committee’s primary argument concerning 11
U.S.C. § 328(a) is that the Bankruptcy Court was bound to
approve its application to employ D&T simply because the
application proposed employment on an hourly basis. The
Equity Committee notes that Section 328(a) permits a
professional to be employed “on any reasonable terms and
conditions of employment, including . . . on an hourly
basis.” The Equity Committee then states that “[s]ince
Deloitte was to have been employed on a hourly basis, the
Application easily met the requirements of [Section 328].”
Appellant’s Br. at 22. Although the Equity Committee does
not spell out the steps of its reasoning, our best
understanding of the Equity Committee’s argument is as
follows: under Section 328(a) it is reasonable to employ a
professional on an hourly basis; employment on an hourly
basis means compensation for as many hours of work as
are needed to perform the assigned task; and therefore the
absence of the caps imposed by the Bankruptcy Court did
not render the terms and conditions of employment
proposed in the application unreasonable. This argument is
dependent on the proposition that any arrangement
involving employment on an hourly basis is reasonable, but
that proposition is plainly incorrect.
The statutory language on which the Equity Committee
relies — which permits employment “on any reasonable
terms and conditions . . . , including . . . on an hourly
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basis” — at most means that the concept of employment at
an hourly rate is “reasonable,” i.e., that an application
cannot be rejected on the ground that it proposes to pay
the professional on an hourly basis.7 Section 328(a) does
not refer to employment “on any hourly basis,” and it would
be absurd to read Section 328(a) to mean that employment
“on any hourly basis” — $10,000 per hour? — is
necessarily reasonable. Accordingly, a Bankruptcy Court
must be allowed to review the reasonableness of a proposed
hourly fee, and if a Bankruptcy Court can review the
reasonableness of that aspect of a proposed employment,
we see no reason why a Bankruptcy Court may not also
review the reasonableness of the way in which a proposed
fee arrangement deals with the question of a cap on the
fees that may be awarded to a professional employed on an
hourly basis.
2.
It may be argued that a Bankruptcy Court may in effect
impose a cap on the fees awarded pursuant to the
employment of a professional at an hourly rate but that the
Bankruptcy Court cannot take this action until the services
have been rendered and compensation is sought under 11
U.S.C. § 330(a)(1). This argument, however, cannot stand
up. If all features of a proposed arrangement to employ a
professional on an hourly basis (including the presence or
absence of a cap) are regarded as part of a single term or
condition of employment, then a Bankruptcy Court cannot
approve employment on an hourly basis without also
approving the application’s treatment of the cap issue. This
would mean that, if the Court approved employment on an
hourly basis, the Court would be obligated to allow the
7. It is unclear whether the language in question must be read as going
even this far. It is arguable that it means only that the concept of
employment on an hourly basis may be reasonable under appropriate
circumstances. In other words, there may be circumstances in which it
is customary to employ a professional on a different basis that is more
favorable to the employer, and under those circumstances, employment
on an hourly basis might not be reasonable. But we need not and do not
decide that issue here. For the sake of argument, we assume that the
concept of employment on an hourly basis is reasonable.
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professional to be compensated in accordance with the way
in which the application treats the cap issue unless such
treatment proves “to have been improvident in light of
developments not capable of being anticipated at the time”
of approval. In other words, on this reading, if a
Bankruptcy Court approved an application that lacks a
cap, the Court could not later cap the fees unless the need
for a cap could not have been anticipated at the time of
approval. We cannot believe that the Code was intended to
produce such a result.
This problem cannot be escaped by regarding
employment on an hourly basis and the cap issue as
separate terms or conditions of employment. On that
reading, the language of Section 328(a) on which the Equity
Committee relies would plainly provide no support for its
position. As noted, the Equity Committee contends that the
language of Section 328(a) means that employment on an
hourly basis is necessarily a reasonable term or condition
of employment. But even if we were to agree, if the cap
issue is a separate term or condition, the Equity
Committee’s argument would collapse.
At oral argument, the Equity Committee advanced the
alternative position that the amount of a professional’s
monthly compensation is not a “term or condition of
employment” within the meaning of 11 U.S.C. § 328(a), and
that only 11 U.S.C. § 330(a)(1) — which governs awards of
compensation once a professional has actually rendered
services — permits a Bankruptcy Court to evaluate the fee
amount for reasonableness. The Equity Committee pointed
out that Section 328(a) says that “reasonable terms and
conditions . . . includ[e]” retention “on an hourly basis,” but
does not mention the amount that a professional may be
paid. In the Equity Committe’s view, this implies that the
latter is not a term or condition of employment under
Section 328(a).
For three reasons, we reject the contention that Section
328(a) excludes the amount of a professional’s
compensation from the class of “reasonable terms and
conditions” by negative implication. First and foremost, we
are guided by Congress’s statement that the word
“including” in the Bankruptcy Code is “not limiting.” 11
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U.S.C. § 102(3); see also Am. Surety Co. v. Marotta, 287
U.S. 513, 517 (1934) (“In definitive provisions of statutes
and other writings, ‘include’ is frequently, if not generally,
used as a word of extension or enlargement rather than as
one of limitation or enumeration.”). Accordingly, Section
328(a) is properly read to say that “reasonable terms and
conditions” include, but are not limited to, retention on a
retainer, on an hourly basis, or on a contingent fee basis.
Second, in ordinary language, the amount of a
professional’s monthly compensation is certainly a “term or
condition” of that professional’s employment. See, e.g., 29
U.S.C. § 158(d) (defining collective bargaining as “meet[ing]
at reasonable times and confer[ring] in good faith with
respect to wages . . . and other terms and conditions of
employment”).
Third, the notion that the amount of a professional’s
compensation is not a term or condition of employment
under Section 328(a) is contrary to precedent interpreting
that provision. See, e.g., In re Texas Sec., Inc., 218 F.3d
443, 445 (5th Cir. 2000) (“Section 328 applies when the
bankruptcy court approves a particular rate or means of
payment.”) (emphasis added); In re Kurtzman, 220 B.R.
538, 542 (S.D.N.Y. 1998) (“[U]nder 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.”)
(emphasis added). Accordingly, the total amount of money
that a professional is allowed to collect over any fixed
period of time is a “term or condition of employment” within
the meaning of Section 328(a), and a Bankruptcy Court, in
approving an application to employ a professional on an
hourly basis, may review the application’s treatment of the
cap issue and may approve the application subject to a cap
that the Court finds to be necessary in order to satisfy the
statutory requirement of reasonableness.
3.
Our interpretation of Section 328(a) is consistent with
that of other courts. In In re Lytton’s, 832 F.2d 395 (7th
Cir. 1987), the Seventh Circuit read Section 328(a) to
permit a Bankruptcy Court to fix a contingent fee schedule
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at the commencement of a professional’s employment. See
Lytton’s, 832 F.3d at 400 (“Section 328 . . . . does not
prohibit [a Bankruptcy Court from] setting a contingent fee
schedule . . . . [T]he language of section 328 expressly
allows setting a rate of payment at the beginning of an
attorney’s employment that may later be changed.”). The
Seventh Circuit could not have reached this conclusion if it
had endorsed the Equity Committee’s reading of Section
328(a). As noted above, Section 328(a) states that
“reasonable terms and conditions of employment . . .
includ[e]” retention “on a contingent fee basis.” If the Equity
Committee is correct that Section 328(a)’s statement that
“reasonable terms and conditions . . . includ[e]” retention
“on an hourly basis” means that an application seeking
hourly compensation must be approved without alteration,
it must also be the case that an application to employ a
professional on a contingent fee basis must be approved
without modifying the percentage the professional may take
from the committee’s recovery if successful. However, the
Seventh Circuit took the view that a Bankruptcy Court is
not automatically required to approve the contingent fee
percentage sought in an employment application simply
because that application seeks retention on a contingent fee
basis. Rather, the Court acknowledged the Bankruptcy
Court’s power to fix a contingent fee schedule of its own
design.
Our reading also draws support from several Bankruptcy
Courts’ interpretations of Section 328(a). These courts
reviewed the reasonableness of terms and conditions of
retention sought in employment applications despite the
fact that those applications requested employment on a
retainer, on an hourly basis, or on a contingent fee basis.
See In re Dividend Dev. Corp., 145 B.R. 651, 654-55
(Bankr. C.D. Cal. 1992) (holding that Ҥ 328(a) specifically
mandates that the bankruptcy judge review the
reasonableness of any fee arrangement” and applying this
principle to an application to employ a professional on a
retainer, despite Section 328(a)’s statement that
“reasonable terms and conditions of employment” include
compensation “on a retainer”); In re NBI, Inc., 129 B.R. 212,
222 (Bankr. D. Colo. 1991) (holding that “[i]nclusion of the
term ‘retainer’ in Section 328(a) of the Bankruptcy Code
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does not by definition qualify all retainer arrangements as
reasonable” for the purposes of the “reasonable terms and
conditions” inquiry); In re Mortgage & Realty Trust, 123
B.R. 626, 631 (Bankr. C.D. Cal. 1991) (refusing to permit
financial advisors to receive indemnification from the estate
for liability arising out of the reorganization at issue,
despite the advisors’ retention on an hourly basis); C & P
Auto Transp., 94 B.R. at 686 (noting that Section 328(a)
permits Bankruptcy Courts to “requir[e] that [a] retainer
fund be maintained in trust with no disbursements except
upon court order,” thus imposing additional terms and
conditions on the retention of a professional sought to be
employed on a retainer). Had these Bankruptcy Courts
accepted the view that a court faced with an application to
retain a professional on an hourly basis must also approve
all of the other proposed terms and conditions of that
professional’s employment, including the professional’s
maximum monthly fee, they would not have evaluated the
reasonableness of the terms and conditions sought.
By contrast, the authority cited by the Equity Committee
concerning Section 328(a) provides no support for its
position. The two Fifth Circuit decisions cited by the Equity
Committee held that Bankruptcy Courts that have granted
employment applications pursuant to Section 328(a) may
not alter the terms and conditions they previously approved
in the absence of changed circumstances incapable of being
anticipated at the time of the applications. In neither of
these cases did the court consider the circumstances under
which a Bankruptcy Court must approve proposed terms
and conditions under Section 328(a). The latter question is
at issue here, as the Equity Committee argues that the
maximum monthly fee sought in an application to employ
a professional must be approved where the application
seeks to compensate the professional on an hourly basis.
See In re Barron, 225 F.3d 583, 586 (5th Cir. 2000) (holding
that, before modifying terms and conditions of employment
that it had initially approved, a Bankruptcy Court must
find that changed conditions since the application were not
capable of being foreseen at the time of the application); In
re Texas Sec., Inc., 218 F.3d 443, 446 (5th Cir. 2000)
(holding that, barring changed conditions, a Bankruptcy
Court may not compute a professional’s compensation
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using a lodestar formula where the court has already
approved a hybrid contingent fee/hourly rate formula
pursuant to Section 328(a)); see also Broyles v. Tudor,
Bailey & Co., No. 3:98-CV-0266-L, 2000 U.S. Dist. LEXIS
12260, at *6-9 (N.D. Tex. Aug. 24, 2000) (holding that a
Bankruptcy Court could not rescind its approval of a
contingent fee arrangement in the absence of changed
conditions after granting an application to employ a
professional using such a fee structure). In re Thermadyne
Holdings Corp., 283 B.R. 749 (8th Cir. B.A.P. 2002), is also
inapposite, because it concerned the reasonableness under
Section 328(a) of an estate’s indemnification of a
professional for liability arising out of a reorganization
proceeding — not the question whether the employment of
a professional on an hourly basis requires the approval of
all other proposed terms and conditions of that
professional’s employment.8
In sum, while Section 328(a)’s statement that “reasonable
terms and conditions of employment” include retention “on
an hourly basis” may mean that the concept of a
professional’s retention on an hourly basis is a reasonable
term or condition, the mere fact that a committee seeks to
employ a professional on an hourly basis does not preclude
8. Several precedents cited by the Equity Committee do not even concern
Section 328(a), and are thus unhelpful. In re Standard Steel Sections,
Inc., 200 B.R. 511 (S.D.N.Y. 1996), addressed the question whether a
creditors’ committee had shown that the appointment of counsel to
represent it was “necessary” under Fed. R. Bankr. P. 2014(a), and
accordingly does not further the Equity Committee’s position. In re Lion
Capital Group, 44 B.R. 684 (Bankr. S.D.N.Y. 1984), is of no help to the
Equity Committee, because it addressed the unrelated question whether
a law firm was barred from representing a creditors’ committee by the
conflict-of-interest prohibition contained in 11 U.S.C. § 1103(b).
Finally, the cases cited by the Equity Committee in favor of the
proposition that “bankruptcy courts should defer to a committee’s choice
of professionals,” see Panduit Corp. v. All States Plastic Manuf. Corp., 744
F.2d 1564 (Fed. Cir. 1984), In re Caldor, Inc., 193 B.R. 165 (Bankr.
S.D.N.Y. 1996), In re Brennan, 187 B.R. 136 (Bankr. D. N.J. 1995), In re
Walnut Equip. Leasing Corp., 213 B.R. 285 (Bankr. E.D. Pa. 1997), do
not bear on this case. Even if we assume that Bankruptcy Courts should
defer to a committee’s choice of professionals, it does not follow that they
must defer to a professional’s choice of fee arrangements.
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a Bankruptcy Court from evaluating the reasonableness of
other terms and conditions. Accordingly, we hold that 11
U.S.C. § 328(a) authorizes the imposition of caps on the
fees that a professional may charge, even if the committee
that submitted the application at issue did not propose that
limitation.
III.
The Equity Committee next contends that, even if the
Bankruptcy Court was permitted to impose a fee cap, the
Court erred in imposing a cap in this case because the
Court incorrectly relied on the Equity Committee’s ability to
avail itself of financial data compiled by the financial
advisors retained by the Debtors, who supposedly have “a
conflicting interest.” Appellant’s Br. at 27. In making this
argument, the Equity Committee relies on 11 U.S.C.
§ 1103(b) and several Bankruptcy Court cases decided
under that statute. Section 1103(b) reads as follows:
An attorney or accountant employed to represent a
committee appointed under section 1102 of this title
may not, while employed by such committee, represent
any other entity having an adverse interest in
connection with the case. Representation of one or
more creditors of the same class as represented by the
committee shall not per se constitute the
representation of an adverse interest.
11 U.S.C. § 1103(b). The Equity Committee argues that
D&T is an “accountant employed to represent” the Equity
Committee, that the Equity Committee is a “committee
appointed under section 1102,” and that, if D&T received
financial information from the Debtors’ financial
professionals, D&T would be “representing” the Debtors,
who have an “adverse interest in connection with the case.”9
9. The Equity Committee’s discussion on this point is not wholly clear,
but we believe it is most plausibly read to make the claim that D&T
would be “representing” the Debtors under Section 1103(b) if it acquired
financial information from them. If the Equity Committee is instead
arguing that compelling the Debtors’ financial advisors to furnish D&T
with data would amount to forcing the Debtors’ professionals to
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Hence, the Equity Committee maintains, D&T’s receipt of
financial information from the Debtors’ professionals is
barred by Section 1103(b).
We begin our analysis with Section 1103(b)’s plain
language. See In re Hechinger Inv. Co., No. 02-1917, 2003
U.S. App. LEXIS 14449, at *21 (3d Cir. Jul. 18, 2003);
Health Maint. Org. v. Whitman, 72 F.3d 1123, 1128 (3d Cir.
1995); In re Segal, 57 F.3d 342, 345 (3d Cir. 1995). Our
examination of Section 1103(b)’s text leads us to disagree
with the premise that, if it received financial data from the
Debtors’ professionals, D&T would be “representing” the
Debtors. In ordinary language, “representing” a person
entails — at the very least — acting pursuant to that
person’s direction. See Black’s Law Dictionary 1301 (6th ed.
1990) (“To represent a person is to stand in his place; to
speak or act with authority on behalf of such person; to
supply his place; to act as his substitute or agent.”);
Webster’s Ninth New Collegiate Dictionary 1000 (1986)
(defining “represent,” in pertinent part, as “to take the place
of in some respect,” or “to act in the place of or for[,
usually] by legal right”). One could argue, as the Appellees
do, that the Debtors have an interest in ensuring that the
Equity Committee receives value from the Debtors’
reorganization, that D&T might increase the value the
Equity Committee can receive by using the Debtors’
financial information to advise the Committee, and hence
that D&T’s acquisition of information from the Debtors
would confer a benefit upon the Debtors. However, even if
we assume that D&T’s acquisition of information from the
Debtors would incidentally benefit the Debtors, it is clear
that D&T would not be acting pursuant to the Debtors’
“represent” the Equity Committee, we are still unpersuaded. The defect
in this argument is that the Debtors are not a “committee appointed
under section 1102” of the Bankruptcy Code. Section 1102 permits the
United States Trustee to appoint creditors’ and equity security holders’
committees, not debtors. See 11 U.S.C. § 1102; see also 7 Collier on
Bankruptcy § 1103.04[1] (15th ed. rev. 2002) (contrasting the limitations
on dual representation by professionals retained by a committee under
Section 1103(b) with the limitations placed on professionals retained by
debtors in possession under 11 U.S.C. § 327(a)).
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orders in obtaining information from them. Rather, D&T
would be acting pursuant to the direction of its employer,
the Equity Committee, in garnering that information.
Accordingly, it cannot be plausibly asserted that D&T
would “represent” the Debtors by acquiring financial data
from the Debtors’ financial professionals.10 Consequently,
the Bankruptcy Court did not violate Section 1103(b) by
considering the availability of financial information from the
Debtors in determining the amount at which to set the fee
cap.
IV.
Having discussed the Equity Committee’s allegations of
legal error, we next address the Equity Committee’s
contention that the Bankruptcy Court’s decision to cap
D&T’s fees at $30,000 per month was unsupported by the
record. As noted above, the Bankruptcy Court based its
decision to cap D&T’s fees on two factors. First, the court
opined that since the Debtors are likely insolvent, the
10. We find the authorities cited by the Equity Committee concerning
Section 1103(b) inapposite. In In re Saxon Indus., 29 B.R. 320 (Bankr.
S.D.N.Y. 1983), a Bankruptcy Court rejected an equity committee’s
proposal to use “all reports and information generated by” accountants
employed by a creditors’ committee in lieu of retaining its own financial
professionals. Saxon Indus., 29 B.R. at 321. Such an arrangement would
violate Section 1103(b), the Bankruptcy Court held, because “an
accountant retained by the Creditors’ Committee cannot also represent
the interests of the Equity Committee.” Id. Saxon Industries thus held
that a creditors’ committee’s provision of financial information to an
equity security holders’ committee amounts to representation of the
latter, not that an equity committee’s mere receipt of such information
constitutes “representation” of the creditors’ committee. As such, Saxon
Industries is not on point. See also In re Evans Products Co., 58 B.R.
572, 575 (S.D. Fla. 1985) (treating a substantially similar situation).
In In re Grant Broad. of Phila., Inc., 71 B.R. 655 (Bankr. E.D. Pa.
1987), a Bankruptcy Court rejected a law firm’s attempt to represent a
creditors’ committee when it already represented another group of
creditors in the bankruptcy proceeding at issue. Since there was no
question in Grant Broadcasting that the firm sought to “represent” both
committees within the meaning of Section 1103(b), that case does not
further the Equity Committee’s position.
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Equity Committee probably stood to receive no value from
the Debtors’ reorganization. Second, the court observed
that the Debtors’ financial advisors had already compiled a
significant amount of financial data that D&T could use in
assisting the Equity Committee. Since D&T needed only to
analyze the information compiled by the Debtors in
advising the Equity Committee, D&T did not need to
perform an amount of work warranting the fees that the
Committee sought in its application. The Equity Committee
challenges both such findings. As noted above, we review
the Bankruptcy Court’s findings of fact for clear error.
A.
The Bankruptcy Court provided the following explanation
of its view that the Debtors were likely insolvent and that
the Equity Committee was thus not entitled to receive value
from the Debtors’ reorganization:
I’m not suggesting that I am pronounced [sic] that the
debtor has no equity. Based upon the numbers that
have been presented, the rough numbers, 5.7 billion in
claims plus at least 1.8 billion in asbestos liabilities
and as I recall aren’t there 265,000 or something like
that personal injury claims pending against the debtor
at this point — 375,000. I don’t even know how 1.8
billion can cover it.
App. II at 169. The Bankruptcy Court’s estimates of the
Debtors’ commercial debt and asbestos liability were
identical to the figures presented in the Creditors
Committee’s objection to the application to retain D&T. See
id. at 134-35. It hence appears that the Bankruptcy Court
relied entirely on the Creditors Committee’s calculations in
reaching its conclusion regarding the Debtors’ solvency.
The Equity Committee objects to this finding on the ground
that the Bankruptcy Court was not authorized to rely solely
on the Creditors Committee’s arguments in evaluating the
Debtors’ financial condition. Instead, the Equity Committee
maintains, the Bankruptcy Court was required to take
evidence on the question whether the Debtors were solvent.
As we detail below, we find that the Bankruptcy Court’s
statements at the hearing provide an inadequate basis for
effective appellate review.
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We emphasized the need for Bankruptcy Courts to
articulate their reasons for rejecting professionals’ proposed
fee structures in In re Busy Beaver Bldg. Ctrs., 19 F.3d 833
(3d Cir. 1995) (“Busy Beaver”). In Busy Beaver, a law firm
sought compensation for services it rendered to a debtor
pursuant to 11 U.S.C. § 330(a)(1). The Bankruptcy Court
denied the firm certain portions of the compensation it
sought without affording the firm a hearing at which to
justify those items. We vacated the Bankruptcy Court’s
order, instructing the court to hold a hearing concerning
the reasonableness of the items of compensation at issue.
Importantly, we added that “if after the hearing the court
adheres to its views and disallows some of the requested
compensation, it should enter sufficient findings of fact and
conclusions of law in the record to facilitate appellate
review.” Busy Beaver, 19 F.3d at 847-48; see also In re
Kula, 213 B.R. 729, 743 (B.A.P. 8th Cir. 1997) (adopting
the requirement set forth in Busy Beaver). Although the
Bankruptcy Court proceeding in the present case
concerned the Equity Committee’s attempt to obtain
approval of D&T’s proposed fee structure pursuant to
Section 328(a), rather than under 11 U.S.C. § 330(a)(1), we
think that the need for a Bankruptcy Court to articulate
reasons for rejecting proposed terms and conditions of a
professional’s employment in order to facilitate appellate
review is equally acute in the context of Section 328(a)
proceedings. The Bankruptcy Court was thus required to
articulate the reasons for its decision to impose a fee cap
on the record.
In the present case, as noted above, the Bankruptcy
Court’s only explanation for its finding that the Debtors
were probably insolvent relied on the figures provided in the
Creditors Committee’s objections to the Equity Committee’s
application to retain D&T. The Creditors Committee’s
objections do not indicate the basis of the Committee’s
calculations regarding the extent of the commercial debt of,
and the asbestos-related claims against, the Debtors. As a
result, the present record does not permit us to determine
whether the Creditors Committee’s calculations are based
on reliable data or on mere speculation by the Committee’s
counsel. If the Committee’s figures are only the latter, they
do not supply a sufficient basis for the imposition of the fee
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cap, as it is well settled that arguments by counsel cannot
provide factual support for a trial court’s findings. See
United States v. Rose, 104 F.3d 1408, 1416 (1st Cir. 1997)
(“[A]rgument by counsel is not evidence.”); United States v.
Jewel, 947 F.2d 224, 230 (7th Cir. 1991); Morrissey v.
William Morrow & Co., 739 F.2d 962, 967 (4th Cir. 1984);
GTE Prods. Corp. v. Kennametal, Inc., 772 F. Supp. 907,
917 (W.D. Va. 1991). Accordingly, we find it necessary to
vacate the Bankruptcy Court’s order and remand so that
the court can explain the basis for its determination that
the Equity Committee likely stands to receive no value from
the Debtors’ reorganization.
B.
Second, the Equity Committee objects to the Bankruptcy
Court’s finding that the Debtors’ financial advisors had
collected data that could be helpful to the Equity
Committee. The Committee argues that “no facts were in
the record to show the existence or availability of such
information, let alone its utility.” Appellant’s Opening Brief
at 28. The Bankruptcy Court, as noted above, stated at the
hearing that it believed that the Debtors’ financial advisors
had compiled a large amount of financial information, and
opined that the Debtors had the incentive to supply the
Equity Committee with that information, as the
Committee’s interests “in many respects are aligned with
the debtors because it’s to the debtors [sic] advantage to try
to maximize the amount of equity if there is any that might
be available here.” App. II at 166.
Our review of the record does not reveal the sources on
which the Bankruptcy Court relied in determining that the
Debtors had amassed financial information that D&T could
use to assist the Equity Committee. Again, we can only
determine the correctness of the Bankruptcy Court’s factual
findings if we understand the grounds for those findings. If
the court relied on its own speculation or arguments by
counsel in assessing the extent of the information that the
Debtors could make available to the Equity Committee, we
cannot affirm its decision. If, on the other hand, the court
drew sound conclusions based on evidence in the record,
we may do so. In view of this uncertainty, we are
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constrained to remand with instructions to explain the
basis for the Bankruptcy Court’s determination that the
Debtors’ professionals are capable of supplying the Equity
Committee with financial data that will be useful to the
Committee in representing the interests of its constituents.11
C.
Finally, we make one additional point to guide the
Bankruptcy Court’s deliberations on remand. We note our
disagreement with the Equity Committee’s contention that,
since Section 330(a)(1) by its terms addresses only awards
of compensation for services previously rendered, the
criteria it sets forth cannot be employed in determining
whether the proposed terms and conditions of a
professional’s retention are “reasonable” under Section
328(a). We find the use of the word “reasonable” in both
Section 328(a) and Section 330(a)(1) instructive on this
issue. Section 328(a), as noted above, authorizes the
retention of a professional “on any reasonable terms and
conditions of employment.” 11 U.S.C. § 328(a) (emphasis
added). Section 330(a)(1) authorizes a Bankruptcy Court to
award a professional “reasonable compensation for actual,
necessary services rendered,” and then lists several criteria
to be used in determining the reasonableness of the fees
sought. 11 U.S.C. § 330(a)(1). It is well established that
“[i]dentical words used in different parts of the same act are
intended to have the same meaning.” Barnhart v. Walton,
535 U.S. 212, 221 (2002) (quoting Dept. of Revenue of Ore.
v. ACF Indus., Inc., 510 U.S. 332, 342 (1994)). Though we
11. We note that, in explaining its decision to impose the fee cap, the
Bankruptcy Court may take judicial notice of facts that are not subject
to reasonable dispute. See In re Indian Palms Assocs., 61 F.3d 197, 205
(3d Cir. 1995) (stating that a Bankruptcy Court is “authorize[d] . . . to
take judicial notice of an adjudicative fact if that fact is ‘not subject to
reasonable dispute’ ”) (quoting Fed. R. Evid. 201(b)); In re Bozzelli, 227
B.R. 770, 771 (Bankr. E.D. Pa. 1998) (stating that a Bankruptcy Court
may “take judicial notice of adjudicative facts ‘not subject to reasonable
dispute . . . so long as it is not unfair to a party to do so and does not
undermine the trial court’s fact finding authority’ ”) (quoting Indian
Palms Assocs., 61 F.3d at 205). See also Fed. R. Evid. 201(f) (judicial
notice may be taken at any time).
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need not decide whether Congress intended to limit
Bankruptcy Courts to considering only the Section 330(a)(1)
factors when determining the reasonableness of a requested
fee structure under Section 328(a), we believe that the
Section 330(a)(1) factors may be taken into account in
asking whether a fee request is reasonable. The District
Court therefore did not err in considering the Section
330(a)(1) factors when evaluating the reasonableness of the
fee cap imposed by the Bankruptcy Court, and the
Bankruptcy Court on remand may consider those factors in
determining the reasonableness of the terms and conditions
of employment proposed by the Equity Committee.
V.
For the foregoing reasons, we hold that the Bankruptcy
Court was authorized to impose a cap on D&T’s fees under
Section 328(a), and that the Bankruptcy Court was not
precluded from computing the amount of the cap based on
the Equity Committee’s ability to rely on data supplied by
the Debtors’ financial professionals. However, we vacate the
Bankruptcy Court’s order and remand for further
proceedings so that the Bankruptcy Court can explain the
factual basis for its decision to impose the cap.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
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