Court of Appeals Overturns Its Prior Adoption Of Hindsight, “Material Benefit” Standard In Pro-Snax.
In Barron & Newburger, P.C. v. Texas Skyline, Limited, No. 13-50075 (5th Cir. April 9, 2015) (published), a bankruptcy judge allowed only about $20,000 of a $130,000 fee compensation request by Chapter 11 bankruptcy counsel under 11 U.S.C. § 330, which allows compensation for “services necessary to the administration of, or beneficial at the time at which the service was rendered toward the completion of, a [Chapter 11] case.” The bankruptcy judge followed a hindsight-based “material benefit” standard requiring a tangible, identifiable benefit set by the Fifth Circuit earlier in In re Pro-Snax Distributors, Inc., 157 F.3d 414 (5th Cir. 1998).
Texas Skyline overturned Pro-Snax, endorsing instead a prospectively-based “reasonably likely to benefit the estate” standard followed by other sister circuits (Second, Third, and Ninth Circuits). It vacated and remanded the fee order for another “look see.”
Here are the factors used under the “prospective” standard in a synopsis provided by the Texas Skyline en banc panel:
“In assessing the likelihood that legal services would benefit the estate, courts adhering to a prospective standard ordinarily consider, among other factors, the probability of success at the time the services were rendered, the reasonable costs of pursuing the action, what services a reasonable lawyer or legal firm would have performed in the same circumstances, whether the attorney’s services could have been rendered by the Trustee and his or her staff, and any potential benefits to the estate (rather than to the individual debtor). See, e.g., In re Strand, 375 F.3d 854, 860–61 (9th Cir. 2004); In re Top Grade Sausage, Inc., 227 F.3d 123, 132 (3d Cir. 2000); In re Ames Dep’t Stores, Inc., 76 F.3d 66, 72 (2d Cir. 1996); In re Taxman Clothing Co., 49 F.3d 310, 313–15 (7th Cir. 1995). Whether the services were ultimately successful is relevant to, but not dispositive of, attorney compensation.”
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