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Algonquin Power Income Fund v. Christine Falls of New York

December 9, 2009

ALGONQUIN POWER INCOME FUND; AND ALGONQUIN POWER SYSTEMS, INC.; APPELLANTS,
v.
CHRISTINE FALLS OF NEW YORK, INC. AND TRAFALGAR POWER INC., DEBTOR-APPELLEES.



The opinion of the court was delivered by: David N. Hurd United States District Judge

MEMORANDUM-DECISION and ORDER

I. INTRODUCTION*fn1

On October 27, 2008, Hon. Stephen D. Gerling, then-Chief United States Bankruptcy Judge for the Northern District of New York, entered a decision on Harris Beach's request for modification of the terms of its appointment as debtors' special litigation counsel. (Doc. No. 1-7.) Over the opposition of Algonquin Power Income Fund, Algonquin Power Systems, Inc. (collectively "Algonquin"), and Hydro Investors, Inc. ("HII"), Judge Gerling required Harris Beach to submit evidence supporting the proposed compensation in the amount of $960,000 for services rendered in the District Court Litigation through April 30, 2008, before he would consider the request for approval. Id. at 7. Moreover, the Bankruptcy Court declined to relieve Harris Beach of the obligation to submit monthly fee statements as it had requested. Id. at 8.

Algonquin appealed the October 27, 2008, Order contending that the wrong standard was applied and modification exacerbated a conflict of interest. Debtors Christine Falls, Inc. and Trafalgar Power Inc. (collectively "debtors" or "Trafalgar") opposed. The appeal was taken on submission without oral argument.

II. STANDARD OF REVIEW

In reviewing a bankruptcy court's decision, a district court applies the clearly erroneous standard to conclusions of fact and de novo review to conclusions of law. In re Manville Forest Prods. Corp., 209 F.3d 125, 128 (2d Cir. 2000); In re Petition of Bd. of Directors of Hopewell Int'l Ins. Ltd., 275 B.R. 699, 703 (Bankr. S.D.N.Y. 2002); Fed. R. Bankr. P. 8013.

III. DISCUSSION

A. Fee Award

Under 11 U.S.C. § 330, a bankruptcy court may award a reasonable fee to an attorney or other professional appointed pursuant to Code section 327(a). Riker v. Official Comm. of Unsecured Creditors (In re Smart World Techs., LLC), 552 F.3d 228, 232 (2d Cir. 2009 (herinafter "In re Smart World"). The bankruptcy court reviews the requested attorneys fees to determine what "'reasonable compensation' based on an after-the-fact consideration of 'the nature, the extent, and the value of such services, taking into account all relevant factors'" should be awarded. Id. (quoting 11 U.S.C. § 330(a)). Once the determination of reasonableness is made, that sum is reduced "by the amount of any interim compensation awarded under section 331." 11 U.S.C. § 330(a)(5). Section 331 permits the bankruptcy court to grant interim attorneys fees "for services rendered before the date of such an application" after giving notice and holding a hearing. Id. § 331.

Here, Harris Beach requested a modification of terms of its interim fee previously approved by the Bankruptcy Court. Although § 331 does not explicitly provide that an interim fee award must be reasonable, reasonableness is a logical standard because it constitutes a portion of the full compensation due to the attorney, which is required by § 330(a) to be reasonable.

Judge Gerling required an explanation for the $960,000 interim award for services to date stating: "this Court has an obligation to review [the compensation's] reasonableness . . . ." (Doc. No. 1-7 at 7.) Thus, Judge Gerling applied the correct legal standard to his review of the request for modification.

Algonquin contends that 11 U.S.C. § 328(a), which permits modification of approved compensation "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, § 328(a) applies when "the court pre-approves the terms and conditions of the retention" and circumscribes the ability to change the compensation previously approved. In re Smart World, 552 F.3d at 232. The after-the-fact reasonableness inquiry and the modification of pre-approved fees inquiry are "mutually exclusive." Id. at 232-33. Harris Beach was not hired with a pre-approved compensation package subjecting a modification to the requirements of § 328(a). Rather, the appointment was made pursuant to § 327 and the bankruptcy court was simply being asked to approve a request for amended interim compensation pursuant to § 331 on terms agreed to among debtors, debtors' principal (Marina Development, the payor of Harris Beach's compensation) and Harris Beach. The Bankruptcy Court properly reviewed the request for modification for reasonableness.

B. Creation of Conflict

The Bankruptcy Court outlined the arguments of the parties but did not make a specific finding that the new fee payment schedule would or would not create a conflict. However, to the extent the modification was approved, it can be inferred that there was no conflict sufficient to preclude ...


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