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In re Adam Aircraft Industries, Inc.

United States District Court, D. Colorado

March 21, 2014

JEFFREY A. WEINMAN, as Chapter 7 Trustee, and ALLEN & VELLONE, P.C., Appellees.



This matter is before the Court on Appellant George F. Adam Jr.'s ("Adam") appeal of the United States Bankruptcy Court for the District of Colorado's final Order Granting Allen & Vellone, P.C.'s ("A&V") Supplemental Application under 11 U.S.C. § 330 for Approval of Attorney Fees and "all previous related orders and proceedings regarding the First and Final Application Under 11 U.S.C. § 331 For Approval of Attorney[] Fees and Expenses." (Doc. # 2.) The Court has jurisdiction over this appeal from the final orders of the Bankruptcy Court. See 28 U.S.C. § 158(a)(1). For the following reasons, the order of the Bankruptcy Court is reversed.


On March 11, 2010, the Bankruptcy Court granted Trustee's Motion for

Employment of A&V as Special Counsel pursuant to 11 U.S.C. § 327. On March 29, 2011, the Bankruptcy Court approved, over Adam's objection, a Modified Contingency Fee Agreement between the Estate and A&V.

The Trustee engaged A&V to investigate, evaluate, and prosecute claims against Morgan Stanley Senior Funding, Inc. and Morgan Stanley & Co. Inc. (collectively, "Morgan Stanley"). On December 3, 2010, A&V filed claims against Morgan Stanley in the United States District Court for the District of Colorado in Case No. 10-CV-02933, which case was voluntarily dismissed without prejudice on March 9, 2011. A&V then filed Adversary Proceeding No. 11-1156 MER on March 9, 2011 (the "Adversary Proceeding"), seeking equitable subordination of Morgan Stanley's secured and unsecured claims against the estate. The Trustee and Morgan Stanley entered into a Settlement Agreement and Release (the "Settlement Agreement") which was approved by the Court on July 3, 2012 and the Adversary Proceeding was dismissed pursuant to that agreement on July 30, 2012.

According to the Settlement Agreement, Morgan Stanley, after distributions, had remaining secured claims against the Estate in the amount of $50, 749, 668.54. However, under the Settlement Agreement, Morgan Stanley assigned to the Trustee, all its liens and other rights to all assets of the Debtor and the Estate, including its lien on the "Remaining Sale Proceeds" (that is, the $2, 681, 083.00 retained by the Trustee from the sale of the Debtor's assets on June 10, 2009).[2]

Under the Modified Contingency Fee Agreement, A&V agreed to provide services for a reduced hourly rate of 75% of A&V's standard rates. The Fee Agreement further provided A&V would receive a contingency fee of 15% of any "gross amount recovered"[3] by the estate in the Adversary Proceeding or settlement thereof. On February 1, 2013, the Bankruptcy Court issued an order awarding $464, 999.53 under the contingency fee portion of the agreement based on A&V's argument that the "gross amount recovered" by the Estate under the Settlement Agreement is at minimum $3, 099, 997.22. A&V arrived at this amount by estimating it reduced the Estate's liability to Morgan Stanley by negotiating that it would release its secured interest totaling at least $1, 796, 579.95 in the Estate's assets and its unsecured interest totaling at least $1, 303, 417.27. In addition to the contingency fee award, the Bankruptcy Court also awarded $73, 086.37 in hourly fees and $10, 145.82 in costs. Adam appeals the Bankruptcy Court's determination to award attorney fees based on the contingency fee agreement but does not contest the hourly fees or costs award.


The Court reviews the factual determinations of the bankruptcy court under the clearly erroneous standard, and reviews the its legal conclusions de novo. In re Market Center East Retail Prop., Inc., 730 F.3d 1239, 1244-45 (10th Cir. 2013). However, a Bankruptcy Court's decision regarding attorney's fees will not be upset absent an abuse of discretion. Under this standard, the reviewing Court will not reverse the Bankruptcy Court's decision unless it has "a definite and firm conviction that the lower court committed a clear error of judgment or exceeded the bounds of permissible choice in the circumstances." In re Cook, 223 B.R. 782, 788-89 (10th Cir. BAP 1998) (internal citation omitted).


11 U.S.C. § 330(a)(1) allows for the award of reasonable professional fees in bankruptcy cases, if the professional is employed under § 327 or § 1103 of the Bankruptcy Code:

After notice to the parties in interest and the United States Trustee and a hearing, and subject to sections 326, 328, and 329, the court may award to a trustee, a consumer privacy ombudsman appointed under section 332, an examiner, an ombudsman appointed under section 333, or a professional person employed under section 327 or 1103.
(A) reasonable compensation for actual, necessary services rendered by the trustee, examiner, ombudsman, professional person, or attorney and by any ...

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