CRG Partners Group, L.L.C. v. United States Truste ( 2012 )

REVISED AUGUST 14, 2012
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
August 10, 2012
No. 11-10774 Lyle W. Cayce
Clerk
In the Matter of: PILGRIM’S PRIDE CORP, formerly known as WLR Foods,
Incorporated, formerly known as AgraTech Seeds, Incorporated, formerly known
as Wampler Foods, Incorporated, formerly known as Gold Kist, Incorporated,
formerly known as Pilgrims Pride Corporation of Georgia, Incorporated, formerly
known as GK Peanuts, Incorporated, formerly known as WLR, formerly known
as Pilgrims Pride Corporation of Virginia, Incorporated, formerly known as
Pilgrims Pride Corporation of Delaware, Incorporated,
Debtor,
-----------------------------------------------
CRG PARTNERS GROUP, L.L.C.,
Appellee,
v.
WILLIAM T. NEARY, In His Capacity as the United States Trustee for Region
6,
Appellant.
Appeals from the United States Bankruptcy
Court for the Northern District of Texas
No. 11-10774
Before STEWART, ELROD, and SOUTHWICK, Circuit Judges.
JENNIFER WALKER ELROD, Circuit Judge:
In this case, we must determine whether the Supreme Court’s decision in
Perdue v. Kenny A. ex rel Winn, 130 S. Ct. 1662 (2010)—which curtailed the
authority of district courts to award fee enhancements in federal fee-shifting
cases—unequivocally, sub silentio overruled our circuit’s precedent in the
bankruptcy arena. We hold that it did not. Therefore, we AFFIRM.
I.
On December 1, 2008, Pilgrim’s Pride Company and six of its affiliates
(collectively, the “Debtors”) filed for chapter 11 bankruptcy protection. At that
time, the Debtors’ prospects for a successful reorganization were far from
promising. They had lost approximately $1 billion in the fiscal year preceding
their bankruptcy filing and were operating at a negative annual cash flow of over
$300 million. The Debtors anticipated that unsecured creditors would receive,
at best, a debt for equity swap, and that pre-petition shareholders would be left
empty-handed.
Upon receiving the bankruptcy court’s approval, the Debtors retained CRG
Partners Group, LLC to provide William Snyder as their chief restructuring
officer and other personnel to assist in their chapter 11 restructuring process.
“CRG was highly effective throughout th[e] [restructuring] process and
facilitated a number of changes, including the replacement of certain executive
officers and the development and implementation of a new business model.”
CRG Partners, LLC v. U.S. Tr., 445 B.R. 667, 668 (N.D. Tex. 2011).
With CRG’s assistance, the Debtors prepared a bankruptcy plan that was
confirmed by the bankruptcy court on December 10, 2009, just over a year after
the petition date. The plan was an absolute success. It provided for a 100%
return to all of the Debtors’ secured and unsecured creditors, and the Debtors’
pre-petition shareholders received $450 million in new equity interests.
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No. 11-10774
Once the plan was confirmed, CRG sought the bankruptcy court’s approval
of $5.98 million in fees calculated in accordance with the lodestar method. CRG
also requested approval of a $1 million fee enhancement1 that the Debtors’ board
of directors had recommended be paid to CRG. No party objected to the $5.98
million fee request, and that request was approved by the bankruptcy court. The
United States Trustee did object, however, to the $1 million fee enhancement,
“acknowledging the excellent performance of CRG but nevertheless asserting
that CRG had already received adequate compensation.” CRG Partners, 445
B.R. at 668. No other party filed an objection to CRG’s request for a $1 million
fee enhancement.
After holding an evidentiary hearing, the bankruptcy court found that
CRG had provided superior services that contributed to the outstanding results
in the Debtors’ bankruptcy case. Specifically, the court stated that:
[T]he result in this case [was] rare and exceptional. One hundred
percent dividend cases are rare in Chapter 11, and rarer still in
large cases such as this. And what made this case truly exceptional
was that it emerged from bankruptcy in about a year, and the Court
can’t begin to estimate how much was saved in administrative costs
due to this quick emergence from bankruptcy.
It also concluded “the evidence showed that Mr. Snyder contributed significantly
to the superior results in” the case. Nonetheless, the bankruptcy court denied
CRG’s enhancement request because CRG failed to satisfy the strict
requirements of the Supreme Court’s 2010 holding in Perdue, 130 S. Ct. at 1662.
CRG appealed the decision to the district court, which held that the
bankruptcy court erred in treating the federal fee-shifting decision in Perdue as
binding authority in a bankruptcy proceeding. CRG Partners, 445 B.R. at
672–73. Notably, the district court opined that “[i]t is one thing for a court to
1
Throughout this opinion, we also refer to fee “enhancements” as “upward adjustments”
of the lodestar.
3
No. 11-10774
seek guidance from a case decided in a different context; it is another thing
entirely for a court to allow such a case to displace its previously-established
precedent.” Id. at 672. The district court reversed the bankruptcy court’s
decision and remanded the case for further proceedings. Id. at 673.
On remand, the bankruptcy court relied on its prior decision in In re
Mirant Corp., 354 B.R. 113 (Bankr. N.D. Tex. 2006), which held that four specific
factors must be satisfied in order for a professional to receive an enhancement
pursuant to 11 U.S.C. § 330(a). The bankruptcy court awarded CRG the
$1 million fee enhancement after finding that it had met all four Mirant factors.
The bankruptcy court then certified its order for direct appeal to this court, and
we granted the parties’ motions for leave to appeal the order pursuant to 28
U.S.C. § 158(d)(2).
II.
The Trustee raises one issue on appeal. He contends that the district court
erred in reversing the bankruptcy court because Perdue narrowly circumscribed
the bankruptcy court’s discretion to grant fee enhancements. The Trustee
requests that we reverse the bankruptcy court’s order under Mirant and
“reinstate the bankruptcy court’s order entered on June 21, 2010 denying the
requested bonus under Perdue.”
CRG counters that Perdue was not intended to upend our settled
precedent concerning fee enhancements in bankruptcy proceedings. CRG
requests that we affirm the bankruptcy court’s order under Mirant because
“Perdue does not control fee enhancement requests in bankruptcy cases.”
Before we can reach the merits of the parties’ arguments, we first must
discuss our: (1) framework for analyzing applications for compensation under the
Bankruptcy Code; and (2) case law specifically addressing fee enhancements in
bankruptcy proceedings. This discussion is critical to resolving the ultimate
question presented in this case: whether Perdue extends to bankruptcy cases.
4
No. 11-10774
A.
We begin with a brief review of the relevant precepts that have governed
the compensation of professionals employed by the estate for over three decades.
First, in the year preceding the enactment of the Bankruptcy Code in 1978, we
held that bankruptcy courts must address the following twelve Johnson factors
when determining reasonable attorney’s fees under the Bankruptcy Act of 1898:
(1) The time and labor required; (2) The novelty and difficulty of the
questions; (3) The skill requisite to perform the legal service
properly; (4) The preclusion of other employment by the attorney
due to acceptance of the case; (5) The customary fee; (6) Whether the
fee is fixed or contingent; (7) Time limitations imposed by the client
or other circumstances; (8) The amount involved and the results
obtained; (9) The experience, reputation, and ability of the
attorneys; (10) The “undesirability” of the case; (11) The nature and
length of the professional relationship with the client; (12) Awards
in similar cases.
In re First Colonial Corp. of Am., 544 F.2d 1291, 1298–99 (5th Cir. 1977)
(quoting Johnson v. Ga. Highway Express, Inc. 488 F.2d 714, 717–19 (5th Cir.
1974)). We explained that, although the Johnson factors were established in the
context of the fee-shifting provision of Title VII of the Civil Rights Act of 1964,
“the guidelines we established there are equally useful whenever the award of
reasonable attorneys’ fee is authorized by statute.” Id. at 1299.
We also recognized, however, that the unique nature of proceedings under
the Bankruptcy Act of 1898 merited consideration of two additional factors. Id.
First, in light of the “strong policy of the Bankruptcy Act that estates be
administered as efficiently as possible,” bankruptcy courts were required to
award fees that were “at the lower end of the spectrum of reasonableness.” Id.
(quotation omitted). Second, we advised bankruptcy courts to remain vigilant
that there were “a number of peculiarities of bankruptcy practice such as the
award of ad interim allowances and the possibility that some officers of the court
may be furnishing services to the estate in more than one capacity which could
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No. 11-10774
lead to the award of duplicative fees or compensation for non-legal services if
overlooked.” Id.
Next, in another case decided under the Bankruptcy Act, we held that the
lodestar method for calculating reasonable attorney’s fees applied in the
bankruptcy arena. In re Lawler, 807 F.2d 1207, 1211 (5th Cir. 1987).2 The
lodestar amount “is equal to the number of hours reasonably expended
multiplied by the prevailing hourly rate in the community for similar work.” Id.
We further explained that, after calculating the lodestar, bankruptcy courts
retained the discretion to adjust the lodestar upwards or downwards to reflect
their consideration of the Johnson factors. Id.
This framework was then slightly modified for cases governed by the
Bankruptcy Code. In addition to considering the lodestar and the Johnson
factors, bankruptcy courts became required to consult 11 U.S.C. § 330(a), the
Bankruptcy Code provision governing compensation of professionals employed
by the estate.3 See In re Cahill, 428 F.3d 536, 539–40 (5th Cir. 2005); In re
Fender, 12 F.3d 480, 487 (5th Cir. 1994). As discussed in II.B., infra, the original
language of § 330(a) was—and, despite subsequent minor amendments, has
remained—quite similar to the rule that governed professional compensation
under the Bankruptcy Act. The only major change effected by the Code was the
abandonment of the Act’s “economy of the estate” consideration. See 3 Collier
2
Although Lawler was decided nine years after the Bankruptcy Code’s enactment, the
debtor’s bankruptcy case was initiated before its enactment, and the case was therefore
governed by the Bankruptcy Act. Id. at 1209–10.
3
Professionals’ fees may also be awarded pursuant to 11 U.S.C. § 328. See In re Texas
Sec., Inc., 218 F.3d 443, 445 (5th Cir. 2000) (“We have interpreted § 328 to limit the power of
the bankruptcy court to alter the compensation of professionals: ‘[t]he court must therefore set
the compensation award either according to § 328 or § 330. If prior approval is given to a
certain compensation, § 328 controls and the court starts with that approved compensation,
modifying it only for developments unforeseen when originally approved.’” (quoting In re Nat’l
Gypsum Co., 123 F.3d 861, 862–63 (5th Cir. 1997))). However, both parties agree that the
provision governing CRG’s compensation is § 330. Section 328 is inapplicable in this case.
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No. 11-10774
on Bankruptcy § 330.03[2] (Alan N. Resnick & Henry J. Sommer eds., 16th ed.
2009) (“In other respects [unrelated to the ‘economy of the estate’ factor], most
of the criteria [between the Act and the Code] are the same . . . .”). This enabled
bankruptcy professionals to earn fees comparable to those earned by non-
bankruptcy practitioners. See 11 U.S.C. § 330(a)(3)(F); In re Babcock & Wilcox
Co., 526 F.3d 824, 827 (5th Cir. 2008) (“Prior to being amended in 1978, this
statute favored economy of the estate over competitive compensation to
attorneys for the debtors.”) (citation and internal quotation marks omitted).
The current version of § 330(a) provides, in relevant part, that a
bankruptcy court may award “a professional person employed under section 327
or 1103 . . . reasonable compensation for actual, necessary services.” 11 U.S.C.
§ 330(a)(1)(A). It also sets forth a non-exclusive list of factors for courts to
examine when determining the reasonableness of fees requested by
professionals:
In determining the amount of reasonable compensation to be awarded to
an examiner, trustee under chapter 11, or professional person, the court
shall consider the nature, the extent, and the value of such services,
taking into account all relevant factors, including–
(A) the time spent on such services;
(B) the rates charged for such services;
(C) 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;
(D) 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;
(E) with respect to a professional person, whether the person is board
certified or otherwise has demonstrated skill and experience in the
bankruptcy field; and
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No. 11-10774
(F) whether the compensation is reasonable based on the customary
compensation charged by comparably skilled practitioners in cases
other than cases under this title.
11 U.S.C. § 330(a)(3); see also In re Lan Assocs. XI, L.P., 192 F.3d 109, 123 (3d
Cir. 1999) (explaining that “in spite of the factors enumerated in § 330, many
courts continue to employ the twelve factors set forth in Johnson,” and holding
that “the factors enumerated in section § 330(a) [sic] are not all-inclusive”).4
Following the Bankruptcy Code’s enactment, we made clear that the
lodestar, Johnson factors, and § 330 coalesced to form the framework that
regulates the compensation of professionals employed by the bankruptcy estate.
See Cahill, 428 F.3d at 539–40. Under this framework, bankruptcy courts must
first calculate the amount of the lodestar. Id. at 539. After doing so, bankruptcy
courts “then may adjust the lodestar up or down based on the factors contained
in § 330 and [their] consideration of the twelve factors listed in Johnson.” Id. at
540. We also have emphasized that bankruptcy courts have “considerable
discretion” when determining whether an upward or downward adjustment of
the lodestar is warranted.5 Cahill, 428 F.3d at 540.
4
Section 330(a)(3)’s list of factors was not found in the original version of the statute
but was included in a 1994 amendment to the Code. See Bankruptcy Reform Act of 1994, Pub.
L. No. 103-394, § 224, 108 Stat. 4106 (1994).
5
We explained the rationale for this broad discretion in Lawler:
[T]his Court emphasizes that the bankruptcy court has broad discretion in
determining compensation for services performed in a bankruptcy proceeding
and that its exercise of discretion will not be disturbed unless it has been
abused. In re Consolidated Bancshares, Inc., 785 F.2d 1249, 1252 (5th Cir.
1986). The bankruptcy court is more familiar with the actual services
performed and “has a far better means of knowing what is just and reasonable
than an appellate court can have.”ù First Colonial, 544 F.2d at 1298 (citation
omitted).
807 F.2d at 1211.
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No. 11-10774
However, as we held in Fender, bankruptcy courts must remain mindful
that “[f]our of the Johnson factors—the novelty and complexity of the issues, the
special skill and experience of counsel, the quality of the representation, and the
results obtained from the litigation—are presumably fully reflected in the
lodestar amount.” Fender, 12 F.3d at 488 (quoting Shipes v. Trinity Indus., 987
F.2d 311, 320 (5th Cir. 1993)). Accordingly, those four Johnson factors may only
form the basis for an upwardly adjusted fee in rare and exceptional
circumstances: “[a]lthough upward adjustments of the lodestar figure based on
these [four] factors are still permissible, such modifications are proper only in
certain rare and exceptional cases supported by both specific evidence on the
record and detailed findings by the lower courts.” Id. (quoting Shipes, 987 F.2d
at 320); see also Cahill, 428 F.3d at 540 (bankruptcy court must “explain the
weight given to each factor that it considers and how each factor affects its
award”).
B.
With this framework in mind, we now turn to our previous decisions that
specifically addressed the reasonableness of fee enhancements in the bankruptcy
context. First, in Rose Pass Mines, Inc. v. Howard, which was decided under the
Bankruptcy Act, we determined that the bankruptcy court did not abuse its
discretion in awarding a 16% enhancement to the fee earned by the debtor’s
attorney. 615 F.2d 1088, 1092 (5th Cir. 1980). After consulting the Johnson
factors, the bankruptcy court had awarded the enhancement because the
debtor’s attorney: (1) provided “excellent services” that helped produce an
“unusually good result”; (2) “evidenced a very high degree of expertise and
competence in various areas of the law”; and (3) obtained “outstanding results”
in the form of a 100% dividend to all creditors. Id. at 1090–92, 1091 n.6, n.8.
Based on these findings, we held that the 16% fee enhancement constituted
reasonable compensation under the Bankruptcy Act. Id. at 1092.
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 No. 11-10774
Similarly, in Lawler, we held that it was reasonable under Johnson to
enhance the lodestar by 70% based primarily on the contingent structure of
counsel’s employment as well as on the unusual nature of the case, novel legal
questions presented, exceptional results obtained for the estate’s creditors, and
counsel’s “outstanding professional accomplishment” in handling the case. 807
F.2d at 1213. This high praise and significant fee enhancement was justified
because the estate’s attorneys transformed a valueless estate into one worth
approximately $29 million. Id. at 1209. The substantial and unexpected
recovery enabled the confirmation of a bankruptcy plan that provided for a 100%
return to all creditors and a return of approximately $8.8 million to the
previously insolvent debtor. Id. Accordingly, while explicitly acknowledging the
Bankruptcy Act’s requirement that fees must remain “within the lower spectrum
of reasonableness,” we held that a 70% enhancement of the lodestar based on the
Johnson factors was appropriate.6 Id. at 1213–14 (internal quotation marks
omitted).
We recognize that both Rose Pass Mines and Lawler were decided under
the Bankruptcy Act. However, notwithstanding the enactment of the
Bankruptcy Code, this precedent remains intact. With regard to Rose Pass
Mines in particular, we already held as much in Consolidated Bancshares, 785
F.2d at 1249. In that case, the debtor’s counsel sought a fee enhancement under
§ 330 and Rose Pass Mines based on counsel’s alleged substantial recovery for
the estate. Id. The bankruptcy court denied the enhancement and the district
court affirmed the decision. Id. at 1251. We subsequently affirmed, holding that
although counsel’s efforts were certainly laudable, the bankruptcy court acted
within its broad discretion in denying the enhancement. Id. at 1257. Despite
6
The bankruptcy court had awarded a 130% enhancement of the lodestar, which we
reduced to 70%. Id. at 1212, 1214.
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No. 11-10774
this outcome, Consolidated Bancshares is significant because, in rejecting the
appellant’s arguments, we reaffirmed that bankruptcy courts retain discretion
to “enhance[] a fee for a job performed in an excellent manner”:
A high level of expertise in a complicated reorganization case does
not automatically warrant a bonus. Southwestern Media Inc. v.
Rau, 708 F.2d 419, 428 (9th Cir. 1983). Moreover, the attorneys for
the debtor had the opportunity at the evidentiary hearing to show
that the settlement achieved in the case would have been lost but
for their efforts. From the record, this court can discern no abuse of
discretion in the bankruptcy court’s ruling that the fine job done by
debtor’s attorneys is properly compensable by their hourly rate
without a bonus. . . . We note in passing that the case relied on by
debtor’s counsel stands only for the proposition that the bankruptcy
judge does not abuse his discretion when he enhances a fee for a job
performed in an excellent manner. Rose Pass Mines, 615 F.2d at
1092. Similarly, a bankruptcy judge does not abuse his discretion
when he decides not to enhance the hourly fee with a bonus.
Id. at 1257 (emphasis added). By explaining the current meaning of Rose Pass
Mines in a case governed by the Bankruptcy Code, we made clear to bankruptcy
courts that our holding remained precedential. And it appears that the
bankruptcy courts did not overlook this significant aspect of Consolidated
Bancshares as they have continued to rely on Rose Pass Mines even though it
was decided under the Bankruptcy Act. See, e.g., In re ASARCO LLC, 2011 WL
2974957, at *36 (Bankr. S.D. Tex. July 20, 2011); In re Nucentrix Broadband
Networks, Inc., 314 B.R. 574, 578 (Bankr. N.D. Tex. 2004); In re Farah, 141 B.R.
920, 925 (Bankr. W.D. Tex. 1992).
Although we have not explicitly reaffirmed Lawler in the same manner as
Rose Pass Mines, we have cited the decision favorably in multiple cases that
were decided under the Bankruptcy Code, thereby indicating that the decision
continues to stand. See In re DP Partners Ltd. P’ship, 106 F.3d 667, 674 n.29
(5th Cir. 1997) (citing Lawler for the proposition that “Johnson and [its]
progeny” govern awards of professional compensation pursuant to 11 U.S.C.
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No. 11-10774
§ 503(b)(4)); In re Anderson, 936 F.2d 199, 204 (5th Cir. 1991) (citing Lawler
after explaining that bankruptcy courts “ha[ve] broad equitable—and hence
discretionary—powers to award attorney’s fees”); In re Evangeline Refining Co.,
890 F.2d 1312, 1326 (5th Cir. 1989) (relying on Lawler when explaining the level
of detail that must be included in a fee application). There is also little reason
not to extend to Lawler the same favorable treatment that Rose Pass Mines
enjoys. Although case-specific distinctions exist, both decisions upheld
enhancements of the lodestar because the estate’s counsel provided outstanding
services that generated exceptional results in the form of a 100% return to all
creditors.
Moreover, the continued vitality of Rose Pass Mines and Lawler should
hardly be surprising, as § 330(a) is substantially similar to the Bankruptcy Act
provision it replaced, and the only material distinction between the relevant
provisions supports our reaffirmation of the two cases. See also 3 Collier on
Bankruptcy § 330.03[2] (“[M]ost of the criteria are the same and prior
[Bankruptcy Act] case law remains relevant.”) (emphasis added). When
determining reasonable compensation under the Bankruptcy Act, Bankruptcy
Rule 219(c)(1) instructed bankruptcy courts to give “due consideration to the
nature, extent, and value of the services rendered as well as to the conservation
of the estate and the interests of creditors.” Rose Pass Mines, 615 F.2d at 1091
(emphasis added). Similarly, as it first appeared in 1978, § 330(a)(1) authorized
courts to award “reasonable compensation for actual, necessary services . . .
based on the time, the nature, the extent, and the value of such services, and the
cost of comparable services other than in a case under this title . . . .” Act of Nov.
6, 1978, ch. 3, Pub. L. No. 95–598, § 330, 92 Stat. 2549 (1978). Thus, the only
significant shift in the law was that Congress removed the “conservation of the
estate” consideration—which required courts to award fees “at the lower end of
the spectrum of reasonableness”—so that bankruptcy professionals could be paid
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No. 11-10774
fees comparable to those earned for similar services in the non-bankruptcy
arena. See also 3 Collier on Bankruptcy § 330.03[2] (“The economy factor was
abandoned under the Bankruptcy Code in favor of the new policy that attorneys
engaged in bankruptcy cases should receive compensation in parity with that
received by attorneys performing services in comparable situations.”).
Otherwise, the relevant Bankruptcy Act and Bankruptcy Code compensation
provisions were nearly identical. And these similarities persist today. See 11
U.S.C. § 330(a). Accordingly, there is a solid textual foundation buttressing our
conclusion that Rose Pass Mines and Lawler survived the Code’s enactment: if
enhancements were possible when fees were awarded “at the lower end of the
spectrum of reasonableness,” then they surely remained possible after that
ceiling was removed and the statutory text was otherwise unchanged.
Our conclusion is also supported by the two compensation decisions we
rendered after deciding Consolidated Bancshares. In Fender,7 we reiterated that
a bankruptcy court may adjust “the lodestar upward or downward depending
upon the respective weights of the twelve factors set forth in Johnson.”8 12 F.3d
at 487. We explained, however, that the court’s discretion to adjust the fee
upwards is partially constrained by the lodestar, which is presumed to fully
account for four of the twelve Johnson factors—“the novelty and complexity of
the issues, the special skill and experience of counsel, the quality of the
representation, and the results obtained from the litigation.” Id. at 488 (quoting
Shipes, 987 F.2d at 320). A court may overcome this presumption and “double
7
We note that the fee awarded in Fender was not owed by the estate to its attorneys
pursuant to § 330. See 12 F.3d at 484. Because the award was not governed by § 330, Fender
only constitutes persuasive authority. We nevertheless consult the case because it addresses
the lodestar and Johnson factors in the bankruptcy arena.
8
Although we did not cite Lawler in support of this proposition, the statement is
consistent with our previous discussion in Lawler. See Lawler, 807 F.2d at 1213 (“They are
well entitled under the application of the Johnson factors to an award significantly above the
lodestar.”).
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No. 11-10774
count” one or more of these presumably subsumed Johnson factors “only in
certain rare and exceptional cases supported by both specific evidence on the
record and detailed findings by the lower courts.”9 Id. (quoting Shipes, 987 F.2d
at 320). In the underlying case, we reversed the bankruptcy court’s 70% fee
enhancement because: (1) it was a “substantial upward departure from the
lodestar” based on the presumably subsumed Johnson factors; and (2) “[n]othing
in the bankruptcy court’s findings show[ed] th[e] case to be ‘rare and
exceptional.’” Id.
Finally, we most recently analyzed professional compensation in Cahill,
428 F.3d 536. In that case, the bankruptcy court had refused to award the full
amount of the $3,758.08 requested by counsel for the chapter 13 debtor, and
instead limited counsel’s fee award to $1,737.00, which was the pre-calculated
lodestar rate for chapter 13 bankruptcies filed in the Southern District of
Texas.10 Id. at 538–39. We explained that, after calculating the lodestar, a
“court then may adjust the lodestar up or down based on the factors contained
in § 330 and its consideration of the twelve factors listed in Johnson.” Id. at 540.
9
The Fender opinion also includes language that, when viewed in isolation, is internally
inconsistent with its analysis and ultimate holding. Specifically, Fender states that “[t]he
lodestar may be adjusted according to a Johnson factor only if that factor is not already taken
into account by the lodestar” and cites Shipes, 987 F.3d at 319–20 in support of that
proposition. Id. at 487. When this language is viewed in the context of the opinion as a whole,
it is clear that the four factors subsumed by the lodestar may still be “double counted” in rare
and exceptional cases. Thus, we refrain from viewing this seemingly inconsistent language in
isolation.
10
The pre-calculated lodestar was found in General Order 2004-5, which “provide[d]
bankruptcy courts with reasonable attorney time estimates for completing a ‘typical’ Chapter
13 case and customary rates for Chapter 13 services in the Southern District of Texas, which,
when multiplied together, yield[ed] a typical lodestar amount of $1737.” Id. at 540. This
“typical” lodestar amount enabled courts to dispose of “run-of-the-mill Chapter 13 fee
applications expeditiously and uniformly.” Id. at 541. “General Order 2004-5 nevertheless
anticipate[d] that bankruptcy courts evaluating traditional fee applications [would] continue
to analyze and adjust fee applications on a case-by-case basis using the lodestar analysis and
flexible Johnson factors, ensuring that the lodestar amount in an atypical case [would] be
adjusted to reflect the specifics of that case.” Id.
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No. 11-10774
We held, however, that the bankruptcy court did not abuse its discretion in
refusing to enhance the pre-calculated lodestar rate up to the $3,758.08 sought
by the debtor’s counsel because:
[The bankruptcy court’s] findings that Walker & Patterson’s
attorneys spent an unreasonable amount of time on the case,
duplicated each other’s efforts, performed unnecessary work, were
unprepared for the confirmation hearing, and were handling a case
that presented no novel or complex issues support[ed] its conclusion
that this case did not warrant an upward adjustment of the lodestar
amount under § 330 or Johnson.
Id. at 541. Thus, although we declined to enhance the lodestar, our analysis
indicated that enhancements are permissible when warranted by § 330 or the
Johnson factors.
In sum, we have consistently held that bankruptcy courts have broad
discretion to adjust the lodestar upwards or downwards when awarding
reasonable compensation to professionals employed by the estate pursuant to
§ 330(a). However, this discretion is far from limitless. Upward adjustments,
for instance, are still only permissible in rare and exceptional
circumstances—such as in Rose Pass Mines and Lawler, where the applicants
had provided superior services that produced outstanding results—that are
supported by detailed findings from the bankruptcy court and specific evidence
in the record.
III.
We now address the focal point of this case: whether the Supreme Court’s
fee-shifting decision in Perdue unequivocally, sub silentio overruled our circuit’s
bankruptcy precedent.
A.
In Perdue, the Supreme Court analyzed “whether the calculation of an
attorney’s fee, under federal fee-shifting statutes, based on the ‘lodestar’ . . . may
be increased due to superior performance and results.” 130 S. Ct. at 1669
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No. 11-10774
(emphasis added). The underlying case dealt with a class action lawsuit
commenced by approximately 3,000 children in the Georgia foster care system
against the Governor of Georgia and various state officials, alleging violations
of their constitutional and statutory rights. Id. The plaintiffs reached a
favorable settlement and their attorneys sought to recover their fees from the
defendants pursuant to 42 U.S.C. § 1988, which provides, in pertinent part, that
“the court, in its discretion, may allow the prevailing party . . . a reasonable
attorney’s fee as part of the costs.” Perdue, 130 S. Ct. at 1670. The district court
calculated a $6 million lodestar figure and then enhanced the award by 75%
based on: (1) the attorneys’ advancement of $1.7 million of expenses over three
years without receiving any reimbursements; (2) the absence of ongoing pay to
the attorneys; (3) the fully contingent nature of the case; and (4) the attorneys’
extraordinarily high degree of “skill, commitment, dedication, and
professionalism.” Id. The district court also found that the results obtained in
the case were truly extraordinary, explaining that “after 58 years as a practicing
attorney and federal judge, the Court is unaware of any other case in which a
plaintiff class has achieved such a favorable result on such a comprehensive
scale.” Id. at 1682 (citation and alteration omitted).
The Supreme Court began its discussion by explaining that the text of
§ 1988 “[u]nfortunately . . . does not explain what Congress meant by a
‘reasonable’ fee, and therefore the task of identifying an appropriate
methodology for determining a ‘reasonable’ fee was left for the courts.” Id. at
1671. The twelve Johnson factors were the first attempt at such a methodology.
Id. at 1671–72. However, “[t]his method . . . ‘gave very little actual guidance to
the district courts,” and “placed unlimited discretion in trial judges and produced
disparate results.” Id. at 1672 (quoting Pennsylvania v. Del. Valley Citizens’
Council for Clean Air, 478 U.S. 546, 563 (1986) (Delaware Valley I)). The Court
then referenced the emergence of an “alternative approach” in the form of the
16
No. 11-10774
lodestar method, which eventually became “the guiding light of our fee-shifting
jurisprudence.” Id. (citation omitted). According to the Court, “unlike the
Johnson approach, the lodestar calculation is objective . . . and thus cabins the
discretion of trial judges, permits meaningful judicial review, and produces
reasonably predictable results.” Id. (internal citation and quotation marks
omitted).
The Court next summarized the “important rules” from its prior decisions
concerning federal fee-shifting statutes that led to its holding in Perdue. Id.
“First, a ‘reasonable’ fee is a fee that is sufficient to induce a capable attorney to
undertake the representation of a meritorious civil rights case.”11 Id. (citing
Delaware Valley I, 478 U.S. at 565). “Second, the lodestar method yields a fee
that is presumptively sufficient to achieve this objective.” Id. at 1673. Third, fee
enhancements “may be awarded in rare and exceptional circumstances.” Id.
(citations and internal quotation marks omitted). Fourth, the lodestar “includes
most, if not all, of the relevant factors constituting a reasonable attorney’s fee
and . . . an enhancement may not be awarded based on a factor that is subsumed
in the lodestar calculation.” Id. (internal citation and quotation marks omitted).
“Finally, a fee applicant seeking an enhancement must produce specific evidence
that supports the award.”12 Id.
11
In Delaware Valley I, the Court held that:
These [fee-shifting] statutes were not designed as a form of economic relief to
improve the financial lot of attorneys, nor were they intended to replicate
exactly the fee an attorney could earn through a private fee arrangement with
his client. Instead, the aim of such statutes was to enable private parties to
obtain legal help in seeking redress for injuries resulting from the actual or
threatened violation of specific federal laws.
478 U.S. at 565.
12
The Court also stated a sixth rule, that the burden of proving an enhancement is
borne by the applicant. Id. This rule is not relevant in this case.
17
No. 11-10774
The Court then moved to the precise issue presented in the case: “whether
there are circumstances in which superior attorney performance is not
adequately taken into account in the lodestar calculation.”13 Id. at 1674. The
Court held that only the following three rare and exceptional circumstances
could justify a fee enhancement based on superior performance: (1) when “the
hourly rate employed in the lodestar calculation does not adequately measure
the attorney’s true market value”; (2) “if the attorney’s performance includes an
extraordinary outlay of expenses and the litigation is exceptionally protracted”;
and (3) when there is an “exceptional delay in the payment of fees,” especially
“where the delay is unjustifiably caused by the defense.” Id. at 1674–75. Any
enhancement must be based, however, on objective criteria that are capable of
being reviewed by an appellate court.14 Id. The Court then reversed and
remanded because the district court failed to provide proper, objective
justification for the significant fee enhancement. Id. at 1675–77.
We further note that Perdue’s holding was founded primarily upon
justifications that are unique to cases governed by § 1988 or other fee-shifting
statutes. For example, the Court explained that the second and third
circumstances arise only in rare and exceptional cases because attorneys in fee-
shifting cases generally understand that they will not receive attorney’s fees or
expense reimbursements until the end of a case.15 Id. at 1674–75. The Court
13
The Court was originally “asked to decide whether either the quality of an attorney’s
performance or the results obtained are factors that may properly provide a basis for an
enhancement.” Id. However, the Court determined that those two factors should be treated
as one because “superior results are relevant only to the extent it can be shown that they are
the result of superior attorney performance.” Id.
14
For instance, with regard to the second circumstance, the Court provided that “the
amount of the enhancement must be calculated using a method that is reasonable, objective,
and capable of being reviewed on appeal, such as by applying a standard rate of interest to the
qualifying outlays of expenses.” Id. at 1674.
15
See id. at 1674 (“[W]hen an attorney agrees to represent a civil rights plaintiff who
cannot afford to pay the attorney, the attorney presumably understands that no
18
No. 11-10774
also commented that defendants are less likely to settle when there is
uncertainty regarding the amount of fees that could be awarded by a judge who
is relying on his “subjective opinion regarding particular attorneys or the
importance of the case.” Id. at 1676. And the Court made clear that the
ultimate burden of paying for attorney’s fee enhancements in § 1988 cases is
often borne by taxpayers:
Section 1988 serves an important public purpose by making it
possible for persons without means to bring suit to vindicate their
rights. But unjustified enhancements that serve only to enrich
attorneys are not consistent with the statute’s aim. In many cases,
attorney’s fees awarded under § 1988 are not paid by the individuals
responsible for the constitutional or statutory violations on which
the judgment is based. Instead, the fees are paid in effect by state
and local taxpayers, and because state and local governments have
limited budgets, money that is used to pay attorney’s fees is money
that cannot be used for programs that provide vital public services.
Id. at 1676–77 (footnote omitted).
B.
The Trustee argues that we should extend Perdue to the bankruptcy arena
because the decision clarifies how to apply the lodestar method, cabins the
discretion of bankruptcy judges, and leads to more uniform and predictable
results. We decline this invitation because Perdue did not unequivocally, sub
silentio overrule our legion of precedent in the field of bankruptcy.
1.
In this circuit, we abide by the rule of orderliness. Technical Automation
Servs. Corp. v. Liberty Surplus Ins. Corp., 673 F.3d 399, 405 (5th Cir. 2012).
Under this rule, a panel of three judges may not unilaterally overrule or
disregard the precedent that has been established by our previous decisions.
reimbursement is likely to be received until the successful resolution of the case, . . . and
therefore enhancements to compensate for delay in reimbursement for expenses must be
reserved for unusual cases.”) (internal citation omitted).
19
No. 11-10774
Teague v. City of Flower Mound, Tex., 179 F.3d 377, 383 (5th Cir. 1999) (“[T]he
rule of orderliness forbids one of our panels from overruling a prior panel.”);
Dornbusch v. Comm’r, 860 F.2d 611, 612 n.1 (5th Cir. 1988) (“We recognize, of
course, that one panel of this Court ‘cannot disregard the precedent set by a
prior panel.’” (quoting Wilson v. Taylor, 658 F.2d 1021, 1034 (5th Cir. 1981))).
In order for one panel to overrule another, there must be “an intervening change
in the law, such as by a statutory amendment, or the Supreme Court, or by our
en banc court.” Technical Automation, 673 F.3d at 405 (quoting Jacobs v. Nat’l
Drug Intelligence Ctr., 548 F.3d 375, 378 (5th Cir. 2008)). Furthermore, we
exercise restraint when determining whether a Supreme Court decision has
produced an intervening change in the law: “for a Supreme Court decision to
change our Circuit’s law, it must be more than merely illuminating with respect
to the case before the court and must unequivocally overrule prior precedent.”
Id. (citations, internal quotation marks, and alterations omitted).
We recently followed the rule of orderliness in Technical Automation. In
that case, we considered whether the Supreme Court’s decision in Stern v.
Marshall, 131 S. Ct. 2594 (2011), which held that Article I bankruptcy courts
lack constitutional authority to enter final judgment on certain state law
counterclaims, should be extended so as to circumscribe the authority of Article I
magistrate judges to enter final judgments. Technical Automation, 673 F.3d at
406. Despite acknowledging the “many similarities” between the statutory
powers of bankruptcy judges and those of magistrate judges, we declined this
invitation to extend Stern. Id. at 406–07. Instead, we held that the rule of
orderliness prevented such an outcome because Stern did not unequivocally
overrule our contrary precedent:
Although the similarities between bankruptcy judges and
magistrate judges suggest that the Court’s analysis in Stern could
be extended to this case, the plain fact is that our precedent in
Puryear [v. Ede’s Ltd., 731 F.3d 1153, 1154 (5th Cir. 1984)] is there,
20
No. 11-10774
and the authority upon which it was based has not been overruled.
Moreover, we are unwilling to say that Stern does that job sub
silentio, especially when the Supreme Court repeatedly emphasized
that Stern had very limited application.
Id. at 407.
2.
The Perdue opinion illuminates two significant distinctions that exist
between the Supreme Court’s fee-shifting jurisprudence and our framework for
analyzing professional compensation under 11 U.S.C. § 330(a). First, the
Johnson factors are personae non gratae in Perdue’s eyes. The decision casts
them in a negative light, commenting that they provided “very little guidance,”
bestowed “unlimited discretion in trial judges and produced disparate results.”
Perdue, 130 S. Ct. at 1672. The Court goes on to state that the lodestar is the
more favorable “alternative” to the Johnson factors, indicating that the lodestar
has superseded the Johnson factors in the fee-shifting arena. Id. Conversely,
we have never treated the lodestar and Johnson factors as mutually exclusive
methods for determining reasonable compensation under either the Bankruptcy
Act or the Bankruptcy Code. Instead, we have consistently viewed them as
complementary methodologies, using the lodestar as the starting point that
yields a presumptively reasonable fee, and then permitting upward adjustments
based on the factors set forth in Johnson and, after the 1994 amendment,
§ 330(a). See, e.g., Cahill, 428 F.3d at 540; Lawler, 807 F.2d at 1213 (“They are
well entitled under the application of the Johnson factors to an award
significantly above the lodestar.”).
Second, our discussion in II.B., supra, illustrates that bankruptcy courts
have discretion to enhance fees for professionals when their superior
performance produced outstanding results. And, in accordance with that rule,
we have affirmed fee awards that would have been proscribed under Perdue. In
Rose Pass Mines, for example, we affirmed the enhancement of an attorney’s fee
21
No. 11-10774
from $85 to $100 per hour “despite [the attorney’s] testimony that his maximum
fee in bankruptcy matters had been $85 per hour.” 615 F.2d at 1092 (emphasis
added); see also Consolidated Bancshares, 785 F.2d at 1257 (explaining that fees
may be enhanced under Rose Pass Mines “for a job performed in an excellent
manner”). This fee award is inconsistent with Perdue, as it does not fall within
any of the three circumstances where Perdue permits enhancements based on
superior attorney performance. The most notable distinction between the two
cases is that Perdue permits enhancements “where the method used in
determining the hourly rate employed in the lodestar calculation does not
adequately measure the attorney’s true market value.” Perdue, 130 S. Ct. at 1674
(emphasis added). In Rose Pass Mines, on the other hand, we affirmed an
enhancement despite the fact that the attorney was still receiving his market
rate before the enhancement was taken into account. 615 F.2d at 1092. Under
our current framework, therefore, enhancements are possible in situations not
delineated in Perdue.
The question thus becomes whether Perdue unequivocally, sub silentio
overruled our bankruptcy framework, which currently permits bankruptcy
courts to: (1) consider the Johnson factors after calculating the lodestar; and
(2) award fee enhancements in situations that fall outside of the three specific
circumstances set forth in Perdue. See Technical Automation, 673 F.3d at 405
(“In the light of our prior panel precedent and our observance of the rule of
orderliness, our inquiry turns to whether the Supreme Court’s decision in Stern
v. Marshall unequivocally, sub silentio overruled Puryear.”). We cannot say that
it did.
We begin with the obvious: Perdue is a federal fee-shifting case. Perdue,
130 S. Ct. at 1672. The Court made this clear at the outset of the opinion and
relied solely on its prior fee-shifting jurisprudence to support its holding. See id.
22
No. 11-10774
at 1669, 1672–75. The opinion neither explicitly touched on bankruptcy law nor
indicated that the Supreme Court intended Perdue to extend to non-fee-shifting
cases.16 We, therefore, take the Supreme Court at its word when it described
Perdue as a federal fee-shifting case, and decline to extend it further. See
Perdue, 130 S. Ct. at 1669; see also Technical Automation, 673 F.3d at 407
(“[W]e are unwilling to say that Stern does that job sub silentio, especially when
the Supreme Court repeatedly emphasized that Stern had very limited
application.”).
There is also textual support for our decision. Unlike § 1988, which
“[u]nfortunately . . . does not explain what Congress meant by a ‘reasonable’ fee,”
Perdue, 130 S. Ct. at 1671, § 330(a) provides specific considerations (i.e. the
nature, extent, and value of the services) and six factors for bankruptcy courts
to consider when determining a reasonable fee. See 11 U.S.C. § 330(a)(3).
Section 330(a)(3)’s text also indicates that its list of factors is not exclusive:
bankruptcy courts may consider “all relevant factors,” including factors not
specified in the statute.17 See id.; see also Lan Assocs. XI, 192 F.3d at 123 (“[T]he
16
This lack of intent to extend Perdue is evidenced, for instance, by the fact that the
three circumstances justifying a fee enhancement are essentially non-existent in the
bankruptcy arena because they are already addressed by the Bankruptcy Code. Section 331
of the Bankruptcy Code enables professionals to request fee awards and expense
reimbursements “every 120 days . . . or more often if the court permits,” and to receive
disbursements after notice and a hearing. 11 U.S.C. § 331. This provision eliminates the
prospect that there could be either an “extraordinary outlay of expenses” or the “exceptional
delay in the payment of fees” during a bankruptcy proceeding. See Perdue, 130 S. Ct. at
1674–75. Similarly, § 330(a)(3)(F) requires courts to consider whether “compensation is
reasonable based on the customary compensation charged by comparably skilled practitioners
in cases other than cases under this title.” 11 U.S.C. § 330(a)(3)(F). This alleviates Perdue’s
concern that “an enhancement may be appropriate so that an attorney is compensated at the
rate that the attorney would receive in cases not governed by the federal fee-shifting statutes.”
Perdue, 130 S. Ct. at 1674. Accordingly, because the Bankruptcy Code renders Perdue’s three
“rare and exceptional” circumstances essentially non-existent in bankruptcy proceedings, we
doubt that the Court intended for Perdue to extend to cases governed by § 330(a).
17
This interpretation of § 330(a)(3) is also consistent with our past practice. We would
not have continued to instruct courts that enhancements may be based on the Johnson factors
23
No. 11-10774
factors enumerated in section § 330(a) are not all-inclusive.”); In re Mkt. Ctr. E.
Retail Prop., Inc., 469 B.R. 44, 52 (B.A.P. 10th Cir. 2012) (“The list contained in
§ 330(a)(3) is not meant to be exhaustive; had Congress wished to limit a
bankruptcy court’s consideration to the factors listed in § 330(a)(3), it knew how
to do so.”). This differs markedly from the near ubiquitous application of the
lodestar in fee-shifting cases, as, in those cases, the lodestar “figure includes
most, if not all, of the relevant factors constituting a ‘reasonable’ attorney’s fee.”
Perdue, 130 S. Ct. at 1673. Accordingly, given the factors that bankruptcy courts
are expected to consider under § 330(a)’s plain language, it is inappropriate to
automatically extend Perdue into the bankruptcy arena.18 See also Mkt. Ctr. E.
Retail Prop., 469 B.R. at 53 (“There are significant differences between fee
awards in civil rights actions and bankruptcy cases.”).
We are also persuaded by the fact that the Court’s justifications for the
holding in Perdue do not transfer to this case. Unlike cases under § 1988, where
fee enhancements often come at the expense of the taxpayer, the public’s purse
is left untouched in bankruptcy proceedings. The Trustee’s related
if the factors listed in § 330(a)(3) were all-inclusive. See Cahill, 428 F.3d at 540.
18
On a related point, the Trustee argues that we should extend Perdue because in the
past we have relied on fee-shifting cases when resolving fee disputes in bankruptcy
proceedings. We certainly agree that fee-shifting case law can provide persuasive authority,
and we may continue to consider it in future cases. See Fender, 12 F.3d at 487. This is
particularly true when the matter is one of first impression in the bankruptcy context. See,
e.g., Babcock & Wilcox Co., 526 F.3d at 827–28 (relying on a Voting Rights Act case when
determining whether the bankruptcy court abused its discretion by reducing the attorney’s fees
for non-working travel time under § 330). We do not, however, automatically apply fee-shifting
case law wholesale into the bankruptcy arena or automatically treat fee-shifting and
bankruptcy cases as interchangeable. See, e.g., First Colonial, 544 F.2d at 1299 (extending the
Johnson factors to bankruptcy but adding two additional considerations that were unique to
bankruptcy law). Most importantly, when a particular principle is well-settled in the
bankruptcy arena, a panel has no choice but to continue to abide by it, irrespective of the
changes occurring in other, related areas of the law.
24
No. 11-10774
argument—that the enhancement comes at the expense of creditors19—is
similarly unavailing where, as here, all creditors receive a 100% return on their
claims.20 The Debtors are the only party whose bottom-line was reduced by the
enhancement and, because their own board of directors recommended paying the
enhancement, we can hardly compare the Debtors’ situation to that of the non-
consenting taxpayers.
Likewise, this case does not implicate Perdue’s concern that defendants
may be unwilling to settle cases when they can be exposed to the unconstrained,
subjective discretion of the courts once it comes time to pay the plaintiff’s tab.
See Perdue, 130 S. Ct. at 1676. That concern makes sense in the § 1988 fee-
shifting realm where, contrary to the American Rule, the “prevailing party” may
recover fees and expenses from its adversary. This recovery necessarily involves
the redistribution of a finite sum of money from the pocket of the adversary into
the hands of the prevailing party. On the other hand, enhancements like the one
sought by CRG are only paid in the parallel universe where everyone is a winner
(e.g. because everyone has received 100 cents on the dollar). In these rare cases,
the professionals may potentially receive an enhancement only after
transforming a carcass into a cheetah, so to speak, thereby enlarging the pie that
19
The Trustee states in his brief that “creditors primarily will bear the burden of those
bonuses because creditors’ claims are paid from the estate assets that remain after
professionals’ fees have been paid.”
20
At oral argument, the Trustee argued that there could be future cases where a
bankruptcy court awards an enhancement even though all creditors were not paid in full. Such
an enhancement, according to the Trustee, would be paid at the expense of creditors. That
future case is not before us today, and we decline to definitively answer whether fee
enhancements may ever be awarded when one or more creditors has not received 100 cents on
the dollar. We merely note, on the other hand, that we have never sustained an enhancement
where all creditors did not receive a 100% return and, given the Trustee’s failure to cite even
one case to support its theory, the Trustee’s concern seems more theoretical than real.
25
No. 11-10774
is shared by all of the debtor’s creditors. In this parallel universe, there is no
settling or losing party to protect from the discretion of the bankruptcy courts.21
In Technical Automation, we declined to extend Stern v. Marshall to
Article I magistrate judges even though there are “many similarities” between
the statutory powers of bankruptcy judges and those of magistrate judges.
Technical Automation, 673 F.3d at 406–07. Here, there are fewer similarities
and significant textual and structural differences between fee-shifting and
bankruptcy cases. Given these differences, and the Supreme Court’s failure to
indicate that Perdue was intended to apply outside of the fee-shifting context, we
hold that Perdue did not unequivocally, sub silentio overrule our existing
bankruptcy framework merely because the lodestar is used in both types of
cases.
IV.
There may be sound justifications for implementing a Perdue-like
approach to the compensation of professionals employed under § 330, but those
justifications must be voiced to our en banc court, the Supreme Court, or
Congress. We hold that Perdue did not unequivocally, sub silentio overrule our
prior precedent and we are, therefore, bound to apply it. Accordingly, the
bankruptcy court’s order awarding CRG a $1 million fee enhancement is
AFFIRMED.
21
This is particularly true where, as here, the debtor’s board of directors recommends
paying the enhancement.
26