Eastern District of Virginia Bankruptcy Court Issues Extensive Memorandum Opinion Confirming Market-Based Hourly Rates Apply in Approving Fee Applications

Settling any remaining uncertainty in how professionals’ hourly rates will be considered for approval in bankruptcy courts in the Eastern District of Virginia, on October 18, the Bankruptcy Court for the Eastern District of Virginia approved the professional fee applications in the Nordic Aviation bankruptcy cases, including the rates of each of the professionals as appropriate market rates. In particular, the Bankruptcy Court noted that, “[m]uch ink has since been spilled differentiating so-called ‘local’ rates from ‘national’ rates. The distinction is much ado about nothing. The market for professional services cannot be predetermined by geography alone.”¹

Instead of relying on geography alone, the Bankruptcy Court stated that, “the plain language of the Bankruptcy Code directs the Court to consider the ‘customary compensation charged by comparably skilled practitioners in cases other than cases under [title 11].’ 11 U.S.C. § 330. The Court must, therefore, look at whether the rates charged are consistent with those set in the relevant market.”² To determine the relevant market, the Court noted that, “[t]he market rate will be set for the most part by the amount clients are willing to pay for professional services. The factors clients may consider in the selection process might include the reputation of the professional, the specialization of the professional, the need for the professional’s experience and expertise, the stakes of the transaction, and the time pressures of the engagement.”³ The Court also stated that a good understanding of the relevant market in any given case could be gleaned from the rates of professionals other than those engaged by the debtor, debtor-in-possession financing budgets, monthly operating reports of the debtor, information required by the United States Trustee program guidelines, and the checks and balances built into the fabric of the reorganization process to police the market.⁴

The Bankruptcy Court also reiterated that the applicable factors for approving professional fee applications are those enumerated in 11 U.S.C. § 330(a)(3) and the Johnson factors.⁵ Additionally, the Bankruptcy Court noted that, “[i]n applying the Johnson factors, it must heed the Fourth Circuit’s admonition against per se rules ‘beyond those legislatively mandated,’ noting that the Court cannot ‘abdicate the equitable discretion granted to it by establishing rules of broad application which fail to take into account the facts of a particular case and the overall objectives of the bankruptcy system.’”⁶

After identifying the applicable legal standard, the Bankruptcy Court addressed the evidence that was relevant to the approval of the professional fee applications, including the rates of the professionals.⁷

As the fee applications were uncontested, the Court stated that it issued the Memorandum Opinion “to provide guidance to practitioners on the facts they need to develop in support of fee applications filed in bankruptcy cases pending before this Court.”⁸ The Memorandum Opinion represented one of the Bankruptcy Court’s first opportunities to address professional fee applications in a large Chapter 11 case since the entry of the District Court Order⁹ adopting the Bankruptcy Court’s Report and Recommendation¹⁰ in the Retail Group bankruptcy cases.¹¹ In sum, the Memorandum Opinion is recommended reading for all practitioners.
  

¹ Memorandum Opinion, In re Nordic Aviation Capital Designated Activity Company, et al., No. 21-33696 (Bankr. E.D. Va. Oct. 18, 2022) [ECF No. 1135] (the “Memorandum Opinion”) at 37.

² Id. at 36.

³ Id. at 36.

⁴ See id. at 37-38.

⁵ The Johnson factors were adopted by the Fourth Circuit in Barber v. Kimbrell’s Inc., 577 F.2d 216, 226 n.28 (4th Cir. 1978) (citing Johnson v. Georgia Highway Express, 488 F.2d 714 (5th Cir. 1974)).

⁶ Memorandum Opinion, at 36 (quoting Harold & Williams Dev. Co. v. U.S. Trustee (In re Harold & Williams Dev. Co.), 977 F.2d 906, 910 (4th Cir. 1992)).

⁷ Memorandum Opinion, at 41-149.

⁸ Id. at 1 n.1. The Court also noted that, “[i]t is not the intention of the Court to issue a memorandum opinion on uncontested fee applications in the future provided the appropriate factual foundation has been laid.”

⁹ Order (Adopting Report and Recommendation With Modification), In re Retail Grp., Inc., No. 20-33113 (Bankr. E.D. Va. Sept. 19, 2022) [ECF No. 2818].

¹⁰ Bankruptcy Judge’s Report and Recommendation, In re Retail Grp., Inc., No. 20-33113 (Bankr. E.D. Va. Aug. 30, 2022) [ECF No. 2798].

¹¹ See Jason Harbour and Justin Paget, Retail Ruling Clarifies Attorney Fees For Large Ch. 11 Cases, Law360 (Sep. 27, 2022).