► In This Issue:

• Liability for Violating the Automatic Stay: How Cutting Corners Costs Money
• Defending Professional Fees: SCOTUS Shuts the Door, and the Delaware Bench Closes the Window
• Recording Available: Ethics Presentation at Annual Spring Meeting

Liability for Violating the Automatic Stay: How Cutting Corners Costs Money

James B. Kobak, Jr. Hughes Hubbard & Reed LLP New York

Eleni Theodosiou-Pisanelli Hughes Hubbard & Reed LLP New York

It has become increasingly common for companies to use nonattorneys in attorney roles for the purpose of cutting costs. However, occasionally these “fee-saving” measures actually end up costing a company even more than if they had an attorney do the work in the first place. Nowhere can this be more problematic [or expensive] than in the bankruptcy area, particularly if the company fails to have procedures in place to recognize and react to the automatic stay in routine collection matters.

This is what happened in a recent case decided by the Eleventh Circuit. The court in Parker v. Credit Central affirmed lower court decisions that creditor “Credit Central willfully contravened the automatic stay in reckless disregard of the law and Parker’s rights” and affirmed an award of $10,000 in punitive damages and $30,000 in attorney’s fees.

The Credit Central Case

On Aug. 14, 2012, Credit Central filed a collection action in small claims court for $1,200 against Marion Parker. Credit Central did not use the services of an attorney in connection with the collection action. Nine days later, Parker filed a chapter 13 petition and called Credit Central to advise it of his bankruptcy filing. On Aug. 26, 2012, a notice of the commencement of Parker’s chapter 13 case was mailed to Credit Central. Credit Central admitted to receiving both the phone call and the notice of commencement. Two days after receiving the notice, Credit Central filed a proof of claim in the bankruptcy proceeding.

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Defending Professional Fees: SCOTUS Shuts the Door, and the Delaware Bench Closes the Window

Matthew Garofalo Stroock & Stroock & Lavan LLP New York

Gabriel Sasson Stroock & Stroock & Lavan LLP New York

In Baker Botts L.L.P. v. ASARCO, the Supreme Court held that under § 330(a)(1) of the Bankruptcy Code, estate professionals are not entitled to payment of fees and expenses incurred in connection with the defense of such professional’s fee applications. Specifically, the Supreme Court determined that Congress did not expressly depart from the “American Rule,” which requires litigants to pay their own attorneys’ fees “unless a statute or contract provides otherwise.” Because the Supreme Court’s holding was based on an analysis of § 330(a)(1) of the Code, many practitioners believed that the Court had potentially left open the ability for estate professionals to be reimbursed for such fees and expenses pursuant to another section of the Code or by contract. Recently, however, the U.S. Bankruptcy Court for the District of Delaware has rejected any attempt to distinguish the holding in ASARCO.

Three recent rulings, the first from Judge Walrath in In re Boomerang Tube Inc., followed by Judge Shannon in In re New Gulf Resources LLC and Judge Sontchi in In re Samson Resources Corp.,each demonstrate the Delaware Bankruptcy Court’s reluctance to allow parties to estate professionals to structure around the Supreme Court’s decision in ASARCO.

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Recording Available: Ethics Presentation at Annual Spring Meeting

The Ethics & Professional Compensation and Unsecured Trade Creditorscommittees paired at ABI’s recent Annual Spring Meeting in Washington, D.C. to present a session titled “Beware of the Traps: Ethical and Fiduciary Issues for Committee Members and Professionals.” Speakers for this session were Brent I. Weisenberg as Moderator (Ballard Spahr LLP; New York); Hon. Melanie L. Cyganowski (ret.) (Otterbourg P.C.; New York); Jeffrey N. Pomerantz (Pachulski Stang Ziehl & Jones LLP; Los Angeles); and Hon. Mary F. Walrath (U.S. Bankruptcy Court (D. Del.); Wilmington). Materials for this session can be found online.

Click here to review the educational session recording.