IN THE UNITED STATES BANKRUPTCY COURT FOR THE … · timetable envisioned by Hybrid’s purchase was too compressed. The Court held that these facts constituted “cause” to limit

05834.00001/6276173.2

IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE

----------------------------------------------------------------x In re: : Chapter 11 : FAH LIQUIDATING CORP. (f/k/a FISKER : AUTOMOTIVE HOLDINGS, INC.), et al, : Case No. 13-13087-KG : Debtors. : (Jointly Administered) ----------------------------------------------------------------x

MEMORANDUM OF LAW IN OPPOSITION TO THE APPLICATION OF COMMITTEE PROFESSIONALS FOR FEE ENHANCEMENTS

AND SUBSTANTIAL CONTRIBUTION AND TO FINAL FEE APPLICATION OF BROWN RUDNICK LLP FOR FEES AND EXPENSES RELATING TO FEE ENHANCEMENT RESEARCH AND PREPARATION, AS WELL AS WORK

PERFORMED AS PROSPECTIVE COUNSEL TO THE LIQUIDATING TRUST

QUINN EMANUEL URQUHART & SULLIVAN, LLP 51 Madison Avenue, 22nd Floor New York, New York 10010 Telephone No.: (212) 849-7000 Susheel Kirpalani (admitted pro hac vice)

SCHNADER HARRISON SEGAL & LEWIS LLP 824 N. Market Street, Suite 800 Wilmington, DE 19801 Telephone No.: (302) 888-4554 Richard A. Barkasy (#4683) Fred W. Hoensch (#5761)

Counsel to Hybrid Tech Holdings, LLC

Case 13-13087-KG Doc 1225 Filed 10/14/14 Page 1 of 24

05834.00001/6276173.2 i

TABLE OF CONTENTS

I. PRELIMINARY STATEMENT .........................................................................................

Page

1

II. UNDISPUTED FACTS .......................................................................................................2

III. ARGUMENT .......................................................................................................................9

A. FEE ENHANCEMENT AND SUBSTANTIAL CONTRIBUTION ......................9

1. Section 328(a) is a “Two-Way Ratchet” and Precludes Enhancement ................................................................................................9

2. Risk of Non-Payment Cannot Warrant Fee Enhancement ........................11

3. “Bait and Switch” Precludes Enhancement ...............................................13

4. Success of this Case Has Many Fathers (And Is Overstated) ....................15

5. No Standing to Seek Substantial Contribution ..........................................17

B. BROWN RUDNICK FINAL FEE APPLICATION .............................................18

1. Cannot Charge for Fee Enhancement Research.........................................18

2. Cannot Charge for Liquidating Trust Work...............................................18

IV. CONCLUSION ..................................................................................................................20


05834.00001/6276173.2 ii

Page

TABLE OF AUTHORITIES

In re ASARCO, L.L.C., 702 F.3d 250 (5th Cir. 2012) .............................................................................................10, 11

Cases

In re ASARCO LLC, 751 F.3d 291 (5th Cir. 2014) .........................................................................................5, 16, 17

In re Barron, 225 F.3d 583 (5th Cir. 2000) ...................................................................................................11

In re Barron, 325 F.3d 690 (5th Cir. 2003) ...................................................................................................10

In re Busy Beaver Bldg. Ctrs., Inc., 19 F.3d 833 (3d Cir. 1994).......................................................................................................18

Chamison v. HealthTrust--Hosp. Co., 735 A.2d 912 (Del. Ch. 1999), aff'd sub nom. Healthtrust-Hosp. Co. v. Chamison, 748 A.2d 407 (Del. 2000) ........................................................................................................14

City of Burlington v. Dague, 505 U.S. 557 (1992) .................................................................................................................12

Merrill v. Crothall-Am., Inc., 606 A.2d 96 (Del. 1992) ..........................................................................................................14

Nevins v. Bryan, 885 A.2d 233 (Del. 2005) ........................................................................................................14

Pennsylvania v. Delaware Citizens' Council for Clean Air, 483 U.S. 711 (1987) .................................................................................................................12

In re Smart World Techs., LLC, 552 F.3d 228 (2d Cir. 2009)...............................................................................................10, 11

In re Tyson, No. 03-41900, 2005 WL 3789356 (Bankr. S.D.N.Y. Jun. 3, 2005) ........................................12

Zolfo, Cooper & Co. v. Sunbeam-Oster Co., 50 F.3d 253 (3d Cir. 1995).......................................................................................................18

11 U.S.C. § 328(a) ..............................................................................................2, 9, 10, 11, 13, 16

Rules / Statutes

11 U.S.C. § 330 ..................................................................................................................11, 12, 16

11 U.S.C. § 503(b) ...........................................................................................................................1


05834.00001/6276173.2 iii

11 U.S.C. § 503(b)(3)(D) ...............................................................................................................17

11 U.S.C. § 1102 ............................................................................................................................17

Fed.R. Bankr.P. 2014 .....................................................................................................................11

Fed.R. Bankr.P. 2014(a) ................................................................................................................11

3 Collier On Bankruptcy 328.03[4][b] (2014) ...............................................................................10

Other Authorities


05834.00001/6276173.2 1

Hybrid Tech Holdings, LLC (“Hybrid”), pursuant to Article VI.B.1 of the Debtors’

Second Amended Joint Plan of Liquidation Pursuant to Chapter 11 of the Bankruptcy Code (the

“Plan”) [Docket No. 1059], respectfully submits this memorandum of law in opposition to the

Application of Professionals (the “Applicants”) for the Official Committee of Unsecured

Creditors (the “Committee”) for (i) Allowance of Administrative Expense Claims for Services

Incurred in Making a Substantial Contribution in these Cases Pursuant to 11 U.S.C. § 503(b) (the

“Substantial Contribution Application”) and (ii) Approval of Committee Professionals’ Risk

Enhancement (the “Fee Enhancement Application”) and the Second Interim and Final Fee

Application of Brown Rudnick LLP as Counsel to the Committee (the “Brown Rudnick Final

Fee Application

I.

”).

Success has many fathers. The chapter 11 liquidation of Fisker Automotive Holdings,

Inc. (together with its debtor affiliates, “

PRELIMINARY STATEMENT

Fisker”), which followed the company’s 18-month

period of dormancy, turned out better than any creditor, including Hybrid, had expected. The

Committee’s professionals wish to take sole credit for these results. Hybrid respectfully submits

that no one party (or its professionals) can make such a claim. Rather, each of the participants

(the Court, Debtors, the Committee, the secured lender, and the secured lender’s rival bidder

since before the bankruptcy) played its respective role and the goal of maximizing value through

a court-supervised chapter 11 case was achieved as a result. That result was obtained by each

and every one of these parties working collaboratively, not combatively, and the Applicants’

request to be paid double their hourly rates as “combat pay” should be denied. The Applicants

were not heroes and they did not go above and beyond the call of duty. They were Court-


05834.00001/6276173.2 2

approved professionals for a statutory fiduciary. They did their job and got paid for it, on the

terms they requested, pursuant to the limitations of section 328(a) of the Bankruptcy Code.

Given that it is Hybrid, and not unsecured creditors, that is obligated to pay Allowed

Priority Claims (including Professional Fee Claims) under the Plan,1 it falls on Hybrid to object

to the Applicants’ historical revisionism. But a trial on the facts is not even necessary and would

be a further waste of judicial resources. The Fee Enhancement Application and Substantial

Contribution Application should be denied as a matter of law on facts that are indisputable.

Additionally, specifically with respect to the Brown Rudnick Final Fee Application, Hybrid

objects to $153,499.50 in fees and expenses, which are inappropriate for Committee counsel to

be charging.2

II.

UNDISPUTED FACTS

Fisker’s Bankruptcy Filing. Fisker commenced its chapter 11 case on November 22,

2103 (the “Petition Date”). Prior to the Petition Date, Hybrid acquired the U.S. Department of

Energy’s (“DOE”) senior secured loan to Fisker after Fisker and its advisors had marketed its

assets extensively, to no avail. On the Petition Date, Fisker filed several motions relating to

Hybrid acquiring the assets of Fisker as a going concern, including: a motion to approve bidding

procedures and the sale of Fisker’s assets to Hybrid; a proposed liquidating plan of

reorganization and accompanying disclosure statement; and a motion to authorize debtor-in-

possession (“DIP

1 Capitalized terms not defined herein have the meanings set forth in the Plan.

”) lending by an affiliate of Hybrid to finance Fisker’s bankruptcy to

confirmation.

2 The breakdown of improper charges by category and month are annexed hereto as Exhibit A. These charges are for researching and preparing the Fee Enhancement Application (and presumably the Substantial Contribution Application) and various charges for research and investigating potential claims that may subsequently be brought by the Liquidating Trust.


05834.00001/6276173.2 3

Committee Formation and Applicants’ Retention. The Committee was formed on

December 5, 2013 and selected the Applicants as its advisors. According to the Applicants,

“[b]y December 7, the Committee had decided [to pursue a strategy], at significant risk of

nonpayment to the [Applicants].” Applicants’ Brief [Dkt. 1216] ¶ 14 (emphasis added). Almost

a month later, in early January, 2014, the Applicants each filed retention applications seeking

hourly compensation expressly pursuant to section 328(a) of the Bankruptcy Code. See Brown

Rudnick Retention App. [Dkt. 331] ¶ 15; Saul Ewing Retention App. [Dkt. 332] ¶ 6; Emerald

Retention App. [Dkt. 355] ¶¶ 9, 15-16. At the end of January, 2014, the Court approved the

Applicants’ retention on the terms they requested (hourly rates) pursuant to section 328(a) of the

Bankruptcy Code. See Brown Rudnick Retention Order [Dkt. 570] (second ORDERED

paragraph); Saul Ewing Retention Order [Dkt. 571] (second ORDERED paragraph); Emerald

Retention Order [Dkt. 551] (third ORDERED paragraph). The Fee Enhancement Application

omits that the firms had been retained pursuant to section 328(a). The Fee Enhancement

Application also does not disclose that immediately upon this Court’s approval of the

Applicants’ retention, Fisker began depositing funds into an escrow account held by Brown

Rudnick (on behalf of all Committee professionals) to guard against the risk of nonpayment

based on an agreed-upon budget. The total amount held in escrow prior to the commencement of

the auction was $1,750,000, and it was increased to $2,350,000 prior to the global settlement that

led to the Term Sheet (as defined below). See Schedule Of UCC Professional Fees And

Expenses Paid annexed hereto as Exhibit B.

The Committee’s Efforts. The Committee, through the Applicants, promptly undertook

an investigation, obtained numerous documents from Fisker, and interviewed potential

witnesses. Twenty-five days later, on December 30, the Committee filed a motion for standing


05834.00001/6276173.2 4

to sue Hybrid and objected to the allowance of Hybrid’s claims, alleging various causes of

action, including disputes as to the DOE’s (and thus Hybrid’s) perfection of liens over Fisker’s

international patent rights. The Committee also requested a competitive auction for Fisker’s

assets and to cap Hybrid’s right to credit bid under section 363(k) of the Bankruptcy Code. The

alleged “cause” for capping Hybrid’s credit bid were that (i) a portion of the assets to be sold

were not subject to undisputedly valid liens, (ii) Wanxiang America Corp. (“Wanxiang”), a

natural buyer for Fisker as the owner of Fisker’s battery-maker, had re-emerged as a very

interested party wishing to bid at auction (but only if the credit bid was capped), and (iii) the

timetable envisioned by Hybrid’s purchase was too compressed. The Court held that these facts

constituted “cause” to limit Hybrid’s right to credit bid and ordered an auction be held. Hybrid

and Wanxiang were designated co-stalking horses for purposes of the auction. No other bidder

ever showed.

The Auction. The rivalry between Hybrid and Wanxiang generated a robust auction held

over 3 days ending on February 14, 2014. That bidding war generated substantial value for

Fisker’s bankruptcy estate. Wanxiang’s last offer was selected by Fisker and the Committee as

the highest and best. Wanxiang agreed to provide: (a) $126.2 million in cash; (b) $8 million of

assumed administrative and priority claim liabilities; and (c) Wanxiang’s contribution of a 20%

equity interest in a Wanxiang affiliate ultimately designated to acquire Fisker’s assets. The

Court never valued the equity interest component of Wanxiang’s purchase. The Committee and

Fisker agreed upon a value for purposes of the auction, and Hybrid ascribed it little value for a

variety of reasons. Hybrid reserved its rights if it ever became relevant.3

3 Hybrid more broadly reserves the right to contest the Applicants’ argument that its

efforts increased recoveries “80 to 100 times.” Applicants’ Brief [Dkt. 1216] ¶ 3. On January 13, 2014 [Dkt. 433], Hybrid filed a revised offer that guaranteed a minimum payment of $5.5


05834.00001/6276173.2 5

The Litigation Campaign. Throughout the chapter 11 case, the Committee, through the

Applicants, attacked the bona fides of Hybrid, Hybrid’s principals, Fisker’s Chief Restructuring

Officer, and Fisker’s lead restructuring counsel. At one point, urging equitable subordination

and equitable disallowance claims, the Committee also attacked the DOE. Without quibbling

with the tactics, it is indisputable that the Applicants engaged in a “bad acts” campaign in the

hope of extracting value from various causes of action for their constituency. Despite these

efforts, the Committee itself concluded—as a matter of public record4—that these causes of

action had little or no merit, and the parties reached a compromise over the allocation of the

Wanxiang purchase proceeds based upon a gray area of the law concerning whether liens on

patents registered outside the United States were properly perfected by the DOE. The law in this

area is fraught with litigation risk. As described more fully below, the principals prudently

agreed to resolve the dispute rather than expend more money on lawyers.

The Term Sheet And Plan.

million in cash to unsecured creditors. After the auction and subsequent settlement discussions, unsecured creditors obtained $16.5 million in cash. Furthermore, the Applicants’ submission is devoid of any reference as to what unsecured creditors are actually projected to receive. Hybrid submits it will not resemble the cases (such as ASARCO) awarding bonuses when creditors are paid in full following extraordinary trial victories.

Specifically, on the evening of April 3, 2014, following a

full-day session where each side was given an opportunity to present its case to the other’s

principals, the members of the Committee agreed to a global settlement with Hybrid’s principals.

4 See Term Sheet annexed as Exhibit 5 to Disclosure Statement [Dkt. 984-5] at 4; Disclosure Statement [Dkt. 984] at 3 (“The Committee believes that the global settlement between the Debtors, the Committee, and Hybrid was driven entirely or primarily by the value of unsecured creditors’ rights in the Debtors’ property located in Finland and governed by the Finnish Act on Priorities of Payment, which provides that, after the claims of parties holding outright pledges to such property, as well as the rights of lienholders, have been satisfied, fifty percent (50%) of the sales proceeds of such property are distributed to the holders of Finnish business mortgages (such as Hybrid, here), and the remaining fifty percent (50%) to unsecured creditors. The Committee believes that [other causes of action] represent little or no portion of the compromise of the dispute over the allocation of proceeds from the sale of the Debtors’ assets.” (emphasis added).


05834.00001/6276173.2 6

The terms of that settlement were spelled out in a term sheet, and that term sheet was signed by

each Committee member and Hybrid on April 11, 2014 (the “Term Sheet

• All parties would proceed promptly towards confirmation of a consensual plan.

”). The material

components of the settlement were as follows:

• The plan would provide for the payment of $8,000,000 of Allowed Administrative Claims and Allowed Priority Claims, to be paid only after prior application of all funds held in professionals’ escrow accounts (which had been funded to keep professionals current based on prior estimates).

• The plan would pay $20,000,000 (which was later reduced to $16,500,000 by the Committee, after rebating Wanxiang) and all of the Wanxiang equity contribution to unsecured creditors.

• The plan would pay residual cash to Hybrid, after paying off any DIP loans, the actual amount of Allowed Administrative Claims and Allowed Priority Claims, and the $20,000,000 for unsecured creditors.

• The plan would create a liquidating trust to reconcile unsecured claims and pursue any retained causes of action.

• The parties to the settlement would be released from any causes of action.

The Settlement Rationale. With $126.2 million in cash coming into the estate from

Wanxiang, the members of the Committee and Hybrid’s principals found some common ground:

To preserve cash for distribution to creditors (secured and unsecured), rather than squander it on

additional professional fees on theories that are not battle-tested. Indeed, this was at the heart of

Hybrid’s pitch to have the all-day settlement meeting on April 3, 2014, without a formal

mediator (which would only have required more legal fees), and it resonated with the business

people who served as fiduciaries for other creditors.5

5 Notably, despite attendance by every member of the Committee in person or by phone

at the April 3 settlement meeting (which was also attended in person by two of Hybrid’s principals from Hong Kong, one from New York, and still others by phone), no member of the Committee has submitted any declaration in support of additional professional fees. Instead, another professional did. See Decl. Of Robert Sidorsky In Support Of The Committee

Thus, it cannot be disputed that one of the


05834.00001/6276173.2 7

most important issues to all creditors was seeking as much certainty as possible on projected

administrative and priority claims, and negotiating who would bear the risk of that amount being

incorrect—unsecured creditors or Hybrid. Indeed, lead counsel for the Committee even

delivered to Hybrid—specifically for use at the settlement meeting—an estimate of priority and

administrative expense claims showing how the cash received from Wanxiang would dwindle by

the time of confirmation. See March 31, 2014 Post-Closing Cash Flow Projection, annexed

hereto as Exhibit C (of course, nowhere in this projection is there even a hint of fee

enhancements that would be sought by the very people who prepared it).

The “Bait.”

Professionals’ Risk Enhancement And Substantial Contribution Application [Dkt. 1217]. This declaration is of no evidentiary weight on the issues before the Court.

The Committee steadfastly insisted that unsecured creditors were

uninterested in taking any risk on Fisker’s projected administrative and priority claims and

wanted a sum certain dividend. Accordingly, the Committee (through the Applicants) told

Hybrid to perform “whatever due diligence it wants” but Hybrid should bear the risk that

$8,000,000 (a number developed by Fisker in consultation with the Committee during the

auction, as a component of the Wanxiang offer) was a fair estimate. So, Hybrid asked Fisker’s

lead counsel (Anup Sathy) and Chief Restructuring Officer (Marc Beilinson) to provide the

back-up for the $8,000,000—something Hybrid had been asking for since the auction. Mr.

Beilinson and his team thereupon dutifully scrubbed their prior estimates and explained that they

needed input from the Committee’s professionals (i.e., the Applicants, here) because the exact

amount of their fees and expenses were a mystery. Indeed, as of that night, none of the

Applicants had even filed a fee application, forcing Hybrid to rely on whatever information was


05834.00001/6276173.2 8

provided by them that evening.6

A draft of the Term Sheet reflecting the global settlement was circulated that very

evening and, with minor modifications, was signed by all of the principals as a binding contract

under Delaware law about a week later.

Hybrid expressly confirmed with the Applicants, face-to-face,

that they gave their estimated fees and expenses to Mr. Beilinson (each acting in a fiduciary

capacity at the time); Mr. Beilinson stated that the $8,000,000 should be sufficient, but of course

he cannot guarantee the unknown divergence from a good faith estimate. Hybrid agreed to

accept this risk because, at least, it had a good faith estimate.

The “Switch.” After the Term Sheet was filed with the Court on April 11, 2014, the

parties worked to accurately describe the settlement and proposed plan in a disclosure statement,

which was approved by the Court on June 10, 2014 (the “Disclosure Statement

On the Friday before the confirmation hearing held on July 28, 2014, Brown Rudnick, on

behalf of the Applicants, notified Fisker and Hybrid that the firm would be seeking a fee

enhancement equal to 100% of the fees generated between December 5, 2013 and February 14,

2014, and substantial contribution awards for work that Committee counsel did before the

Committee was formed. This was a complete surprise to Hybrid, which had been led to believe

that the one thing in the risk of unknowables that was actually known was the professional fees

”) [Dkt. 984]. On

page 4 of the Disclosure Statement, Fisker disclosed its estimate of Professional Fee Claims

based on input from Fisker’s and the Committee’s professionals. Of course, that disclosure did

not reflect any of the additional fees now being sought by the Applicants for work performed

between December 5, 2013 and February 14, 2014.

6 The Applicants make much of the fact that they “provided notice on several

occasions of their intent to seek a fee enhancement.” They fail to point out that their first interim fee application was not filed until June 18, 2014—long after such notice may have been relevant to Hybrid during the April 3, 2014 settlement meeting.


05834.00001/6276173.2 9

that would have to be paid. The issue immediately became a gating one for going effective

because reserves needed to be made for all “good faith estimates” of professional fees. Without

conceding such amounts could ever have been made in “good faith” given the history of the

settlement, Hybrid agreed to reserve the amount so that the Plan could become effective. On

August 13, 2014, Fisker filed the Notice of the Effective Date [Dkt. 1173]. Among other things,

this filing established September 12, 2014 and September 29, 2014 as the bar date for

Administrative Claims and Professional Fee Claims, respectively. The Substantial

Contribution Application, the Fee Enhancement Application, and the Brown Rudnick Final Fee

Application were filed on September 29, 2014.

III.

A.

ARGUMENT

1. Section 328(a) is a “Two-Way Ratchet” and Precludes Enhancement

FEE ENHANCEMENT AND SUBSTANTIAL CONTRIBUTION

Although unmentioned by the Applicants, they sought and were retained under the

limitations of section 328(a) of the Bankruptcy Code. More frequently, section 328(a) is raised

to protect a professional from the second-guessing of a seemingly excessive award for a less-

than-spectacular result. However, its application—as a matter of plain statutory interpretation

and history—is not so limited. Rather, section 328(a)—if invoked—operates to fix a

professional’s compensation, for better or for worse, ensuring the bankruptcy estate gets a fair

trade.

The Bankruptcy Code is clear: Once the retention terms, including the fee arrangement is

approved, “the court may allow compensation different from the compensation provided under

such terms and conditions after the conclusion of such employment, [only] if such terms and

conditions prove to have been improvident in light of developments not capable of being


05834.00001/6276173.2 10

anticipated at the time of the fixing of such terms and conditions.” 11 U.S.C. § 328(a).

According to Collier, “Section 328(a) … operates as a two-way ratchet: it may preclude

reduction of compensation that in hindsight appears excessive, but it also may preclude an

increase of compensation that in hindsight appears inadequate. Section 328(a) ultimately

provides a device whereby a debtor and its professionals may allocate risk and reward on an ex

ante basis and generally have that allocation respected ex post.” 3 Collier On Bankruptcy

328.03[4][b], at 328-30 (2014).

Both the Second and Fifth Circuit Courts of Appeals have observed and re-iterated that

section 328(a) creates a “high hurdle” for a movant seeking to revise the terms governing a

professional’s compensation ex post facto. See In re ASARCO, L.L.C., 702 F.3d 250, 258 (5th

Cir. 2012); In re Smart World Techs., LLC, 552 F.3d 228, 234–35 (2d Cir. 2009) (“Surprisingly

few cases have construed [§ 328(a)’s] language, but those that have make it evident that it is a

high hurdle to clear.”). As the ASARCO court observed:

We have repeatedly interpreted § 328(a) as meaning precisely what it says: A professional may be retained on any reasonable terms; but, once those terms have been approved pursuant to § 328(a), the court may not stray from them at the end of the engagement unless developments subsequent to the original approval that were incapable of being anticipated render the terms improvident.

702 F.3d at 257.

“Such a movant must show not merely that a compensation adjustment is appropriate in

light of subsequent developments that were previously unforeseen or unanticipated by the

parties; instead, the movant is tasked with the weightier burden of proving that the subsequent

developments were incapable of being anticipated at the time the engagement was approved.” Id.

at 258 (citing In re Barron, 325 F.3d 690, 693 (5th Cir. 2003) (“[T]he intervening circumstances

must have been incapable of anticipation, not merely unanticipated.”); In re Barron, 225 F.3d

583, 586 (5th Cir. 2000) (“It is not enough that the developments were simply unforeseen.”);


05834.00001/6276173.2 11

Smart World, 552 F.3d at 235 (“[S]imply because the size and scope of a settlement had not

actually been anticipated, it does not follow that it was incapable of anticipation.”)).

The ASARCO court proceeded to highlight the differences between section 330 and

328(a), noting that “professionals may avoid subjecting their fees to the inherent uncertainty

associated with such court discretion [under section 330] by obtaining prior approval of their fee

arrangements under section 328(a).” 702 F.3d at 261. “In so doing, however, professionals must

accept the tradeoff presented by § 328(a). That section’s certainty and predictability come at the

expense of flexibility: The professionals would be underpaid if their engagements should require

more work than they had initially expected.” Id.

The Applicants do not even attempt to meet the standards of section 328(a) of the

Bankruptcy Code (because doing so would be futile). Instead, they duck and hope no one goes

back and reads their retention applications or the Court’s orders approving them. No doubt,

however, if a party were challenging the reasonableness of their hourly rates, section 328(a)

would have been trumpeted first and foremost. The Fee Enhancement Application should be

denied as a matter of law on this basis alone, and the Court need read no further on that subject.7

2. Risk of Non-Payment Cannot Warrant Fee Enhancement

As a factual matter, the Applicants’ claim of being at risk of nonpayment is unsupported

by the record. Although not required by any provision of the Bankruptcy Code, on top of the

“carve-out” negotiated as part of the DIP order, Fisker additionally transferred cash (that had

been loaned by Hybrid) to the Applicants’ escrow account specifically to mitigate any risks of

administrative insolvency (which is a risk that numerous professionals face in chapter 11 cases

7 The Applicants, additionally, failed to comply with Bankruptcy Rule 2014 which

required their retention application to “state … any proposed arrangement for compensation….” Fed.R. Bankr.P. 2014(a) (emphasis added).


05834.00001/6276173.2 12

every day). See

A case in point is In re Tyson, No. 03-41900, 2005 WL 3789356 (Bankr. S.D.N.Y. Jun. 3,

2005), in which a law firm attempted to justify its requested fee enhancement by claiming that it

took a significant risk of non-payment in agreeing to represent the debtor. Notwithstanding the

fact that the case was a “knockout success,” the court held that the request for fee enhancement

found “no support in the applicable authorities.” Id. at *4. More specifically, citing Supreme

Court caselaw, the court held that the risk of non-payment, by itself, cannot warrant enhancing a

lodestar because that risk is itself one of the factors used in establishing lodestar. Id. (citing

Pennsylvania v. Delaware Citizens’ Council for Clean Air, 483 U.S. 711, 727 (1987) (in non-

bankruptcy context involving fee-shifting, concluding that “multipliers or other enhancement of

a reasonable lodestar fee to compensate for assuming the risk of loss is impermissible under the

usual fee-shifting statutes”); City of Burlington v. Dague, 505 U.S. 557, 562 (1992) (in non-

bankruptcy context, holding that enhancement for contingency was not permitted under the fee-

shifting statutes at issue). Those authorities apply a fortiori in bankruptcy, where, as Judge

Gropper noted, “[i]n the bankruptcy context, many debtors’ counsel face a risk of non-payment.”

Tyson, 2005 WL 3789356, at *4 (granting debtors’ request for a fee enhancement merely as

Exhibit B. Hybrid is unaware how the amounts transferred were determined by

Fisker or whether they were based on budgets prepared by Fisker or even the Applicants

themselves. Regardless, the Applicants had $1.75 million securing their feigned “clear and

present danger” by the time of the auction and $2.35 million in escrow before the global

settlement was reached. The Court need not even delve into these facts because the risk of

nonpayment (particularly one that was known at the time of retention) is not a basis to award a

fee enhancement as a matter of law.


05834.00001/6276173.2 13

interest to compensate for the undue delay in payment (and the enhancement wouldn’t affect

unsecured creditors’ recoveries), not because of risk of non-payment).

3. “Bait and Switch” Precludes Enhancement

Automotive industry references have pervaded this chapter 11 case. Apt that it should

end with another classic: the “bait and switch.” While the Court would be on solid footing to

rely upon section 328(a) of the Bankruptcy Code to deny the Fee Enhancement Application as a

matter of law, and it could also deny it as a matter of discretion under section 330 of the

Bankruptcy Code, Hybrid submits that Delaware law also applies on the unique facts of this

case. As set forth above, the Committee and Hybrid, faced with a finite pot of cash, responsibly

chose to minimize administrative costs and negotiate a split of that cash among creditors. That

negotiation entailed the Committee’s insistence that Hybrid bear the cost of any unknown

administrative and priority claims. After confirming the professional fee estimates provided by

the Applicants had been faithfully taken into account, Hybrid agreed to bear the risk that

unanticipated administrative and priority claims could arise between April 3, 2014 and

confirmation. Unbeknownst to Hybrid, it appears from the declaration submitted by counsel to

the Chair of the Committee [Dkt. 1217 ¶ 10] that the Applicants were aware of two critical facts

that were not disclosed and were within the unique knowledge of the Applicants: One, members

of the Committee were encouraging the Applicants to seek an enhancement of their fees; and

two, the fee estimates provided by the Applicants for the purpose of inducing Hybrid’s reliance

did not include such enhancements. Moreover, the circumstances purportedly justifying the fee

enhancements were known to the members and the Applicants at the time of the settlement. The

Term Sheet was signed by Hybrid and each of the members of the Committee. This Court and

Delaware law were chosen as the means to render the agreement binding. To lay in the weeds


05834.00001/6276173.2 14

and spring a request for fee enhancements given the circumstances of negotiating the Term Sheet

violates Delaware’s implied covenant of good faith and fair dealing.

As stated by the Court of Chancery in Chamison v. HealthTrust--Hosp. Co., 735 A.2d

912 (Del. Ch. 1999), aff'd sub nom. Healthtrust-Hosp. Co. v. Chamison, 748 A.2d 407 (Del.

2000):

Under Delaware law, an implied covenant of good faith and fair dealing inheres in every contract. . . . This implied covenant is a judicial convention designed to protect the spirit of an agreement when, without violating an express term of the agreement, one side uses oppressive or underhanded tactics to deny the other side the fruits of the parties' bargain. It requires the Court to extrapolate the spirit of the agreement from its express terms and based on that “spirit,” determine the terms that the parties would have bargained for to govern the dispute had they foreseen the circumstances under which their dispute arose. The Court then implies the extrapolated term into the express agreement as an implied covenant and treats its breach as a breach of the contract.

735 A.2d at 920-21; see also Merrill v. Crothall-Am., Inc., 606 A.2d 96, 102 (Del. 1992)

(inducing a party to enter into a contract while concealing an intention that undermines the

party’s understanding states a claim for breach of the implied covenant).

Alternatively, the Applicants are barred by the doctrine of equitable estoppel. As stated

by the Supreme Court of Delaware in Nevins v. Bryan, 885 A.2d 233, 249 (Del. 2005):

The doctrine of equitable estoppel is invoked when a party by his conduct intentionally or unintentionally leads another, in reliance upon that conduct, to change position to his detriment. The party claiming estoppel must demonstrate that: (i) they lacked knowledge or the means of obtaining knowledge of the truth of the facts in question; (ii) they reasonably relied on the conduct of the party against whom estoppel is claimed; and (iii) they suffered a prejudicial change of position as a result of their reliance.

Under the circumstances, it is hard to imagine a more inequitable result than to permit the

Applicants (or the Committee, to the extent any of its members actually supports the Fee

Enhancement Application) to change a material component of the bargain after secretly hiding


05834.00001/6276173.2 15

their intention to inflate their fees after Hybrid signs on the dotted line in reliance on the

Applicants’ estimates.

4. Success of this Case Has Many Fathers (And Is Overstated)

Hybrid understands the plight faced by Fisker perhaps better than any other creditor. It

stood by Fisker pre-bankruptcy and funded its payroll when no other stakeholder would. It

acquired the DOE loan and charted a course for acquiring Fisker’s assets despite its mothballed

state. After the Court ordered an auction, Hybrid engaged in good faith arm’s-length bidding

over a three-day period, and against every form of currency Wanxiang put forward, Hybrid bid

cold hard cash. The result of the auction was terrific for all stakeholders. But no one party, or its

advisors, were singularly responsible.

The Applicants too faced a tough road at the outset. It appeared no other bidder was

interested following Fisker’s pre-bankruptcy efforts. It also appeared (at least as a matter of U.S.

law) that that DOE had properly perfected its liens on all of the Debtors’ assets. The Applicants

worked hard and forced an auction, aided in large part by Wanxiang’s resurgent interest in

Fisker. But this was a sale of the Debtors’ assets. The data room, the pre-bankruptcy diligence,

the post-bankruptcy diligence, the meetings with management, and the human resources platform

that had been preserved were all handled by the Debtors and their investment banker (and paid

for by Hybrid). Indeed, a transaction fee (or success fee) was even paid as an administrative

expense to the investment banker for the result of those efforts.

For its part, the Committee did what unsecured creditors’ committees should do. They

pushed for an open auction and then pushed the bidders (only two) to bid as much as they

possibly could. But both “co-stalking horses” were already known to the Debtors. One (Hybrid)

was an affiliate of a longstanding shareholder who had long believed in Fisker and had been

financing Fisker towards a confirmable plan. The other (Wanxiang) had already acquired A123,


05834.00001/6276173.2 16

the battery maker for Fisker whose own bankruptcy certainly contributed to Fisker’s collapse.

Both parties had expressed interest in these assets and the only issue was whether Wanxiang was

interested in bidding and, if so, on what terms. Wanxiang expressed an interest in bidding as

long as Hybrid’s right to credit bid was limited. The Committee urged this result and also

demonstrated that bankruptcy courts have the discretion to limit credit bidding for “cause,” and

“cause” depends on the facts.

Although the Applicants make much of the tremendous investigation they undertook into

Hybrid’s alleged misconduct, the Committee’s own public statements belie any tangible benefit

from that work. The distribution to unsecured creditors was (according to the Committee)

generated “entirely or primarily” from issues relating to disputed liens on foreign intellectual

property rights. Accordingly, in the confirmation order, the Court found that the “bad acts”

causes of action were of de minimis value to the Debtors’ estates. [Dkt. 1137] ¶ 21.

In stark contrast to the facts of this case, the Applicants cite In re ASARCO LLC, 751

F.3d 291 (5th Cir. 2014) as support. The ASARCO case does not resemble the Fisker case in any

respect. First, ASARCO was a case in which results were achieved entirely by virtue of the

largest fraudulent transfer judgment (after trial) in the history of the United States, not an auction

between rival bidders with substantial incentives to outbid each other. Second, the fee

enhancement in ASARCO was reviewed exclusively under section 330, not section 328(a), of the

Bankruptcy Code. Third, ASARCO generated a 100% recovery for all creditors, so the only party

opposing the award of a fee enhancement was the loser at trial, who had been adjudicated an

actual fraudster. In the case at bar, the senior secured creditor was projected to receive 60%-66%

and general unsecured creditors were projected to receive 8%-26.7% (even assuming the


05834.00001/6276173.2 17

Wanxiang equity component had the value the Committee ascribed to it). See Disclosure

Statement [Dkt. 984] at 5. No offense to the Applicants, but this case is no ASARCO.8

5. No Standing to Seek Substantial Contribution

First and foremost, the Notice of the Effective Date [Dkt. 1173] established a deadline for

Administrative Claims and a separate deadline for Professional Fee Claims. The Substantial

Contribution Application is a request for payment of an Administrative Claim and it should be

denied as untimely, since the Applicants missed the September 12, 2014 deadline.

Nor is this any innocent mistake. Professional Fee Claims are for professionals retained

by court order to represent the Debtors or the Committee. A “substantial contribution” claim,

however, can only be filed by “a creditor, an indenture trustee, an equity security holder, or a

committee . . . other than a committee appointed under section 1102 of [the Bankruptcy Code].”

11 U.S.C. § 503(b)(3)(D) (emphasis added). What authority, then, do the Committee’s lawyers

cite to be eligible to seek a “substantial contribution” under this statute? None. They are

statutorily ineligible and further ineligible because they missed the deadline for filing an

Administrative Claim. The Substantial Contribution Application cannot be a Professional Fee

Claim because the latter can only be asserted by an entity retained by the Court; the Applicants

were retained by the Court nunc pro tunc to December 5, 2014, the date the Committee was

formed. Committee counsel cannot seek fees for their pitch-work and efforts getting up to speed

to represent the Committee. Indeed, they had no standing to file an Administrative Claim under

section 503(b)(3)(D) because they are not “creditors” within the meaning of the statute in any

event.

8 As the district court that conducted the trial noted: “A seven billion dollar judgment,

which is recoverable, which saves a company, and funds a 100% recovery for all concerned is a once in a lifetime result.” 751 F.3d at 294.


05834.00001/6276173.2 18

B.

1. Cannot Charge for Fee Enhancement Research

BROWN RUDNICK FINAL FEE APPLICATION

As set forth on Exhibit A, under “Employment & Fee Applications,” the Brown Rudnick

Final Fee Application has tacked on $53,533.00 in fees generated for researching, writing,

conferring, and “strategiz[ing]” over how to get a fee enhancement for the Applicants. These are

not fees authorized by the terms of their engagement and it is hard to imagine non-bankruptcy

clients agreeing to pay their attorneys for the time spent trying to persuade them to give them a

bonus. Brown Rudnick has not submitted any evidence of such a market standard. See Zolfo,

Cooper & Co. v. Sunbeam-Oster Co., 50 F.3d 253 (3d Cir. 1995) (holding that the baseline rule

is for firms to receive their customary rates); In re Busy Beaver Bldg. Ctrs., Inc., 19 F.3d 833 (3d

Cir. 1994) (holding that a “market approach” from the non-bankruptcy context is appropriate).

Accordingly, these charges should be disallowed.

2. Cannot Charge for Liquidating Trust Work

The Brown Rudnick Final Fee Application also includes charges—quite astonishingly—

where it appears Committee counsel was researching and interviewing potential class plaintiff

counsel for potential antitrust claims. These charges span three categories (“Asset Analysis and

Discovery,” “Non-Working Travel,” and “Litigation: Contested Matters & Adversary

Proceedings”) and aggregate $99,966.50. As set forth in the Term Sheet and the Plan, the

bargain struck between the Committee and Hybrid was that all potential causes of action would

be assigned to the Liquidating Trust and that Hybrid would have no entitlement to share in any

proceeds from those claims, even on account of its substantial unsecured deficiency claims. The

quid pro quo was that the Liquidating Trust would pay its own freight, either by funding itself

with a portion of the cash reserved for unsecured creditors, or by securing counsel on a

contingency basis, or both. But it is unfair and inequitable for Hybrid to be compelled to pay for


05834.00001/6276173.2 19

services rendered exclusively for other creditors’ benefit. This is particularly inappropriate

because the work was performed on the eve of confirmation (and long after the Term Sheet was

signed), apparently when Brown Rudnick was gearing up to apply for the position of Liquidating

Trust counsel (and trying to have Hybrid pay for it).

Brown Rudnick has not met its burden to show these charges were properly incurred in

its capacity as counsel for the Committee, particularly when the Liquidating Trust, not the

Committee, would be the exclusive party with standing to pursue such claims in any event.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]


05834.00001/6276173.2 20

IV.

Based on the foregoing undisputed facts and legal authorities, Hybrid respectfully

requests that this Court deny the Fee Enhancement Application, the Substantial Contribution

Application, and $153,499.50 of the Brown Rudnick Final Fee Application. In the event the

Court believes an evidentiary hearing is required due to disputed facts that are material, Hybrid

reserves the right to take discovery and requests permission to file a post-trial brief.

CONCLUSION

Respectfully submitted,

SCHNADER HARRISON SEGAL & LEWIS LLP

By: Richard A. Barkasy (#4683)

/s/ Richard A. Barkasy

Fred W. Hoensch (#5761) 824 N. Market Street, Suite 800 Wilmington, DE 19801

Telephone: (302) 888-4554 Facsimile: (302) 888-1696

[email protected] [email protected]

-and- QUINN EMANUEL URQUHART & SULLIVAN, LLP Susheel Kirpalani (admitted pro hac vice) 51 Madison Avenue, 22nd Floor New York, New York 10010 Telephone: (212) 849-7000 [email protected] Facsimile: (212) 849-7100 Dated: October 14, 2014 Counsel to Hybrid Tech Holdings, LLC


Case 13-13087-KG Doc 1225-1 Filed 10/14/14 Page 1 of 2






Documents

IN THE UNITED STATES BANKRUPTCY COURT FOR THE … · timetable envisioned by Hybrid’s purchase was too compressed. The Court held that these facts constituted “cause” to limit