5th Circuit Orders Winstead to Pay Back $500K in Bankruptcy Fees
A federal appeals court has ruled the doctrine of equitable mootness does not protect $500,000 in legal fees paid to Dallas-based Winstead for work it performed in a Chapter 11 bankruptcy.
The New Orleans-based 5th U.S. Circuit Court of Appeals said two lower courts should not have allowed the law firm to be paid from a reserve fund set aside for the secured claims of two officers of the former company, Texas Lawyer reports.
The court said an order compelling disgorgement of the attorney fees and expenses for the law firm’s work representing the plan administrator would not unravel the bankruptcy plan and the disgorged money would be distributed according to a bankruptcy court’s final decree. The Aug. 28 decision, Wooley v. Faulner (PDF), involved a bankruptcy plan for the Schlotzsky’s sandwich chain.
Winstead has received a total of $1.5 million in fees for its representation of the plan administrator, the story says, quoting a brief in the case.
Former bankruptcy judge R. Glen Ayers, now a partner at Langley & Banack in San Antonio, told Texas lawyer that the case is troubling for lawyers whose fees are subject to court approval in Chapter 11 cases.
He said the case means the fees may be subject to recapture for an indefinite period. “This is scary, because it leaves you in the dark as to when a Chapter 11 case is finally over,” he told the publication.
