In re Molycorp, Inc.

562 B.R. 67

IN RE: MOLYCORP, INC., Reorganized Debtor.

Case No.: 15–11357 (CSS) (Jointly Administered)

United States Bankruptcy Court, D. Delaware.

Signed January 5, 2017

MORRIS, NICHOLS, ARSHT & TUNNELL LLP, Robert J. Dehney, Gregory W. Werkheiser, Andrew R. Remming, 1201 North Market Street, 16^thFloor, Wilmington, DE 19899 and MILBANK TWEED, HADLEY & McCLOY LLP, Dennis F. Dunne, Samuel A Khalil, Lauren C. Doyle, 28 Liberty Street, New York, NY 10005, and Andrew M. Leblanc, Aaron L Renenger, 1850 K Street NW, Suite 1100, Washington, DC 20006, Counsel for OCM MLYCo CTB Ltd.

ASHBY & GEDDES, P.A., William P. Bowden, Gregory A. Taylor, 500 Delaware Avenue, 8^thFloor, P.O. Box 1150, Wilmington, DE 19899 and PAUL HASTINGS LLP, Luc A. Despins, Andrew V. Tenzer, 200 Park Avenue, New York, NY 10166, Co–Counsel for the Official Committee Of Unsecured Creditors

OPINION¹

Sontchi, J.

INTRODUCTION

The Debtors in this case sought an order confirming their joint Chapter 11 plan of reorganization following an execution of a global settlement agreement among the Debtors, the lender, and the Official Committee of Unsecured Creditors.² The Court conducted a confirmation hearing, and based upon the evidence presented confirmed the plan.³ Ordinarily, this would end the matter in a consensual way. However, the lender filed an objection to the Committee's Counsel's request for compensation and reimbursement of expenses. At large, the lender asserts that the compensation requested was incurred in violation of a dollar-amount cap included in the DIP Financing Order. In contrast, the Committee's Counsel argues that the cap in the DIP Financing Order has no implication after the reorganization plan has been confirmed. For the reasons set forth below, the Court will overrule the lender's objections and will approve the Committee's Counsel's fee application. The Court holds that absent specific language not found in the DIP Financing Order at issue here, a dollar-amount cap on professionals' fee payment, or a carve-out, does not come into play once a Chapter 11 plan is confirmed. That is because a fundamental statutory requirement of the Bankruptcy Code is that, unless the holder of a particular claim has agreed to a different treatment, allowed professionals' fees are administrative expenses that need to be paid in full under any confirmed plan. Additionally, the Court is satisfied that the Fee Examiner's recommendations reflect reasonable compensation for actual and necessary services.

JURISDICTION AND VENUE

The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 and 1334. In addition, this Court expressly retained jurisdiction pursuant to the Order Establishing Procedures for Interim Compensation and Reimbursement of Expenses of Professionals.⁴ Venue is proper in this District pursuant to 28 U.S.C. § 1409(a). This is a core proceeding under 28 U.S.C. §§ 157(b)(2)(A) and (B) as relief is predicated on 11 U.S.C §§ 330 and 331. The Court has the judicial power to enter a final order.

STATEMENT OF FACTS

A. Factual and Procedural Background

On June 25, 2015, Molycorp, Inc. and certain of its direct and indirect subsidiaries (collectively, the "Debtors") filed voluntary petitions under Chapter 11 of the Bankruptcy Code. The cases have been jointly administrated.⁵ Following the filing, the Debtors engaged in a series of intense negotiations in an attempt to obtain post-petition financing that would provide the Debtors with the liquidity they needed to continue to operate their business.⁶ Ultimately, the Debtors entered into a DIP financing facility with Oaktree Capital Management, L.P. ("Oaktree"). As a result, on July 1, 2015, the Debtors filed a motion for approval of financing and use of cash collateral (the "DIP Financing Motion").⁷ An interim order pursuant to the DIP Financing Motion was entered on July 2, 2015.⁸ A final hearing was held on July 22, 2015, and on July 24, 2015, the Court entered its final order approving the DIP Financing Motion (the "DIP Financing Order").⁹ In between, the Official Committee of Unsecured Creditors was formed (the "Committee"),¹⁰ and selected Paul Hastings LLP (the "Committee's Counsel" or "Paul Hastings") as its lead counsel.¹¹ Almost three weeks after entry of the DIP Financing Order, on August 13, 2015, the Court approved Paul Hastings' retention by the Committee.¹²

Soon after its formation, the Committee launched an investigation into potential claims that could be asserted by the Debtors. The Committee's investigation spanned over four months and involved extensive discovery process. As a result of its investigation, on December 23, 2015, the Committee filed a motion seeking standing to pursue certain causes of actions against Oaktree and the Debtors' directors and officers (the "Standing Motion"). On January 14, 2016, the Court entered an order authorizing the Committee to bring litigation on behalf of the Debtors' estate pursuant to the Standing Motion,¹³ and, on January 15, 2016, the Committee commenced an adversary proceeding and filed its complaint.¹⁴ Meanwhile, the parties participated in an extensive mediation before the Honorable Robert D. Drain of the United States Bankruptcy Court for the Southern District of New York.¹⁵ Due to Judge Drain's tireless efforts and the parties' good faith negotiations, the mediation ultimately bore fruit and, on February 22, 2016, the Debtors filed a notice of execution of a global settlement agreement between different parties to this case, including between the Committee and Oaktree (the "Settlement Agreement").¹⁶ The Settlement Agreement paved the way for a consensual reorganization plan for certain of the Debtors.¹⁷ On March 29–30, 2016, the Court held a hearing to consider confirmation of the reorganization plan.¹⁸ After receiving documentary and testimonial evidence, the Court approved the plan on April 8, 2016 (the "Confirmation Order" and the "Confirmed Plan" respectively).¹⁹

B. Paul Hastings' Second Interim Fee Application and Oaktree's Objection

In its Second Interim Fee Application, Paul Hastings seeks approval of fees in the amount of $8,491,064.75 and reimbursement of expenses in the amount of $226,170.96, for the period from September 1, 2015, through March 31, 2016 (the "Second Interim Application").²⁰ Oaktree objects to the compensation requested on the grounds that the fees sought in the Second Interim Application are excessive, unreasonable, and were incurred in direct violation of the DIP Financing Order.²¹ Specifically, Oaktree asserts that the dollar-amount cap set in the DIP Financing Order, with regard to the Committee's investigation into potential claims, constitutes an absolute cap on fee payments out of certain sources enumerated in the DIP Financing Order (i.e., the DIP loans, the prepetition Oaktree collateral, the DIP collateral, or any portion of the carve-out (the "Restricted Sources")).²² Oaktree argues that the Committee has long ago exhausted the dollar-amount cap in the DIP Financing Order, and that Paul Hasting has not identified, and cannot identify, any source of payment other than the Restricted Sources for the fees sought; that is, since the Restricted Sources account for substantially all of the Debtors' sources of cash.²³ In other words, Oaktree contends that there is no money left to be dispersed without rendering meaningless the cap in the DIP Financing Order.

Oaktree also maintains that the Second Interim Application conflicts with the DIP Financing Order for another, separate reason. Oaktree argues that, although the DIP Financing Order allows for limited payments out of the Restricted Sources for investigating potential claims, it does not authorize any compensation for the initiation and prosecution of such claims. According to Oaktree, a significant portion of the fees requested by Paul Hastings in the Second Interim Application should be denied because it relates to the initiation and prosecution of claims against Oaktree rather than to the Committee's investigation. Thus, the argument goes, even if an alternative source of payment could be identified, the payment of such fees must be denied as strictly prohibited under the DIP Financing Order.²⁴

Furthermore, Oaktree asserts that not only does the Second Interim Application conflict with the DIP Financing Order, but that it also fails to pass the reasonableness test under section 330(a) of the Bankruptcy Code.²⁵ Oaktree advances that the dollar-amount cap in the DIP Financing Order represents the reasonable compensation standard for the Committee's professionals' services. Put another way, Oaktree claims that any portion of Paul Hastings' fees that exceeds the cap set by the DIP Financing Order is presumptively unreasonable.²⁶ Finally, Oaktree asserts that the descriptions of work performed by Paul Hastings' attorneys are excessively vague. Accordingly, Oaktree believes that Paul Hastings has not met its burden with respect to these vague time entries, and allowance or payment of any fees associated with these entries should be denied.²⁷

Paul Hastings rejects Oaktree objections. Paul Hastings maintains that a carve-out in a DIP order simply provides that a professional gets a right, that he or she otherwise would not had, to use a portion of the secured creditor's collateral for payment of such professional's fees. While this may be relevant in an administratively insolvent case, the argument goes, it is irrelevant in a case such as this with a confirmed Chapter 11 plan. In other words, Paul Hastings argues that the dollar-amount cap for using Oaktree's collateral has no impact whether the requested fees should be allowed, and, to the extent they are allowed, they remain entitled to payment as administrative expense claims if the Debtors wish to have a plan of reorganization confirmed.²⁸ Additionally, Paul Hastings asserts that the Committee and its professionals have worked diligently and efficiently, consistent with the Committee's fiduciary duties...