In re Navient Solutions, LLC

627 B.R. 581

IN RE: NAVIENT SOLUTIONS, LLC, Putative Debtor.

Case No. 21-10249 (MG)

United States Bankruptcy Court, S.D. New York.

Signed May 11, 2021

KIRKLAND & ELLIS LLP, Attorneys for Navient Solutions, LLC, 601 Lexington Avenue, New York, NY 10022, By: Stephen Hessler, Esq., Chad J. Husnick, Esq., Jennifer Levy, Esq., AnnElyse Scarlett Gains, Esq.

MCGUIREWOODS LLP, Attorneys for Navient Solutions, LLC, 800 East Canal Street, Richmond, VA 23219, By: Thomas M. Farrell, Esq., K. Elizabeth Sieg, Esq., Joseph Florczak, Esq., Shawn R. Fox, Esq.

SMITH LAW GROUP LLP, Attorneys for the Petitioning Creditors, 99 Wall Street, No. 426, New York, NY 10005, By: Austin C. Smith, Esq.

LAW OFFICES OF MICHAEL B. WOLK, P.C., Attorneys for Public Interest Capital, LLC, 155 East 55th Street, Suite 300B, New York, NY 10022, By: Michael B. Wolk, Esq.

OFFICE OF THE UNITED STATES TRUSTEE, 201 Varick Street, Room 1006, New York, NY 10014, By: Andrea B. Schwartz, Esq.

MEMORANDUM OPINION AND ORDER GRANTING AWARD OF ATTORNEYS' FEES

MARTIN GLENN, UNITED STATES BANKRUPTCY JUDGE

Pending before this Court is Navient Solutions, LLC's ("Navient") Motion for Attorneys' Fees and Costs Pursuant to 11 U.S.C. § 303(i) . ("Motion," ECF Doc. # 54.) In support of the Motion, Navient filed the declaration of Stephen E. Hessler. ("Hessler Declaration," ECF Doc. # 55.) The Motion was filed in response to the decision of this Court dismissing the involuntary chapter 11 bankruptcy petition filed by Sarah Bannister, Brandon Hood, and Labarron Tate (collectively, the "Petitioning Creditors") and later joined by Public Interest Capital, LLC ("PICAP").¹ (See "Order," ECF Doc. # 42, ¶ 6 ("Navient has not waived the right to seek judgment against the Petitioners, Counsel, Public Interest Capital, LLC (‘PICAP’), and counsel for PICAP pursuant to section 303(i) of the Bankruptcy Code and this Court may, upon subsequent proceedings initiated by Navient, take under advisement additional proceedings related to the Involuntary Case pursuant to section 303(i) of the Bankruptcy Code."); "Opinion," ECF Doc. # 45, at 29 n.15.)²

The Motion seeks to recover fees and costs in the total amount of $609,385.44 against Austin C. Smith ("Smith") and Smith Law Group LLP (together with Smith, "Petitioning Creditors' Counsel"), PICAP, and Michael B. Wolk ("Wolk") and Law Offices of Michael B. Wolk, P.C. (together with Wolk, "PICAP Counsel") to the fullest extent of the law. Navient is not seeking attorneys' fees and costs from the Petitioning Creditors.

Below is a chart summarizing the fees and expenses sought by the Motion:

Firm	Time Period	Hours	Fees Requested	Expenses Requested	Total
Kirkland & Ellis LLP ("Kirkland")	02/10/21-03/19/21	510.5	$524,050.8 0	$2,903.54	$526,954.3 4
McGuireWoods LLP ("McGuireWoods")	02/08/2021-02/26/2021	123.8	$81,431.10	-	$81,431.10

The objection deadline was April 15, 2021 at 4:00 p.m. On April 15, 2021, before the deadline had passed, Petitioning Creditors' Counsel filed a response in opposition to the Motion. ("Smith Objection," ECF Doc. # 60.)³ On April 19, PICAP and PICAP Counsel filed their opposition to the Motion. ("PICAP Objection," ECF Doc. # 63, and together with the Smith Objection, the "Objections.") On April 19, 2021, Navient filed its reply to the Objections. ("Reply," ECF Doc. # 64.)

On April 20, 2021, PICAP and PICAP Counsel filed a letter in response to the Reply with the subject as "APPLICATION by PICAP Nonparties (a) to strike new arguments in Navient reply brief filed late yesterday [Dkt 64] or, alternatively, to grant leave to the PICAP Nonparties to file a sur-reply, in response to Navient new arguments, by a date to be designated by the Court and, in addition, (b) for Court consideration of the legal reasons herein from the PICAP Nonparties as an authorized sur-reply to Navient new arguments and (c) related relief." ("Application," ECF Doc. # 66.) On April 21, 2021, Navient filed a reply to the Application. ("Application Reply," ECF Doc. # 68.) That same day, PICAP filed a reply to the Application Reply. (ECF Doc. # 69.)

Following dismissal of an involuntary petition, section 303(i)(1) permits the alleged debtor to recover "a reasonable attorney's fee." Based upon a review of the attorneys' affidavits and time records submitted, and the arguments in support of and opposition to the application, the Court finds and concludes that the amount of fees and expenses Navient seeks to recover for the work of Kirkland & Ellis and McGuireWoods is not reasonable. As explained in this Opinion, Navient is awarded fees and costs in the substantially reduced amounts set forth below.

I. BACKGROUND

On February 8, 2021, the Petitioning Creditors filed an involuntary petition against Navient (ECF Doc. # 1) with an attached supplement (ECF Doc. # 1-1). On February 10, 2021, the Petitioning Creditors filed an amended involuntary petition. ("Involuntary Petition," ECF Doc. # 2.) On February 17, 2021, Navient filed a motion to dismiss the Involuntary Petition. ("Motion to Dismiss," ECF Doc. # 14.)

On February 25, 2021, this Court held a hearing on the Motion to Dismiss (the "MTD Hearing"). Smith did not attend the MTD Hearing. Wolk attended the MTD Hearing on behalf of PICAP. The Court orally granted the Motion to Dismiss at the MTD Hearing and subsequently entered the Order that same day. The Opinion followed on March 8, 2021. In response to the dismissal of the involuntary action, Navient filed the Motion on March 29, 2021.

On April 9, 2021, the Petitioning Creditors' Counsel filed a motion under Federal Rule of Bankruptcy Procedure 8007 seeking (a) a stay of enforcement of the Bankruptcy Court's dismissal orders to the extent such dismissal orders adjudicate merits issues pending appeal and (b) an immediate interim stay pending appeal. ("Petitioning Creditors' Stay Motion," ECF Doc. # 57.) On April 11, 2021, PICAP filed an emergency motion to stay Navient's post-dismissal legal fee application under 11 U.S.C. § 303(i)(1). ("PICAP's Stay Motion," ECF Doc. # 58.) On April 13, 2021, this Court entered an order denying the Petitioning Creditors' Stay Motion and PICAP's Stay Motion. (ECF Doc. # 59.)

On April 22, 2021, this Court held a hearing on the Motion (the "Fee Hearing"). After hearing arguments from the parties, the Court took the matter under submission.

II. PARTIES' CONTENTIONS

A. Smith Objection

In the Smith Objection, Petitioning Creditors' Counsel argues that the Motion should be denied because (I) the Motion is time-barred under Rule 54(d)(2)(B)(i); (II) Navient is not entitled to an award of its attorneys' fees and costs based on the totality of the circumstances where the involuntary petition and joinder did not lack merit under sections 303 and 305, Petitioning Creditors' Counsel acted reasonably, and Smith did not intend to harm Navient's reputation; (III) Navient is not entitled to an award of its attorneys' fees and costs incurred in connection with this involuntary case because it was dismissed due to abstention; and (IV) the attorney fee award requested is unreasonable. In support of this last argument, Petitioning Creditors' Counsel contends that (1) the assignments were overstaffed between and within the two firms, where Kirkland had five partners bill 200 hours; (2) the descriptions of services rendered were insufficiently detailed; (3) there was duplication of services between and within the two law firms; (4) some services were provided by individuals with unnecessarily high hourly rates; (5) there were excessive hours spent on some services, including numerous conferences and calls among the Kirkland team; (6) some services were ministerial; (7) some requested costs are actually overhead expenses; and (8) the documentation of services rendered does not appear to be in the form of contemporaneous time records.

B. PICAP Objection

In summary, the PICAP Objection claims that Navient's Motion should be denied for the following reasons: (1) this Court lacks jurisdiction because Article III of the United States Constitution divested the Bankruptcy Court of the power to adjudicate any non-jurisdictional issues on the merits; (2) Federal Rules of Bankruptcy Procedure 1018 and 1003, as well as Supreme Court precedent, preclude Navient from even asserting, in its post-dismissal proceeding, that PICAP purportedly became, or was allowed by this Court to intervene and become, a "joinder creditor" in the case; (3) the Motion is time barred under Rule 54(d)(2)(B)(i); (4) the American Rule applies here and imposes a presumption against legal fee shifting liability; (5) PICAP's three-page filing on February 23, 2021 is not the "but for" cause of all the legal fees incurred by Navient, because such legal fees were incurred by Navient in response to the involuntary case papers filed by Petitioning Creditors and in connection with Navient's motion to dismiss filed on February 17, 2021; (6) fee shifting liability is not allowed where an involuntary case is dismissed on abstention grounds under 11 U.S.C. § 305 ; (7) under 11 U.S.C. § 303(i)(1), this Court should decline to impose any legal fees involving the "totality of the circumstances" relevant to the very limited litigation acts by PICAP and PICAP Counsel; and (8) PICAP and PICAP Counsel have a right to a jury trial.

C. Navient's Reply

In the Reply, Navient argues (I) the fee motion is not time-barred; (II) Navient is entitled to fees and costs based on the totality of the circumstances; (III) this Court's alternative section 305 finding does not negate this Court's section 303 findings; (IV) the fees sought in the Motion are reasonable; and (V) the PICAP Objection should be stricken as untimely and also fails on the merits. In support of the last argument, Navient contends (1) section 303(i) requests are an exception to the "American Rule"; (2) PICAP and PICAP Counsel may be held liable on the same grounds as the Petitioning Creditors; and (3) PICAP and PICAP Counsel are not entitled to a jury trial because attorneys'...