Summary
affirming that "indemnification provisions in professional contracts are appropriate provided they are reasonable and in the best interests of the estate pursuant to § 328"
Summary of this case from In re Comdisco, Inc.Opinion
00 Civ. 3601 (JSM)
December 6, 2000
Wendy Rosenthal, New York, NY, for Appellant.
Stuart Hirshfield, Dewey Ballantine LLP, and Albert Togut, Togut, Segal Segal LLP, New York, NY, for Appellees.
MEMORANDUM OPINION AND ORDER
This is an appeal by the United States Trustee (the "Trustee") from a memorandum decision and an order of the United States Bankruptcy Court for the Southern District of New York approving a professional contract between Joan and David Helpern, Inc. (the "Debtor") and Newmark Retail Financial Advisors LLC ("Newmark"). For the following reasons, the bankruptcy court's memorandum decision and order are affirmed.
I. PROCEDURAL HISTORY
In a memorandum decision dated April 4, 2000, the bankruptcy court approved as reasonable a professional contract (the "Contract") between the Debtor and Newmark, pursuant to which Newmark would provide investment services and advice while the Debtor attempted to restructure. See In re Joan and David Halpern, Inc., 248 B.R. 43 (2000). The Contract contained an indemnification provision, under which the Debtor would indemnify Newmark for any damages and expenses it incurred while representing the Debtor. Responding to the Trustee's challenge to the indemnification provision, the court ruled that such provisions are not per se unreasonable in professional contracts, and concluded that on the whole the Contract was fair.
On April 10, 2000, the court entered an order pursuant to 11 U.S.C. § 327(a) authorizing the Debtor to retain Newmark. In its order, the court modified the Contract to provide that the Debtor need not indemnify Newmark for "any losses, claims, damages or liabilities . . . that are finally judicially determined by a court of competent jurisdiction to have primarily resulted from the breach of trust, bad faith, self dealing, breach of fiduciary duties (other than ordinary negligence), gross negligence, or willful or reckless misconduct" of Newmark. The court also ordered that any attorney's fees that Newmark incurred under the indemnification provision of the Contract would be subject to monthly review pursuant to the Fee Order.
The Trustee appeals the bankruptcy court's approval of the indemnification provision and its finding that the Contract is reasonable and in the best interests of the estate. The bankruptcy court's conclusions of law are reviewed de novo, see In re Reilly, 245 B.R. 768, 772 (B.A.P.2d Cir. 2000), and its finding that the Contract was reasonable is reviewed for an abuse of discretion, see In re Keren Ltd. P'ship, 225 B.R. 303, 306 (Bankr. S.D.N.Y. 1998), aff'd, 189 F.3d 86 (2d Cir. 1999). The bankruptcy court's rulings are affirmed.
II. DISCUSSION
The Trustee's arguments on appeal boil down to two basic contentions. First, the Trustee contends that indemnification provisions in professional contracts entered into by the Debtor are per se unreasonable. Second, the Trustee argues that any indemnification payments made by the Debtor to Newmark should be subject to review for reasonableness.
Under 11 U.S.C. § 328(a), a Trustee or Committee may employ a professional on "any reasonable terms and conditions." The court below found that Newmark's Contract was reasonable after making appropriate modifications of the indemnification provision. As she did below, the Trustee argues on appeal that indemnification provisions are prohibited in the bankruptcy context because they are inconsistent with the fiduciary obligations of the professional toward the estate. For the reasons set forth in Judge Bernstein's memorandum decision, 248 B.R. 43 (2000), indemnification provisions in professional contracts are appropriate provided they are reasonable and in the best interests of the estate pursuant to § 328(a). Therefore, the bankruptcy court did not abuse its discretion in approving the Contract as fair and reasonable.
For the first time on appeal, the Trustee argues that any indemnification payments that the Debtor makes to Newmark should be reviewed by the court for reasonableness. Section 330(a)(1)(B) of the Code provides that a bankruptcy court may, after notice and a hearing, award professionals "reimbursement for actual, necessary expenses." This provision reflects Congress's intent to protect the estate from excessive and unreasonable expenditures.See In re Engel, 124 F.3d 567, 572-73 (3d Cir. 1997); In re C P Auto Transp., Inc., 94 B.R. 682, 689 (Bankr. E.D. Cal. 1988).
Pursuant to the bankruptcy court's Fee Order, all of Newmark's ordinary expenses, along with their attorney's fees, are subject to monthly review. Newmark argues, however, that the Debtor's duty to indemnify is contractual and therefore falls outside of § 330(a)(1). While it is true that the obligation is contractual, as would be an attorney's obligation to pay a court reporter for a transcript, requests for payment will be subject to review after notice and a hearing to the appropriate parties pursuant to § 330(a)(1) and the court's Fee Order. That review will be limited, however, to ensuring that the amount claimed is in fact due under the indemnity provision of the contract.
III. CONCLUSION
For the foregoing reasons, the bankruptcy court's memorandum decision approving the Contract between the Debtor and Newmark is affirmed.