On March 8, 2017, the United States Bankruptcy Court for the District of Delaware in In re Nortel Networks Inc., No. 09-10138(KG), 2017 WL 932947 (Bankr. D. Del. Mar. 8, 2017) largely overruled certain noteholders’ objections to an indenture trustee’s fees and further clarified that the indenture trustee could recover the fees that it incurred in defending its attorneys’ fees, notwithstanding the Supreme Court’s recent decision in Baker Botts LLP v. ASARCO.  Central to the court’s decision was its refusal to evaluate the prudence of the trustee’s fees through hindsight and its upholding of the indenture’s provision allowing for the recovery for costs incurred by the trustee in defending itself.

Background

Two institutional investors (the “Noteholders”) purporting to hold 90% of the outstanding Notes at issue objected to the attorneys’ fees sought by the Nortel Networks Capital Corporation Bonds Indenture Trustee (the “Trustee”).  The Noteholders asserted that (1) the Trustee did not act prudently in assigning work to and supervising its attorneys, and (2) the attorneys’ fees charged were unreasonable.

Bankruptcy Court Decision

The most noteworthy portion of the court’s opinion focused on the Noteholders’ objection to the fees that the Trustee requested for its work as a member of the Official Committee of Unsecured Creditors (the “Committee”) on the basis that it was duplicative of work performed by the Committee’s counsel.  The court disagreed, recognizing that under the Indenture, the Trustee was entitled to “act through agents or attorneys” and to “consult with counsel.”  Id. at *5.  The court also emphasized the complexity of the case and stated that it was “unwilling to speculate” that it was imprudent for the Trustee’s lawyers to be present at meetings and to review Committee materials. The court did reduce some of the Trustee’s fees for other reasons.  For example, the court found it was not prudent or reasonable for the Trustee to have more than one lawyer attending or preparing for Committee meetings.

The court also held that the Trustee was entitled to attorney fees incurred in defending its fees.  The court distinguished the case from Baker Botts LLP v. ASARCO LLC, 135 S. Ct. 2158, 2161 (2015), in which the court held that Section 330 is not a statutory exception to the American Rule requiring each litigant to pay its own attorneys’ fees.  The Nortel court concluded that the Indenture was a contract that qualified as an exception to the American Rule, and that the Indenture specifically required the Debtors to indemnify the Trustee for “costs and expenses of defending itself.”  In re Nortel, 2017 WL 932947, at *9.