The Bankruptcy Code governs the compensation of a professional person employed under section 327 or 1103 of the Bankruptcy Code. Under section 330(a), the court may award a professional “reasonable compensation for actual [and] necessary services.” Section 330 provides a non-exclusive list of factors for a court to consider in determining whether the proposed compensation is reasonable. In addition to these statutory factors, courts also analyze the proposed fee by using two methods utilized in pre-bankruptcy code cases; (1) “Lodestar” method and (2) factors from Johnson v. Georgia Highway Express, Inc (the “Johnson Factors”).
The determination of whether the proposed compensation is reasonable can be unpredictable, and bankruptcy courts continue to struggle with the problem of how to fairly compensate attorneys, while simultaneously protecting the bankruptcy estate, its creditors, and other interested parties in cases where the attorney achieved results that were remarkable. In such a rare case, some courts have approved a fee enhancement to reward the professionals. Other courts however, have held that a fee enhancement is permissible when the fees sought by a professional under the traditional “reasonable compensation” calculation are less than what a professional practicing outside of bankruptcy would have received in addition to requiring “rare and exceptional” circumstances. Moreover, some courts have departed from the above standards and have formulated their own unique analysis.
This Article is separated into three parts that discuss the methods that courts use when determining whether to approve a professionals’ proposed fees, including a proposed fee enhancement. Part I discusses the traditional methods of determining whether the proposed compensation is reasonable under section 330. Part II discusses the requirements for granting fee enhancements. In particular, Part II discusses the case law that addressed whether to approve a fee enhancement. Finally, Part III concludes by examining the practical implications of these courts’ requirements for granting a fee enhancement in bankruptcy cases.