XO Communications, Inc. v. High River Ltd. Partnership
Docket: No. 07-2325-bk
Court: Court of Appeals for the Second Circuit; October 15, 2008; Federal Appellate Court
An appeal was made regarding the June 1, 2007, judgment from the Southern District of New York affirming a March 9, 2005, Bankruptcy Court decision concerning a fee awarded to Houlihan Lokey Howard Zukin Capital for financial restructuring services to XO Communications in a Chapter 11 case. Houlihan was awarded approximately $4 million, having sought around $20 million. The District Court's review was de novo, focusing on the reasonableness of the fee under 11 U.S.C. § 330(a)(3). Ambiguities arose from the Bankruptcy Court's method of calculating the fee, specifically its application of a 40 basis point rate on secured debt without clear consideration of unsecured debt. The Bankruptcy Court's conflicting statements on the necessity and value of services related to the unsecured debt left significant questions unanswered. Given these ambiguities, the appellate court decided that the case should be remanded to the District Court, which will then remand to the Bankruptcy Court for clarification on the treatment of unsecured debt in the fee calculation. If the value of services related to unsecured debt is assessed above zero but below the 40 basis points applied to secured debt, the Bankruptcy Court must provide a reasoned explanation for its valuation. Alternatively, the Court may determine the value for unsecured debt using a different approach than that used for secured debt, potentially relying on a more generalized method aligned with the evidence. No specific outcome or analytical method is prescribed; however, clarification is necessary for proper appellate review, referencing Mentor Insurance Co. U.K. Ltd. v. Brannkasse. The case is remanded to the District Court, which is instructed to further remand it to the Bankruptcy Court for additional proceedings. Both courts are encouraged to act swiftly. In case of further appeals, jurisdiction may be restored to this Court upon proper notice. Any subsequent appeal will be reviewed by this panel without additional oral arguments, based on supplemental submissions permitted by the Court. The mandate will be issued immediately.