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Berger Singerman Asks for an Order Allowing it to Pay Itself from Retainer
Friday, October 16 2009 @ 10:53 AM EDT

Things are not so free and easy in SCOland, I gather, now that the Chapter 11 Trustee is running the company. Berger Singerman has filed a motion on its own behalf asking the court to please amend a prior order, the October 5, 2007 Administrative Order Establishing Procedures for Interim Monthly Compensation of Professionals, so the firm can pay itself from the retainer it has in hand. It's been doing that for a while, but it seems the Chapter 11 Trustee notices that there is no explicit allowance to use the retainer in that order. If you remember, he already signaled that he's looking into all the professional fees. So Berger Singerman would like an explicit order from the court saying it's all right to do that.

The motion lists the retainer as being currently $340,536, and they need to dip into it some more because while "Debtors paid the interim monthly payments to the Movant to the best of their reasonable abilities throughout the cases", "eventually cash flow became an issue". Indeed.

I do recall the retainer being mentioned earlier. Here's the paragraph I was remembering from October 2008, a prior bill from Berger Singerman:

5. BSPA has received no payment and no promises for payment from any source for services rendered or to be rendered in any capacity whatsoever in connection with the matters covered by this Application. There is no agreement or understanding between BSPA and any other person other than the partners of BSPA for the sharing of compensation to be received for services rendered in this case. BSPA has received payments during the year prior to the Petition Date in the amount of $425,000 from the Debtors in connection with its prepetition representation of the Debtors. Such amount includes a retainer for postpetition services in the amount of $275,000. BSPA was current as of the Petition Date, subject to a final reconciliation of the amount actually expended prepetition. Upon final reconciliation of the amount actually expended prepetition, any balance remaining from the payments to the Firm was credited to the Debtors and utilized as BSPA's retainer to apply to postpetition fees and expenses pursuant to the compensation procedures approved by this Court and the Bankruptcy Code.
So, it's not that Berger Singerman was secretly doing anything. Clearly, they thought in good faith that the retainer was for the purpose. And they mentioned emailing Ryan Tibbitts about a "cost retainer for ordinary course professionals" in their first billing. But I don't see specific numbers. Exactly how much went from the pre-petition retainer to the post-petition retainer? Dorsey & Whitney also mentioned a retainer, at the November 16, 2007 hearing, but if I understand what was said, it could dip into it if it disclosed it, so others could object. Here's where the firm gave Notice of Intent to Setoff Certain Pre-Petition Fees and Expenses against Pre-Petition Retainer specifically in #352 [PDF] and the accompanying exhibits.

And now that I think of it, didn't Mesirow get a $35,000 retainer too? I surely hope the Trustee is looking at that first bill, speaking of the improvidence standard.

After SCO began having cash flow issues, Berger Singerman started to dip into the retainer. And now the trustee asserts the firm should no longer do so, unless the court explicitly authorizes it:

12. However, in communications with the Movant, counsel for the Trustee has asserted that notwithstanding the Court's interim approval of the Movant's compensation for the services performed and the expenses incurred in the months of June and July, 2009, because the Interim Compensation Order does not explicitly authorize the Movant to draw down on its retainer to pay fees and costs due to it, the Movant should seek and obtain an order of this Court allowing it to draw down on its retainer.
The firm says they believe they are entitled to pay from the retainer, but "out of an abundance of caution" it seeks the order of the Court allowing it to draw down on its retainer as it has become accustomed to doing. Any such payments are, it explains it understands, subject to final approval or, in the alternative, disgorgement. As we learned earlier when we were trying to understand the improvidence standard the US Trustee's Office said would be applied to Boies Schiller's bills, the court can also just reduce the amount to be paid.

So, now Berger Singerman can understand how Novell feels. It's annoying not getting money you believe is due to you, isn't it? No objections to the prior administrative order have ever been filed before, so this represents a big change. The free spending spigot of SCO litigating itself into bankruptcy has been turned down. The judge will likely authorize the payments, of course, but it does show that the party is over.

Here's the motion and accompanying exhibits:

10/15/2009 - 928 - Motion to Amend /Motion for Order Amending Administrative Order Establishing Procedures for Interim Monthly Compensation of Professionals Filed by The SCO Group, Inc.. Hearing scheduled for 11/20/2009 at 02:00 PM at US Bankruptcy Court, 824 Market St., 6th Fl., Courtroom #3, Wilmington, Delaware. Objections due by 11/13/2009. (Attachments: # 1 Notice # 2 Proposed Form of Order # 3 Certificate of Service and Service List) (Makowski, Kathleen) (Entered: 10/15/2009)

Here's the order [PDF] referenced from October 5, 2007, and it was one of the flurry of orders that the judge signed lickety split when the bankruptcy was first filed. There is indeed no reference to using retainers in that order. Here's the order [PDF] authorizing the retainer of Berger Singerman from that same day, and I don't see any wording about a retainer being OK to dip into in that order either.

Wouldn't it be funny if, after all that dancing on behalf of SCO, Berger Singerman could only be paid directly by SCO, and the retainer was instead disgorged to pay creditors Novell?

Update: I see Maureen O'Gara is reporting that Darl McBride is expecting to be fired shortly. I normally don't link to her, since I have in the past found her reporting to be not as reliable as I'd require to use as a source here. But I can't help but notice that in this article ( she says that SCO conducted a mock trial of SCO v. IBM. I wonder, since she has an inside track apparently, if she would be able to substantiate that assertion. I've never seen any proof of a mock trial happening, although there have been rumors. Perhaps she would be good enough tell us what law firm conducted the mock trial for SCO?

A reader points out that Berger Singerman is asking to be paid for work done on the proposed deal that the judge himself characterized [PDF] like this:

Here, the Debtors offered no evidence of the fairness of the price and, indeed, the price is highly suspect as the sale was clearly a rushed, last ditch effort to avoid the Conversion Motions. There is no evidence that the sale price is fair because it is just enough for Debtors to dismiss their cases. The terms are equally, if not more, troublesome. Debtors are retaining the Mobility business that is virtually worthless, the letter of credit to pay a Novell judgment terminates on December 31, 2009, with no guarantee that the Novell Litigation will be concluded. Further, the Court is unable to find based on this record, the Debtors’ history of unsuccessful sale efforts and this sale’s peculiar and questionable timing that Unixis has acted in good faith.
One struggles to understand the justification for authorization of payment for said work, as the commenter put it. At what point should a law firm tell a client not to go forward with work that will be costly and which is unlikely to achieve the desired goal?

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