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The Bankruptcy StrategistFeaturesBankruptcyLitigation

Bankruptcy Court Denies Motion for Fee Enhancement Under 'Common Fund Doctrine'

By Rudolph J. Di Massa, Jr. and Geoffrey A. Heaton

In a bankruptcy case filed 91 years ago (and reopened 85 years later), the U.S. Bankruptcy Court for the Western District of Virginia recently denied creditors' counsel's motion for a fee enhancement under the "common fund doctrine," finding it could not award the requested fees absent statutory authority. In particular, the court determined it would be an abuse of its equitable powers to award fees beyond the scope of applicable bankruptcy law in In re Yellow Poplar Lumber, Case No. 605 B.R. 416 (Bankr. W.D. Va. 2019).

Background

In July 1928, White Oak Lumber Co. filed an involuntary Chapter 7 petition in the U.S. District Court for the Western District of South Carolina, seeking to have Yellow Poplar Lumber Co., Inc. "adjudged a bankrupt" under the Bankruptcy Act of 1898, n 1931, the district court adjudged Yellow Poplar as bankrupt and closed the case.

In 2013, the case was reopened in connection with a dispute over ownership rights in certain gas estates on parcels of land in Virginia, and it ultimately found its way to the U.S. Bankruptcy Court for the Western District of Virginia. The dispute resulted in a settlement whereby Yellow Poplar's bankruptcy estate stood to receive approximately $2 million in gas royalties. The Chapter 7 trustee appointed in the reopened case, with the assistance of a genealogist, identified several of the original creditors' existing heirs or successors-in-interest. The bankruptcy court, in turn, directed the trustee to file a brief addressing the appropriate interest rate on the anticipated distribution to creditors, and invited any other party-in-interest to do the same. While the trustee contended that the interest rate should be 2.4%, counsel for the heirs of two creditors advocated a 7% rate, which reflected the legal rate in effect in South Carolina when Yellow Poplar's bankruptcy case was filed. The court ultimately ordered the application of a rate of 3.6%.

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