In re Energy Partners, Ltd., Case No. 09-32957-H4-11 (Bankr. S.D. Tex. 9/15/2009), Case No. 09-32957-H4-11.

CourtUnited States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Southern District of Texas
PartiesIn re: ENERGY PARTNERS, LTD., et al., Debtors.
Docket NumberCase No. 09-32957-H4-11.
Decision Date15 September 2009
MEMORANDUM OPINION ON JOINT MOTION OF THE OFFICIAL COMMITTEE OF UNSECURED NOTEHOLDERS OF ENERGY PARTNERS, LTD., ET AL. AND HOULIHAN LOKEY HOWARD & ZUKIN CAPITAL, INC. TO AMEND THE COURT'S MEMORANDUM OPINION ON: (1) EMERGENCY APPLICATION OF THE OFFICIAL COMMITTEE OF EQUITY SECURITY HOLDERS FOR ENTRY OF AN ORDER AUTHORIZING THE EMPLOYMENT AND RETENTION OF TUDOR PICKERING HOLT & CO. SECURITIES, INC. AS VALUATION CONSULTANT FOR THE OFFICIAL COMMITTEE OF EQUITY SECURITY HOLDERS NUNC PRO TUNC TO JUNE 30, 2009; AND (2) EXPEDITED APPLICATION FOR AN ORDER TO RETAIN AND EMPLOY HOULIHAN LOKEY HOWARD & ZUKIN CAPITAL, INC. AS FINANCIAL ADVISORS TO THE OFFICIAL COMMITTEE OF UNSECURED NOTEHOLDERS OF ENERGY PARTNERS, LTD., ET AL., NUNC PRO TUNC TO THE EFFECTIVE DATE [Docket No. 386]

JEFF BOHM, Bankruptcy Judge.

I. INTRODUCTION

On July 15, 2009, two investment banking firms came before this Court and requested emergency approval of their retention under 11 U.S.C. § 328(a), the terms of which called for each of them to immediately receive an up-front, nonrefundable fee of $500,000.00. Thus, for merely becoming engaged in the case, the debtor's estate would be drained by $1,000,000.00.

This Court orally denied the firms' request and thereafter wrote a memorandum opinion expounding on the reasons for its decision (the Opinion). One of these investment banking firms, Houlihan Lokey Howard & Zukin Capital, Inc. (Houlihan Lokey), and the Official Committee of Unsecured Noteholders (the Committee) which sought to employ it, have now filed a joint motion to amend the Opinion. They are unhappy because, among other things, the Opinion referred to the investment bankers as greedy, arrogant hogs.1 Their motion to amend requests this Court to unsay what it said and to unwrite what it wrote. This, the Court will not do. Houlihan Lokey and the Committee (collectively, the Movants) have added nothing to the record made at the July 15, 2009 hearing, and have failed to satisfy the requirements necessary to amend the Opinion.

Indeed, the record made at the July 15 hearing was sparse. At that hearing, the testimony of the one witness who appeared in support of Houlihan Lokey's retention primarily consisted of conclusory statements. Certain statements gave this Court pause. For example, Tom A. Howley (Howley), counsel for the Committee, when proffering this witness's testimony, emphasized to the Court that it had to immediately approve Houlihan Lokey's retention under § 328(a) so that this firm could" swoop in here and work on this for three weeks." [July 15, 2009 Tr. 44:19-20.] In fact, Howley repeatedly used the phrase "swoop in" to describe the approach that Houlihan Lokey would take. It is no small irony that "swoop" is defined as "a very rapid raid" because that is how this Court viewed then, and views today, the business strategy of Houlihan Lokey in this case.2 In this Court's eyes, Houlihan Lokey attempted to raid the debtor's coffers by suddenly swooping in and swiftly scooping out unseemly sums of cash from the estate. In other words, Houlihan Lokey was a greedy hog. The Court declines to amend the Opinion.

The Court makes the following findings of fact and conclusions of law pursuant to Federal Rules of Bankruptcy Procedure 7052 and 9014.3 To the extent that any finding of fact is construed as a conclusion of law, it is adopted as such. Moreover, to the extent that any conclusion of law is construed as a finding of fact, it is adopted as such. The Court reserves its right to make additional findings of fact and conclusions of law as it deems appropriate or as may be requested by any of the parties. The facts are set out in the Opinion, entered on the docket on July 28, 2009. Set forth below are the facts which this Court finds pertinent to the pending motion to amend.

II. FINDINGS OF FACT

On May 1, 2009, Energy Partners, Ltd. (the Debtor), a publicly-held entity in the oil and gas business, filed a voluntary Chapter 11 petition on behalf of itself and its affiliated entities.4 Eleven days later, the Debtor filed an Expedited Application for Order Pursuant to 11 U.S.C. §§ 327(a) and 328(a) Authorizing Employment and Retention of Parkman Whaling LLC as Financial Advisors for the Debtors, Nunc Pro Tune to the Petition Date (the Parkman Whaling Application). [Docket No. 122.] The Court expressly approved the terms of the engagement letter between the Debtor and Parkman Whaling LLC (Parkman Whaling) in its order granting the Parkman Whaling Application. [Docket No. 176.] The amount of monthly compensation that the Court approved was $75,000.00, plus expenses. Additionally, the Court approved the following compensation for Parkman Whaling: (1) if the Debtor required a financing transaction, Parkman Whaling would act as the Debtor's exclusive agent and receive a percent-based transaction fee; (2) if the Debtor required a restructuring transaction, Parkman Whaling would act as the Debtor's exclusive agent and receive a cash fee equal to $2,000,000.00; (3) in connection with any mergers and acquisitions transaction, Parkman Whaling would act as the Debtor's exclusive agent, and receive a percentage-based transaction fee; and (4) Parkman Whaling would be entitled to recover ten percent of any break-up fee received by the Debtor in connection with any transaction. [Docket No. 122-2.] Outside of the $75,000.00 monthly fee, these fees are contingent upon certain events actually occurring. To date, the professional services that Parkman Whaling has provided include, among other things, developing an enterprise valuation for the Debtor.5

On June 16, 2009, the Court approved the Debtor's Second Amended Disclosure Statement and set the confirmation hearing for July 29, 2009. [Docket No. 231.] The Second Amended Disclosure Statement referenced both the Parkman Whaling report and the Birch Run report,6 which contained competing valuations of the Debtor. Parkman Whaling's enterprise valuation of the Debtor concluded that no residual value existed for the equity holders; [Docket No. 222, p. 76]; whereas, Birch Run's appraisal valued the Debtor's common shares at approximately $212,000,000.00. [Docket No. 222, p. 88.] Thus, several weeks prior to the Plan confirmation hearing, there were two competent and competing appraisals already in existence.

On July 14, 2009, the Committee sought to employ Houlihan Lokey by filing its Expedited Application for an Order to Retain and Employ Houlihan Lokey as Financial Advisors to the Committee Nunc Pro Tune to the Effective Date (the Houlihan Lokey Application). [Docket No. 309.]7 The proposed fee terms in the Houlihan Lokey Application were, among other terms, as follows: (a) a nonrefundable fee of $500,000.00 to be paid immediately; (b) a nonrefundable additional fee of $100,000.00 for the period from August 1, 2009 through August 15, 2009; (c) a nonrefundable additional fee of $100,000.00 for the period from August 16, 2009 through August 31, 2009; and (d) any out-of-pocket business expenses. [Docket No. 309, ¶ 16.] Pursuant to the Houlihan Lokey Application and Houlihan Lokey's engagement letter, services would include, but were not limited to: (a) evaluating the Debtor's debt capacity and enterprise valuation; (b) analyzing the Debtor's business plans and forecasts; (c) evaluating the Debtor's assets and liabilities; (d) analyzing and reviewing the Debtor's financial and operating statements; (e) assessing the financial issues and options concerning the Plan; (f) providing financial analysis; (g) negotiating with the Debtor and third parties; and (h) providing testimony both in court and in depositions. [Docket No. 309, ¶ 15.] While the Houlihan Lokey Application and engagement letter may list multiple tasks, Houlihan Lokey's representative admitted in his testimony that "the primary focus is going to be on valuation." [July 15, 2009 Tr. 31:24-25.] Indeed, Houlihan Lokey would likely have little time to do anything else. [July 15, 2009 Tr. 31:25-32:1.]

Two parties filed written objections to the Houlihan Lokey Application, objecting, among other things, that the proposed fees were grossly excessive, nonrefundable, and immune from this Court's oversight. [Docket Nos. 310, 311, 315, & 316.] The parties which filed written objections were: (1) Bank of America, N.A., as agent for itself and on behalf of the Prepetition Secured Lenders (the Bank); and (2) the Official Committee of Unsecured Creditors (the UCC).

On July 15, 2009, this Court held a hearing on, among other matters, Houlihan Lokey's Application. In support of Houlihan Lokey's Application, the Court heard testimony from Adam Lee Dunayer (Dunayer), a manager at Houlihan Lokey. Dunayer was the only witness to give testimony on behalf of the Houlihan Lokey Application.

Howley, in his capacity as Committee counsel, proffered the testimony of Dunayer in support of the Houlihan Lokey Application. Dunayer gave no testimony regarding Houlihan Lokey's hourly rates, and made no fee comparison of Houlihan Lokey's fees with fees of competing firms for similar projects within the same or similar time frame. Dunayer described only other matters on which Houlihan Lokey has been retained. [July 15, 2009 Tr. 31:17-20.] Further, instead of providing the Court with specific information about the Committee's negotiations with Houlihan Lokey and competing firms, Dunayer's testimony provided only conclusory testimony that "[t]he engagement letter was the culmination of rather robust negotiations between the committee and Houlihan Loke [sic]." [July 15, 2009 Tr. 32:4-6.] The proffered testimony additionally claimed—once again, in a conclusory statement—that the Committee" negotiated this fee structure very vigorously." [July 15, 2009 Tr. 32:9.]

Howley himself gave no testimony, but stated at the podium...

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