## Facts

- Energy Partners, Ltd., a publicly traded oil-and-gas company, filed for Chapter 11 in the Southern District of Texas.
- The court previously approved the debtor’s retention of Parkman Whaling LLC as a financial advisor/valuation professional under § 327, including a $75,000 valuation fee; the valuation was used in the debtor’s initial plan and disclosure statement.
- A creditor objected that Parkman’s valuation was too low and outdated and presented a higher competing valuation; the revised plan/disclosure statement included both valuations.
- The Official Committee of Equity Security Holders applied to retain Tudor, Pickering, Holt & Co. Securities, Inc. as an investment banker/valuation advisor to prepare an additional valuation and provide restructuring and potential transaction services.
- The Equity Committee sought approval under § 328 for a fee structure featuring substantial, front-loaded, nonrefundable components (including an approximately $500,000 initial nonrefundable fee and $25,000 per-day expert-witness fees that were noncreditable), with total nonrefundable amounts approaching roughly $1 million.
- The committee representing unsecured noteholders applied to retain Houlihan Lokey Howard & Zukin Capital, Inc. on a similar investment-banking engagement with substantial fixed and success-based compensation components.
- The court considered whether granting § 328 approval would improperly lock in compensation that might later prove excessive, given existing valuation work and the availability of competing valuations already in the record.

## Issues

1. Whether the proposed committee retentions of investment bankers should be approved under 11 U.S.C. § 328(a) on the requested terms as “reasonable” given the estate’s circumstances and existing professionals.
2. Whether the proposed services—especially additional valuations—were necessary and likely to benefit the estate, or instead constituted unnecessary duplication at excessive cost.
3. Whether the court should grant ex ante approval under § 328 (thereby restricting later adjustment) or deny § 328 approval and preserve ex post review under § 330.

## Decision

- The court declined to approve the requested investment-banking compensation structures under § 328.
- The court found the applicants failed to justify that the large, nonrefundable and success-style fee terms were reasonable and warranted for the estate.
- The court emphasized that multiple valuations were already available (the debtor’s retained valuation and the creditor’s competing valuation), reducing the demonstrated need for costly additional valuation engagements.
- The court refused to treat customary investment-banking market terms as sufficient, without case-specific evidence that the services and fee structure would provide a commensurate, nonduplicative benefit to the estate.

## Legal Principles

- Under 11 U.S.C. § 328(a), a bankruptcy court may approve professional employment only on “reasonable terms and conditions”; approval limits later modification absent unforeseeable developments that render the terms improvident.
- Because § 328 approval constrains later fee review, the court must require a strong initial showing that the proposed terms are reasonable and justified by expected benefit to the estate.
- Market practice and industry custom do not control the § 328 reasonableness inquiry; the court may reject routine investment-banking terms where they are not supported by estate-specific justification.
- Bankruptcy courts must consider necessity, benefit to the estate, and the risk of unnecessary duplication of services when authorizing retention and compensation of professionals.

## Conclusion

The court refused to pre-approve, under § 328, committee investment banker engagements featuring substantial nonrefundable and success-based fees where the applicants did not show that additional valuation and advisory work was necessary, nonduplicative, and reasonably priced in relation to expected benefit to the estate.


In re Energy Partners, Ltd., 409 B.R. 211 (Bankr. S.D. Tex. 2009)