## Facts

- Two affiliated healthcare entities filed Chapter 11 and their cases were jointly administered.
- The debtors sought to employ a law firm as Chapter 11 counsel under 11 U.S.C. § 327 and requested approval of compensation terms under § 328.
- The proposed compensation terms included an “evergreen” security retainer: estate funds would be held as collateral for counsel’s fees, kept at a set level during the case, and applied only after court allowance of fees.
- The debtors also requested a shortened interim fee-application cycle of 60 days (instead of the typical 120 days) under § 331 to reduce counsel’s risk of nonpayment.
- The United States Trustee objected to the evergreen/security retainer, arguing it was unnecessary given the shorter fee cycle and that segregating estate cash harmed reorganization efforts and creditors.
- The court had initially approved the requested devices subject to later review and issued a written ruling resolving the Trustee’s objection to the retainer.

## Issues

1. Whether a Chapter 11 debtor may retain counsel on terms that include an evergreen/security retainer funded with estate property.
2. How the proposed retainer should be characterized (security/evergreen versus advance-fee) and what consequences flow from that characterization.
3. Whether an evergreen/security retainer improperly advantages debtor’s counsel over other creditors or administrative claimants.
4. What standards govern approval of such retainers and related compensation terms under 11 U.S.C. §§ 327, 328, 330, and 331.

## Decision

- The court overruled the United States Trustee’s objection to the evergreen/security retainer.
- The court approved the debtor’s retention of counsel on the proposed terms, including the evergreen/security retainer, with continued court supervision.
- The court approved the 60-day interim fee-application period as an additional measure to address payment risk.
- The court held that any payment from the retainer remained contingent on notice, hearing, and allowance of fees, and all compensation remained subject to reasonableness review under § 330.

## Legal Principles

- Bankruptcy courts may approve “reasonable terms and conditions” of professional employment, including retainers, under 11 U.S.C. § 328(a), subject to later review if the terms prove improvident.
- A security retainer (including an evergreen form) generally remains property of the estate and serves as collateral; counsel may draw on it only after the court allows fees.
- An evergreen/security retainer is not per se inconsistent with the Bankruptcy Code’s compensation scheme so long as it does not bypass § 330 scrutiny and does not eliminate creditor protections tied to notice and hearing.
- Approval of an evergreen/security retainer is case-specific and turns on equitable considerations, including: the risk of nonpayment, the debtor’s need to attract competent counsel, the retainer’s size relative to estate resources, the adequacy of disclosure, the impact on other stakeholders, and continued judicial control over fee allowance and any retainer application.
- A shortened interim fee-application cycle may be permitted for cause under § 331 and can be used alongside a security retainer to manage compensation risk without guaranteeing payment.

## Conclusion

The bankruptcy court approved an evergreen security retainer and a 60-day interim fee-application cycle for Chapter 11 debtor’s counsel, finding the arrangement permissible when properly disclosed, structured as estate property collateral, and kept fully subject to court allowance and § 330 reasonableness review, and concluding that the circumstances justified the balance struck between estate liquidity concerns and the need to secure competent representation.


In re Pan Am. Hosp. Corp., 312 B.R. 706 (Bankr. S.D. Fla. 2004)