The U.S. Bankruptcy Court for the District of Delaware recently denied the US Trustee's motion to compel post-confirmation quarterly fees from Paragon Offshore, plc under 28 U.S.C. § 1930.1
The court described the case's facts as simple: Paragon (and some related entities) filed for Chapter 11 in early 2016. In June of 2017, its reorganization plan was approved. The plan established a litigation trust (the Paragon Litigation Trust) to pursue certain claims against third parties. The plan (and the litigation trust agreement) became effective in July of 2017, and the claims were transferred into the trust from July through September 2017 (without Paragon retaining any interest in or control over them). During that time, Paragon's distributions exceeded $623 million, and Paragon paid the US Trustee the then-applicable maximum fee for those distributions under 28 U.S.C. § 1930.
In December of 2017, the litigation trust brought its claims against third parties. The case settled for $90.375 million (approved in February of 2021), and the settlement payments to the trust occurred in mid-March. The trust began distributing those payments to its beneficiaries, and the US Trustee moved to compel Paragon and the Paragon Litigation Trust to pay post-confirmation quarterly fees under Section 1930(a)(6) based on the trust's payments to its beneficiaries.
The court denied the US Trustee's motion, holding that the payments from the trust to its beneficiaries were not "disbursements" under Section 1930(a)(6) because they were made for the benefit of the trust's interest holders—not the debtor (Paragon). The "ultimate payment" triggering quarterly fees occurred when Paragon transferred its third-party claims to the trust without retaining any interest or control over them.
The US Trustee didn't appeal the decision (even though its deadline to do so has already passed). It will be interesting to see how broadly (or narrowly) Paragon will be applied in other cases (if at all), and whether its reasoning can be used when structuring reorganization plans or post-confirmation trust documents to limit/avoid quarterly fees due to the US Trustee.
1 The court's opinion is ECF No. 2257, Case No. 16-10386-CSS (D. Del. Bankr. Ct).
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