FOX ROTHSCHILD LLP Yann Geron Nicole N.

Santucci 100 Park Avenue, Suite 1500 New York, New York 10017 (212) 878-7900 Attorneys for Yann Geron, Chapter 7 Trustee

Hearing Date: January 27, 2011 At: 10:00 a.m. Objection Deadline: January 20, 2011

UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK ------------------------------------------------------x In re : : THELEN LLP, : : Debtor. : ------------------------------------------------------x

Chapter 7 Case No. 09-15631 (ALG)

MEMORANDUM OF LAW AND BRIEF IN SUPPORT OF TRUSTEES APPLICATION FOR AN ORDER AUTHORIZING AND APPROVING TRUSTEES EMPLOYMENT OF CERTAIN PROFESSIONALS TO ASSIST TRUSTEE IN DISCHARGING DUTIES UNDER 11 U.S.C. 704(a)(11), PAY THOSE PROFESSIONALS FROM THE SUBJECT PENSION PLANS UPON FEE APPLICATION, AMEND AND TERMINATE DEBTORS PENSION PLANS, AND QUASH OR CONDITION CERTAIN DISCOVERY DEMANDS DIRECTED TO THE TRUSTEE AS PLAN FIDUCIARY

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TABLE OF CONTENTS I. II. III. PRELIMINARY STATEMENT.1 STATEMENT OF FACTS..1 LEGAL ARGUMENT.1 A. THE BANKRUPTCY COURT HAS CORE JURISDICTION OVER MATTERS RELATING TO THE TRUSTEES ADMINISTRATION OF THE DEBTORS PENSION PLANS2 ALTERNATIVELY, THE BANKRUPTCY COURT HAS NON-CORE JURISDICTION OVER MATTERS RELATING TO THE TRUSTEES ADMINISTRATION OF THE DEBTORS PENSION PLANS...3 THE TRUSTEE SHOULD BE AUTHORIZED BY THE BANKRUPTCY COURT TO RETAIN PROFESSIONALS TO ASSIST WITH THE ADMINISTRATION OF THE DEBTORS PENSION PLANS...4 THE TRUSTEES PROFESSIONALS SHOULD BE AUTHORIZED BY THE BANKRUPTCY COURT TO SEEK APPROVAL OF THEIR FEES AND EXPENSES FOR SERVICES RENDERED IN CONNECTION WITH THE DEBTORS PENSION PLANS...5 THE TRUSTEE SHOULD BE AUTHORIZED BY THE BANKRUPTCY COURT TO AMEND AND TERMINATE THE DEBTORS PENSION PLANS...6 THE TRUSTEE IS ENTITLED TO A PROTECTIVE ORDER FROM THE BANKRUPTCY COURT WITH RESPECT TO THE DISCOVERY SOUGHT OF HIM RELATING TO THE ADMINISTRATION OF THE DEBTORS PENSION PLANS...6

B.

C.

D.

E.

F.

IV.

CONCLUSION8

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TABLE OF AUTHORITIES CASES PAGE(S)

In re AB & C Group, Inc., 411 B.R. 284 (Bankr. N.D.W.Va. 2009)..2 Curtiss-Wright Corp. v. Schoonejongen, Frank, 514 U.S. 73, 115 S.Ct. 12236 Lockheed Corp. v. Spink, Paul, 517 U.S. 882, 116 S.Ct. 1783..6 In re Mid-States Express, Inc., 433 B.R. 688 (Bankr. N.D. Ill. 2010)..2 In re NSCO, Inc., 427 B.R. 165 (Bankr. D.Mass. 2010)..3, 4 In re The Robert Plan Corp., 439 B.R. 29 (Bankr. E.D.N.Y. 2010)...2, 3, 5, 6 In re Trans-Industries, Inc., 419 B.R. 21 (Bankr. E.D.Mich. 2009).3, 4, 5 Turner v. Ermiger, 724 F.2d 338 (2nd Cir. 1983)3 Matter of Wood, 825 F.2d 90 (5th Cir. 1987)..2 STATUTES 11 U.S.C. 105(a) ...................................................................................................................6, 7, 8 11 U.S.C. 327(a) ...........................................................................................................................4 11 U.S.C. 330(a)(1).......................................................................................................................5 11 U.S.C. 330(a)(3)(C) .................................................................................................................5 11 U.S.C. 704................................................................................................................................6 11 U.S.C. 704(a)(11).............................................................................................1, 2, 3, 4, 5, 6, 7 28 U.S.C. 157(a) .......................................................................................................................2, 3 ii
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28 U.S.C. 157(b)(1) ......................................................................................................................2 28 U.S.C. 157(c)(1).......................................................................................................................3 29 U.S.C. 3(16)(B) .......................................................................................................................6 Chapter 7 of the Bankruptcy Code...................................................................................................1

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I.

PRELIMINARY STATEMENT This Memorandum of Law is respectfully submitted by Yann Geron (the Trustee), the

chapter 7 trustee of the estate of Thelen LLP (the Debtor), the above-captioned debtor, in support of his Motion for an order (i) approving the Trustees retention of certain professionals to assist him in terminating the Debtors pension plans, (ii) approving payment of those professionals from the assets of those pension plans (and to the extent plan funds are unavailable, from the Debtors estate) upon approval of fee applications by this Court, (iii) authorizing the Trustee to amend the Debtors pension plans to authorize an independent fiduciary to act under such plans, (iv) approving the Trustees termination of the Debtors pension plans as warranted, and (v) quashing or conditioning certain discovery directed to the Trustee in connection with his Bankruptcy-Code-imposed duties as fiduciary of the Debtors pension plans. II. STATEMENT OF FACTS The underlying facts are set forth at length in the accompanying application and are incorporated herein by reference. Defined terms in this memorandum shall have the same meanings as set forth in the application. III. LEGAL ARGUMENT The Trustee is a statutory creature of the Bankruptcy Code, and his duties are prescribed expressly under the Bankruptcy Code. Section 704(a)(11) of the Bankruptcy Code undoubtedly requires the Trustee to continue to administer the Plans. While doing so, the Trustee is fulfilling a specific duty imposed upon him solely by virtue of the Bankruptcy Code, and the fulfillment of such duty is necessary to complete the administration of the Debtors case. Accordingly, the Trustee is subject to the jurisdiction of the Bankruptcy Court while performing such duties and, therefore, the Bankruptcy Court is authorized to grant the Trustee specific relief relating to his

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administration of the Plans, including the authorization to retain and pay professionals and to amend and terminate the Plans. A. The Bankruptcy Court has Core Jurisdiction over Matters Relating to the Trustees Administration of the Debtors Pension Plans 28 U.S.C. 157(a) gives Bankruptcy Courts jurisdiction over all civil proceedings arising under title 11 or arising in or related to a case under title 11. 28 U.S.C. 157(a). Core proceedings are those proceedings arising under title 11, or arising in a case under title 11. 28 U.S.C. 157(b)(1). Generally speaking, a proceeding is said to arise under title 11 where the source of the right or remedy is, in a strong sense, created by the Bankruptcy Code, rather than just the procedural vehicle for the assertion of a right or remedy which is created by some other body of law. See In re Mid-States Express, Inc., 433 B.R. 688, 695 (Bankr. N.D.Ill. 2010). The meaning of arising in is less clear but seem to reference those matters that are not based upon any right expressly created by title 11, but nevertheless, would have no existence outside of bankruptcy. See Matter of Wood, 825 F.2d 90, 97 (5th Cir. 1987). Although there is a split in authority over whether Bankruptcy Courts have core jurisdiction over matters relating to the Trustees administration of the Debtors Plans, at least one Bankruptcy Court in New York has concluded that such matters clearly fall within the Bankruptcy Courts subject matter jurisdiction. See In re Robert Plan Corp., 439 B.R. 29, 42 (Bankr. E.D.N.Y. 2010). But see In re Mid-States Express, Inc., 433 B.R. 688 (Bankr. N.D.Ill. 688) and In re AB & C Group, Inc., 411 B.R. 284 (Bankr. N.D.W.Va. 2009). After careful consideration of previous decisions to the contrary issued in other circuits, the Bankruptcy Court in In re Robert Plan Corp., held that because Section 704(a)(11) of the Bankruptcy Code is the source of a trustees obligation to administer a debtors pension plans, the Bankruptcy Court has core jurisdiction over a trustees actions as plan administrator. 439 2
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B.R. at 42 (To find otherwise would effectively place the Trustee outside the reach of the Bankruptcy Court while the Trustee is carrying out a duty mandated by the Bankruptcy Code.) The issues in the instant Bankruptcy Case are analogous to those addressed by the Bankruptcy Court in In re Robert Plan Corp. Here, the Trustee is serving as administrator of the Debtors Plans solely by virtue of 11 U.S.C. 704(a)(11). Although the Trustee is required to comply with relevant ERISA statutes in carrying out this function, the main source of the Trustees obligation is created by the Bankruptcy Code. Thus, the Trustees actions relating to the administration of the Plans are core matters necessary to the administration of this estate and require the authorization of the Bankruptcy Court. B. Alternatively, The Bankruptcy Court has Non-Core Jurisdiction over Matters Relating to the Trustees Administration of the Debtors Pension Plans As detailed above, Bankruptcy Courts have jurisdiction over all civil proceedings arising under title 11 or arising in or related to a case under title 11. 28 U.S.C. 157(a). Noncore proceedings are proceedings which do no arise under title 11 or arise in a case under title 11 but are nonetheless related to a case under title 11. 28 U.S.C. 157(c)(1). A proceeding is related to a bankruptcy case where the outcome of the proceeding could conceivably have any effect upon the estate being administered. Turner v. Ermiger, 724 F.2d 338 (2d Cir. 1983). In the event this Court determines that it does not have core jurisdiction over maters relating to the Trustees administration of the Debtors Pension Plans, there can be no doubt that the Bankruptcy Court has non-core related to jurisdiction over such matters. See In re NSCO, Inc., 427 B.R. 165, 183 (Bankr. D.Mass. 2010) (Bankruptcy Court clearly has jurisdiction over proceeding relating to the trustees administration of pension plans); see also In re TransIndustries, Inc., 419 B.R. 21, 33 (Bankr. E.D.Mich. 2009) (Bankruptcy Court has related to jurisdiction over the proceeding because the ultimate distribution to creditors of the bankruptcy 3
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estate would be directly effected by the extent to which the ERISA plan reimburses the bankruptcy estate for the fees and expenses the estate has paid to enable the Trustee to administer the Plan). Thus, in light of the holdings in In re NSCO, Inc. and In re Trans-Industries, Inc., this Court must conclude that, at a minimum, it has related to jurisdiction over the Trustees administration of the Debtors Plans. C. The Trustee Should be Authorized by the Bankruptcy Court to Retain Professionals to Assist him with the Administration of the Debtors Pension Plans Since the Bankruptcy Court has jurisdiction over matters relating to the Trustees administration of the Plans, this Court can and should authorize the Trustee to retain professionals to assist him in administering the Plans. Section 327(a) of the Bankruptcy Code requires that the Trustee obtain court approval of attorneys, accountants, and other professional persons to represent or assist the trustee in carrying out his duties under this title. 11 U.S.C. 327(a). One of the duties imposed upon the Trustee by Section 704(a)(11) of the Bankruptcy Code is to perform the obligations of the administrator of the Debtors Plans. 11 U.S.C. 704(a)(11). Recognizing such statutorily imposed duty, the Bankruptcy Court in In re TransIndustries, Inc. found that Section 327(a) of the Bankruptcy Code gave the trustee the authority to employ professionals to assist him in administering the debtors ERISA plan. 419 B.R. 21, 3536 (Bankr. E.D. Mich. 2009). The same logic applies in the present case. The Trustee is required by virtue of Section 704(a)(11) of the Bankruptcy Code to administer the Debtors Plans. Since he is performing a duty specifically imposed upon him by the Bankruptcy Code, he is required, pursuant to Section 327(a) of the Bankruptcy Code, to seek the Bankruptcy Courts approval of any professionals he wishes to retain in to assist him in carrying out such duty. Therefore, the Trustee should be 4
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authorized by this Court to retain Lindquist as accountants for the Plans and Pointe Benefit as Independent Fiduciary to approve all of the professional fees paid from the Plans. D. The Trustees Professionals Should be Authorized by the Bankruptcy Court to Seek Approval of their Fees and Expenses for Services Rendered in Connection with the Administration of the Debtors Pension Plans Since the Bankruptcy Code has jurisdiction over matters relating to the Trustees administration of the Plans, the Trustees duly-retained professionals should be authorized to seek from this Court approval of their fees and expenses for services rendered in connection with the administration of the Debtors Plans. Section 330(a)(1) of the Bankruptcy Code provides that, after notice and a hearing, the Bankruptcy Court may award professional persons employed under Section 327 reasonable compensation for actual, necessary services and reimbursement for actual, necessary expenses. 11 U.S.C. 330(a)(1). Section 330(a)(3)(C) of the Bankruptcy Code further provides that in determining the reasonable compensation to be awarded toa professional person, the court shall consider the nature, the extent, and the value of such services, taking into account all relevant factors, includingwhether the services were necessary for the administration of, or beneficial at the time at which the service was rendered toward the completion of, a case under this title. 11 U.S.C. 330(a)(3)(C). The Bankruptcy Court in In re The Robert Plan Corp. held that the source of the funds available for payment of any award under [Section 330] may come from the Plan, which is a non-estate asset, is not central to the determination of the Courts jurisdiction to award fees for these services. 439 B.R. at 45 (citing In re Trans-Industries, Inc., 419 B.R. at 38, regarding the interplay between Sections 704(a)(11) and 330(a)(3)(C) of the Bankruptcy Code). The Robert Plan Corp. Court further held that because retention and fee applications are necessary to a

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trustees administration of a plan, they are also necessary to the administration of the case, and are a core matter. Id. Therefore, there can be no doubt that upon this Courts approval of the Trustees professionals to assist him in administering the Debtors Plans, such professionals are required to seek approval of their fees and expenses prior to such fees and expenses being paid either from the assets of the Plans, to the extent available, or from the Debtors estate. E. The Trustee Should be Authorized to Amend and Terminate the Debtors Pension Plans In addition to the Trustees statutory obligation to perform the duties of the Plan Administrator under 11 U.S.C. 704(a)(11), the Trustee has an obligation under 11 U.S.C. 704 to conduct and wind up the affairs of the Debtor. As Thelen LLP was the sponsor of the Plans prior to filing of its chapter 7 petition, one of the functions performed by the Debtor was to serve as sponsor of the Plans. See 29 U.S.C. 3(16)(B). The role of plan sponsor is separate and distinct from the role of the that of Plan Administrator is that it is not a fiduciary function. See Curtiss-Wright Corp. v. Schoonejongen, Frank, 514 U.S. 73, 115 S.Ct. 1223 (1995). That role includes performance of non-fiduciary acts such a decision to amend or terminate a Plan. See Lockheed Corp. v. Spink, Paul, 517 U.S. 882, 116 S.Ct. 1783 (1996). Additionally, Section 105(a) of the Bankruptcy Code authorizes the Bankruptcy Court to issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of [Title 11]. 11 U.S.C. 105(a). The Trustees proposed amendment of the Debtors Plans to authorize an independent fiduciary to act review and approve all fees paid under such plans1 as well as the ultimate

It is necessary to appoint an independent fiduciary so that the Trustee will not be in the potentially conflicted position of approving payment of fees from the Plans to his own law firm, whose retention was approved by this Court. See 29 U.S.C. 1106(b).

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termination of the Plans clearly fall within the Debtors obligations as plan sponsor and are warranted under the circumstances of this case. Accordingly, such acts should be authorized by the Bankruptcy Court. F. The Trustee is Entitled to a Protective Order from the Bankruptcy Court with Respect to Discovery Sought of him Relating to the Administration of the Debtors Pension Plans As detailed above, Section 105(a) of the Bankruptcy Code authorizes the Bankruptcy Court to issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of [Title 11]. 11 U.S.C. 105(a). The Bankruptcy Court should use such authority to quash or condition the outstanding discovery directed at the Trustee from the DOL relating to his role as administrator of the Debtors Plans, which is mandated by Section 704(a)(11) of the Bankruptcy Code. To allow the DOL to go forward with its unreasonable discovery demands and compel the Trustee to appear for a formal interview is not only inherently unfair and prejudicial to the Trustee, but is also an inefficient use of both Plan and estate resources. First, the Trustee has serious concerns that the DOL will use the interview process to elicit statements from him to the effect that he intends to follow the dictates of Bankruptcy law, including the requirements that certain actions are subject to the approval and supervision of the Bankruptcy Court, and use such statements in enforcement proceedings against the Trustee in efforts to hold him personally liable for so-called violations of ERISA. This imposes an unreasonable burden on the Trustee and unjustly exposes him to additional personal liability beyond the scope of his fiduciary duties as Trustee. Second, requiring the Trustee and his attorneys to prepare for and attend a formal interview without any guidelines as to the scope of questions to be asked is a time consuming and expensive exercise that could be achieved in a more economically prudent manner by means of written responses to the DOLs questions. It is simply unfair to charge the Plans or the 7
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Debtors estate for such an exercise, especially in a case such as this, where the Trustee has no first-hand knowledge of the Plans and retained competent professionals to advise him on the relevant issues and decisions to be made in connection with the termination and continued administration of the Plans. In light of the foregoing, the Trustee has demonstrated ample cause for the Bankruptcy Court to use its powers under Section 105(a) of the Bankruptcy Code to quash or condition the DOLs pending discovery requests. IV. CONCLUSION For the reasons set forth above, the Trustee respectfully requests that the Bankruptcy Court approve the Trustees application and grant such other and further relief as is just. Dated: New York, New York January 13, 2011 FOX ROTHSCHILD LLP Attorneys for Yann Geron, Chapter 7 Trustee By: /s/ Yann Geron Yann Geron Nicole N. Santucci 100 Park Avenue, Suite 1500 New York, New York 10017 (212) 878-7900

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