Borders Group, Inc.

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UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
In re:
BORDERS GROUP, INC., et al.,
Debtors.1
NOT FOR PUBLICATION
Chapter 11
Case No. 11-10614 (MG)
(Jointly Administered)
MEMORANDUM OPINION APPROVING JEFFERIES & COMPANY, INC.’S
APPLICATION FOR FINAL ALLOWANCE OF COMPENSATION AND FOR
REIMBURSEMENT OF EXPENSES FOR SERVICES RENDERED
A P P E A R A N C E S:
KASOWITZ, BENSON, TORRES & FRIEDMAN LLP
Attorneys for Borders Group, Inc.
1633 Broadway
New York, New York 10019
By: 	David M. Friedman, Esq.
Andrew Glenn, Esq.
Jeffrey R. Gleit, Esq.
LOWENSTEIN SANDLER PC
Attorneys for the Official Committee of Unsecured Creditors
65 Livingston Avenue
Roseland, New Jersey 07068
By: 	Bruce S. Nathan, Esq.
Bruce Buechler, Esq.
Paul Kizel, Esq.
Timothy R. Wheeler, Esq.
SNR DENTON
Attorneys for Jefferies & Company, Inc.
233 South Wacker Drive #7800
Chicago, Illinois 60606
By: 	Thomas A. Labuda, Jr., Esq.
1 The “Debtors” are: Borders Group, Inc.; Borders International Services, Inc.; Borders, Inc.; Borders Direct,
LLC; Borders Properties, Inc.; Borders Online, Inc.; Borders Online, LLC; and BGP (UK) Limited.
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TRACY HOPE DAVIS
United States Trustee for Region 2
22 Whitehall Street, 21st Floor
New York, New York 10004
By: 	Paul K. Schwartzberg, Esq.
Susan Golden, Esq.
MARTIN GLENN
UNITED STATES BANKRUPTCY JUDGE
Pending before the Court is the Final Application of Jefferies & Company, Inc.,
Investment Banker and Financial Advisor to the Debtors for Final Allowance of Compensation
and for the Reimbursement of Expenses for Services Rendered During the Period from February
16, 2011 Through August 31, 2011 (the “Final Fee Application”). (ECF Doc. # 2033.) Through
the Final Fee Application, Jefferies & Company, Inc. (“Jefferies”) seeks entry of an order (i)
granting final allowance and award of compensation for professional services rendered from
February 16, 2011 through August 31, 2011 (the “Final Fee Period”), consisting of fees in the
amount of $2,291,889.88, plus reimbursement of actual and necessary expenses incurred by
Jefferies during the Final Fee Period in the amount of $26,669.69, for a total of $2,318,559.57
and (ii) authorizing and directing the Debtors to make payment in respect of 100% of such fees
and expenses. Upon the objection of the United States Trustee (the “UST Objection”) (ECF
Doc. # 2070), Jefferies agreed to forgo its $200,000 monthly fee for August 2011 and reduce its
request for a liquidation fee by $250,000. Based upon the $450,000 aggregate reduction in fees
sought, the United States Trustee (the “UST”) did not object to Jefferies’ Final Fee Application.
(UST Objection at 9.) The Debtors support approval of the Final Fee Application, as modified
by the agreement with the UST. (ECF Doc. # 2214 ¶ 14.)
The Official Committee of Unsecured Creditors (the “Committee”) filed (i) an objection
(the “Objection”) (ECF Doc. # 1702) to Jefferies’ monthly fee statement for the period July 1,
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2011 through July 31, 2011 and (ii) a reply (the “Reply”) (ECF Doc. # 2165) to Jefferies’
response to the Objection, which was contained in the Final Fee Application. The crux of the
Committee’s argument is that Jefferies is not entitled to any amount as a liquidation fee (the
“Liquidation Fee”) provided by section 4(b) of the Jefferies Engagement Letter (defined below)
and the Jefferies Retention Order (defined below) because Jefferies did not materially contribute
to, run, or market a sale of the Debtors’ assets. Additionally, the Committee asserts that the
Jefferies Retention Order is unclear and does not reflect the intent of the Committee as
negotiated.
On November 29, 2011, the Court held a hearing (the “Hearing”) on these issues and
took the matter under submission. For the reasons discussed below, the Court concludes that the
terms of the Jefferies Retention Order are clear and unambiguous, and, therefore, the Committee
cannot support its argument with the parole evidence it has submitted in support of its Objection.
Counsel for the Committee and Jefferies agreed at the Hearing that Jefferies “ran a sale process”
with respect to the Debtors’ assets; unfortunately, it did not culminate in a going-concern sale.2
But, under the terms of the Jefferies Retention Order and Engagement Letter, Jefferies is entitled
to allowance of the Liquidation Fee, subject to the reductions agreed upon with the UST.
Therefore, the Court approves the Final Fee Application, as modified.
BACKGROUND
On February 16, 2011 (the “Petition Date”), Borders Group, Inc. and certain of its
affiliates commenced their chapter 11 bankruptcy cases. (ECF Doc. # 1.) On the Petition Date,
the Debtors retained AP Services, LLC (known as AlixPartners) (“APS”), to perform crisis
2 	Negotiations for the ultimate liquidation sale were conducted by Ms. Etlin, without participation by
Jefferies, resulting in a liquidation sale. Jefferies argues that its earlier sales efforts helped raise the price in the later
liquidation sale, an assertion the Committee contests. For the reasons explained in this Opinion, it is unnecessary for
the Court to resolve that issue.
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management services. (ECF Doc. # 46.) Holly Etlin3 (“Ms. Etlin”) was designated as the APS
employee in charge of “GOB Sales” (store closing sales). (APS Application at 9.) On the
Petition Date, the Debtors also filed an application to retain Jefferies as its investment banker and
financial advisor pursuant to the terms and conditions of an engagement letter between the
Debtors and Jefferies.
On March 16, 2011, the Court approved Jefferies’ retention (the “Jefferies Retention
Order”) (ECF Doc. # 393) and the February 11, 2011 Amended and Restated Engagement Letter
(the “Engagement Letter”). A copy of the Engagement Letter is attached to the Jefferies
Retention Order. Jefferies worked with the Debtors and the Committee pursuing different
reorganization strategies including a potential sale of the Debtors’ assets as a going concern.
Jefferies’ time records attached to the Final Fee Application show that Jefferies spent a large
amount of time marketing and attempting to sell the Debtors’ assets as a going concern. Jefferies
(i) contacted approximately eighty parties potentially interested in acquiring the Debtors’ assets;
(ii) worked with the Debtors to negotiate and execute confidentiality agreements with interested
buyers; (iii) facilitated due diligence for potential buyers; (iv) prepared numerous presentations
to interested parties; (v) organized and attended meetings with interested parties and the Debtors’
senior management; and (vi) arranged and participated in meetings between interested parties
and Committee advisors and representatives. (Final Fee Application ¶¶ 27-29.) It is undisputed
that Jefferies’ actions led to an offer from the Najafi Companies, whereby BB Brands, LLC, a
wholly owned subsidiary of its affiliate, Direct Brands, Inc., would purchase a majority of the
Debtors’ assets on a going-concern basis. (ECF Doc. # 1130.)
3 	Ms. Etlin was originally retained as the Debtors’ Senior Vice President–Restructuring and was
subsequently named the Debtors’ President.
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While Jefferies marketed and ran a sale of the Debtors’ assets as a going concern, Ms.
Etlin and APS spearheaded marketing efforts for a possible liquidation of the Debtors’ assets.
Ms. Etlin and APS solicited and obtained back-up bids for a liquidation of substantially all of the
Debtors’ assets pursuant to a revised agency agreement. Ms. Etlin and APS, on behalf of the
Debtors, negotiated the documents for a liquidation.
Ultimately, the Debtors’ efforts to reorganize as a going concern were unsuccessful. On
July 21, 2011, the Court authorized the sale of substantially all the assets to a consortium of
nationally recognized retail liquidators as contemplated by the revised agency agreement. (ECF
Doc. # 1377.)
DISCUSSION
The Committee argues that Jefferies is not entitled to the Liquidation Fee provided by the
Engagement Letter because Jefferies did not play any role in the ultimate liquidation of the
Debtors’ assets. Unless Jefferies played a role in the liquidation, the Committee argues Jefferies
is not entitled to the Liquidation Fee. Furthermore, the Committee argues the Jefferies Retention
Order does not reflect the “intent” of the Committee and Jefferies, limiting payment of a
liquidation fee to Jefferies to such sales in which Jefferies played an important role. The
Committee attempts to support its argument with parole evidence consisting of an exchange of
emails between counsel to the Committee and to Jefferies. As explained below, because the
Retention Order is clear and unambiguous, parole evidence is not admissible to vary the terms of
the order.4 Therefore, the Court finds that Jefferies fulfilled the terms of the Jefferies Retention
Order. Jefferies’ Final Fee Application is approved, as modified by the agreement with the UST.
4 	Even if the Court were to consider the two emails proffered by the Committee, they would not alter the
result. The two emails do not reflect any agreement or understanding between the Committee and Jefferies limiting
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A. Overview of Jefferies Engagement Letter and Retention Order
The Engagement Letter provides the terms of the relevant fees. In section 4(a), the
Debtors agreed to pay Jefferies a $200,000 monthly fee. In section 4(b), the Debtors agreed to
pay the following fees:
Upon the consummation of a Restructuring or similar transaction, a
restructuring fee (the “Restructuring Fee”) in an amount equal to
$5.5 	million; 	provided, 	however, 	that 	in 	the 	event 	that 	a
Restructuring is a liquidation of all or substantially all of the
Company’s assets other than as a going concern and with respect
to which the operations of the Company cease, under either
Chapter 7 or Chapter 11 of the Bankruptcy Code, the Restructuring
Fee shall be $1.5 million (the Restructuring Fee for a liquidation
set forth in this proviso being the “Liquidation Fee”); provided,
further, however, no Liquidation Fee shall be due as a result of any
sale conducted and consummated by a Chapter 7 trustee.
The Jefferies Retention Order modified the terms of the Liquidation Fee. In relevant part, the
Jefferies Retention Order provides:
[N]otwithstanding anything to the contrary in the Engagement
Letter . . . (b) Jefferies shall be entitled to a Liquidation Fee with
respect to any sale or liquidation of assets (whether pursuant to a
Chapter 	11 	plan, 	Section 	363 	of 	the 	Bankruptcy 	Code 	or
otherwise) if, and only if, Jefferies ran a sale process with respect
to 	such 	assets 	and/or 	marketed 	such 	assets 	or 	investment
concerning 	such 	assets 	and/or 	otherwise 	provided 	material
services in connection with the sale or liquidation of such assets.
(Jefferies Retention Order at 3.) (emphasis added).
The effect of the modification was to add the requirement that Jefferies fulfill any one of
the three specific conditions before it received the Liquidation Fee. Because section 4(b) was
drafted using the disjunctive, Jefferies is entitled to the Liquidation Fee if any one of the
following conditions are met: (1) Jefferies ran a sale process with respect to the Debtors’ assets;
Jefferies’ right to receive a Liquidation Fee other than as stated in the clear language of the Jefferies Retention Order
and Engagement Letter.
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or (2) Jefferies marketed the Debtors’ assets with respect to a sale of such assets; or (3) Jefferies
provided material services in connection with the sale or liquidation of such assets.
B. The Committee Objection
The Committee argues that Jefferies is not entitled to any amount as a Liquidation Fee
because it did not play an integral role in the liquidation of the Debtors’ assets. The Committee
concedes that Jefferies “conducted a marketing campaign targeting potential financial and
strategic buyers or investors to acquire the Debtors as a going concern” but could not obtain a
going-concern purchaser for any of the Debtors’ assets. (Objection ¶ 4.) As a result, according
to the Committee, the Debtors commenced “a full chain liquidation” that was “negotiated and
orchestrated” by APS and Ms. Etlin. (Id.) According to the Committee, Jefferies “did not assist
in the marketing of bids to conduct the store closing sales in any manner.” (Id. ¶ 30.) Therefore,
according to the Committee, Jefferies did not earn the Liquidation Fee pursuant to the Jefferies
Retention Order.
The Committee misinterprets the clear and unambiguous language of the Jefferies
Retention Order. The Jefferies Retention Order provides that Jefferies shall be entitled to the
Liquidation Fee with respect to the sale of the Debtors’ assets if Jefferies “ran a sale process with
respect to such assets.” 	(Jefferies Retention Order at 3.) At the Hearing and in its pleadings, the
Committee’s counsel conceded that Jefferies ran a sale process of the Debtors’ assets as a going
concern, but was unable to find a purchaser. As a result, the Debtors were forced to liquidate
their assets. The Jefferies Retention Order and Engagement Letter do not require that the
liquidation sale approved by the Court result from Jefferies’ efforts, only that Jefferies ran a sale
process, marketed the assets, or otherwise provided material services in connection with the
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liquidation sale. Jefferies ran a very active sale process; nothing more was required. Therefore,
Jefferies is entitled to the Liquidation Fee.5
C. The Committee’s Attempt To Introduce Parole Evidence
Although the Court finds that the Jefferies Retention Order is clear on its face, the
Committee explained that it “always understood that Jefferies would not receive a Liquidation
Fee unless Jefferies arranged for the liquidation sale, negotiated the liquidation sale, or found the
buyer in a liquation sale.” (Reply ¶ 17.) (emphasis added). The Committee offered parole
evidence in the form of a March 9, 2011 email exchange between counsel to the Committee and
to Jefferies. (Objection, Ex. A; Reply ¶ 18.)
Since the terms of the Jefferies Retention Order are clear, the Court cannot consider
parole evidence with respect to the Committee’s intent in negotiating the Jefferies Retention
Order. Where a document “is clear and unambiguous on its face, the intent of the parties must be
gleaned from within the four corners of the instrument, and not from extrinsic evidence.” RJE
Corp. v. Northville Indus. Corp., 329 F.3d 310, 314 (2d Cir. 2003) (internal citations omitted).
In assessing ambiguity, the Court must consider the entire document subject to a dispute to
“safeguard against adopting an interpretation that would render any individual provision
superfluous.” Sayers v. Rochester Tel. Corp. Supplemental Mgmt. Pension Plan, 7 F.3d 1091,
1095 (2d Cir. 1993). The terms of a document are not ambiguous if they “have a definite and
precise meaning and are not reasonably susceptible to differing interpretations.” RJE Corp. v.
5 	The Court need not analyze the second and third alternative factors because the text was drafted in the
disjunctive requiring that only one of the factors be satisfied. At the Hearing and in their papers, counsel to the
Committee and counsel to Jefferies both agreed that Jefferies had conducted an unsuccessful sale of the Debtors’
assets. Thus, as to the first factor, there are no disputed issues of fact, and the Court need only interpret the terms of
the Jefferies Retention Order to resolve this issue.
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Northville Indus. Corp., 329 F.3d at 314 (citing Sayers v. Rochester Tel. Corp. Supplemental
Mgmt. Pension Plan, 7 F.3d 1091, 1095).
The Committee may have desired to restrict the payment of the Liquidation Fee to
Jefferies to a liquidation sale in which Jefferies played a significant role, but the terms of the
Jefferies Retention Order dictate otherwise. The Jefferies Retention Order provides for the
Liquidation Fee if Jefferies conducted a sale process with respect to the Debtors’ assets. It is
undisputed that it did so.
The terms of the Engagement Letter, attached to the Retention Order, further support the
Court’s conclusion. The Engagement Letter provides for the payment of the full $5.5 million
Restructuring Fee in the event of a going-concern sale, and a reduced (not eliminated) $1.5
million transaction fee (i.e., the Liquidation Fee) in the event of a liquidation of all or
substantially all of the Debtors’ assets (a) other than as a going concern and (b) with respect to
which the operation of the Debtors cease. (Engagement Letter § 4(b).) If Jefferies was only to
receive a restructuring or liquidation fee following a sale resulting from Jefferies’ successful
efforts, it could have and should have been clearly stated in the Engagement Letter and any
retention order.6 Success fees limiting payment of fees to transactions resulting from a financial
advisor’s efforts are common, but provisions covering success fees are drafted very differently
than the language in the Jefferies Retention Order and Engagement Letter.
6 	As Jefferies’ counsel argued at the Hearing, the Engagement Letter contains a standard twelve-month “fee
tail,” providing that Jefferies would be entitled to a Liquidation Fee if, “on or prior to 12 months from the effective
date of termination of [the Engagement Letter],” the Debtors consummate a liquidation of all or substantially all of
their assets. (Engagement Letter § 7.) The Liquidation Fee would be payable whether or not Jefferies played any
role in that liquidation. The Jefferies Retention Order changed this result only to the extent of adding the three
disjunctive conditions discussed earlier, the first of which—“Jefferies ran a sale process with respect to such assets”
(Jefferies Retention Order at 3)—would be satisfied here. If the intention was totally to eliminate any “tail,” unless
Jefferies played a role in that liquidation, it could have and should have been clearly stated in the Engagement Letter
and any retention order.
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CONCLUSION
For the reasons explained above, the Court overrules the Committee’s Objection and
concludes that Jefferies is entitled to receive the Liquidation Fee. Since no other objections have
been raised, the Court grants Jefferies’ Final Fee Application, subject to the agreed reduction
with the UST.
A separate Order will be entered granting the Final Fee Application.
Dated: December 5, 2011
New York, New York
_____/s/Martin Glenn____________
MARTIN GLENN
United States Bankruptcy Judge
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