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Payment Of Attorneys For Defending Fee Requests Debated In Supreme Court

WASHINGTON, D.C. — (Mealey’s) There is no basis in the law for categorically denying payment to lawyers for successfully defending their fee applications in bankruptcy cases, attorney Aaron M. Streett of Texas law firm Baker Botts LLP told the U.S. Supreme Court Feb. 25 in a case in which the firm is seeking to be paid $5 million from former Chapter 11 debtor ASARCO LLC (Baker Botts, LLP, et al. v. ASARCO, LLC, No. 14-103, U.S. Sup.). 

(Oral argument transcript available.  Document #48-150227-031T.) [ subscribers may access Supreme Court briefs for this case].

But attorney Jeffrey L. Oldham, representing ASARCO, told the court that the only payment bankruptcy attorneys are entitled to is compensation for work benefitting the bankruptcy estate, and defending fee applications benefits the attorneys, not the estate. 

Fee Requests

ASARCO filed a petition under Chapter 11 of the Bankruptcy Code in 2005 in the U.S. Bankruptcy Court for the Southern District of Texas due in part to asbestos and environmental claims.  ASARCO’s plan of reorganization was confirmed and became effective in 2009.  Baker Botts and Jordan Hyden Womble Culbreth & Holzer served as co-counsel to ASARCO during the bankruptcy and received standard quarterly compensation awards for their fees and expenses throughout the case totaling $120 million.  In their final fee applications, the firms requested enhanced fees based on the exceptional results in the case, including one of the largest actual damage awards in U.S. history in a fraudulent conveyance action that returned to ASARCO $6 billion to $9 billion in stock in Southern Peru Copper Co. (SCC) and $1 billion in cash. 

ASARCO objected to the requests, but the Bankruptcy Court found that a fee enhancement was appropriate because the SCC judgment “resulted in the recovery of a substantial asset for the estate.”  The court awarded more than $4 million in fee enhancements and $5 million for preparing and defending the fee applications. 

On appeal, the U.S. District Court for the Southern District of Texas affirmed the fee enhancement awards for both law firms.  However, it reversed the Bankruptcy Court’s determination that the firms could recover fees for pursuit of the fee enhancement, finding that such fees were not compensable because they did not benefit the estate.  After the court remanded the case for the Bankruptcy Court to determine what part of the $5 million award was for litigation of the lodestar fees and what part was for pursuit of the fee enhancement, the Bankruptcy Court held that none of the award was for pursuit of the fee enhancement. 

Section 330(a)

Both sides appealed to the Fifth Circuit U.S. Court of Appeals, which on April 30, 2014, upheld the enhanced fee awards to both law firms but reversed the award of fees associated with litigating the firms’ fee applications (In re:  ASARCO LLC, et al., No. 05-21207, S.D. Texas Bkcy. [enhanced opinion available to subscribers] [ASARCO LLC v. Jordan Hyden Womble Culbreth & Holzer P.C., 5th Cir., No. 12-40997 [enhanced opinion], ASARCO v. Baker Botts, 5th Cir., No. 12-40998] [enhanced opinion]).  The Fifth Circuit said that Section 330(a)(1) of the Bankruptcy Code limits compensation to professional services that “are likely to benefit a debtor’s estate or are necessary to case administration.”  

On July 29, Baker Botts and Jordan Hyden filed a petition for writ of certiorari with the Supreme Court, which granted the petition Oct. 2.  The question presented by the petition is:  “Whether §330(a) grants bankruptcy judges discretion to award compensation for the defense of a fee application.” 

In its response brief, ASARCO says:  “The question presented is whether§ 330(a) of the Code expressly authorizes bankruptcy professionals to recover fees incurred in adverse fee litigation against the bankruptcy estate.” 

Amicus Curiae

Brian H. Fletcher, assistant to the solicitor general, argued for the United States as amicus curiae for the petitioners that “compensation for the successful defense of a fee application may be appropriate because it ensures that the professional receives the statutorily prescribed reasonable compensation for the services it rendered in the underlying bankruptcy case.” 

ASARCO was represented in oral arguments by Oldham of Bracewell & Giuliani in Houston.  Baker Botts was represented by Streett of Baker Botts in Houston. 

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