Litigation

Supreme Court To Decide If Bankruptcy Lawyers Can Get Fees For Pursuing Bonus Fees

WASHINGTON, D.C. — (Mealey’s) The U.S. Supreme Court on Oct. 2 agreed to decide whether the U.S. Bankruptcy Code gives bankruptcy courts discretion to award lawyers their fees for successfully defending applications for enhanced attorney fees (Baker Botts, LLP, et al. v. ASARCO, LLC, No. 14-103, U.S. Sup.). 

Not Compensable

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 LLP 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. 

Question Presented

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. [ASARCO LLC v. Jordan Hyden Womble Culbreth & Holzer P.C., 5th Cir., No. 12-40997, ASARCO v. Baker Botts, 5th Cir., No. 12-40998]; See May 2014, Page 5).  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, presenting the question of “whether §330(a) grants bankruptcy judges discretion to award compensation for the defense of a fee application.” 

The law firms said in the petition and their reply brief that under Section 330(a), it is undisputed that the time spent preparing attorney fee applications is compensable, but the Fifth Circuit’s ruling has created a split with the Ninth Circuit over whether defending fee applications also is compensable.  ASARCO argued for denial of the petition on the ground that the Fifth Circuit’s ruling does not create a circuit conflict on an important question of federal bankruptcy law. 

Counsel

Baker Botts is represented by G. Irvin Terrell, Aaron M. Streett, Michelle S. Stratton and Shane Pennington of Baker Botts in Houston; Evan A. Young of the firm’s Austin, Texas, office; Omar J. Alaniz of the firm’s Dallas office; and William Bradford Reynolds of the firm’s Washington, D.C., office.  Jordan Hyden is represented by Shelby A. Jordan and Nathaniel P. Holzer of Jordan Hyden in Corpus Christi, Texas. 

ASARCO is represented by Ralph D. McBride, Bryan S. Dumesnil, Bradley J. Benoit and Jeffrey L. Oldham of Bracewell & Giuliani in Houston. 

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