Baker Botts L.L.P. et al. v. ASARCO L.L.C., currently pending before the Supreme Court of the United States, is of particular interest to bankruptcy practitioners because this decision will have far-reaching effects regarding attorney’s fees in bankruptcy. Specifically, the Supreme Court will determine whether Section 330(a) of the Bankruptcy Code grants bankruptcy judges the discretion to award compensation for the defense of fee applications.
The dispute arose after law firm Baker Botts L.L.P. filed a fee application with the Bankruptcy Court for work related to mining company ASARCO’s bankruptcy, including the firm’s work in obtaining a fraudulent transfer judgment in excess of $6 billion. Baker Botts’ fee application was challenged, and the firm incurred additional fees in its successful defense of the fee application. Ultimately, the Bankruptcy Court awarded Baker Botts $113 million in fees for its work on the case, plus a $4.1 million merit enhancement, as well as $5 million in fees for its successful defense of the fee application.
However, on appeal, the Fifth Circuit held that the bankruptcy code “does not authorize compensation for the costs counsel or professionals bear to defend their fee applications.” In re ASARCO, L.L.C., 751 F.3d 291, 299 (5th Cir.) cert. granted sub nom. Baker Botts, L.L.P. v. ASARCO, L.L.C., 135 S. Ct. 44 (2014). This ruling created a circuit split with a decision by the Ninth Circuit in In re Smith, 317 F.3d 918 (9th Cir. 2002). Baker Botts appealed the Fifth Circuit’s ruling to the Supreme Court, which granted certioriari earlier this year.
The Bankruptcy Law Section of the Beverly Hills Bar Association, the Committee on Bankruptcy and Corporate Reorganization of the Association of the Bar of the City of New York, the Business Law Section of The Florida Bar, and the Bankruptcy Law Section of the Louisiana State Bar Association recently filed a brief as amici curiae in the case. This brief takes the position that the Supreme Court should overrule the Fifth Circuit’s decision regarding fees:
In the decision below, the Fifth Circuit announced a bright-line rule that the Bankruptcy Code gives judges no discretion to award professional fees incurred in the defense of an application for professional fees. According to the Fifth Circuit, such fees are never “necessary” to the administration of a bankruptcy case because “[t]he primary beneficiary of a professional fee application, of course, is the professional.” Pet. App. 15a. But the relevant statute, 11 U.S.C. § 330, plainly recognizes that providing appropriate compensation for covered professionals furthers the fair and equitable resolution of a bankruptcy case, which is why the statute authorizes appropriate compensation for covered professionals in the first place.
Brief amici curiae of Committee on Bankruptcy and Corporate Reorganization of the Association of the Bar of the City of New York, et al. at p. 4.
The full text of the brief is available here. Oral argument will take place on February 25, 2015. Because this case will have far-reaching effects, bankruptcy attorneys are expected to anxiously await its outcome.