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Supreme Court to Rule on Bankruptcy Fee Dispute

The question before the high court is whether Section 330(a) of the Bankruptcy Code provides a bankruptcy judge with the discretion to award compensation to a professional for defending its fee application. The case raises questions of statutory interpretation and policy considerations.

The fee dispute stems from the ASARCO chapter 11 case where Baker Botts and Hyden Womble & Holzer served as debtors’ counsel. ASARCO won several complex fraudulent transfer claims against its parent company, Americas Mining Corp., which required it to return over $1 million in cash and stock in the Southern Peru Copper Co. valued at $6-$9 billion. To lessen the financial impact of the multi-billion dollar judgment, Americas Mining fully funded ASARCO’s plan of reorganization. The plan left a reorganized ASARCO with little debt, $1.4 billion in cash, and resolved an enormous amount of environmental and asbestos-related liability.

A great result by any standard. The Fifth Circuit noted, a “seven billion dollar judgment, which is recoverable, which saves a company, and funds a 100% recovery for all concerned is a once in a lifetime result.” There was only one problem:  Americas Mining took over control of ASARCO on the effective date.

With new counsel and its parent back in control, a reorganized ASARCO launched an all-out attack on Baker Botts and Jordan Hyden’s fee applications. A massive discovery request was made for every document created during the 52-month bankruptcy, which resulted in the production of 2,350 boxes of documents and 189 GB of data. After a 6-day trial, judgment, an appeal to the district court, and a remand, the bankruptcy court awarded Baker Botts $113 million in core fees, an enhancement fee of $4.1 million, and $5 million in fees for defending its fee application. And Jordan Hyden was awarded $7 million in core fees, a fee enhancement of $125,000 and $15,000 in fees to defend its application. The district court affirmed.

Reorganized ASARCO appealed to the Fifth Circuit, but dropped the issues regarding core fees. The circuit court upheld the fee enhancement awards, but reversed the fees awarded for defending the fee applications. The firms filed a petition for writ of certiorari with the Supreme Court. The high court granted cert. in NO. 14-403, Baker Botts, LLP v ASARCO, LLC.

The significance of the case is underscored by the number of amici curiae (the United States, two groups of law professors, bankruptcy fee examiners, numerous city and state bar associations, two former bankruptcy judges, the National Association of Bankruptcy Trustees, the National Association of Chapter 13 Trustees, and the National Association of Consumer Bankruptcy Attorneys). All told, ten amicus briefs were filed. Between the 12 briefs on file, it is unquestionable every argument has been thoroughly briefed- on both sides.

This will be an interesting case to follow. It should be argued and decided in the Supreme Court’s current term, which ends in June.

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