Baker Botts, L.L.P. v. ASARCO, LLC.: No Compensation For Defending Fee Application on Appeal

Case AnalysisAmber Fly

Baker Botts, L.L.P. v. ASARCO, LLC., 135 S.Ct. 2158 (2015).

Opinion issued: Jun. 1, 2015. Supreme Court Document Link

Written by: Amber Fly, Executive Comment Editor

At the time Asarco filed for bankruptcy, the company was overridden with toxic tort claims, debt, and employment strikes.[1] Despite this, Baker Botts, L.L.P., was able to form a confirmation plan that fully paid every creditor’s claim with post-petition interest.[2] Once Asarco was out of bankruptcy, it objected to Baker Botts’ fee application on multiple grounds.[3] The bankruptcy court awarded Baker Botts fees under 11 U.S.C. § 330 for defending its application.[4] Asarco appealed, and the district court affirmed the bankruptcy court’s holding.[5] Asarco appealed again, and the Fifth Circuit Court of Appeals disagreed with the lower courts and determined § 330 did not award compensation for defense-of-fee litigation.[6]

The Supreme Court heard the case and primarily based its analysis on the American Rule, a common law policy requiring each litigant to pay his or her own way through a lawsuit.[7] Traditionally, courts will not award fees contrary to the American Rule without explicit statutory or contractual authority to do so.[8] The Court found the phrase “reasonable compensation for actual, necessary services rendered” within § 330 to not grant explicit authority for shifting fees.[9]  Without the explicit authority to shift fees, a bankruptcy attorney could not recover from the estate for defending its fee application.[10] The Court also found the word “service” to encompass any work performed in the interest of the client.[11] Since the satellite fee-application litigation is adversarial and between attorney and the debtor-in-possession, the Court found this type of proceeding to be an adverse interest to the estate.[12] Therefore, defending fee application is not compensable from the debtor’s estate.[13]

Moving forward, practitioners should use caution with extensive appeals in defense of their fee application because any expenses will not be compensated from the estate. It may be permissible for a practitioner to receive compensation for defending his or her fee application by adding a fee-shifting clause into a clients contract.[14] The Supreme Court did not address this option, but the issue is currently before a bankruptcy court in Delaware.[15]

[1] In re Asarco, L.L.C., 751 F.3d 291, 293 (5th Cir. 2014), cert. granted sub nom. Baker Botts, L.L.P. v. ASARCO, L.L.C., 135 S. Ct. 44 (2014) and aff’d sub nom. Baker Botts L.L.P. v. ASARCO LLC, 576 U.S.____, 135 S. Ct. 2158 (June 15, 2015) 

[2] Baker Botts L.L.P. v. ASARCO LLC, 135 S. Ct. 2158, 2163 (June 15, 2015).

[3] Id.

[4] Id.

[5] Id.

[6] Id.

[7] Id. at 2164.

[8] Id.

[9] Id. at 2166.

[10] Id.

[11] Id. at 2165.

[12] Id.

[13] Id.

[14] Id. at 2164. This may permit an attorney to receive compensation if he or she has to defend the fee application on appeal because the American Rule provides an exception to fee shifting if it is contractually agreed upon.

[15] In re Boomerang Tube, LLC, No. 15-11247 (D. De. filed June 9, 2015).