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Argument preview: Court to enter fray of attorney compensation for work in bankruptcy cases

Just when the Justices might have thought they had decided their share of attorney’s fees cases – with the twin decisions last April in Octane Fitness v. Icon Health and Fitness and Highmark Inc. v. Allcare Health Management Systems resolving questions about attorney’s fees in patent cases – the Justices are returning again to that topic this week in Baker Botts L.L.P. v. ASARCO LLC. The specific question in this case is whether the provision of the Bankruptcy Code allowing the bankruptcy court to compensate lawyers who work for the estate (11 U.S.C. § 330(a)) permits compensation for time spent defending a fee application.

Recognizing that many of my potential readers might have moved on as soon as they read what the issue is here, I have to say this is a case in which the briefing was particularly interesting. Reminiscent of Hana Financial Inc. v. Hana Bank earlier this Term, the statement of facts in the Baker Botts brief was, for me at least, so telling that it strongly predisposed me in favor of Baker Botts.   Recognizing that anybody on the side of compensation for such a socially distasteful activity as litigation over fees has an uphill battle, the statement in this case was a true work of craft.

Several points are salient. First, the ASARCO bankruptcy was extraordinarily successful; starting from a position of deep distress and potential liability, the end result was that every creditor was paid in full. Along the way, Baker Botts obtained a judgment against ASARCO’s parent worth more than seven billion dollars; the brief describes the judgment as “possibly the largest unreversed damages award in American history.”

So that would persuade your typical reader that Baker Botts did above-average work here. The bankruptcy court certainly felt that way. The glowing platitudes quoted from the bankruptcy court’s decision awarding fees are the kind of language that any firm’s public relations agent would die for – clearly destined to adorn the top page of the Baker Botts web site for decades to come.

What is most telling, though, is the discussion of the challenge to the fees, which successfully reimagines Baker Botts as the victim of scorched-earth litigation tactics instead of the aggressive law firm using litigation as part of an overreaching fee strategy. Three points are illustrative.

  • First, the entity that brought the challenge was the reorganized ASARCO – which at the moment the plan was consummated came under the control of the parent (from whom Baker Botts had just extracted a multi-billion-dollar judgment).
  • Second, ASARCO pretty plainly used the discovery process intentionally to impose huge costs on Baker Botts. If $5 million sounds like a lot to charge for defending your fee, consider that ASARCO’s discovery requests required the production of nearly six million pages of tangible documents (more than 2000 boxes) and 189 gigabytes of electronic data (325,000 documents worth).
  • Third, the abusive nature of the discovery is underscored by what was for me the single most devastating fact: having required the production of a pile of information that would fill the municipal library in the town where I grew up, ASARCO sent only two lawyers who spent a mere five days reviewing the material – something like fifty hours of attorney time reviewing literally millions of pages of documentation.

Oh, by the way, I suppose it also is relevant that the United States Trustee did not object to either Baker Botts’s original fee or the fee it requested for the cost of defending its application, and that the bankruptcy judge rejected all of ASARCO’s challenges to the underlying fee award.

Now, once I get through that presentation, it’s hard to think that it makes sense that ASARCO could impose those costs on Baker Botts purely for spite, without any opportunity for Baker Botts to recover them. So by the time I get to the language of the statute at issue, I’m aware that I’ve pretty much lost all potential for objectivity. Still, the statutory argument seems pretty straightforward. The statute calls for “reasonable compensation for actual, necessary services rendered.” If you might have started off (as I did) thinking that something as ancillary (and presumptively trivial) as the costs of defending your fee application is a bit much to demand out of the bankruptcy estate, the factual presentation here provides the golden hypothetical: the case that makes it hard to accept the decision of the court of appeals that these fees can never be paid. So even if the story Baker Botts told is exaggerated or false, it was such a good story that it made the availability of fees for defending an application seem like a “nobrainer.” This is especially true when you notice that Baker Botts is not saying that fees are required, just that a bankruptcy judge has the authority to award them if it wishes to.

It is only icing on the cake to learn that practice under the old Bankruptcy Act called for “severe economy” in fee awards and that Congress expressly rejected that standard in the Bankruptcy Code, calling instead for practices that would establish parity between bankruptcy and non-bankruptcy petitioners.

On the other side, Paul Clement files on behalf of ASARCO and provides a typically masterful job of marshaling the statutory language to justify a flat rule prohibiting fees for defense of a fee application. ASARCO’s key argument starts from the American Rule – the presumption against awarding fees. From there, it moves to the complete absence, in Section 330 or related sections, of any provision authorizing fees for defending fee applications. Most successfully, it argues that fees are available under Section 330 only for work that is performed for others in the bankruptcy, assisting the trustee; because fee litigation necessarily is adverse to the estate and for the sole benefit of the affected professionals, it is not a service that is “reasonably necessary” to the estate.

ASARCO’s argument is well done in every way, and the brief summary probably doesn’t do it justice. But to me, the most it could do is bring the statutory arguments into equipoise. And if they are only in equipoise, then atmospheric considerations – driven by the fact setting described above – are more likely to come into play. ASARCO’s brief does include a section attempting to rebut Baker Botts’s factual presentation, but it just doesn’t manage to tell a crisp and memorable story and so (for me at least) it didn’t really undermine the concerns raised by the potential for abusively spiteful fee challenges.

The argument in this one should be exciting. The Justices, although lawyers themselves, are of course the principal architects of the American Rule and should be receptive to the simple lines of ASARCO’s argument. To throw one thing else on the scale: my sense of the arguments last year in Highmark and Octane is that the Justices are not all that taken in by the rhetoric of the outrage of having to pay multi-million-dollar attorney’s fee awards. My guess is they will try to get down to the practicalities of the situation, treating the statute as something that grants open-textured discretion to the bankruptcy judge. That is, after all, what they ended up saying in Highmark and Octane last Term. We’ll know a lot more about that by noon on Wednesday.


Recommended Citation: Ronald Mann, Argument preview: Court to enter fray of attorney compensation for work in bankruptcy cases, SCOTUSblog (Feb. 23, 2015, 12:10 PM),